If you’re a new college grad who is crazy about art and want to avoid working nine to five, what do you do? For brothers Bert Jacobs, now 49, and John Jacobs, now 46, the answer was to drive a used van up and down the East Coast, selling T-shirts printed with their artwork. After five years of barely staying afloat and with just $78 in the bank, they decided to add optimistic messages to the T-shirts. That one seemingly minor modification launched a $100 million apparel business. Today, Life Is Good T-shirts, hats, and other items are sold by 4,500 retail stores nationwide, and the company offers co-branded greeting cards and stationery with Hallmark, a line of gourmet coffee with J.M. Smucker, and dog accessories with Planet Dog, all promoting positive thoughts.
John Jacobs: We grew up in Needham, Mass. My brother Bert and I are the youngest of six. Dad worked in a machine shop, and Mom stayed home.
Bert Jacobs: Both parents influenced us to be open-minded and to welcome ideas and thoughts from all walks of life. When I was 8, I had a seed-selling business, and during college I had a house-painting business called Positive Painting, which may have been a precursor to Life Is Good. I always wanted to go into business, and I graduated in 1987 with a BA in communications from Villanova University.
John: I graduated in 1990 from the University of Massachusetts at Amherst with a BA in English and a minor in art.
Bert: After graduating, I drove out to Colorado and went to work in a ski town. I delivered pizza at night and was a ski instructor during the day for a year. John was in school in Northern California on an exchange program, and we decided to do a cross-country road trip back to Boston. Along the way, we talked about developing a business together.
John: Both Bert and I liked to draw and were looking for a way to combine art and business to avoid getting a job. We realized T-shirts could be a vehicle for art. So in 1989 we started selling them on the street in Boston and in places like Harvard Square and Faneuil Hall. As we started the business, we both supplemented our income for a year with substitute teaching.
Bert: Selling 12 to 15 T-shirts in an afternoon was good. On a bad day, we’d sell nothing.
John: A year or two into it, we bought a used van and took the show on the road. We’d chart out six- to seven-week road trips to area colleges.
Bert: We started selling in college dormitories, and the success rate was better than selling on the street. There was a clear demographic target there.
We learned that if you found the girl everybody admired, and she liked your shirt, she’d sell the shirt for you. It was the queen bee factor. We got male friends to do the same in men’s dorms for us. We were selling enough to keep the dream alive and not have to get a job. After 5½ years of selling T-shirts, we had $78 in the bank.
John: Then, in 1994, we talked about how people seemed worn down by the media’s constant focus on the negative side of information. That led to a keg party at our apartment where we put drawings up on a wall. We had done a lot of music-inspired, cool, funky designs. But when we asked friends to write notes next to the drawings, we got a lot of comments about one drawing [a stick figure that smiled]. We decided to pair the figure with the words LIFE IS GOOD and printed up 48 T-shirts with it. We went to a street fair and sold all of them in the first hour. It confirmed that people were craving something positive that focused on the good, instead of what’s wrong with the world. The T-shirts sold for $15, or three for $40, and we started taking them to stores.
Bert: Suddenly retailers started asking, “Does the smiley guy eat ice cream? Does he roller-skate? What else do you have?” We reacted to what people wanted and started drawing things that depicted the things that make life good.
John: We gave the character our nickname, Jake. My friends called me Jake, and Bert’s friends called him Jake, but when we were together, they’d call us John and Bert. Our design was just different from the edgy, boastful, in-your-face slogans that were on T-shirts at the time.
Bert: Our concept was that optimism is powerful.
John: We ended up hiring a sales rep to take the product up and down the coast. There was a stretch where we opened an account every day for 70 days. During that time, we operated out of our apartment. We’d drive to the screenprinter, print the T-shirts, box them up ourselves, and mail them.
In the late ’90s we rented the back of an 18-wheeler, which became our warehouse, and got permission to park it next to the screenprinter. Back then our lifestyle meant eating cereal, PB&J, and pasta every night. We started with mom-and-pop stores, then broke into chains like REI and Dick’s Sporting Goods (DKS). By 1996 we were making $260,000 a year.
Bert: Kerrie Gross, the girl who lived above us, helped us process the orders. In 1998 we hired her to take care of the office and sales reps.
John: Kerrie is now a partner in the business. In the late ’90s we got our first office in Needham. It was exciting to have an actual warehouse. In 1998, when we crossed the million-dollar mark in revenue, investors came to us, wanting a piece of the equity. But we liked being able to call the shots, so we chose not to go the VC route, and sought a bank loan instead.
Bert: That was the first time we had to draw up a business plan. We got a half million dollars in credit to manufacture our own label of T-shirts. At the time, we were getting T-shirts from local screenprinters and were printing our artwork on Hanes shirts. To trademark LIFE IS GOOD, we had to put hangtags on the clothing, have our own label, and some other things.
John: We didn’t have a marketing strategy, and when people suggested we do advertising, it didn’t feel right. At the same time, we were getting notes and emails from people facing adversity — like chemotherapy or the loss of a loved one — telling us how Life Is Good T-shirts had helped them.
We got inspired by those people and decided to start a foundation. Now, instead of advertising, we put on festivals that benefit kids who are overcoming violence, poverty, and illness, and promote the Life Is Good brand that way.
Bert: We originally called ourselves Jacobs Gallery but decided to change it to Life Is Good because we loved what the message is all about.
John: At this point, we have teammates much smarter than us in so many areas of the business. They enable Bert and me to focus on what we do best.
In 2012 we began a partnership with Hallmark to create greeting cards and stationery, using our sayings and artwork. We also have partnerships with Smucker’s (SJM) and Planet Dog. We’re eager to get into other things, like publishing and filmmaking.
Bert: We’re going to become more of a media and communications company. Apparel is just where it started. We can become a billion-dollar company driving positive social change, teaching, and reinforcing the values we think are most important in the world.
John: Customers are looking for businesses that exist for a reason, and with social media today, transparency and authenticity are a must. People will build your business up if they believe in you, and they’ll tear you down in a heartbeat if they don’t.
Bert: My brother and I disagree morning, noon, and night about the right approaches for the company short-term. But we agree 100% on long-term strategies and the values of the brand. We push each other’s buttons and go at it, but 10 minutes later, we’ll be having a beer. Life Is Good isn’t about us. It’s about how people face the shadows of life.
John: Most of us want to smile, laugh, help other people, and be grateful for what we have. People who face great adversity gain clarity about what’s important in life. Optimism helps us persevere. Life isn’t easy. But life is good.
Blur the line between work and play. We spend a lot of waking hours at work, so inject fun, laughter, and energy into the workday. At company meetings our employees play live music, or we might go snow tubing on a mountain. There’s real information shared at the meetings, then afterward we cut loose.
Failures are how you learn, adjust, and stay nimble. At the first trade show we ever went to, we were telling people it was our first grand opening, until a kind retailer told us to stop tooting that we were brand new because no one wanted to buy unproven products.
Be transparent. You don’t have to be right or have all the answers. You’ve got to be able to tell people what’s happening — good, bad, or ugly. Then others can help solve the problem. People don’t like us because we’re geniuses. People like us because they know we’re trying, and they trust us.
This story is from the May 19, 2014 issue of Fortune.