Under Armour gets serious

October 26, 2011, 9:00 AM UTC

How Kevin Plank took Under Armour from wishful thinking to a $1 billion business and where the Baltimore brand is headed next.

“Boy, there’s a lot of talk out there,” Kevin Plank says into a microphone.

He’s alone on a stage looking out at 1,000 employees standing on a basketball court at Under Armour’s Baltimore headquarters on Sept. 15. They’ve assembled for one of the company’s town hall meetings, which Plank, the company CEO and founder, holds every couple of months. “Well, let me be the first to tell you guys today,” he shouts, “we are not selling this company!” Cheers erupt.

Plank, 39, wears a bright polo and flashy new sneakers, both, naturally, by Under Armour. The “talk” he’s referring to is the rumor that crops up every few months or so, one that heated up the night before on Twitter: that the $21-billion-in-sales Nike (NKE) is going to buy Under Armour (UA), which has grown in 15 years from a college startup to a formidable $1.4 billion competitor of the Beaverton, Ore., behemoth.

Plank addresses his team in a tone midway between a dad and a drill sergeant, belting out catch phrases in competitive language, but smiling as he does it. After giving the word on Nike, he adds some pep: “We are not going to do ourselves any favors by buying into what’s printed in newspapers. We control our destiny. We control what this company is going to do.”

“We” in this case may well mean “I.” Plank owns 22% of the company’s stock and has 74% of its voting power, and what he later admits to a visitor is different from what he said on stage: “If I ever was offered an amount of money that was larger than what I believed I could get the company to,” he says, “I would be obligated to sell.”

Yet what Plank believes he can “get the company to” has always been galaxies beyond what anyone else ever dreamed. Today Under Armour holds nearly 3% of the fragmented U.S. sports apparel market (approaching half of Nike’s share), sells everything from shirts, shorts, and cleats to underwear, and makes uniforms worn by teams at more than 100 universities. Its stock has more than tripled in six years to its current $80.07 (thanks to Tuesday’s stellar earnings report of more than 40% net revenue growth), making Plank’s equity worth more than $900 million; Under Armour’s logo, an interlocking “U” and “A,” is becoming as recognizable as the Nike swoosh.

Under Armour is hardly the first brand to disrupt an industry. What’s really compelling here, though, is that Plank, starting with little more than a cool shirt and the mindset of a competitive athlete, has taken on a hugely dominant company with vastly larger resources and made it blink, and has continued to take share in a down economy. In his final year of eligibility for Fortune’s 40 Under 40 list, Kevin Plank sits at No. 12 — his highest ranking yet. Here’s why.

When success is 100% perspiration

The story of Under Armour’s origins is a classic entrepreneurial tale: Plank was a walk-on special-teams football player at the University of Maryland in 1995 when, fed up with the sweat-soaked T-shirt he’d peel off after practice, he had the idea for a tight, polyester-blend shirt that wicks away moisture while keeping muscles cool. Plank didn’t invent “performance apparel,” but he was the first to see its potential for not just athletes but also the mass market. As college came to an end, Plank had a job offer from Prudential Life Insurance. But he knew the safe move wasn’t for him. “I would have killed myself,” he says.

Growing up with four older brothers certainly imbued Plank with a competitive streak, but it may have been living with the town mayor of Kensington, Md. (his mom), that made him squirm under authority. As a sophomore in high school, he was tossed out of Georgetown Prep for poor academic performance. That eventually led him to Fork Union Military Academy, where he learned discipline and played football.

With no business training, Plank resolved to sell his shirt using the only advantage he had — his athletic connections. “I never knew exactly what [the company] was going to look like,” he says, “but more important, I got up every single day and never believed it couldn’t happen.”

The “six degrees of separation” concept isn’t new, but Plank took it to its limit. Among his teams from high school, military school, and the University of Maryland, he knew at least 40 NFL players well enough to call and offer them the shirt. Plank wasn’t just working the phone; he lived on the road with his trunk full of shirts, visiting schools or training camps in person to show the product, then pulling over to sleep.

Soon he had help from Kip Fulks, now Under Armour’s COO. Fulks played lacrosse at Maryland and met Plank through a mutual friend. Plank asked Fulks to do the same thing in the lacrosse world that he was doing with football. “Kevin’s idea was fairly developed,” Fulks says. “The branding and the logo were not.”

Nor were the finances — until 1998, when the duo landed a $250,000 small-business loan from Kate Carr, a banker at tiny Adams Bank in Washington, D.C., who later doled out more funds in small portions. “She never gave us too much running room,” Fulks laughs. “She was like a mom that way.” Another assist came from Plank’s older brother Scott, who gave them loans and still owns 4% of the company. Then there were the credit cards: The first time Fulks met him, Plank asked whether he had good credit. “We ran up, like, 17 different cards, all mine,” Fulks says, “and I never missed a minimum payment.”

Equine Armour: Kevin Plank bets big on horse racing

Still, it was a ragtag group. Under Armour was three jocks (the third early partner was Ryan Wood, a high school friend of Plank’s who left in 2007 to run a cattle farm) trying to start a business from the Georgetown basement of Plank’s grandmother’s row house. Not just any business either — a sports apparel line. It would be like starting a Coca-Cola (KO) competitor or trying to create the new Facebook today. “It was absurd,” Fulks admits. “We said, ‘Oh, yeah, we’re going to take on Nike,’ and meanwhile we literally had shirts in cardboard boxes that were moldy on the bottom. But at the time it didn’t seem absurd — it was bliss.” When meetings were scheduled, they would claim the “offices were being renovated,” and instead hold court in the back room at Clyde’s, a bar in D.C.

Under Armour quickly gained momentum, thanks mostly to the six-degrees strategy. In 1996, Plank got the shirt to some Atlanta Falcons players after an equipment manager saw the gear in Florida State’s locker room. Soon Plank’s calls were more often to equipment managers than individual players. Plank’s challenge was to convince them that, though a $25 T-shirt was pricey, it would hold up better in the long run than the standard cotton fare.

Of course, team gear and school deals take a business only so far. Under Armour’s first big-box coup came in 2000, when Galyan’s, a large retail chain eventually bought out by Dick’s Sporting Goods (DKS), signed on. Others followed. Today almost 30% of Under Armour’s sales come from Dick’s (19%) and the Sports Authority (9%).

In contrast to Nike’s deification of the individual, UA’s brand identity was always all about the team. The company continued to expand, moving into jerseys and accessories such as hats and socks. In 2004, Under Armour became the outfitter of the University of Maryland football team — Plank’s home squad — and by 2008 provided not just every sports team’s uniform but all apparel for the school store. The company now has all-school deals with 10 Division 1 schools, including Auburn University and Boston College. Though those deals don’t bring in big bucks, they deliver brand visibility, especially when a school has a star like Auburn’s Cam Newton, who has stayed with Under Armour even after going pro.

Last January, when Auburn played Oregon, Nike’s flagship school, in the BCS National Championship game, it was branded as an Under Armour vs. Nike battle. (Auburn won.) No longer a gadfly, Under Armour had become part of the sports establishment.

Keeping to his roots

By 1998, Under Armour had moved out of Grandma’s house and onto Sharp Street in Baltimore. The hardscrabble city was a good fit with UA and its Maryland roots. “This is a hard-working, gritty town,” says Henry Stafford, senior vice president of apparel. “The DNA of this town is part of what has built Under Armour.” When the company needed its own digs — a literal home court — the obvious choice was to stay in “Smalltimore,” as some call it affectionately. In 2002, UA moved to the 400,000-square-foot Tide Point complex that once housed Procter & Gamble’s (PG) detergent factory. It kept the original building names like Cheer and Joy — which work just as well with a sports company.

Today the Baltimore headquarters is a cartoonishly faithful representation of the image Under Armour cultivated in its first TV ad in 2003, which showed Plank’s former Maryland teammate and Dallas Cowboys tackle Eric Ogbogu shouting, “We must protect this house!” Chiseled men and women work out in the parking lot, looking as though they’re trying to reenact the commercial. They’re stretching with huge ropes, or pushing weight trolleys along the concrete. When a taxi pulls up, one intense employee runs by, hunched over and huffing as he pushes a stack of weights on wheels, and bellows to the driver, “Thanks for getting in my way, dude.”

Inside the complex, in a large, mostly empty office, sits Plank, who still comes off as the jock he once was. “We have a young, beautiful workforce,” he brags. “These were the cool kids in school.” Unfettered, Plank can sound a bit like a frat guy facing down an empty keg. He rants about the discomforts of a suit and tie and rails about staying fit: “We need to stop making wide-body seats on airplanes, stop accommodating that, because it’s not healthy.”

Plank talks like that because he wants to link his brand with health. In the employee café, menu items are color-coded: Green foods are “go!” while red foods (burgers, fries) signal a “whoa.” The staff calls the headquarters the “campus” and co-workers “teammates.” Indeed, one employee, Erin Wendell, says, “Working here is like being part of a sports team.”

If the company is like a sports team, it’s one that often disregards league procedure. In 2005, when UA was preparing to go public, Plank met with a group from Goldman Sachs (GS). Wayne Marino, CFO at the time, recalls that the finance people told Plank not to bring any video or products to its roadshow, reasoning that investors wanted hard numbers, not a hammy demonstration. After the meeting, Plank immediately told his team, “Guys, I want an unbelievable video made.” It worked: The stock jumped 94% on the day of its IPO.

Plank is also savvy enough to recognize a good attention-getting opportunity — even if some of it is negative. In September the Maryland football team trotted out in brand-new Under Armour uniforms. The first of 32 combinations the team will don this season, it used the state flag prominently on the helmet and shoulders and made players look to some like chess pieces. The new duds elicited a heated response from the likes of Nike poster boy LeBron James, who tweeted, “OH GOSH! Maryland uniforms #Ewwwwww!” A headline on Deadspin.com read MARYLAND FOOTBALL PLAYERS WILL DRESS IN WHATEVER CLOWN SUIT UNDER ARMOUR TELLS THEM TO. “This company has got the world talking,” Plank defiantly declared at the town hall. He knows he’ll need the world talking even more if he wants to match the juggernaut that is Nike.

Big shoes to fill

Sports giant Nike is Under Armour’s greatest rival, with 7% of the U.S. sports apparel market, compared with less than 3% for UA, according to Sporting Goods Intelligence (SGI). You wouldn’t know that by talking to Under Armour execs, who recite a polished spiel about how little Nike enters into decision-making. “We don’t tell a 17-year-old kid that Nike sucks,” Plank says, “because the fact of the matter is, Nike doesn’t suck. They’re actually very good at what they do. And the kid has a wonderful relationship with them.”

Adam Baker, who worked in apparel at both companies, says the Goliath is well aware of Under Armour’s potential, and even had someone on staff, while he worked there in 2003, whose job was to watch its every move. Nike denies that such a position exists today. Leaving Nike for Under Armour as he did, Baker says, was seen as going to “the dark side.”

Under Armour has a long way to go to match Nike’s global reach. Just 6% of revenue comes from abroad, compared with over 60% for Nike. Under Armour has done well in Japan but is barely present in growth areas like China, Brazil, and India. And in footwear, which UA entered in 2006, shoes make up 12% of revenue, but just 1% of the $14 billion U.S. athletic footwear pie, says SGI. Nike’s share is over 42%; Adidas Group’s, 11%.

What Plank has failed to do, so far, is make the shoes as compelling as the clothes. In last March’s PSAL Boys basketball game at Madison Square Garden in New York City, both teams wore Under Armour’s new hoops shoes. Plank believes the kicks went over well, but admits, “When they walked into the locker room [to change], they threw on their Jordans. And that’s okay. We’re going to get there.” Matt Powell, a sneaker expert for Sports One Source, believes him. “With its new line of sneakers, I finally feel like Under Armour has a voice and point of view,” he says, noting that footwear sales were up 27% in September over the previous year.

Women’s clothing has been another challenge. Although Under Armour started selling it in 2004, it makes up just over 25% of UA’s total apparel sales, and competition is tough, especially from fast-growing female brands like Lululemon Athletica (LULU). UA will need to court active young women like Courtney Fallon, a 2009 Maryland grad, now a sports reporter in Providence. Fallon says Under Armour had a huge presence on campus and appealed to her as a student, but her “closet is full of Lululemon now.”

Perhaps one reason Under Armour has had trouble marketing to women is its own corporate makeup, which has a boys’ club feel to it. There are zero women on either UA’s board of directors or its senior executive team (Nike has two on its board and two on the top executive team). Marino, who stepped down as COO in September, acknowledges the problem but defends the board, saying, “I think it is diverse, from a knowledge point of view. We have lawyers, CEOs of software companies …” That would be great — if lawyers and geeks were the target market.

Scribbled on a board in Plank’s office are some inspirational quotes. Says one: “Best merchants are the ones who dictate cool, not those who try to predict it!” That is Under Armour’s challenge. It revolutionized compression gear, but today everyone sells that. Now what? Over the doors of the company’s product design offices is a mantra in large lettering: WE HAVE NOT YET BUILT OUR DEFINING PRODUCT.

Plank knows his company is still young. His favored analogy is that Under Armour, at 16, is not unlike a 16-year-old. “It’s a good kid, but still screws up sometimes.” By 21, he reasons, the kid will be more mature.

The same may be true of Plank, who has managed to stay in charge as Under Armour has gone from startup to established company — not to mention a growth engine in a very depressed area. Of Under Armour’s 4,500 employees, 2,000 work in the Baltimore metro area — a huge boost to the local economy. This year the company spent $62.6 million to purchase the full Tide Point complex, and it will soon build a 20,000-square-foot retail store there.

What makes Plank a leader for today is his ultimate lesson that what seems impossible may not be. “There’s an entrepreneur right now, scared to death,” he says, “making excuses, saying, ‘It’s not the right time just yet.’ There’s no such thing as a good time. I started an apparel-manufacturing business in the tech-boom years. I mean, come on. Get out of your garage and go take a chance, and start your business.” If you’re looking for a city to represent, Baltimore is taken. But you could try Dayton, or Jackson, or Harrisburg …

This article is from the November 7, 2011 issue of Fortune.