Arena Show Part II Brooks Running (with CEO Jim Weber)

In this episode of the "Acquired" podcast, co-hosts Ben Gilbert and David Rosenthal, joined by CEO Jim Weber, delve into the remarkable turnaround story of Brooks Running. Once a struggling brand on the brink of bankruptcy, Brooks pivoted to focus exclusively on performance running shoes, abandoning all other product lines. This bold move, coupled with a commitment to serving active runners, propelled Brooks to become a billion-dollar company under Berkshire Hathaway. The conversation covers the brand's dedication to product quality, customer-centric marketing strategies, and the resilience displayed during the pandemic when running emerged as a favored activity. Jim also shares his personal battle with cancer, reflecting on his determination to continue leading and enjoying life without fear. The episode is sponsored by Pilot, a startup-focused accounting firm, and features insights into the importance of niche focus and the potential risks of supply chain disruptions in the athletic footwear industry.

• Ben Gilbert and David Rosenthal discuss their personal experiences with Brooks running shoes.
• David praises the Ghost 14s as the best sneakers he has ever owned.
• Despite the Ghosts being designed for active runners, David uses them for daily wear, including walking the hills of San Francisco with a baby.
• An unnamed speaker claims to burn more calories walking than when they were running every day.

"Dude, the ghosts are amazing. They are the best sneaker I have ever owned, bar none, hands down. I used to have adrenalines. Adrenalines are also great, but I literally wear them all day, every day."

This quote highlights David's high regard for the Ghost 14 sneakers, emphasizing their quality and his preference for wearing them constantly, not just for running.

"Well, with a baby, I mean, I'm literally wearing a baby walking the hills of San Francisco."

David explains that even though the shoes are intended for running, he finds them useful for his daily activities, which include carrying his baby around San Francisco, a city known for its steep inclines.

• The episode is part of season ten of the Acquired podcast, presented by Pitchbook.
• Ben Gilbert introduces himself as the co-founder and managing director of Pioneer Square Labs and PSL Ventures.
• David Rosenthal introduces himself as an angel investor based in San Francisco.
• They set the stage for the onstage introduction of Jim Weber and the Brooks story.

"Welcome to season ten, episode eight, the arena show, presented by Pitchbook of Acquired."

Ben Gilbert opens the episode, indicating the season and episode number, and acknowledges Pitchbook as the presenter.

"The podcast about great technology companies and the stories and playbooks behind them."

Ben Gilbert describes the focus of the Acquired podcast, which centers around successful technology companies and the strategies leading to their success.

• Pilot is a sponsor of the episode, providing accounting, tax, and bookkeeping services for startups and growth companies.
• Pilot is now the largest startup-focused accounting firm in the U.S.
• The service is endorsed for outsourcing non-core business functions to focus on product and customer value.
• Pilot provides comprehensive financial services, including CFO services and investor reporting.

"Our next sponsor for this episode is one of our favorite companies and longtime acquired partner pilot for startups and growth companies of all kinds."

This quote introduces Pilot as a sponsor and highlights its services for startups and growth companies.

"And when you say thousands of companies, Pilot does this for David. These are now companies like OpenAI, airtable and scale, as well as e commerce and other companies."

The quote emphasizes Pilot's broad client base, including high-profile companies like OpenAI and Airtable, showcasing its credibility and experience.

• Jim Weber is introduced as the dynamic CEO of Brooks Running, with a story that promises to be insightful for tech enthusiasts.
• Brooks Running is a century-old shoe company that has undergone significant transformation and growth under Jim Weber's leadership.
• The company was once on the brink of failure but has since become a billion-dollar revenue business.

"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 that people wrote down from Jim, so make sure you enjoy that."

Ben Gilbert sets high expectations for the interview with Jim Weber, indicating that his insights and the company's story are highly impactful and valuable.

"So 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 like having weekly meetings to figure out how to make payroll."

This quote provides background on the dire financial situation Brooks Running faced when Jim Weber became CEO, highlighting the challenges he overcame to turn the company around.

• Jim Weber shares his journey through various consumer product companies and his desire to build a long-lasting brand.
• He discusses his strategic decision to focus exclusively on performance running shoes, cutting other business lines.
• Weber emphasizes the importance of enjoying the journey and not just the finish line.
• His book, "Running with Purpose," captures the story of Brooks Running and his philosophy on business and life.

"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 just cherished 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."

Jim Weber shares the title of his book and his belief in valuing the journey of life and business, not just the end goals.

"But the story continues. And I wanted to tell."

Weber expresses his motivation to share the ongoing story of Brooks Running and the lessons learned throughout its transformation.

• Jim Weber recounts the challenges he faced when he joined Brooks, including the company's financial crisis and his commitment to turning it around.
• He aimed to build a brand with a long-term vision, playing through the expected sale of the company by its then-owner, J.H. Whitney Capital.
• Weber discusses the importance of focusing on opportunities rather than just resolving issues to attract investors.
• Under his leadership, Brooks has not required outside capital since 2001 and has achieved high margins and return on tangible net assets.

"The secret to success is constancy of purpose."

Jim Weber cites a quote from Benjamin Disraeli that encapsulates his approach to leading Brooks Running with a consistent and clear purpose.

"Companies with issues get sold. Companies with opportunity attract investors."

Weber explains his strategy for making Brooks attractive to investors by focusing on the company's potential and opportunities rather than its past problems.

• Jim Weber provides insights into the economics of the athletic footwear industry and Brooks Running's business model.
• He explains the historical mindset of the industry, driven by the need to keep shoe factories busy year-round.
• Weber describes how Brooks Running shifted to a high-margin business by focusing exclusively on performance running shoes and eliminating low-margin products.
• The company's asset-light approach and high return on tangible net assets have made it a successful and attractive business.

"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."

Jim Weber reveals that many of the products Brooks previously offered were unprofitable, and the decision to focus on high-quality performance running shoes was key to the company's turnaround.

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

This impressive financial metric highlights Brooks Running's efficient use of assets to generate profits, contributing to its success and appeal to investors like Warren Buffett.

• Ben Gilbert discusses the high ROI of consumable items versus durable goods.
• Lower price point consumable items provide repeat business and build customer loyalty.
• Running shoes are an example of a consumable with frequent purchase cycles for avid runners.

"The PIMS principles and one of the highest ROI businesses were lower price point consumable items."

The quote explains that according to the PIMS (Profit Impact of Market Strategy) principles, consumable items with lower price points tend to have high returns on investment due to repeat purchases.

• Jim Weber highlights the importance of earning a frequent runner's trust in the Brooks brand.
• Frequent runners go through multiple pairs of shoes annually, creating a recurring revenue stream.
• Customer loyalty is built through product quality and consistency.

"If you can earn a frequent runner that the shoe is really important. It's a piece of equipment for them."

This quote emphasizes that for frequent runners, a running shoe is not just a product but an essential piece of equipment, which, if satisfactory, leads to customer loyalty and repeat purchases.

• Brooks uses shoe count at marathons to measure brand penetration among serious runners.
• High-speed cameras and AI are used to identify shoes worn by marathon participants.
• This metric provides insight into the brand's market share and product preference among runners.

"They link it to the bib. They know exactly what shoe 20,000 people are running on the model."

The quote describes the technology used to track which specific shoe models marathon runners are wearing, providing valuable data on consumer preferences and brand performance.

• Jim Weber describes the decision to focus solely on running products, dropping other lines.
• The brand built its presence in specialty run shops and sporting goods stores, targeting serious runners.
• Brooks' best-selling shoes, the Ghost and the Adrenaline, dominate the performance running category.

"We knew we are going to have to build the brand at the runner level, literally a pair of feet of the time."

This quote captures Brooks' strategy of building brand recognition and loyalty one runner at a time, emphasizing a grassroots approach.

• Brooks positioned itself in the trainers' segment, focusing on everyday runners rather than racing shoes.
• The brand appeals to runners investing in fitness and wellness, not just competitive sports.
• Brooks' inclusive brand message is about personal achievement, not just winning races.

"The business is in the trainers... 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."

This quote distinguishes between the sport of running and the broader business of running, which includes people running for personal health and wellness, not just competition.

• Brooks' brand is approachable and inclusive, focusing on each individual's running experience.
• The company invests heavily in R&D to create products tailored to the biomechanics of runners.
• Brooks celebrates all runners, regardless of their performance level.

"We are sweating product. I think we invest more in R&D in a focused running metrics manner than any other company."

The quote highlights Brooks' commitment to product development and research, ensuring that their offerings meet the specific needs of runners.

• Jim Weber discusses the challenges and decisions made during his leadership to focus on the core running market.
• Strategic product development and cash flow management were crucial to the company's turnaround.
• Aligning the team and stakeholders around a focused vision was key to Brooks' success.

"You have to do horizon one, horizon two, horizon three, right? You got to solve it all."

This quote from Jim Weber conveys the comprehensive approach needed in leadership to address immediate challenges while also planning for the long-term future of the company.

• Brooks' strategy involved moving away from low-margin, high-volume sales to focus on premium products.
• The company faced the challenge of aligning product cycles with market demand to avoid excess inventory.
• Product quality and innovation were prioritized to maintain competitiveness in the running shoe market.

"It's like moving a wall of bricks forward. And I think as a CEO, you got to move it all forward."

Jim Weber uses this metaphor to describe the continuous and collective progress needed in product development and strategic business decisions.

• Brooks competes in digital engagement, vital for connecting with runners.
• The company has adapted to digital trends, utilizing its website and online presence to reach customers.
• Being located in a tech-savvy city aids in recruiting digital talent.

"We're competing with digital engagement in our industry and we're doing really well with it."

This quote acknowledges Brooks' efforts and success in engaging with customers in the digital space, an increasingly important aspect of modern business.

• Brooks was prepared for a sale, expecting another private equity firm.
• Management presentations were practiced with Russell Athletic as a "warm-up."
• Russell fell in love with Brooks and a deal was negotiated.
• Brooks negotiated independence, maintaining their unique business model and growth pursuit.

So the bankers come in, 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 athletics.

This quote explains that Brooks was undergoing the process of selling the business and had prepared to present to potential buyers, using Russell Athletic as a practice case.

• Brooks became a subsidiary of Fruit of the Loom, which was owned by Berkshire Hathaway.
• Jim Weber had studied Warren Buffett's business strategies and admired his approach to branding and competitive strategy.
• Despite differences in business models, Fruit of the Loom respected Brooks' independence.
• Negotiations were crucial to maintaining Brooks' Seattle location and business model.

And at that point, we were continuing to pursue growth. So they would have been crazy not to just let us keep going.

This quote signifies the importance of independence for Brooks' growth and the successful negotiation to maintain that autonomy despite the acquisition.

• Jim Weber had an opportunity to meet Warren Buffett and discuss Brooks' business model.
• Buffett was intrigued by Brooks' success and its unique market position.
• A casual invitation from Buffett led to a significant meeting that influenced the future of Brooks.
• Buffett proposed spinning Brooks out as a standalone subsidiary, recognizing its potential.

I just think that makes sense. And I said, you know, Warren, I think that's a good idea.

Jim Weber agrees with Warren Buffett's idea to spin Brooks out as a standalone subsidiary, which aligns with their growth and brand-building objectives.

• Brooks tripled its business from 2009 to 2014, capitalizing on the Great Recession.
• Marketing strategies included supporting running events and guerrilla tactics.
• An incident at the US Track and Field Olympic trials highlighted Brooks' scrappy and innovative marketing approach.

We're not trying to be that brand, that brand. We're really developing something with focus.

This quote emphasizes Brooks' commitment to a unique and focused brand identity, differentiating themselves from competitors.

• The pandemic presented challenges, but Brooks had a hypothesis that running would be a resilient activity.
• Data from Strava and field marketing observations confirmed an increase in running during the pandemic.
• Digital sales surged, and Brooks grew 27% in 2020, attributing success to their customer obsession and multi-channel capabilities.

We grew 27% in 2020 in that Covid year. But we saw it. This was the key because of our customer obsession and our ability to work.

This quote reflects on the successful growth of Brooks during the pandemic, attributing it to their customer-focused approach and ability to adapt to changes in the market.

• Retailers faced uncertainty during the pandemic with no clear indication of when customers would return.
• Lifestyle products, in particular, suffered as people did not go outside for an extended period.

"Before anybody else did, because if you were a broad-based retailer, there was no clarity on when the customer was coming back. And for a lifestyle product, nobody went outside for a year."

This quote highlights the challenges faced by retailers during the COVID-19 pandemic, especially those selling non-essential lifestyle products, due to the uncertainty of customer return.

• Specializing in performance running gear provided confidence to continue operations.
• Broad-based retailers could not reopen due to the majority of their inventory being unsellable.

"Oh, so it was the fact that you exclusively made performance running gear that gave you the confidence to flip it back on."

This quote summarizes how specialization in performance running gear allowed for continued business operations during the pandemic when general retailers struggled to sell diverse inventories.

• Effective inventory management is crucial, especially for apparel and footwear.
• Excess inventory can disrupt the product cycle and affect the next season's sales.

"And apparel and footwear inventory is life and death. You've got to manage inventory well because if you have too much, you ruin the next cycle of inline product."

This quote emphasizes the critical nature of inventory management in the apparel and footwear industry, where excess can have detrimental effects on future product cycles.

• The company experienced significant growth during the pandemic years.
• Supply chain issues were the only factor preventing even greater growth.

"We grew 27% in 2020, we grew 31% in 21 and we would have been up 40 if not for supply chain."

The quote indicates robust growth for the company during the pandemic, with supply chain issues being the only hindrance to achieving even higher growth rates.

• The company achieved over a billion dollars in revenue, joining a select group of brands.
• Their success is attributed to selling premium, full-margin products without discounting.

"1.13 billion. 1,000,000,130... The billion-dollar club is actually a rarefied club."

This quote proudly announces the company's achievement of surpassing a billion dollars in revenue, highlighting the exclusivity of this level of success in the industry.

• Business model execution at scale is part of the company's competitive moat.
• Focused digital marketing and partnerships with key retailers have been instrumental.
• Continuous innovation in product quality and customer experience is a priority.

"So we now are executing retail partnerships with the best retailers for running gear... That's not easy to do in our industry at scale, but I would say this is our know."

The quote discusses the company's strategic retail partnerships and digital marketing efforts as key elements of their competitive moat, which are challenging to execute at scale in the industry.

• The company is cautious about digital investments, learning from competitors' struggles.
• Plans to launch a Brooks Run Club to engage with customers and utilize data.
• Aiming to incorporate biomechanics data to improve product and customer experience.

"We haven't gone there yet, but we're building a Brooks run club... 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."

This quote outlines the company's measured approach to digital strategy, focusing on building a community and leveraging data to enhance the running experience through biomechanical insights.

• The company has a ten-year vision for global expansion and substantial revenue growth.
• Risks include single points of failure in operations, such as distribution center issues and supply chain disruptions.

"So the first one, the A case we just created a North Star ten-year vision for Brooks... But what we've learned is what does resilience and agility look like in supply chain?"

The quote presents the company's ambitious long-term growth plan while acknowledging the operational risks, particularly in supply chain resilience and agility, that could impede success.

• The CEO's personal battle with cancer influenced his leadership and life perspective.
• Emphasizes the importance of enjoying life and not living in fear despite serious health challenges.

"I decided I want to soak in everything I can on any given day... But I think 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."

This quote reflects the CEO's personal journey through a cancer diagnosis and treatment, and how it shaped his approach to leading the company and valuing everyday experiences.

• The event concluded with gratitude for the guests and participants.
• Plans for future events and community engagement were discussed.

"Thank you for making this whole day a great experience and special for us... We're so pumped to get to share it with you."

The closing quotes express appreciation for the successful event and excitement to share the experience with the audience, indicating the positive community spirit surrounding the brand.