Strange Success

How ugly sweaters led to pretty sales

Turning ugly holiday sweaters into a year-round, multi-million dollar business
Turning ugly holiday sweaters into a year-round, multi-million dollar business
Tipsy Elves featured on Shark Tank.
Kelsey McNeal | ABC | Getty Images

It all began with a bored lawyer.

"I was doing corporate law, so contracts, due diligence, pretty exciting stuff," said 31-year-old Evan Mendelsohn, looking far from enthused. "You can tell how excited I am talking about it."

To break the boredom, Mendelsohn started researching search engine optimization (SEO) as "a secondary hobby" (which may be the first time someone has referred to SEO as a hobby). SEO allowed him to see what people were searching for online, and he hoped to find a business opportunity there. In 2011, he noticed a spike in searches for ugly Christmas sweaters. "It just was like that light bulb moment," he said. "It was, 'Wow, there's a ton of search for this, and no one is selling them right now.'"

He decided to start selling them.

Mendelsohn wanted a partner, though. "I always wanted to start a business, but I never really envisioned it being something I was doing on my own."

There was only one person to call: Root canal specialist, Nick Morton, DDS, his former roommate and best buddy from their days at the University of California, San Diego. "He has a calm demeanor, and he also has good intuition," said Mendelsohn. "He would be a good business partner."

My mom said my dad was eating soup, and he spit it out when she told him.
Evan Mendelsohn, when he said he was giving up the law to start a company selling ugly Christmas sweaters.
Tipsy Elves co-founders Evan Mendelsohn and Nick Morton met in college and are still great friends.
Jeniece Pettitt | CNBC

Morton, 34, had a practice in San Francisco at the time, and he remembers driving into his garage after a day at work when Mendelsohn called. "He's like, 'Hey, I have this idea about making some ugly Christmas sweaters, selling them online. What do you think?'"

So, what did he think? "I was on board."

Within a week the two set up Tipsy Elves, putting in all their cash and even selling stock. "Initially we put in, I think, $40,000 each," said Morton. He said they started making sweater samples and eventually went to a trade show. "We had really bad samples, they didn't look good, we kind of pinned them together," the dentist said. "The response, despite that, was really strong, and it gave us confidence that this was actually going to do pretty well."

The two quickly learned how to make an e-commerce website and read up on shipping and fulfillment. "We taught ourselves Photoshop, design, it was low level but enough to be able to make designs," said Morton. "You can figure out pretty much anything."

They decided to design good quality sweaters that were more humorous than ugly, but with an edge. One of the first sweaters shows the back of Santa as he stands over the snow. "Merry Christmas" is written in the snow ... in yellow. It was a hit, along with the other sweaters in their first-year batch. "We sold about 5,000 sweaters, and it was about $400,000 in sales," said Morton. Mendelsohn added, "That was enough for me to quit."

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Mendelsohn left the world of law and started running Tipsy Elves full-time. "My mom said my dad was eating soup, and he spit it out when she told him," he said. "I don't think he was too happy about it at the time."

He's probably very happy now. Sales over the last five years have topped $20 million. Mendelsohn and Morton landed on "Shark Tank" and got a $100,000 investment from Robert Herjavec, and after that, Morton quit his dental practice. They've expanded Tipsy Elves merchandise to year-round products for just about every holiday, each more outrageous than the last. Mendelsohn said their target customer is the millennial generation — "I think they're not afraid to stand out."

Their latest addition is a line of well-made but over-the-top patriotic wear. Both men recently wore some of their outlandish, retro-looking red, white and blue ski suits on the slopes. "It's a totally different experience," Mendelsohn said. "People are screaming 'America!' And asking for photos. It completely changes the day."

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Christmas accounts for only half of sales now. The company has expanded to 20 employees working in downtown San Diego, including six designers. The partners say they've learned to not be "control freaks" over every detail of design and execution, though they've been surprised at how much time and effort is spent patrolling for knockoffs stealing their designs.

The most amazing thing? They're still best friends. "I actually just gave a speech at Nick's wedding about it," said Mendelsohn.

Finally, both credit their success to a lack of fear. "I think the biggest advice I have is that there's no blueprint on how to start a business," said Mendelsohn. "I used to think there was, and I would read books, and I got my MBA. ... I realized that none of that prepared me for what we do now."

Morton agreed: "We had no experience in what we were doing, didn't know anybody, and it was very much, 'Let's just figure it out.'"

Disclosure: CNBC owns the exclusive off-network cable rights to "Shark Tank."