The Ugly Christmas Sweater Company Making Bank Off Your Dumb Party

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It's safe to say we've reached peak Ugly Christmas Sweater. And while you used to have to dig around vintage stores or your mom's closet for the festive knitwear, now there are companies like Tipsy Elves catering to the silly sweater-wearing masses.

College buddies Evan Mendelsohn, 30, and Nick Morton, 32, started the online sweater company in 2011 when the then-lawyer-and-dentist pair saw a market with plenty of opportunity. Saving up enough money from their full-time gigs, the guys were able to collaborate on Tipsy Elves as a side project before they quit their jobs to go all in a year later. In 2013, they appeared on ABC's Shark Tank and scored $100,000 in funding to expand the company; their projected sales for 2014 are $8 million.

Racked caught up with Mendelsohn to learn about the seasonal sweater business, how Google led to his company's success, and which goofy knits customers love most.

What were you guys doing before you founded Tipsy Elves?
Nick and I met in college; we were in the same fraternity. After college, we went our separate ways. He went to dental school and became a dentist. I went to law school and became a lawyer. We were both practicing in our different professions for about a year and a half before we started Tipsy Elves.

A photo posted by Tipsy Elves Christmas Sweaters (@tipsyelves) on Dec 12, 2014 at 12:02pm PST

Why did you start the company?
Nick and I had been to a lot of ugly Christmas sweater parties and had difficulty finding places to buy them. I did some online analysis and confirmed that it was also difficult to find them online. I have a background in internet marketing—I had created other sites in the past, sites that got a lot of traffic from Google search. I was skilled in SEO, and I saw there was a lot of potential for a company that specializes in creating and selling Christmas sweaters.

Why do you think ugly Christmas sweaters are so popular now?
I think it's a backlash against how serious the holidays have become. Christmas sweaters were really popular in the '80s, and then they went out of style. When you look at the holidays, particularly starting around the early 2000s, they've become more of a serious, stressful time. There's an emphasis on black-tie events and formal holiday parties that no one wants go to. Ugly Christmas sweaters are a celebration of what holidays should be: having a good time and being silly.

How did you get the company off the ground?
We self-funded. That was one benefit of Nick and I having jobs that paid fairly well. Before we started, we had some money saved up, so that was a nice hurdle we didn't have to overcome. To start, we put in about $140,000 of our own money and then we filled in the gaps. Neither of us were ever in the apparel industry, neither of us had sold things online. It was really difficult for us the first year because we were both working full-time jobs. I was coming home from work and staying up until 1 or 2 a.m. talking with suppliers in China. It was hectic, but once I saw that it went well, I was comfortable quitting my "real" job in our second year.

Who designs the sweaters?
Prior to this year, it was Nick and I designing the sweaters. Now our team has grown a lot. We have several designers in-house. At the beginning of each year, we do a big meeting where we sit in a conference room and throw ideas off the wall. Then the designers come up with different depictions of those design ideas and we go from there. We have about 15 on the team.

How do customers find you?
We got some good viral spread. There was lots of social media because people really liked our designs. We were also on the Today Show during our first year and had some good organic PR. SEO also helped: If you search Christmas sweaters—even during our first year of business—we have good ranking on Google for that term. Plus, we were on Shark Tank, which gave us a lot of exposure.

How did you get on Shark Tank?
We were discovered by one of the producers. She saw our sweaters at a Christmas party she was at and reached out to us. That was really helpful. They get something like 40,000 applications a year, and we had a nice in. We still had to go through the normal application process and do an audition video and fill out the paperwork, but we had her holding our hand through the process. When we went on, we knew we had a lot of the business under control. We weren't looking for a partner that could transform our manufacturing process. We wanted someone who could give us high-level strategy advice and help us with PR and exposure. Robert [Herjavec] has been great with that. He's been really helpful with strategizing the business, but also giving us great opportunities through some of the exposure that he personally gets. And obviously, just being on the show got us a ton of work. We got tons of orders and traffic.

How have you guys reached $8 million in annual sales in just three years?
Last year we did about $3 million, and the year before we did $800,000. We're projecting $8 million this year. We've expanded a lot internationally. We have four warehouses this year: one in the UK, one in Canada, and two in the US. Also, the biggest revenue driver is expanding into other product lines. We now sell a line of college sweaters for schools like Cal Berkeley and Michigan. We also have a line of shirts for other holidays like St. Patrick's Day and Valentine's Day. We're rolling out a whole line of USA flag clothing, too. A lot of that stuff has really caught on, so that's fueling sales.

A photo posted by Tipsy Elves Christmas Sweaters (@tipsyelves) on Dec 12, 2014 at 2:30pm PST

How do you set yourself apart from other sweater retailers on the web?
We put a ton of time into our design and product development, and we really do try to make our sweaters hilarious. I think other companies rush the production phase and throw a quick sweater together. People out there are trying to serve a market; we're trying to create a brand, so we focus on design. We might design 100 sweaters a year, but only make 20. They're also high-quality—we got tons of comments every year that the quality surpasses expectations.

What are some of most popular designs?
We have a few funny designs and then the risqué, edgy ones that are popular. We see them both sell really well. We have a yellow snow sweater, where Santa's back is turned and he's peeing on the snow. We had a Jesus birthday sweater that was popular this year, with Jesus in a birthday hat. We also have a suspicious gnome sweater—the back shows he holding an axe.

Do you think customers wear these sweaters just once as a gag, or do they wear them more regularly?
I think it's both. With our line of sweaters, we don't make them actually ugly. Obviously if we wanted to, we could, but we never intended to do that. Sometimes people buy our products for a specific event, but we also see people wearing them at ski lodges and when they're home for Christmas—it's not just a one-time wear.

Does the business make most of its money during the months leading up to the holidays?
Yeah, it's definitely more seasonal, though I think us not totally catering to the ugly Christmas sweater trend helps. We see people buying the regular, nice sweaters all year, but the vast majority of buying occurs during Q4, late November through December. That's also a reason why we're putting emphasis on rolling out year-round products. Moving forward, we're going to focus more on that, recognizing it's cool to be seasonal, but after doing it for four years, you want a healthier business with revenue year-round.