Transcript: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)

Ben: Welcome to season 10 episode 8, the Arena Show, presented by PitchBook of Acquired. The podcast is 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.

David: 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.

Ben: That it was, and we are your hosts. We're going to go right here into the onstage introduction of Jim and the Brooks story. I don't want to give too much exposition here, except to say that if you've been sort of thinking of Brooks as this shoe brand and what can tech people possibly learn from a 100-year-old shoe company, prepare to have your mind blown.

Jim is 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, lessons, and quotes that 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. As you know from hearing from Matt Spitz 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, SOC 2, HIPAA, GDPR, and more.

Today, we've got CEO and co-founder Christina Cacioppo back with us to chat about Vanta. 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?

Christina: One strong belief I've developed about the two parts of a company that go-to-market and end product design is that I think a lot of folks somewhat naturally run the engineering side, in particular, as if it were industrial engineering. I actually think that side is much more like art than science. What is product development? Again, there are metrics you can put around it, especially at the early stages.

It's a lot of when you see it, you can go through processes, but you can't really prescribe outcomes. I think in contrast, the go-to-market side like marketing sales and customer success, especially for SMB businesses or mid-market business should be run industrial engineering-wise. You just have processes, you have inputs, you have transformations, you have conversions, and you have outputs.

The spreadsheet map there is actually really helpful and that it can be a lot more predictable. Whereas again, I think especially on the new product development side, that if you try to go full industrial engineering on it, you will just not do anything interesting.

I think part of the magic at Vanta is we've been able to bring those two sides together and cross-pollinate across teams. Give folks on the engineering team opportunities to see how we sell and vice-versa. That's one of the things that I'm most proud of over the last few years at Vanta and I think has contributed to some of the early success we've had.

Ben: 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/acquired for a 10% discount.

David: Whoo. Thank you, Vanta.

Ben: Thank you, Vanta. All right, listeners. Please note that this is not investment advice. It definitely wasn't investment advice last episode. Without further ado, on to 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 think a lot of people are probably familiar with this brand, especially in Seattle, especially if you are a runner. The story of this business is absolutely unbelievable and extremely under-told until now.

When the CEO Jim Weber took the helm in 2002, the company was losing $5 million a year. It was $30 million in debt. It was a week away from missing payroll and the board was 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. When we talk about this revenue number, it's not SaaS numbers. There are extremely real costs and making shoes, so you can imagine not making a ton of money or actually losing $5 million a year. That business had been around for 90 years and it sold all sorts of products at every price point, to frankly, a pretty random set of consumers in every category, not just running.

Enter Jim. Jim came in and vet 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, a billion with a B, and well over a billion, is thriving, and thrived even through the pandemic.

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, a visionary, and a fighter not only growing the business over the last 20 years but personally fighting and beating cancer. Please welcome Jim Weber.

Jim: Hey, guys, it's great to be here. Here we go. This is great. What a show.

David: Jim, we figure you have a lot of footwear already.

Jim: I've got shoes. I sold six more pairs tonight. This is awesome.

David: This morning, thank you for hosting the runs. It was fun. We have an Acquired hat for you and an Acquired bag with some more goodies from the Acquired family.

Jim: First gym bag at the company. For sure. Thank you.

David: We hope to see this in the Trailhead store starting in 2023.

Jim: I love the gold. That's the first gold trim we've got as an accessories bag. It's great to be here.

Ben: My first question and the way that I want to just tee this off, I mentioned it's an untold story until now. I hear you just launched a book, so congratulations on that.

Jim: Thank you.

Ben: Could you just tell us a little bit about that? What is the book?

Jim: The book is Running with Purpose, and Brooks has been a fabulous journey. I'm a person that believes in life, the journey is to just be cherished and enjoyed because the finish lines are fleeting. We all want goals, we all want finish lines, but you got to enjoy the journey along the way. I think we're all creatures of our journey.

Brooks has been through a lot. We can say a David and Goliath story, it's a turnaround story. It's a purpose-driven, culture-driven brand story. It's a focused niche challenger brand story in an industry like so many that's dominated by platforms—one really, really fabulous platform—so we've navigated that. We're building a really cool brand with lots of runway yet for growth, and it's a great business, too.

I wanted 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.

Ben: That's great. David and I got to read an advanced copy of it and then I actually just listened to the audiobook when it dropped earlier this week that you actually 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 on 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 that point.

Jim: 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. I ended up following an executive to the Coleman Company so I started becoming an outdoor sporting goods guy.

David: This is Coleman, like camping.

Jim: Coleman camping, but they owned a whole bunch of different businesses. I so badly wanted to run a business. A little division they had down in Phoenix hit the wall just almost fraud in accounting and everything else. I came back from a SWAT team and told my boss I want to go run that.

David: Put me in, coach.

Jim: Put me in, ran that, turn it around, sold it. Went up here to another Coleman division, O'Brien Watersports. It's in our backyard here in Redmond, Washington. A brand and I ran that for several years, turned it around, got profitable. They sold it. There's a pattern here.

I went on to SIMS Sports, a snowboard company, and we turned that around and it ended up changing hands. There I was and I joined the board at Brooks, I joined the board at Nautilus, which was formerly Bowflex. I did some banking work, middle-market M&A, marketing companies to investors. On the board at Brooks, I had an inside view of what was happening there.

A good friend of mine, Helen Rockey, 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 or private equity firm and they bought it. 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.

David: You were on the board the whole time?

Jim: I was on the board. I had a look inside and it was a crisis. You guys have experienced this, the weekly board calls on Fridays, the bank is not going to fund, they want more capital. It was exciting, as they say. After a couple of months, we did a lot of work, I saw an opportunity, and I jumped in. I love running businesses, I love solving puzzles.

I started telling Brooks, I really wanted to play the long game. I wanted to build a brand. The TAM—I love your industry—market and running is the biggest category in all sporting goods. It's the biggest category and athletic footwear. It always has been. It's about a $30 billion category globally, apparel and footwear.

All we had to do was get it and we could survive. We just kept at it by design because I just decided I want to play the long game and build a brand, build value, so that's why I'm still there. I'm a weird duck, but I've had four owners and I played through each one and kept that opportunity out there for the next owner.

David: At that moment, though, Ben mentioned you did a little of this, a little bit of that, like a deadline in Wayne's World about I've got a collection of hair nets and name tags. You were making football cleats? What was Brooks at that point in time?

Jim: Every brand in athletic footwear and apparel plays the whole athletic directors purview. You're in every sport. What no one understood that I found out later is the mindset in our industry literally came from owning a factory.

When you had a shoe factory, you had to keep it busy all year long, and keep the people in place. So you went from baseball cleats, to wrestling shoes, to bowling shoes, to running shoes. You had to make everything, and business develop that way.

David: You had to view it as the product you made was like a factory that made shoes.

Jim: Most of it, we were losing money on and that was the secret. We had good, better, best, $30 shoes, $80 shoes, and then performance running shoes that really started at that point about $100. Then we had court shoes and family footwear. We call them barbecue shoes and learn more shoes because that's what you did in them.

All of it was very low margin, all it was tying up inventory and cash. The retailers were ambivalent about it because we were number eight or nine and everything. Our brand was not strong, but when we made the decision to burn the boats on everything but performance running, the industry had never seen that before and most people thought we were crazy that we wouldn't survive.

Ben: You came in as CEO, I think in 2002, maybe late 2001?

Jim: April 2001.

Ben: 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 had an inkling that you could build a big, powerful brand here and actually build a tremendous growth business?

Jim: By this time, I understood what they needed. I talked about a little bit of my book, I'd run three and I was a little bit smarter, fortunately. They had to liquify; there was no question about it. They were going to 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 quotes from Benjamin Disraeli, “The secret to success is constancy of purpose.” I wanted to create value. I want to build a brand.

I decided when I walked in, I was going to play through Whitney. I was going to get them a good outcome, but I was going to stay and play through it. I thought we'd get another private equity player, we didn't.

The Whitney partners, Peter Castleman and Paul Vigano, I'll never forget the meetings. They said this thing is kind of a mess. We didn't know what we bought. You have to pick a path and go. It might take you five years, but you got to do it. In Brooks' darkest hour, they wrote a check and recapitalized it. [...] cram down, but they wrote a check and that's when I came in. They were fantastic partners for Brooks, and we got them liquid.

The pitch I made to our team (and it's what I believed) is that companies with issues get sold, companies with opportunity attract investors. I said, we're going to have to park cars in the parking lot. We're going to attract somebody. That's the mindset we had. We were going to sell the future, not just sell the current.

Ben: If I'm remembering right, Whitney put in $7 million.

Jim: To recapitalize it.

Ben: I think that's the last time Brooks has taken outside capital.

Jim: Absolutely. We saw a higher margin business and we benchmark against all the public companies. We’re asset-light, it's really an inventory and receivables business, and there's a reason we only have one store at our headquarters. We think 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 incremental, obviously capital, you can flow cash growing 20%, 30%, 40%. We haven't needed dollar of capital since 2001.

Ben: Wow.

David: That's incredible.

Jim: That's why Warren Buffett likes us.

Ben: You send cash to Omaha, not the other way around.

Jim: Our return on tangible net assets has been over 50% for the last 15 years.

David: Wow, 50% annually?

Jim: Yeah, on average net tangible assets.

David: I'd say that's a good business. Can you just walk us through how the economics of Brooks work?

Jim: Here was the insight that we saw. Monopolies are great, network effects are great, all those things are great. What I saw in Brooks was a book that was meaningful to me when I was at Pillsbury, the PIMS Principles. 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, that's a discerning purchase. The margins on equipment tend to be lower. But the titleless golf ball is a consumable for me anyway. Running shoes, for a frequent runner, will put 20–30 miles a week. They'll go through 2.6 pairs of shoes a year. There's the stickiness.

If you can earn a frequent runner that the shoe is really important, it's a piece of equipment for them, you don't have to resell them every time. You've got some stickiness there and you start to build customer loyalty.

David: Your average selling price for a pair of shoes today is $130 times 2.6 per year and a loyal Brooks customer stays with you for?

Jim: We had to earn them. There's no guarantee. They're curious. There's lots of new innovation. They'll try some different things. One of my favorite stats for our brand is shoe count at marathons because it's a piece of equipment. You don't want to be injured, you want to have a good experience. So we sponsor. Boston just happened, an incredible race. We're always the number one or two shoes of course, that's the punchline.

Ben: Do you have people at the big marathons counting?

Jim: It's so good. They have high speed cameras, AI, they link it to the bib. They know exactly what shoe 20,000 people are running on, the model. It's so cool. Houston Marathon, 6000 marathoners, 12,000 halfs. Number one shoe in the half is Brooks. Number two shoe in the fall, there was a little brand down in Portland, Oregon, they were number one. We are on their heels. That shoe count is a true test because that's the frequent runner and it's a piece of gear in that. The leading edge for us is to earn that customer and have their confidence.

Ben: All right, David's doing the thing that I normally do and jump ahead and try to unpack the business as it is today. Let's go back to the story. It's 2002 through 2006, let's talk about this era. You've made this bet where you're going to shed every other product that you sell and you're kind of going to piss off a lot of your channel because you know what sells really well at these big box stores. Those are your barbecue shoes. Can you take us to one or two of the key moments of the hard part of the decision to drop product lines that weren't about frequent runners?

Jim: I think that the key to Brooks is that we knew we were going to have to build the brand at the runner level, literally a pair of feet at the time. So many retailers told me, Jim, we are not going to build your brand. We'll try it, we'll test it. We were tested at Dick's Sporting Goods, I'm not kidding for 10 years. Twenty stores, 80 stores, 20 stores, 80 stores. You have to build the flywheel in these franchise products. That's how running works.

The best-selling running shoes continue to be the best-selling running shoes year after year 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. They're the two top shoes in the performance-running category.

When we go to retail, the biggest customers are the Big 5. It's a fine sort of mid-price sporting goods retailer on the West Coast. We were doing $10 million of $60 million in revenue with them at $30 shoes. My first meeting with them was we love Brooks, we see a great future for you.

Ben: One sixth of all your revenue is coming from their stores?

Jim: Yeah. They saw our opportunity in 1999. I was losing money at $30. I couldn't run fast enough from that meeting, because we left and we generated $5 million in cash by getting the inventory out of it. Those are easy decisions to leave those retailers and then we had to build it in the specialty-run community, pre-Internet, pre-ecommerce, which is a huge part of our business now that is sporting goods.

Ben: They didn't want to sell your $100 shoes. They wanted to sell $20…

Jim: They didn't have the customer, they didn't have the runner. They had family athletic footwear at those price points.

David: At this moment in time, where was this in the running-as-a-sport market of marathon. Were they where they are today? Where are they on that journey?

Jim: They were on that journey. 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 business is in 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.

When we came in, we were humble and we were getting the business that we could. We had shoes that were really more back-of-the-pack people. They weren't the fastest people. They're support shoes and motion control shoes. People that needed functional footwear.

We've moved ourselves to the middle and the front, we're trying to serve every runner. The insight was the sport is the soul of running. Track and field, cross country, road racing, the Olympics, now trail and Ultra, but the business is people that are investing in themselves—fitness, health, and wellness.

There's no other sport that has that dynamic, where it goes from a sport to a pursuit of investing in yourself. We've always positioned ourselves 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.

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 moreover what shoe they were wearing. The truth of matter is everybody's unique, the shoe really matters, and you all know if it's comfortable, if it's working or it's not. And frequent runners really do.

That's the insight. I think we're the only brand that is consistently executed against that. Every product we make starts with your biomechanics, your habitual joint motion, and what your needs are, and we're all essentially different. We're the only brand that begins there. And we've done that for 20 years now.

David: You mentioned that other company in Oregon.

Jim: I try not to say competitors names. It just ends badly if you say a competitor's name.

David: Which is an amazing company down there.

Jim: It's a great company.

David: Literally their name is the Greek word for victory and what you're talking about here is an incredibly counter position to that in a way that victory really can't mean just investing in yourself regardless of where you finish.

Jim: One person breaks the tape. Forty thousand people run the New York Marathon. We'll take the 39,999 that want to have their best day. They're investing in themselves. We are celebrating every one of those people. First 5K, run around the block. Man, that's your run, right? That's what we do.

Ben: It was really clarifying reading your book and understanding that Brooks' brand is about performance, but it is not serious. I think that was an interesting clarification for me because I run and I take my performance seriously. 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 victory-oriented brand, because I've never once thought, oh, maybe I will win the Seattle Rock 'n' Roll marathon. That has never occurred to me.

Jim: We still hope, Ben. I think it really what it relates to. This is, I think, what Brooks got before any other brand. We are sweating product. I think we invest more in R&D in a focused running metrics manner than any other company.

We don't have as much money as many of them still, but it's so focused on the clinical work we do and the materials work we do. We engineer materials just for the motion of running, and all the engineering that it would have to do, and respond in between gates, and all of that. That's the key.

I think our brand positioning, I didn't create it. It was sort of there when I came in, but it's brilliant for this reason. It's approachable. The unseriousness is basically trying to take the pretension and the, I'm not worthy, I'm not a runner out of our sport. So many of 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 weren't addressing women in the last 40 years in sporting goods, you're gone. We doubled the business. Women have driven this sport since the mid 90s.

Approachability, I think, was super key. Brooks is a very inclusive brand. It's you and your run. All are worthy, but the product.

Here's the other thing that's so interesting about our sport. Maybe in some sports, the pinnacle equipment absolutely needs to be available to the pinnacle athlete. Maybe that's in golf. Certainly for a two-hour marathon, everything has to be clicking. But what's interesting in 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.

That's another element of our category that's pretty unique. I would say that the unseriousness of our brand is all about in welcoming and including everyone, no matter if you're just starting or it's your 20th marathon.

David: All right, for our second sponsor of this episode and all of season 10, a 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. This is the final 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 that startups are probably more vulnerable than Microsoft or Google who's had decades to get their security teams all ramped up.

When they happen—cyber incidents—even for startups, are really expensive. All in the breach for even a very early-stage startup is typically around $400,000. That's where it starts as your company scales and the company grows. The average overall cost for a cyber incident for a company of any size is about $4 million.

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. If you're a fintech or a health tech company, even earlier after you raise your seed round. If you have coverage and you get hit with a cyber attack, what happens? The first priority is always deal with the breach itself. 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 remediations that can reduce the likelihood of a major claim or class action lawsuit against you, which yes, can happen to startups, too.

This part of the insurance is called first party coverage. It's about paying the cost of getting your business back on track, your systems secure, taking care of the impacted parties, et cetera. 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. That's what protects you from claims of damage from customers, partners, regulators, et cetera.

It is super important, if you're getting cyber coverage, to get both first- and third-party coverage. You do not only want one. Coverage from a high quality insurer like Vouch always will come with both. Head on over to vouch.us/acquired where Acquired listeners, if you use that link, you will get an extra 5% off your cyber and all of your other insurance coverages that we've been talking about all season.

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.

Ben: Thanks, Vouch. Going back to our story again, you just lost the Big 5 business intentionally. You walk away from 160 revenue. I think you walk away from more than that. It's not like it went from 60 to 50. It went significantly lower.

Jim: Footlocker, we were doing $60 SMUs. They'd order 80,000. They changed the product twice. They'd get it down to 60,000, and then they cancel it, and we did 20,000 inventory. That was a quick decision, too. We just quit doing all that makeup business that was retailer-driven.

Ben: Revenues going like this intentionally. You're the fourth CEO. At this point, how do you get the team on board with these crazy decisions you're making when there are three other people came in here and tried to turn this thing around and didn't?

Jim: I think from a leadership standpoint, the real puzzle in that first year was gaining trust from everybody that mattered. BMA was our bank. It’s kind of a lost cause, we had to replace them. They just weren't going to buy it. But Whitney invested—that was the key—and we kept them with us all the way through.

The leadership team took time. You had to deliver sort of an outcome, but here's what we did. Six weeks in, we redid 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 hadn't made a bonus in four years.

We went after cash flow. That was shrinking the mix. We had our plan that year and people got a bonus. 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're seeing. We generated $10 million of cash that first nine months. That's how much we shrunk the balance sheet with focus.

Here was the key, though. You have to do Horizon 1, Horizon 2, Horizon 3. You've got to solve it all. I had 10 things to do. The board said, oh, my God, you're crazy. Pick four. No, you don't understand. We had to get the Adrenaline right because that shoe was critical for us.

We had to refine that shoe in 2001 for 2002, and we got it right. The fourth Adrenalin was an incredibly balanced shoe, had a multi-density stability technology in it, super balanced. ASICS started to not deliver, and we ran. We air-freighted 1 color, 18 months cycles. It saved the company. We had to finish that shoe in 2001 to deliver on 2002.

David: You guys are like a semiconductor company.

Jim: At Brooks, everything's complicated. Everything's competitive, but it's like moving a wall of bricks forward. I think as a CEO, you got to move it all forward. When some things are falling behind, you got to get those up. You have to deliver the whole business model.

You have to do it sequentially over seasons in our business because if you come to market with a ho-hum product line, you're going to shrink that year. 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 tooling on everything, 12 sizes men's, 12 sizes women's, widths, colors. It's scaling these things. In fact, there's a lot of tooling. It takes a half a million to a million dollars to bring one style to market. It's a lot of tooling and inventory.

Ben: It's a lot different than the software business.

Jim: Don't ask me about my tech stack on my website. My board does that every now and then and it doesn't go well.

David: It's actually pretty great.

Jim: We're competing with digital engagement in our industry. We're doing really well with it. We've taught ourselves that and runner-focused, but I think we're executing on the digital side with runners as well as anybody is right now.

Ben: You're also in a pretty good town to be able to recruit digital talent.

Jim: There's a lot of talent here and they have a lot of opportunities now, too.

Ben: Okay, fast forward a couple of years. You nail it with the Adrenaline 4. You're profitable now. 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 who were joining Russell?

Jim: You guys are in this business. I've been bought and sold a few times. I bought things too. We knew we were going to have to sell, so we were prepared. We thought for sure it was going to be another private equity firm. We're going to get another kick at the can.

That's what I was absolutely mentally prepared for. The bankers come in and we do the management presentation. We're going to practice on a strategic. There weren't many there. We're going to practice on Russell Athletic.

Ben: While everyone does a warm-up fundraising pitch.

Jim: Oh, my God and they completely fell in love with it. There we are.

David: If only you had YC's growth program that you could then go practice.

Jim: We negotiated our independence. I pitched us. We're the crazy uncle out in Seattle. We're really different. Just leave us alone, which they did. For them, we had negotiated our independence because we knew where we were going. We saw the opportunity.

We had a flywheel going. We really did. At that point, we're continuing to pursue growth. They would have been crazy not to just let us keep going. I would do that then with the next owner as well.

Ben: Two more years passed, business continues to grow. Russell gets bought by Fruit of the Loom. Fruit was already owned by Berkshire, right?

Jim: That's right.

Ben: What's it like now being a subsidiary of a subsidiary of Berkshire Hathaway, but two levels down?

Jim: It was really interesting. In one sense, I'd gone to school on Warren through his letters. I had an internship in the 80s that he had put a business out of its misery in a competitive battle and two newspaper town that went to one.

Ben: Buffalo Evening News.

Jim: Yeah, the Buffalo Evening News. There was a black hole in Coles Media's balance sheet. I'm like, what happened there? Warren, oh, my gosh, plays to win signals he will never ever, ever, ever quit. Five million dollars of losses, investing in newsroom, investing in quality, goes to the morning, fight to the death.

Don't do that with Warren Buffett because he never quits. They made a rational decision. They closed it down. His profits went from -5 to 10 million every year since. I was just, wow, who is this guy?

David: That was before Salomon Brothers, right? That was the prelude to Salomon.

Jim: Yeah, that was in his early days. The way he talked about brands and the moat around a brand, I hadn't seen that before. Competitive Strategy, right? I loved it.

I'd gone to school on him. Once we got part of Fruit, I thought, okay, this is good because Charlie and Warren are going to understand what we're doing at Brooks. We're small.

We started to get some letters and your numbers are good. We got notes from the board. But Fruit of the Loom and Brooks are just completely different companies. Six packs of men's briefs at Walmart for a hundred years.

David: That's not the performance.

Ben: But a little bit different than a local running store distribution strategy.

Jim: The innovation was Mighty Morphin Power Rangers or something.

David: I may have had those.

Jim: Anyway, but they're a longtime company. They bought it for Russell Athletic apparel. They bought it for the Walmart business, and they're good at that.

Again, they left us alone. We had to negotiate that. It wasn't given. On paper, they were going to move us to Bowling Green and it would have killed Brooks. I was pinging because we were possibly going to get sold.

Actually, I talked to some super smart people, some in this town. Warren basically said, I'm not going to get involved. It's up to Fruit. 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.

We took them 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. Then two years later, Warren plucked us out, but we had to negotiate our independence from them.

Again, I could have left. I had opportunities to leave. I didn't want to leave. We saw a great opportunity. 2008–2009, just as that was going on, obviously, the Great Recession. We tripled the business from 2009 to 2014. I knew we had some good things going.

That was a really critical moment because they might have moved it to Bowling Green, which they did to everything else. Many of those brands wilted and I would have lost a lot of talent. I wouldn't have run it in their business model. It wouldn't have worked.

Ben: You get to retain your independence there, but you're not really independent. You're still within Russell with this and within Fruit. At some point, you get the phone call from Warren. Can you talk us through that?

Jim: Yeah. We had good incentive programs. 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. Fruit was sort of consolidating all their stuff. They had bought Russell for about a billion dollars with internal capital. They were about to go and restructure that.

We had started to sell shoes at the annual meeting at Omaha. This is like Charlie and Warren 50 years ago. I love this event. Their arena was full, but that will be the case for you guys getting another year.

David: They've had 50 years to compound. It's going to be huge.

Jim: It's gonna be huge. We were selling shoes there. I sent Warren a note and great, next year we'll sell more, good job. I'm hearing great things. You guys are doing well. By the way, if you're ever in Omaha, come by, we'll go have a steak. Well, son of a gun.

David: You don't say no to that.

Jim: I just happened to be in Omaha about three weeks later. I knew he would love what we're building. It's unique, it’s distinctive. We're not trying to be that brand. We're really developing something with focus. He couldn't figure out why the big guys weren't squashing us.

We spent three hours, not one phone call, door was closed. We had a meal, but you just get his undivided attention. His brain is just so focused. He loves business. I did most of the talking because he's going to fall in love with this business.

The start of the story is it was December when Mark Zuckerberg was preparing to take Facebook public. There was a Wall Street Journal article for the new—I don't know if he was 22 or 23—young CEO of a public company.

One of the lines in there was he was going to trade in his Adidas Slides for a pair of Brooks Adrenalines. I don't know why it was in there, but Warren saw it circled it and said, Jim, this is great. We just need a couple of million more.

David: Wait, did you send Zuck a pair?

Jim: Oh, yes. He was in Brooks for a while. Two weeks later, I'm with my family down in the desert. I think I was on a Blackberry, but it's 2011. I didn't have my voicemails coming into my phone.

I was checking email every day, but I didn't check voicemail. I get back in my office January 2nd. I'm in early. I like to start the new year, especially early at 7:00 AM, and the red light on the phone is blinking. I picked it up and answered it. Jim, this is Warren. I got an idea. Give me a call. It was five days [...].

David: You know the story of Warren during the financial crisis of Lehman that he missed the voicemail.

Jim: Yeah, he missed the voicemail completely. He found it like a year or two later. Anyway, I picked up the phone and dialed the number. Hello. He answers his own phone. It's incredible.

This is Jim. Sorry, Warren. I was at blah-blah-blah. He said, well, here's the idea. You guys are doing well. You're focused on shoes, you're premium. Fruit really has to focus on apparel. I'm thinking about spinning you out and setting you up as a standalone subsidiary. You guys just keep doing what you're doing. I just think that makes sense.

I said, you know Warren? I think that's a good idea. 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 going to take all the credit for your success.

It has a platform to do what we want to do and build our brand. They so know that revenue growth and profitability, selling at margin, double digit growth, is all about building brand. That's really what we've been doing and really wanted to do.

We just have a sync on the opportunity that we have with this brand. Now it's been 12 years. That's the true reason I'm still there because we're competing in a really, really big competitive category. The margins on success are not fat. They're thin. So executing against that with confidence and support, being able to work through a lot of the uncontrolled that’s in our category, is a huge advantage for us.

Ben: I'm going to keep us going through the story. Like I've done on many previous episodes, I like your marking a number along the way to track. I think around this point, you're doing $160–$170 million in revenue. The business has grow nicely. You're 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?

Jim: I think in real life, digital's digital. But in real life marketing, we activate. A lot of the running shops do runs out of their stores and they're involved with the 5Ks. We're bringing energy and positivity that is really trying to make it fun for other people. Many are there running for the first time.

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. 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 compete for team USA. It always happens in June. The Olympics are July–August. It's just a fabulous event.

The backdrop is the 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's a 27-year deal.

Of course, University of Oregon is a Nike University in more ways than one, so they wrapped it up. The whole thing has got swoosh wrapped around everything. I think the yellow lines on the highway are smooshes.

We wanted to celebrate the athletes. We have athletes in there. We invest in the sport. We don't invest like they do, but we invest in athletes. They're inspiring and so on and so forth. All the brands do.

What can you do? You can't do a lot. We checked with the FAA, the air rights are open. Nobody said you can't fly a plane. We put a Runhappy banner on an airplane and we just flew it around that stadium all day on Friday.

They got mad. We did it again on Saturday and they started telling us, you got to take that plane down. Why? Well, because you can't do guerilla marketing. Yeah, but we checked. The FAA is fine. It's all good.

That's the sky. We're cheering on the athletes, you can't. You got to take that thing down. Get that thing out of the sky. Overnight, coming into Sunday, the final day, we checked with some of the Track and Field officials and they basically said, screw them, you should just fly it. And we checked again with the FAA.

We flew it. 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 those, but we bought all these. And they said, all right, you guys all have to leave. We're like, what? You know you all have to leave.

We left our guests and three of us went down to talk about it. Why are you asking us to leave? We asked you to take it down and Nike was all sitting right behind them. There's nothing against doing that. 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. It was a huge mistake for them because this story has lived on in the industry forever.

We had some of the best running shop people in the country there with us. They were our guests, so everybody knew about it. They kicked me out, our head of marketing, and our head of sports marketing. It was interesting. We were at the bar, we had beers, and we watched it on TV.

Ben: If David and I were on Zoom with you, we would be getting ready to enter hour number two and try to talk about every year all the way through. 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.

Jim: A couple of big advantages. First was literally an obsession on runners. Participation links to unit sales and volume. 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 casual family lifestyle footwear.

There's nothing wrong with that. Some of those businesses are great. But we had an advantage because 90% of our products went through a retailer. That's the problem. Europe retail shutdown in one week, then all of retail rolled through North American.

By the end of March, not a store was really open. That's the problem. Cash cycle froze. Oh, my God, nobody knew it was happening. We didn't know how lethal this virus was, how transmissible, and so on and so forth.

It was white knuckle time and we were there with everybody else. Everybody can write a book on that, but here's what we did. We saw phases because we'd seen during the recession, running is a bit recession-resistant. We saw that in the Great Recession.

David: I was thinking about that.

Jim: Because it's cheap and it's convenient, all you need is a pair of shoes.

David: It's like the healthy alcohol during a regular recession.

Jim: Thank you. We were not an essential business. Marijuana and alcohol were, so figure that out. 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.

We'd seen that before and it turned out to be Covid-friendly. You now know the story. It was social distancing friendly, outdoors, walking, hiking, running all made the cut, but nobody knew that. We had an hypothesis. We created this frame on how we thought running would recover.

Here's what we did. First of all, Strava data magic. Every day after the quarantine shutdowns, Strava activity was growing and they were sharing that. Then what we did, we have 40 in the US alone, 45 field marketing people, we put them in high traffic running parks at 4:00 PM every afternoon and they counted runners. Guess what? It was growing every day.

We watched digital sales. We have visibility on 85% of our retail sell through. Digital went from 30% of all of our products going through a website of somebody's, ours, or another partner’s. It went to 80% by the end of April. We sold more in May 2020, almost all through digital than we did in May 2019.

Running made the cut. We grew 27% in 2020, that Covid year. We saw this was the key because of our customer obsession and our ability to work. Multichannel was a big advantage in that time because we can move inventory around and make it happen. Inventory, if it isn't there, you can't sell it.

Multichannel was a big advantage. The other was our focus on the runner. We turned our supply chain on at least 6–12 weeks before anybody else did. Because if you were a broad-based retailer, there was no clarity on when the customer was coming back. For a lifestyle product, nobody went outside for a year.

Ben: Was the fact that you exclusively made performance running gear 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.

Jim: That's right. Apparel and footwear inventory is life and death. You've got to manage inventory well. Because if you have too much, you'll ruin the next cycle of inline product. Inventory is really critical, but we managed and played that cycle really well. We grew to 27% in 2020. We grew 31% in 2021. We would have been up 40% if not for supply chain.

Ben: What did you end up doing in revenue last year?

Jim: $1.13 billion. Great year. We cracked a billion. The billion dollar club is actually a rarefied club. There are probably maybe two dozen, global. Chinese brands are there now. It's a great club to be in.

What makes us unique is it's all premium, full price, full margin product. Most of the other brands have good, better, and best. Those are retail-driven merchandising strategies. They're not really consumer-driven strategies.

Ben: Normally, we talk about seven powers as we drift into analysis here. You're a Berkshire business, so we're going to talk about moats. What is Brooks' moat and how do you think about defending the castle now that you have what you've built?

Jim: We think a lot about it. I think there's also something I'd add to that. Part of the moat can be business models. Business models can be really powerful. One of the things you can do as a company to create defensive moat structures is business model execution at scale.

We now are executing retail partnerships with the best retailers for running gear to runners at Super Jock 'N Jill in Seattle, Fleet Feet running down in (I think) Menlo Park. Obviously, some of the better sporting goods players and outdoor from REI to Dick's 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, runners are digitally savvy. They're obviously all over the web. They start their shopping experience there.

We reach them in active evaluation mode. Once you start looking at shoes, if you don't see our ad, I don't know how we missed you. We're spending a lot of money at runners now, maybe more money at people who run in active evaluation for running shoes than any other brand. Very focused. That's not easy to do in our industry at scale.

I would say this is our moat. I think runnability, fit, feel, and ride, there's a lot of good shoes out there. It's actually not easy to make a great shoe. 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.

The refinement that goes into mile and making mile 26 acceptable, is really big. I think great product is not as common as you might think. The people on the inside, the frequent learners know. I think you always got to lead with product. That's the first brand experience, product experience.

I think we do some hard things. We build a great product consistently, year in year out. It fits and it rides well. Then what we do on the retail side, partnering, activating in real life, running and selling shoes in real life events, and all the like, we do that better than anybody else. We service them. We deliver on time, complete. The digital piece, we're excited about it. We're still just getting started there, but we're really focused on it.

David: I'm curious. I hadn't even thought about Strava and the amount of data that you're able to see from that. What does the digital side of running in the future look like for Brooks and for the industry?

Jim: It's interesting because quantified self and those tools have been ubiquitous. They're out there. The Apple Watch is a damn great product. What's interesting about that is both Under Armour and ASICS have spent hundreds of millions of dollars on digital apps. I think they've really struggled a long time.

David: Runkeeper and MapMyRun both.

Jim. Exactly. I wanted to buy every one of those and Warren wanted me to do the multiple on EBITA. There was no EBITA. Let's just say it's hard to do acquisitions sometimes.

David: At least one of them was a completely free product, I think, right?

Jim: Oh, man. They don't make money. Under Armour is trying to sort through that now. They're starting to shrink, so as Adidas. Those tools are really powerful for data, but how do you monetize it? We haven't gotten there yet, but we're building a Brooks Run Club. Finally, we've launched.

It's not a loyalty program, but we want to engage our zealots. We want to engage our true believers. The data piece of that is going to be key. We want to come up the kinetic chain and find a sensor system 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 gait in the last 5–10 miles really degrades. And that's where injuries happen.

We're doing a lot. We have a lot of partnerships. 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.

David: Do you think you need to do what the other folks in Oregon have done and build the whole consumer experience yourself? Is it a partnership?

Jim: We're going to build it and we're going to partner, too. Nike Plus is a fantastic ecosystem. It just is. I'd love to have an ecosystem like that. But we're still selling more runners than they are.

We became the number one running shoe brand in the United States in the last 12 months last month, 21.5% share from performance running. We know where the battles are. I think one of those powers is we make money on that. The digital space, there's a lot of carcasses there, but we'd love to have it, and we're going to work on it.

Ben: All right, listeners, back in the home studio here. We have one more friend of the show to thank. That is the Softbank Latin America Fund.

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 Softbank Latin America has done deploying $8 billion into 70+ companies. There's a lot of capital flowing into the region right now.

Softbank's takeaway from all of this is that technology in Latin America really isn't about disruption, but inclusion. A great example of this is portfolio company of theirs, Banco Inter. We actually talked with Banco Inter's CEO, Joao Menin on the show last season. Is that right, David?

David: Last season. He's so cool.

Ben: Truly. 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's an inarguable good in a society.

That's just one example of how Softbank is pairing with local founders in Latin America to bring them the capital and expertise they need. To learn more, you can click the link in the show notes or go to latinamericafund.com.

I have two more areas I want to ask you about. The first is grading and then the last is a personal topic. Can you paint for me what the A+ case looks like for Brook five years from now? I'm sure you do lots of three in your five-year planning, so think about this.

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, where if that thing goes wrong, everything else can crumble?

Jim: Two questions. The first one, the A case, we just created a north star 10-year vision for Brooks. It's global, for sure. People are running all around the world. As the middle class grows, people invest in their fitness. Running is always making the cut there.

It's booming in Asia. We're growing now really rapidly in Europe. We want to build a global brand. That's work to do in the next 10 years. We see an opportunity for 60 million customers, 60 million uniques up from maybe 15 million today for bagger and $4 billion in revenue. That's the big opportunity we see right now.

It's still a premium brand positioned to the enthusiast and really uniquely positioned against all the big platforms. The A+ case in 5 years is 20%–30% growth annually. That's what we've been doing in the last two, three years. A lot of that's going to have to come internationally. If we get a B and grow 15%, we're actually fine with that, too, because we're not rushing for the exit.

We're excited. We think we see it. We're going to have to compete for it. We have a complete playbook right now, in our view. What keeps us from being successful? I've experienced it. Single points of failure. We launched in DC, which we had to do to get in the middle of the country.

Ben: Distribution center?

Jim: Distribution center.

Ben: In 2016?

Jim: 2019, and it didn't work. We just disappointed customers for 3–6 months. It was awful. We never have done that. We execute well.

Now in Vietnam, the whole industry on performance is really focused there, principally. I think the big guy has 60% of their footwear coming out of Vietnam. The South was shut down last Q3, July, August, September. Forty-five percent of my factories didn't make a shoe for three months.

We grew 31% last year. We got 43% coming into that product issue and we're experiencing it now. Now we believe we're getting back on the curve. But what we've learned is, what is resilience and agility look like in supply chain? You got to diversify risk.

At our size that we're at, operationally, there's real risk there. We're thinking long and hard about that. We're working hard at it. Those are the things that are disrupting us right now. Covid's still alive.

Ben: Yup. All right, one closing topic. You battled, survived, and beat cancer while building this incredible business. How has that changed your perspective on leading on the way you spend your days and on life broadly?

Jim: Let's close it on a light note. Let's talk about cancer. That's the takeaway for these wonderful people. I didn't expect it. It came out of nowhere. Unlucky. How did this happen? Esophageal cancer, I just felt awful. My worst running experiences I've ever had and I got the diagnosis. Chemo, radiation, surgery, complications in surgery, another surgery. 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 even slower and I'm kind of a Frankenstein in my systems, but it works. Everything works.

I think what I learned from that, though, is that every time I have a friend or a family member who gets cancer, I go to the web. You look at it, understand it, and what the treatments are. They always give you a five-year survival rate. My five-year survival rate was 20%, one in five. My five years is this November. Someone has kick its butt.

What I quickly figured out and I talked it through with my family and obviously with Warren, frankly, is that 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 an active lifestyle, I've got this fabulous brand and a company that I'm a part of, and a team. I just love it. I don't know what else I do, which is a problem.

I decided 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. I didn't want to be bitter about why me. I just decided I want to soak in everything I can on any given 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 got four grandkids. That was it.

I think for me, that was really powerful because I don't want to be that cancer guy and they brought it up. It's just not my thing. I'm glad to talk about it. I don't hide it. I've learned a lot. I want to enjoy the things in life I really enjoy.

That's where I learned, but I think everybody's different. You do find out companies, when you hit challenges, you learn what you're really all about. I think it's the same for people, of course. I feel really lucky because I'm doing what I want to do. Cancer is in the rearview mirror. It's good.

David: It's so great.

Ben: I know Jim did not want us to end on that note, but I think that's where we're going to leave it for tonight.

David: I think that's the perfect spot.

Jim: Let’s go for a run.

David: Thank you so much. This has been so wonderful. Thank you for making this whole day a great experience and special for us.

Jim: It's great to be a part of it.

Ben: Thanks for all of you who came on the run this morning. That was super fun. All right, Jim, thank you so much.

Jim: Thanks, guys. I appreciate it.

Ben: 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. That was unreasonably short notice. I think it was a month or so, but boy, did the folks at PitchBook, Vouch, Vanta, and everyone else who helped us make this happen. Brooks running with the run the morning before the show.

David: Packy, Mario, Anu, Shu, Y Combinator. There was so much love. So many of our past guests just came in to come to the show. It was so, so cool.

Ben: Yeah, that was great. I'm hanging with Chenyi and John Bathgate. Listeners, hopefully we'll be able to do something like this in the future and have you there.

David: I think we got to do the Chase Center next. We got to bring this to San Francisco.

Ben: That's really the only option.

David: Where do we go from here? That's the only logical place.

Ben: It felt like Berkshire weekend for Acquired podcast nerds. We would never profess that we're at the same scale, but it definitely felt like it had an energy of, to quote crypto of “we're all going to make it.” I don't know. I got all the warm and fuzzies from getting to hang out with everyone.

David: You all are just the best.

Ben: I also think, David, of the thousand people in that arena, I think you and I personally got to talk with about 500. We were on a mission to make sure to meet as many people as possible.

David: Before the show, after the show, and at the after party, that was so cool. Man, it's so much fun.

Ben: Everybody who came is getting an NFT, a custom Acquired proof of attendance NFT. Thanks to Acquired's head of special project Sandy Kim and the Solana Foundation. For those of you who came and show it off when you get your cool animating, I won't give away too much, but yes, your proof of attendance NFT.

David: Yes, it's so fun.

Ben: With that, we want to thank, of course, the folks at PitchBook for doing this with us, to Vanta, Vouch, and the Softbank Latin America Fund. We would love if you want to come and chat with us, acquired.fm/slack. You can find your next job at acquired.fm/jobs. I think that's all we have to say. Listeners, we'll see you next time.

David: We'll see you next time.