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So have you gone running yet and your custom acquired ghost 14s? Dude the ghosts are amazing. They are the best sneaker I have ever known Bar none hands down. I used to have adrenaline's adrenaline's are also great But I literally wear them like all day every day But David those shoes are only for active runners. You're you're misusing the point of the ghosts Well with a baby. I mean I'm literally wearing a baby walking the hills of San Francisco I'm burning more calories than I did when I was running every day. It's true It's just a slow run at the end of the day. Yeah, that's all you're doing Who got the truth Is it you is it you is it you who got the truth now? Is it you is it you is it you sit me down? Say it straight another story on the way Welcome to season 10 episode eight the arena show Presented by pitch book of acquired the podcast about great technology companies and the stories and playbooks behind them I'm Ben Gilbert and I'm the co-founder and managing director of Seattle based pioneer square labs and our venture fund PSL ventures And I'm David Rosenthal and I'm an angel investor today back home in San Francisco But man what a special day that was in Seattle That it was and we are your hosts We're gonna go right here into the on stage introduction of Jim and the Brooks story so I don't want to give too much exposition here except to say that if you've been Sort of thinking Brooks is this like shoe brand and what can tech people possibly learn from a hundred-year-old shoe company Prepare to have your mind blown Jim's one of the most dynamic guests that we've ever had on acquired and I just got so many Comments leaving the arena just absolutely floored with all the great takeaways and lessons and quotes the people wrote down from Jim So make sure you enjoy that now before we dive into that we have a fun little Q&A with our presenting sponsor Vanta the leader in automated security and compliance now as you know from hearing from Matt spits live in the arena the head of engineering at Vanta We are huge fans of Vanta and their approach to the whole security and compliance process Sock 2 HIPAA GDPR and more and today we've got CEO and co-founder Christina Cassiobo back with us to chat about Vanta Okay, so Christina we've been talking about your product all season What else is unique about Vanta the company? Do you personally have any strong beliefs about how to run a company culture? How to be successful in this ecosystem? One strong belief I've developed about The two parts of a company go to market and you know end product and design is that I think a lot of folks Right, it's not naturally run the engineering side in particular like as if it were engineering and industrial engineering I actually think that side is much more like Art than science, you know, like what is product development again? There's metrics you can put around it, but especially at the release stages like it's a lot of you know And you see it and you can go through processes, but you can't really prescribe outcomes I think in contrast to go to market side like marketing sales, you know cost for success Especially for a SMB business or mid market business Should be like run industrial engineering rise right you just have processes you have like inputs you have transformations You have you know conversions you have outputs The spreadsheet map there is actually really helpful and that can be a lot more predictable Whereas again, I think on the Especially new product development side that if you try to you know go full industrial engineering on it You will just not do anything interesting So I think part of the magic advantage is we've been able to bring those two sides together and Cross-falling it across teams and so give folks on the engineering team opportunities to you know see and how we sell and vice versa And that's one of the things that I'm most proud of over the last few years at Vanta And I think it's contributed to some of the early success we've had Our thanks to Vanta the leader in automated security and compliance software If you are looking to join Vanta's 2000 plus customers to get compliance certified in weeks instead of months You can click the link in the show notes or go to Vanta.com slash acquired for a 10% discount We thank you Vanta. Thank you Vanta All right listeners, please note that this is not investment advice definitely was an investment advice last episode and without further ado Onto our conversation with Jim Weber the CEO of Brooks running All right now for our final act of the evening We have a very fun local story that we've been dying to tell Brooks running I mean So I think a lot of people are probably familiar with this brand especially in Seattle especially if you are a runner But the story of this business is absolutely unbelievable and extremely undertold until now So when the CEO Jim Weber Took the helm in 2002 the company was losing five million dollars a year It was 30 million dollars in debt It was a week away from missing payroll and the board was like having weekly meetings to figure out how to make payroll It was a business of pretty modest size. It was a $60 million revenue business and when we talk about this revenue number You know, it's not SaaS numbers like there's extremely real costs and making shoes So you can imagine not making a ton of money Well actually losing five million dollars a year so That business had been around for like 90 years and It's all all sorts of products at every price point to frankly a pretty random set of consumers in every category not just running So enter Jim Jim came in and bet the company Exclusively on serving active runners as a segment and he cut all other business lines over the last 20 years He's grown the business to over a billion dollars in revenue Billion with a B and well over a billion and is thriving and thrived even through the pandemic So along the way Brooks was acquired by Berkshire Hathaway and Warren Buffett personally elevated Brooks and Jim To make the company a direct report to him Jim is a leader of visionary and a fighter not only growing the business over the last 20 years But personally fighting and beating cancer Please welcome Jim Weber Hey guys, it's great to be here. Oh Jim here. We go. This is great. What a show. So Jim we figure you have a lot of footwear already Thank you for hosting the run it's fun so we have an acquired hat for you and Required bag with some more goodies in it from the acquired family Fast Jim bag at the company We hope to see this in the trail head store starting in 2023. I love the goal. That's the first gold trim We've got on an accessories bag It's great to be here Well my my first question in the way that I want to just tee this off. I mentioned it's an Untold story until now. I heard you just launched a book so congratulations on that. Thank you. Thank you Could you just tell us a little bit about that what is the book? So the book is running with purpose and Brooks has been a fabulous journey and I'm a person that believes in life The journey is to be you know just cherished and and enjoyed Because the finish lines are fleeting and we all want goals. We all want finish lines But you got to enjoy the journey along the way and I think we're all creatures of our journey So Brooks has been through a lot And it's a David and Goliath story. It's a turnaround story It's a purpose driven culture driven brand story. It's a focus niche challenger brand story in an industry like so many that's dominated by Platforms one really really fabulous platform and so we've navigated that we built we're building a really cool brand with lots of runway Yet for growth and and it's a great business too and and so I want to tell that story because if you're not a runner We haven't marketed to you. I mean we are so focused every nickel has gone to people that are putting one foot in front of another But the story continues and I wanted to tell it Great. Well David and I got to read an advanced copy of it And then I actually just re-listen to the audio book when when it dropped earlier this week Actually that you narrated which is very fun to hear your voice while I was running on the Burke By your office listening to your voice. It was a very very surreal experience I want to go all the way back. I'm going to play David's role in this one Let's go all the way back to when you first encountered Brooks in 1998 Talk to us about how you came to the company and where the company was at at that point Yeah, so I I've had I had a really fun career I became a consumer products person after some banking Pillsbury M&A corporate development strategy got to run a brand I've always wanted to run a business and I ended up following an exact to the Coleman company So I started to be came and outdoor sporting goods guy This is Coleman like camping really Coleman camping, but they owned a whole bunch of different businesses and and I so badly wanted to run a business a little division They had down in Phoenix hit the wall, you know, just almost fraud in the counting and everything else And I came back from a SWAT team and I told my boss I want to go run that put me in coach man Ran that turned it around sold it went up here to another Coleman division O'Brien water sports It's in our backyard here in Redmond, Washington a brand and and I ran that for several years turned around got profitable They sold it there's a pattern here and then you know, I went on to sim sports a snowboard company and and you know We we turned that around and and it ended up changing hands and so There I was and I joined the board at Brooks. I joined the board at Nautilus which was formerly both flex Oh, yeah, and I did some banking work middle market M&A Marketing companies to investors, but on the board at Brooks I had an inside view of what was happening there and good friend of mine Helen Rocky had run it Successfully in the 90s, but she left it was owned by J H Whitney capital really a top notch for my money middle market M&A firm Private equity firm and they bought it but the partners had left Helen the CEO had left Brooks and it started to go sideways new partners at Whitney All new management they went through three CEOs and and so and you were on the board the whole time I was on the board so I had a look inside and and it was a crisis Weekly you guys have experienced this weekly board calls on Fridays the bank is not gonna fund. They want more capital It was it was it was exciting as they say so After a couple of months we did a lot of work. I saw an opportunity And I jumped in and I love running businesses. I love solving the puzzles But by that time and I sort of tell it in the book I really wanted to play the long game I wanted to build a brand and you know the tam I love your industry Mark it in running. It's the biggest category in all sporting goods It's the biggest category in athletic footwear. It always has been it's about a 30 billion dollar category Globally a parallel and footwear so all we had to do is get a you know and we could survive and we've just kept at it By design because I just decided I want to play the long game and build a brand Build value and and so that's why I'm still there. I'm a weird duck But I've got I've got four owners and I played through each one And kept that opportunity out there for the next owner and So at that moment though, I mean Ben mentioned you did a little this a little that it's like a that line in Wayne's world of Like oh, I've got a collection of hair nets and name tags like you were making football cleats like what what was Brooks at that point time? Every brand in athletic footwear in a peril plays the whole You know athletic directors purview right right? You're in every sport and and what no one understood that I found out later Is it the mindset in our industry literally came from owning a factory when you had a shoe factory You had to keep it busy all your long and and keep the people in place So you went from baseball cleats to wrestling shoes to bowling shoes to running shoes to foot You know every you had to make everything and the business developed that way And you had to view it as like the product you made was like a factory that made shoes right and so Most of it we were losing money on and that was the secret right? So we had good better best $30 shoes $80 shoes and then performance running shoes that really started it at that point about a hundred dollars And then we had court shoes and family footwear we called them barbecues shoes and lawnmores shoes because that's what you did in them and And all of it was very low margin all it was tying up a inventory and cash Yep, and the retailers were ambivalent about it because we were number eight or nine at everything our brand was was not strong And so but when we made the decision to burn the boats on everything but performance running The industry had never seen that before and and most people thought we were crazy that we wouldn't survive and so you Came in as CEO I think in 2002 maybe late 2001, but April 2001. Okay Was Whitney looking for you to do the thing that you had done several times in your career before which was Just get the business to profitability or did they have a notion that you at an inkling that you could build a big powerful brand here and actually Build a tremendous growth business. Yeah, by this time, you know I understood what they needed and and I talk about a little bit in my book I'd run three and I was a little bit smarter Fortunately, they had to liquefied there was no question about they were gonna sell and the employees knew that I was just coming in there to sell this thing They had a pool on how long I'd last but I wrote on my board one of my favorite coats from Benjamin, Dessraeli the Secret to discuss is constantly a purpose. I wanted I wanted to create value I want to build a brand so I decided when I walked in I was gonna play through Whitney I was gonna get them a good outcome But I was gonna stay and play through it and I thought we'd get another private equity player We didn't but so the Whitney partners Peter Castleman Paul Vagano I'll never figure out the meetings they said this thing is it's kind of a mess We didn't know what we bought you have to pick a plat path and go might take you five years We got to do it and Brooks darkest hour. They wrote a check and recapitized it Seven million down, but they you know they wrote a check and that's when I came in and so they were fantastic partners for Brooks And we got them liquid the pitch. I made your team and it's what I believed is that companies with issues get sold Companies with opportunity attract investors and I said we're gonna have to park cars in the parking lot We're gonna attract some of you and it but that's that's the mindset we had We were gonna sell the future not just sell the current right yeah, yeah And so if I'm remembering right Whitney put in seven million dollars to recapitize it I think that's the last time Brooks has taken outside capital Absolutely so we saw a higher margin business And we benchmark against all the public companies where asset light it's really an inventory and receivables business And there's a reason we only have one store at our headquarters And we think it's it's an advantage for us right now in the development of our brand but If you have high margins and good flow through operating profits in the teens And you're you know incremental obviously capital you can you can flow cash Growing 20 30 40 percent we haven't needed a dollar of capital since 2001 Wow again, that's incredible. That's why I That's why Warren Buffett likes us Right you said cash to Omaha not the other way around are we turn on tangible net assets has been over 50 percent for the last 15 years Wow Wow 50 percent annually. Yeah, wow on average net tangible assets What I'd say that's a good business Can you just walk us through like what is well? How did the economics of Brooks work? You know, I hear here was the insight that we saw and Man, I you know monopolies are great network effects are great Platt you know all those things are great and what I saw in Brooks there was a book that was Meaningful to me when I was at Pillsbury the PIMS principles and one of the highest ROI businesses Were lower price point consumable items if you're buying a Boeing jet or a $600 wakeboard that never wears out or an $800 golf driver You're that's a discerning purchase and the margins on equipment tend to be lower But the title is golf ball is a consumable for me anyway And the running shoes you've made that you have a frequent runner a frequent runner will will put 20 to 30 miles a week They'll go through 2.6 pairs of shoes a year So there's the stickiness right if you can earn a frequent runner that the shoe is really important It's a piece of equipment for them You can you don't have to resell them every time you've got some stickiness there and you start to build customer customer loyalty and your your average selling price for a pair of shoes today is 150 130 bucks 130 times 2.6 Yeah per year and a loyal Brooks customer Stays with you for maybe you know we had to earn them, you know, there's no guarantee They're curious. There's lots of new innovation and they'll try some different things But when you're training for a marathon that one of my favorite stats for our brand is shoe count at marathons because It's a piece of equipment and if you and you don't want to be injured You want to have a good experience so we sponsor Boston just happened incredible race We're always the number one or two on shoe on course and do you have people at the big marathons counting? It's so good. They have high-speed cameras I know high-speed cameras AI they link it to the bib They can they know exactly what shoe 20,000 people are running on the model. It's so cool. So Houston Marathon 8,000 6,000 marathoners 12,000 halves Number one shoe in the half Brooks number two shoe in the full. There was a little brand down in Portland, Oregon We are on their heel, but that shoe count is a true test because that's that's the frequent runner And it's a piece of gear in that so that that's the leading edge for us is to earn that customer and and have their confidence All right, David's doing the thing that I normally do and jump ahead and try and like unpack the business as it is today Let's go back to the story. So It's 2002 through six. Let's talk about this era You've made this bet where you're gonna shed every other Product that you sell and you're kind of gonna piss off a lot of your channel because You know what sells really well at these big box stores Those are your barbecue shoes. So can you take us to like one or two of the key moments of The hard part of the decision to drop product lines that weren't about frequent runners Yeah, I think that the key to Brooks is that we knew we are gonna have to build the brand at the runner level Literally a pair of feet of the time and the retailers so many retailers told me Jim We are not gonna build your brand. We'll try it. We'll test it We were tested at Dick's boarding goods and I'm not kidding for 10 years 20 stores 80 stores 20 stores 80 stores 20 so so you have to build The flywheel in these franchise products. That's how running works the the best selling running shoes Continue to be the best selling running shoes year after year For as long as they sustain it all around the world We have two of the best selling shoes now in the United States the ghost and the adrenaline There are the two top shoes in the performance running category So so when we go to retail Biggest customers big five if it's a fine, you know sort of mid-priced sporting its retailer on the west coast We were doing 10 million of 60 million of revenue with them at 30 dollar shoes my first meeting with them is we love Brooks We see a great future for you. So one sixth of all your revenue is coming from yeah their stores They they saw our opportunity at 1999. I was losing money at 30 bucks I couldn't run fast enough from that meeting because we left and we generated five million of cash by getting the inventory out of it So that those were easy decisions to leave those retailers and then we had to build it in the specialty run community pre-internet pre-e-commerce Huge part of our business now and so that they were sporting goods. They didn't want to sell your hundred dollar shoes They wanted to sell 20 to 30 dollar that customer. They didn't have the runner. I see they had they had family athletic footwear Where was at this moment in time? Where was this in the Running as a sport mark like Marathons be cute. Are they what they are today? Were they on that journey? They were on that journey and this was this was what we did at Brooks. I think we were the first one to identify That the real business was in trainers. It wasn't in racing shoes. It wasn't in spikes It wasn't in marathon racing shoes the businesses and the trainers We don't sponsor college programs. They're kind of owned and wrapped up a lot of the college athletes that race in the big brands train in Brooks everyday The business is trainers So when we came in, you know, I think Brooks had had you know, we were we were humble and we were getting the business that we could and we had shoes that were really more back of the pack people They weren't the fast people they were Support shoes and motion control shoes people that needed Functional footwear and we've moved ourselves to the middle and the front We're trying to serve every runner the insight was this the sport is the soul of running right? track and field cross country road racing the Olympics now trail and ultra But the business is people that are investing in themselves fitness and health and wellness There's no other sport that has that dynamic where where there's there it it goes from a sport to You know a pursuit of of investing in yourself and we always positioned right in the middle of that We're basically about you and your run. We're not about the podium. We're not about the tape You know in our sport unlike basketball everybody knows all the kids especially know what Steph Curry plays in Most people don't Remember who won the Olympic marathon and even more over what shoe they were and the truth of matter is You know everybody's unique the shoe really matters and you all know if it's comfortable if it's working or it's not the frequent runners Really do so that's the insight. I think we're the we're the only brand that is consistently executed against that Every product we make starts with your biomechanics and your habitual joint motion and what your needs are and we're all Essentially different we're the only brand that begins there Hmm, and we've done that for 20 years now. I mean you mentioned That other company in in Oregon I try not to say His name's right It just ends badly Which is an amazing company down there. It's great company But literally their name is is the Greek word for victory. Yeah And what you're talking about here is Incredibly counter position to that in a way that victory Really can't mean just investing in yourself regardless of where you finish one person breaks the tape yeah 40,000 people run New York marathon We'll take the 39,999 That want to have their best day They're you know, they're investing in themselves. They want to have their weird we are we are celebrating every one of those people First 5k runner on the block Man, that's that's your run, right? That's what we do It was really clarifying reading your book and understanding that Brooks's brand is about performance, but it is not serious and I think that was an interesting clarification for me Because I run and I take my performance seriously and I've Selected a very specific motion control Brooks shoe to do that But I don't need it to be a very serious sort of like Victory-oriented brand because I've never once thought oh maybe I will win the Seattle rock and roll marathon like that is never Occurring open still hope You know, I think I think it really what it relates to and this is I think what Brooks got before any other brand is You we have we are sweating product. I think we invest more in in our and in a focused running Metrics manner than any other company and we don't have as much money as many of them still But it's so focused in the clinical work we do and the materials work we do we engineer materials just For the motion of running and and all the all the engineering that it what has to do and and respond in between gates and all of that So that's the key, but I think our brand positioning I didn't create it was sort of there when I came in But it's brilliant for this reason. It's approachable You know the unseriousness is basically trying to take the pretension and And and the you know the I'm not worthy. I'm not a runner out of our sport and so many of our our Retail running shops have done a fantastic job of that first of all I'm old enough to remember title nine in the 70s equalized college sport funding for men and women If you if you weren't addressing women in the last 40 years and sporting goods you're gone I mean we doubled the business and women have driven this sport since the mid 90s So approachability I think was super key and and Brooks is a very inclusive brand It's you and your run and all are worthy, but the product Here's the other thing that's so interesting about our sport is you know Maybe in some sports the pinnacle equipment absolutely needs to be Available to the pinnacle athlete, you know, maybe that's engulf and certainly for a two-hour marathon Everything has to be clicking, but what's interesting are at our sport the person that really needs the best footwear and The best run bra and all of that are the people that are just beginning because the injury Potential for those people is really high and that's where the right to so there's that's another element of our our category That's pretty unique so I would I would say the the unseriousness of our Our brand is is all about in welcoming and including everyone no matter if you're just starting or your 20th marathon All right for our second sponsor of this episode and all of season 10 huge Thank you to our friends who were in the building For this show and then hosted the amazing after party afterwards vouch the insurance of tech Today in our insurance 101 that we've been doing all season with vouch We are talking about cyber insurance So this is the final like big big coverage you're going to need at some point We don't need to tell you why cyber attacks are a big deal or the damages and losses they can cause you Probably know that and it stands to reason the startups are probably more vulnerable than like out Microsoft or a Google who's had decades to get their Security teams all ramped up, but when they happen cyber incidents even for startups are a really Expensive like a really expensive all in the breach for even a very early stage startup is typically around $400,000 That's like where it starts as your company scales and and the company grows the average overall cost for a cyber Incident for a company of any size is about four million dollars and because the money we're talking about here is truly an existential threat to your company You probably should get this coverage vouch recommends starting at Series A and if you're a FinTech or a health tech company even earlier after you raise your seat So you have coverage you get hit with a cyber attack what happens the first priority is always deal with the breach itself and time is for sure of the essence here a Great cyber insurance provider like vouch has the playbooks They see this all the time to help initiate and pay for a whole suite of remediation That can reduce the likelihood of a major claim or a class action lawsuit against you which yes can happen to start up too this part of the insurance is called first party coverage and it's about paying the cost of getting your business back on track your system secure Taking care of the impacted parties etc Unfortunately though sometimes that's not enough to stop a lawsuit or a class action lawsuit or a regulatory action against you If that happens Cyber insurance can cover your defense costs settlements fines judgments all that that part of it is third party coverage And that's what protects you from claims of damage from customers partners regulators etc It is super important if you're getting cyber coverage to get both first and third party coverage You do not only want one and coverage from a high quality insurer like vouch always will come with both Head on over to vouch.us slash acquired where acquired listeners if you use that link you will get an extra 5% off your cyber and all of your other Insurance coverage is that we've been talking about all season Man once again, thank you vouch for doing this insurance 101 with us This has been such a blast this season you guys are the best we love you. Thank you vouch. Thanks vouch Okay, so going back to our story again You just lost the big five business intentionally so you walk away from one six-th year revenue I think you walk away from more than that. It's not like it went from 60 to 50 it went like Significantly lower foot locker. We are doing $60 SMUs. They'd order 80,000 They changed the product twice they'd get it down to 60,000 and then they canceled it and we'd end 20,000 inventory That was a quick decision too. We just quit doing all that that makeup business that was retailer driven hmm so Revenue is going like this intentionally You're the fourth CEO so at this point is the team How do you get the team on board? Yeah these crazy decisions you're making when they're like three other people came in here and tried to turn this thing around and didn't You know, I think from a leadership standpoint The real puzzle in that first year was gaining trust from everybody that mattered B of A was our bank kind of a lost cause we had to replace them They just weren't gonna buy it But Whitney invested that was key and we kept them with us all the way through the leadership team took time You know and it was you had you had to deliver sort of on outcomes, but here's what we did Six weeks in we re-did the plan took profits down The plan was millions of dollars. They didn't have a prayer to hit that we took profit down But it was a profit plan. They had made a bonus in four years and We went after cash flow and that was shrinking the mix We hit our plan that year and people got a bonus Hmm and and we hit the plan that we'd sent nine months earlier I spent really eight weeks intensively looking at it But I think we knew what we were seeing and we generated 10 million of cash that first nine months That's how much we shrunk the balance sheet with focus and here was the key though You have to you have to do horizon one horizon two horizon three, right? You've got it you got to solve it all So I had ten things to do the boards said oh my god. You're crazy pick four. No, you don't understand We we have to get the adrenaline right Because that shoe was critical for us and we had to we had to refine that shoe in 2001 for 2002 and and we got it right the fourth adrenaline was incredibly balanced shoe had a multi-density Stability technology in it super balanced in a six started to not deliver and we ran man We airfraid it one color 18 month cycles save the company But we had to do we had to finish that shoe and in a one to deliver on oh two which Yeah, you can't you guys like a semiconductor company You have to get it designed that's like I think you know some of these Brooks it everything's complicated Everything's competitive, but it's like moving a wall of bricks forward and you got to get you know as a I think as a CEO You got to move it all forward so when some things are falling behind you got to get those up and you have to deliver The whole business model and you have to do it sequentially over seasons in our business because if you come to market with with a Ho-Hum product line You're gonna shrink that year and so you got it the lead times in footwear It's not the car business, but it's more like the car business than the t-shirt business There's every there's tooling on everything 12 sizes man's 12 sizes of women's Widz colors it's scaling these things in the fact is a lot of tooling It's it's a it's a it's there's a lot of Takes a half a million to a million bucks to bring one style to market It's a lot of tooling and inventory. Yeah, it's a lot different than the software business Don't ask me about my tech stack My it's or does that every now and then and it doesn't go well The Weston is actually pretty great. It's a real we're We're competing with digital engagement in our industry and and we're doing really well with it We've taught ourselves that and runner focused, but we I think we're executing on the digital side with runners as well as anybody Is right here also in a pretty good town to be able to create a town There's a lot of talent here and they have a lot of opportunities now too, so okay, so Let fast forward a couple years. So You nail it with the adrenaline for You're starting your profitable now. Yeah The business is looking better You get the liquidity event that you're looking for and you're sold to Russell athletic What was it like Communicating to the team we're joining Russell So you guys are in this business and and I've been bought and sold a few time bought things too We we we knew we were gonna have to sell so we were prepared and we thought for sure it was gonna be another private equity firm We're gonna get another kick at the can and that's what I was Absolutely mentally prepared for so the bankers come in we do the management presentation We're gonna practice on a strategic there weren't many there. We're gonna practice on Russell athletic Oh, everyone does a form of fundraising Oh god, and they completely fell in love with it So if only you had though, you know, why see's growth program that you could then go practice and they ended up we Negotiated our independence. I pitched us where the crazy uncle out in Seattle We're really different just leave us alone which they did But yeah, you know, so for them we had negotiated our independence because we knew where we were going We saw the opportunity we were we had great we had a flywheel going we really did and and at that point We're continuing to pursue growth so they would have been crazy not to just let us keep going and and I would do that then with the next owner as well so Two more years pass business continues to grow Russell gets bought by fruit of the loom and fruit was already owned by Berkshire right right that's right So what's it like now being a subsidiary of a subsidiary? Of Berkshire Hathaway, but two levels down. Yeah, I mean, I was really interesting I in one sense You know, I'd gone to school on Warren through his letters and and I had an internship in the 80s that He had put a business out Out of its misery In a competitive battle in a two newspaper town it went to one buffalo even there was a play Yeah, the Buffalo evening news and there was a black hole in Coles Media's balance sheet and I What happened there and Warren? Oh my gosh plays to win Signals he will never ever ever ever quit Five million dollars of losses investing in the newsroom investing in quality goes to the morning Fight to the death Don't do that with Warren Buffett because he never quits So they made a rational decision they close it down his profits went from negative five to ten million every year since and I was just wow Who is this guy right that was that was before Solomon brothers, right? That was like a pretty weird disillusion Yeah, that was in his early days, and he was just the way he talked about brands and And the moat around a brand I hadn't I hadn't seen that before Competitive strategy, right? I loved it. So I'd gone to school on him So once we got part of fruit I thought okay, this is good because Charlie and Warren are gonna understand what we're doing at Brooks We're small and so we started to get some letters and your numbers are good and we got notes from the board But fruit of the loom and and Brooks we're just completely different companies six packs of men's briefs at Walmart Yeah, that's not the For a little bit different than like a local running store distribution strategy innovation was mighty morphine power Anyway, but they're you know the long-time company they bought it for Russell athletic apparel They bought it for you know the Walmart business and and they're good at that So again, they left us alone. We hadn't negotiate that it wasn't given they they actually on paper They were gonna move us to bowling green and it would have killed Brooks and I was pinging you know because they we were Possibly gonna get sold so I actually you know talked to some super smart people some in this town and and You know Warren basically said I'm not gonna get involved It's up to fruit and and I thought there was a good chance they'd sell it because I would have loved to have led an Independent play there, but we waited it out They we took them you know sort of right to the edge of saying you got to commit to Brooks We've got to commit you got to commit and they did and then two years later Warren plucked us out so but we we had a negotiator independence from them and I again You know I could have laughed at opportunities to leave I didn't want to leave We saw a great opportunity. Oh 809 just as that was going on you know Obviously great recession we tripled the business from 2009 to 2014 and I I knew we we had some good things going So but that was that was a really critical moment because they might have moved it to bowling green Which they did to everything else and many of those brands wilted And I would have lost a lot of talent and you know I wouldn't have I wouldn't have run it in their business model It would have worked you get to retain your independence there, but you're not Really independent you're still within Russell with his and within fruit at some point You get the cone the phone call from Warren. Can you talk us through that? Yeah, so we had put in you know we had good incentive programs And we tried to keep people there and put some stickiness in with some long-term Programs to just get people focused on building that triple so Fruit was you know sort of consolidating all their stuff and they had they had bought Russell for about a billion dollars with Internal capital and they were about to go and restructure that so you know Warren had we had started to sell shoes at the annual meeting Omaha This is like Charlie and Warren You know 50 years ago. I love this event now there are arena was full, but that'll be the case for you guys We were selling shoes there and I sent more in a note and great next year will sell more good job You know hearing great things you guys are doing well and by the way if you're ever in Omaha Come by we'll go have a steak well son of a gun You don't say no to that I just happen to be in Omaha about three weeks later I've been I did that and I knew he would love What we're building so unique it's distinctive. We're not trying to be that brand that brand We're you know we're really developing something with focus He couldn't figure out why the big guys weren't squashing us and We spent three hours not one phone call Derba's clothes. We had we had a meal But you just get his undivided attention his brain is just so focused. He loves business and and I did most of the talking Because I thought he's gonna fall in love with this business in six months later He so that here's the start of the story is it was the December when Mark Zuckerberg was preparing to take Facebook public and there was a Wall Street Journal article for the new I don't know if he's 22 or 23 that a young CEO of a public company and One of the lines in there was gonna trade in his adidas slides for a pair of Brooks adrenaline I don't know why it was in there, but Warren sought circled and said Jim. This is great. We just need a couple million more so Two weeks later We did did you send Zucker a pair? Oh, yes And he was in he was in Brooks for a while so but two weeks later I'm with my family down in the desert and You know, I think I was not a blackberry, but it's 2011 I didn't have my my voice mails coming into my phone So I was checking email every day, but I wasn't I didn't check voice mail Yeah, so I get back at my doubt my office January 2nd. I'm in early. I like to start the new year especially early It's 7 a.m. And the red light on the phone is blinking Pick it up answer Jim. This is Warren. I got an idea. Give me a call. It was five days. Oh my gosh This is like you know you know the story of Warren during the financial crisis of Aliemen that he could he missed the voice the voice real completely he founded like a year or two later So anyway pick up the phone dial the number. Hello. He answers his own phone. It's incredible This is Jim story Warren. I was at blah blah blah blah. I said well here's the idea You know you guys are doing well your folks don't choose your premium fruit really has to focus on a peril I'm thinking about spinning you out and setting you up as a standalone subsidiary and and you know You guys will just keep doing what you're doing and and I just think that makes sense and I said you know Warren I think that's a good idea and And I gave him an update on our previous year We had a great year and he said that's great because from here on out I'm gonna take all the credit for your success But it's a it's a you know as a platform to do what we want to do and build our brand You know there's they so know that revenue growth and profitability You know selling at margin double digit growth is all about building brand and that's really what we've been doing and really wanted to do so We just have a sink on on the opportunity that we have with this brand and and now it's been 12 years That's the true reason I'm still there because you know we're we're competing in a really really big competitive category and And the margins I think on success are not fat. They're thin and so Executing against that with confidence and support being able to work through you know a lot of the uncontrolled As in a category to huge advantage for us So I'm gonna keep us going through the story and like I've done on many previous episodes I like you're marking sort of a number along the way to track So I think around this point you're doing 160 170 million in revenue businesses grow nicely your profitable There's a fun story from 2012 that I'd like you to tell You've always been somewhat of a scrappy company doing more with less than anyone else Can you share the story of when you personally got kicked out of the US track and field Olympic trials? So I think in in real life Digital is digital, but in real-life marketing We activate right a lot of the running shops do runs out of their stores and they're involved with the five Ks And you know we're bringing energy and and Positivity to that really trying to make it fun for other people many of them are running for the first time and then there's the Sport which is so fun to be at whether it's the Olympic trials for the marathon or the Olympic trials Which is often at Hayward Field down in Eugene And the challenge there for all the brands is we rent a house We bring in all of our partners and VIPs we run Group runs out of the house every morning we bring in a chef and we watch these incredibly athletes Athletes compete for team USA it always happens in June Olympics are you know July August and and it's just a fabulous event And then the backdrop is well largest brand in our space Nike Signs a 27 year Marketing agreement with the governing body of our sport USA track and field Who does a 27 year deal? I Mean come on it. It's a 27 year deal and then of course, you know University of Oregon is a is a Nike University in more ways than one and so they wrap it up right the whole thing has got swooosh wrap around everything I I think I think the yellow lines on the highway are swoooshes so We we wanted to celebrate the athletes we were that we have athletes in there We invest in the sport and you know, we don't invest like they do but we invest in athletes and they're inspiring and so on and so forth All the brands do so you know, what can you do you can't do a lot? But we decided we did we checked with the FAA the air rights are open Nobody said you can't fly a plane and we put a run happy banner on an airplane and we just flew it around that stadium All day on Friday They got mad and we did it again on Saturday and they started to tell us you got to take that plane down Why well because you can't do guerrilla marketing? Yeah, but we checked it's all you know the FAA is fine It's all good. It's a sky And we're cheering on the athletes you can you got to take that thing down Get that thing out of the sky and and so overnight coming into Sunday the final day We had we checked with some of the Tracking field officials and they basically said screw him. You should just fly it and we checked again with the FAA And so we flew it and they came up we bought tickets for all of our guests We had about 80 people there. We didn't get them free and comped we had some of this But we bought all these and they said all right you guys all have to leave and we why? You know, you all have to leave so we left our our guests and three of us Went down to talk about it and they why are you asking us to leave you didn't do the you know You didn't take it that we asked you to take it down and Nike was all sitting right behind him So well, there's nothing against doing that. We don't we checked with everyone Well read the back of your ticket this ticket is a license that can be revoked at any time So you're just kicking us out. Yeah, we're just kicking you out get out and it was all It was a huge mistake for them because this story is lived on in the industry forever And we had some of the best running shop people in in the country there with us. They were our guests And so everybody knew about it. They kicked me out our head of marketing and our head of Sports marketing it was it was interesting anyway, that's awesome. We are We're at the bar. We had beers and we watched on TV Well, if if we were if David and I were on zoom with you We would be getting ready to enter like hour number two and try and talk about every year all the way through I Tonight I want to focus on How you came through the pandemic and some of the unique ways that You early realized running actually was going to be something that people started focusing more time on and you were able to Kind of lean into this new behavior Talk to us about March 2020 and how you paid attention to what was changing Yeah, a couple of big advantages first was literally an obsession on runners participation You know links to unit sales and volume right so no other brand has that clarity because most of the products in the athletic Footwear industry don't ever go for a run or play basketball or really even go to the gym It's it's casual family lifestyle footwear There's nothing wrong with that. Those some of those businesses are great, but we we had an advantage because 90% of our products went through a retailer that's a problem you're up retail shut down in one week and then all of Retail rolled through North American and and by the end of March not a store was really open and that's a problem cash cycle froze Oh my god, nobody knew what was happening, right? We didn't know how lethal this virus was how transmissible and so and so forth And so it was white knuckle time and we were there with everybody else everybody could write a book on that But here's what we did is we saw phases because we'd seen during the recession running as a bit recession resistant We saw that I was thinking about that. It's kind of it it it because it's cheap and it's convenient all you need is right It's like the healthy alcohol during recession. Thank you But we were not an essential business in marijuana and alcohol worse so figure that out So but during the great recession 50% unemployment in Italy and Spain under the age of 30 Running took off double digit growth after the great recession So we we see we'd seen that before and it turned out to be COVID-friendly, right? You you now know the story it was it was you know social distancing friendly outdoors Walking hiking running all made the cut, but nobody knew that we had a hypothesis We created this frame on how we thought running would recover and so here's what we did first of all Strava data magic, right every day after the quarantine shutdowns Strava activity was growing and they were sharing that then you know what we did we have 40 in the US alone 45 field marketing people we put them in parks High traffic running parks at 4 p.m. Every afternoon and they counted runners and guess what it was growing Every day and then we watch digital sales and we have visibility on 85% of our retail sell through and so digital went from 30% of all of our products going through a website of somebody's ours or another partners It went to 80% by the by the end of April and in May We sold more in May 2020 almost all through digital than we did in May 19 In all channels running made the cut we grew 27% in 2020 in that that COVID year, but we saw it This was the key because of our customer obsession and our ability to you know work multi-channel was a big advantage in that time Because we could move inventory around and and make it happen inventory if it isn't there You can't sell it so but but multi-channel was a big advantage the other was our focus on the runner We turned our supply chain on at least six to 12 weeks before anybody else did because if you were if you were a broad-based Retailer there was no clarity on when the customer was coming back and for lifestyle product nobody you know Nobody went outside for a year. Oh, so it was the fact that you exclusively made Performance running gear that gave you the confidence to flip it back on because if you're making all kinds of stuff in your factory And you're pushing all kinds of stuff through retail channels Most of it is not going to sell so you can't actually open That's right in the parallel and footwear inventory is life and death You've got to manage inventory well because if you have too much you you ruin the next cycle of of inline product So inventory is is really critical But we we managed and and played that cycle really well. We grew 27% in 2020 we grew 31% in 21 yep And we would have been up 40 if not for supply chain. Wow, so what you doing revenue last year? Sorry Would you end up doing an revenue last year 1.13 billion oh 1 billion 130 wow We cracked a billion our industry Our industry the billion dollar club is actually you know a rarefied club. There's probably maybe two hand Maybe two dozen global Chinese Chinese brands are there now But it's a great club to be in and what makes us unique is it's all Premium full price full margin product most of the other brands have good better best and and Those are retail driven merchandising strategies. They're not really consumer driven strategies. So Normally we talk about seven powers as we drift into analysis here Your Berkshire business, so we're going to talk about modes. Okay What is Brooks's mode and how do you think about Defending the castle now that you have what you've built? You know, we think a lot about it now. I think there's also Something I'd add to that part of the mode can be business model right? Business models can be really powerful and one of the things you can do as a company to create defensive You know, mode structures is is business model execution at scale So we now are executing retail partnerships with the best retailers for running gear to runners at super jocke and jill and Seattle um fleet feet running down in I think mental park Um, obviously, you know, some of the better sporting goods players and outdoor from rai to dick sporting goods We're their number one brand We've earned that over 20 years and we have deep broad partnership programs with them digital marketing consumer journey You know runners are digitally savvy. They're they're obviously all over the web. They start their shopping experience there Um, we're we reach them in active evaluation mode once you start looking at shoes if you don't see our ad, you know I don't know how we missed you. We we're spending a lot of money at runners now Maybe maybe more money at run at people who run in active evaluation for running shoes than in the other brand Very focused. That's not easy to do in our industry at scale and then but I I would say this is our mode You know, I think I think run ability fit feel and ride. There's a lot of good shoes out there It's actually not easy to make a great shoe and Anthony Fauci made a joke about shoes vaccines are tough. They're complicated It's not like making shoes We get a lot of that but um You know the refinement that goes into mile and making mile 26 You know acceptable, you know, these are It is is really big. So so you know, I think great product is not as common as it as you might think and The people on the inside the frequent learners know So I think product you've always got to lead with product that's the first brand experience is product experience So so I think we do some hard things we build great product consistently year in year out It fits and it rides well Um, and then what we do on the retail side and partnering and activating in real life running and and and selling shoes in real life Events and all the like we do that better than anybody else Service them deliver on time complete and then the digital piece work cited about it. I mean we're You know, we're still just getting started there, but um, we're really focused Yeah, I mean curious. Have you mentioned I didn't even thought about Strava yeah and the amount of data that you're able to see from that what is What does the digital side of running in the future look like for yeah, I think? It's interesting because quantified self in those tools have been ubiquitous and and and they're out there and and the Apple Watch is a is a Damn great product right so you know, what's interesting about that is both underarmor and asix have spent hundreds of millions of dollars Undigital apps yep, and I think they've really struggled a month. I'm Keeper and met my run both exactly so I wanted to buy every one of those and Warren wanted me to do the multiple on ebit Doc and there was no ebit So let's just say it's hard to do At least one of them was a completely free product. I think right oh, man. They don't make money Yeah, so and underarmors trying to sort through that now right they there's starting to shrink so as a deedus So those tools are really powerful for data But how do you monetize it? And so we haven't gone there yet, but we're building we're building a Brooks run club Finally, we've we've launched it's not a loyalty program, but it's a zealot. We want to engage our zealots We want to engage our true believers and the data piece of that is going to be key We want to come up the kinetic chain and and find a sensor system and a And a data capture system that can get to your biomechanics as you're running because what happens is if you run a marathon Your gate in the last five to ten miles really degrades and that's where injuries happen So so we we're doing a lot of we have a lot of partnerships and we're really trying to figure out how we get good runner data In real life not just in the lab in the lab we can test everything, but we want to get out in the wild Do you think you need to do what? The other folks in Oregon have done and build Me to the whole consumer experience yourself or is it a partnership? I we're gonna build it and we're gonna partner too So we're you know, I look Nike plus is a fantastic ecosystem. It just is I'd love to have an ecosystem like that But we're still you know, we're still selling more runners than they are We keep you became the number one running shoe brand in the United States in the last 12 months last month 21.5% share performance run so So we know we know where the battles are and and I think one of those powers is we make money on that So the digital space there's a lot of Carcass is there But we'd love to have it and we're gonna work on it All right listeners back in the home studio here We have one more friend of the show to think that is the soft bank Latin America fund Now as folks know their thesis has always been that the region was overflowing with innovative founders and great Opportunities which we've enumerated time and time again on the show But has always been short on the one essential ingredient of capital which We look at what soft bank Latin America has done deploying eight billion dollars into 70 plus companies There's a lot of capital flowing into the region right now and soft banks take away from all of this is that technology and Latin America really isn't about disruption, but inclusion a great example of this is portfolio company of theirs Banco Inter and we actually talked with Banco Inter CEO John Manine on the show last season is that right? right? He's so cool truly. I mean and Banco Inter is a fascinating story because they're accelerating this shift of online financial solutions Expanding access to banking and investing services in a region where Insanely over half of people over the age of 15 don't even have a bank account They're just lowering the historically very expensive cost of doing banking which that's just good for everyone It is an inarguable good in a society So that's just one example of how soft bank is pairing with local founders in Latin America to bring them the capital and Expertise they need so to learn more you can click the link in the show notes or go to Latin America fund.com I have two more areas. I want to ask you about The first is grading and then the last is a personal topic So can you paint for me what the A plus case looks like for Brooke five years from now? And I'm sure you do lots of three in your five you know planning so think about this And then I want to know rather than just saying what's the failure case? I think a more interesting question is What is the riskiest part of your business right now or if that thing goes wrong everything else can crumble? Two questions so the first one the a case we just created a you know a North Star 10-year vision for Brooks It's global for sure people are running all around the world as the middle class grow as people invest in their fitness and Running is always making the cut there so it's booming in Asia You know we're growing now really rapidly and in Europe so we want to build a global global brand And that's work to do in the next 10 years so we see an opportunity for 60 million customers 60 million uniques up from maybe 15 million today four-bagger and four billion in revenue That's the big opportunity we see right now and it's still a premium brand Position to the enthusiast really uniquely positioned against all the big platforms the A plus case in five years Is 20 to 30% growth every year annually and that's what we've been doing the last two three years And a lot of that's gonna have to come internationally but but but if we get a B and grow 15% We're actually fine with that too because we're not rushing for the exit so we're excited. We think we see it We're gonna have to compete for it, but we have a we have a complete playbook right now in our view So what keeps us what keeps us from being successful? I've experienced it single points of failure Right we launched a DC which we had to do to get in the middle of the country distribution center distribution center and You know, just by the X-16 sorry 2016 2019 and it didn't work and so we just we just Disappointed customers for three to six months. It was awful and we never have done that we execute well And now in Vietnam the whole industry on performance is really focused there principally Yeah, I think the big guy has 60% of their footwear coming out of Vietnam the South was shut down last Q3 July August September 45% of my factories didn't make a shoe for three months So I we grew 20 31% last year we are 43% coming into that that that you know product issue and and now We're experiencing it now now we believe we're getting back on the curve But what we've learned is you know, what is resilience and agility look like in supply chain? You got to diversify risk, you know, now we're seeing at our size that we're at operationally There's there's real risk there so you know, we're thinking long and hard about that. We're working hard at it But those are the things that are disrupting us right now COVID still alive. Yeah, come come All right one closing topic You Battled and survived and beat cancer well building this incredible business How is that changed your perspective on Leading on the way you spend your days and on life broadly Let's close it on a light Let's talk about cancer That's the takeaway for these wonderful people so You know, I didn't expect it came out of nowhere Unlucky no, you know, how did this happen? It's off of your cancer. I just felt awful and I what my running worst running experiences I ever had and I got the diagnosis chemo radiation surgery complications in the surgery another surgery And but I but the good news is I'm cancer-free. I think it's gone. I think it's out of my body The bad news is I'm I'm even slower and I'm kind of a Frankenstein in my systems, but it works everything works So I think what I learned from that though Is that you know you're you go to the web I go every time I have a friend or a family where it gets cancer I go to the web and you look at it and understand it and what the treatments are and they always give you a five-year survival rate My five-year survival rate was 20% one and five and my five years is this November someone is kick its butt But I think what what I quickly figured out and I talked it through you know with my family and obviously with With Warren frankly is that you know I decided that I was doing exactly what I wanted to be doing. I love what I'm doing I've got family. I've got active lifestyle I've got this fabulous brand and company that I'm a part of and a team. I just love it I don't I don't know what else I do which is a problem But so I decided I didn't want to live I didn't want to live in fear I didn't want to live every day thinking about what I had to lose I had a lot to lose And I didn't want to be bitter about why me, you know, I just decide I want to soak in everything I can on an E.g. in day. I want to be a CEO. I want to be a dad. I want to be a husband. I want to be a Papa I've had four grandkids. So so that was it and I think for me that was really powerful because I don't want to be that cancer guy and they brought it up They brought it up, but I it's just now my thing I I want to I want to I want to I'm glad to talk about it. I don't hide it and I and I've learned a lot but You know, I want to I want to enjoy the things in life. I really enjoy So that's what I learned, but I think it's you know, it everybody's different and you do find out Companies when you hit challenges you learn what you're really all about and I think it's the same for people of course and and so I feel really lucky because I'm doing what I want to do and cancers in the rear-view mirror so Good So great Well, I know Jim did not want us to end on that note, but I think that's really perfect Thank you so much. This has been so wonderful. Thank you for making this whole day a great experience and special for us It's great to be a part of you came on the run this morning. That was super fun. Yeah All right, Jim. All right. Thank you so much guys Appreciate it. Thank you. Thank you. Thank you. Oh, you can't forget the choir bag. Oh Well listeners that was our arena show We're so pumped to get to share it with you for all those of you who can't travel to Seattle And that was unreasonably short notice. I think it was a month or so But boy did the folks at Pitch book and vouch and vanta and everyone else who helped us make this happen Brooks running with the run the morning before the show Packie Mario Anu Shu white combinator I just there was got so much love so many of our past guests just came in to come to the show It was so so cool. Yeah, that was great hanging with Chengy and John bathgate and So listeners hopefully we'll be able to do something like this in the future and have you there I think we got to do the chase center next you got to bring this San Francisco. That's really the only option Where do we go from here right? That's the only logical place It felt like Berkshire weekend for acquired podcasts nerds and we would never you know The profess that we were at the same scale But it it definitely felt like it had an energy of To quote crypto of we're all gonna make it. I don't know. I got all the warm and fuzzies from getting to hang out with everyone You all are just the best I also think David of the like thousand people in that arena I think you and I personally got to talk with about 500 like we were on A mission to make sure to meet as many people as possible before the show After the show at the after party that was so cool. Oh man There's so much fun and everybody who came is getting an NFT a custom acquired proof of attendance NFT Thanks to acquired head of special projects sanny kim and the salana foundation So for those of you who came show it off when you get your cool animating Well, I won't give away too much, but yes, you're proof of attendance NFT. Yes, so fun Well with that we want to thank of course the folks at pitch book for doing this with us To vanta vouch and the soft bank latin america fund We would love if you want to come and chat with us acquired.fm slash slack You can find your next job at acquired.fm slash jobs I think that's all we have to say listeners. We'll see you next time. We'll see you next time