(Business 2.0) -- When Chip Wilson took his first yoga class in 1997, the fashions on the mats around him were abysmal. Everyone wore Lycra because it stretched, but it was hardly flattering. As Wilson points out, "Lycra only looks good on you if you're a 10 out of 10."

In 1998, Wilson founded Lululemon Athletica to give yoga clothes a makeover. His first step: devising a thicker, softer Lycra-nylon blend called Luon that wicks away sweat. Since then Lululemon, based in Vancouver, British Columbia, has grown into a yoga powerhouse by churning out stylish apparel with attention to tiny details, such as flat seams and zipper covers that prevent chafing. The company's secret is a research and development process that catches ideas as they bubble up from customers, yoga instructors, and employees. Lululemon boutiques, too, act as idea incubators; the company has 36 stores worldwide and plans to open 20 more this year. "Most designers look at the cosmetic elements and add gimmicks later," says Wilson, now Lululemon's chairman and chief product manager. "For us, design is the critical initiator."

Many of Lululemon's innovations--such as a seaweed-based fabric called Vitasea, which releases vitamins into the skin--appeal to male and female athletes of all stripes, including runners and rock climbers. In fact, only a third of the company's clothes are now purchased by yoga aficionados. That's one reason privately held Lululemon has doubled both revenue and earnings in each of the past four years, according to Wilson, who says sales exceeded $60 million in 2005. Last year he sold a 48 percent stake in the company to two private equity firms, Advent International and Highland Capital Partners, and hired a veteran Reebok exec as CEO.

Because highly functional and fashionable clothes aren't cheap--most of Lululemon's items retail for $50 to $120--the company each year recruits a number of yoga instructors as "ambassadors," who get free samples in exchange for providing regular e-mail feedback. In addition, Lululemon stores keep suggestion forms near their fitting rooms so shoppers can offer opinions or draw pictures of features they'd like to see. After several customers complained that Lululemon's bras didn't cater to curvy women, the company designed two cheekily named new models, LetmeHOLDthose4u and Bounce Breaker, the latter of which is adjustable in just about every direction. "We're not afraid to hear what we should be doing," says Andrea Murray, a Lululemon designer. "If we need to, we'll go back to the drawing board."

7 Clever Details That Really Sell

1 Zipper "garages"

Fabric flaps cover zippers to prevent chafing.

2 Flat seams

Smoother threadwork means less irritation while stretching.

3 Silverescent fabric

A trademarked blend of silver ions and crushed silver wards off bacteria and stench.

4 Thumbholes

Loops keep sleeves from riding up during downward dog.

5 Gadget pouches

Headphone ports make it easy to listen to an iPod while jogging.

6 Ponytail release

Holes in the backs of hoodies give long hair an escape route.

7 Cuffins

Extra flaps double as mittens for an outdoor run or a trip to the gym.

Diane Anderson is a freelance writer based in San Francisco.