When Gene Montesano, 63, and Barry Perlman, 57, launched Lucky Brand blue jeans in 1989, it was almost unheard-of to charge $70 for denim pants. But they understood fashion and the zeitgeist. Their jeans were designed with an irreverent sense of humor that bucked the politically correct ’90s, and they appealed to rock-and-roll stars and the fans who wanted to be like them. In 1999 the founders sold the business to Liz Claiborne for $125 million. Lucky Brand remains a moneymaker for Claiborne (now Fifth & Pacific (FNP)), with sales of $418.2 million in 2011, but Montesano and Perlman left in 2009. They’re back with a new clothing line of jeans, shirts, and sweaters called Civilianaire. Their story:
Gene Montesano: I got a job at 19 working in a store called the Red Hanger in North Miami Beach. Back in 1968, jeans sold for $6. I’d sell $1,200 worth of stuff, and the manager thought I was a genius.
Barry Perlman: A few years later, I’d gotten a job my senior year of high school at that same store and fell in love with the apparel business. The manager, Billy Rudnick, and I talked about doing a store ourselves, and Billy said, “You’ve got to meet my friend Gene.” It was 1973, and my parents were cool with it. When my grandfather died, he left me $5,000 in IBM (IBM) and International Paper (IP) stock. We used that money and $5,000 that Billy had borrowed from a friend to open the store.
Gene: We built the interior ourselves and called it Four Way Street.
Barry: We had no money, so we stacked cinder blocks and put particle board between them to put the jeans on. We’d hang rope from the ceiling with wood dowels, and that’s how we did the window displays.
Gene: We sold jeans, T-shirts, and jackets, and I’d be in the back, making leather bags.
Barry: We started to buy lines we thought were cool. We bought all men’s wear, but when all these cool women started walking in, we figured we needed to get stuff for them. It was really about being in the store and selling jeans. We never talked about how to make money. We were gut merchants. In 1975 we opened a second store in Coconut Grove; it pulled in $950,000 a year. People loved hanging out in our stores. We had long hair and loud music, which was a different way of doing things then.
Gene: In 1975, I left the store. When I came back, I opened a shoe store inside Four Way Street for 2½ years, but there wasn’t enough profit for three owners. I decided to leave in August 1978.
Barry: When Gene made his decision, I decided to take a break too.
Gene: Barry took off for a year, then went back to Four Way Street for 10 years. I worked for a couple of jeans companies, and by 1982, I was doing production and design for the Marciano brothers at Guess (GES). That’s where I learned hard work pays off. I decided I wanted to start a business of my own. Michael Caruso was a salesman there and had a little money. I didn’t have any money, but I put a bug in his ear, and we started Bongo Jeans. He kicked in some $50,000. I was making $35,000 a year at Guess, which was a fortune to me. But when I left Guess, I had $18 in a coffee can. It was tough until a couple of years into Bongo Jeans.
Barry: I came back to L.A. in 1988. Gene had Bongo, and I started doing Bongo for Kids and Iggywear [a kids’ clothing line] to learn the business of manufacturing.
Gene: Bongo was a women’s junior jean company, locked into a price point of $29.99. I told Michael I’d like to do something separate. So I decided to make jeans for $60, twice the price of Bongo Jeans, and make them just for men so that it wouldn’t conflict with Bongo. I just wanted to make the best jeans I could. I figured twice the price would cover better materials. That was the start of Lucky Brand in 1989. I needed some help, and Barry came in as my partner.
Barry: Gene was in Chinatown one day, where everything was Lucky This and Lucky That. He called me and said, “What do you think of the name Lucky?” Everyone else was trying to sound French, European. So the name started as Lucky. Gene added Brand to it shortly thereafter. Then it became Lucky Brand Jeans. There were times it was Lucky Jeans. We’d have so many different labels on the same jeans, and people were buying them. We were always bucking the system.
Gene: To me, it wasn’t hard starting Lucky Brand. In 1989, Bongo was a $60 million business and was supporting me. I started Lucky Brand with a little over $100,000 of my own money. Barry had the kids company at the time, so I’d get a cut of 1,200 jeans and ship them out of his warehouse. Lucky gave me the freedom to design whatever I wanted. With the higher price point, I could put four or five woven labels into the jeans instead of one paper one. I could use a wider zipper, buy great fabric, try new rivets.
Barry: In 1990, Lucky Jeans retailed for almost $70, the top price then. Rock artists would wear our products, and we would hang their photos in the stores. We were known for our twice-a-year parties at the trade shows in Vegas. When Bob Dylan played for us in the mid-’90s, we knew we were a success. Artists like Jackson Browne, who wouldn’t normally play trade shows, loved our brand. They wore our stuff and would perform for us because Lucky was rock and roll. The first full year, we did $3.5 million and the company made a 30% profit. Our second year we did $10 million.
Gene: Michael and I ran Bongo together until I left around 1992 or 1993 to concentrate on Lucky Brand. We sold Bongo in 1998 to Candies for $15 million in stock.
Barry: Lucky just grew and grew. We were doing about $60 million in volume and thought maybe we needed some help to expand. We had eight stores, and the bulk of the volume was wholesale. In 1999 we did the deal with Liz Claiborne. They talked about helping us manufacture around the world and expand in retail. It was a way for us to secure what we’d started and grow it. They bought 85% of the company for $125 million, and we were under contract for five years.
Gene: It was seductive. For the first years it was pretty cool. Five years into it, things got squirrelly. Corporate America is about making the quarter. We left Liz Claiborne with no non-compete clause. They said we could have another company, but the jeans would have to be a different price.
Barry: We bought this building a mile from the Lucky office and started the next day thinking about what we wanted to do next. You gravitate to what you love. So in 2010 we started Civilianaire, an array of sportswear that’s made of the best material we can find. The first store opened in L.A. in February 2011. We have five now and will open three more soon.
Gene: Everything’s made in Los Angeles, and the prices range from $210 to $235 for the jeans. Shirts are under $200. Our jeans are raw and unwashed, made of the finest Japanese denim you can get.
Barry: We’re not doing any advertising, just concentrating on the product. The revenue is small so far, but people are coming in and reordering.
Gene: We’re doing it out of our own pockets. We just love jeans.
Balance work and play. Life is full of ups and downs, so weave work and play together at the office because it’s got to be about having a good time. As hard as the job was, Bongo and Lucky had a culture of being a little irreverent and fun.
Your customers are your best sales-people. A story broke on CNN about a girl in Indiana whose car got hit by a train. She attributed her life to her faith in Jesus and wearing a Lucky Brand T-shirt. We flew her to L.A., put her on Jay Leno, and gave her a shopping spree. The whole thing of wearing Lucky Brand, too tough to die, grew.
Don’t stop when you’re a success. Make your product better. Keep taking risks. You can either have a job or you can build something.
This story is from the September 24, 2012 issue of Fortune.