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

In this episode of Acquired, hosts Ben Gilbert and David Rosenthal discuss the remarkable turnaround story of Brooks Running with CEO Jim Weber. When Jim took over in 2002, Brooks was struggling financially, but he made the bold decision to focus exclusively on performance running shoes, cutting other product lines. This strategic pivot, coupled with a deep understanding of the running market and innovative marketing tactics, led to significant growth. Brooks was eventually acquired by Berkshire Hathaway, with Warren Buffett recognizing the brand's potential. Jim also shares insights on navigating the pandemic, leveraging digital tools, and his personal battle with cancer, emphasizing resilience and a passion for the journey.

• Initial State of Brooks Running:
  • In 2002, Brooks was losing $5 million annually and had $30 million in debt.
  • The company was a week away from missing payroll, with the board meeting weekly to figure out how to make payroll.
  • Brooks was a $60 million revenue business, selling various products at different price points to a random set of consumers, not just running shoes.

"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."

• Jim Weber’s Strategy:
  • Jim decided to focus exclusively on serving active runners, cutting all other business lines.
  • This decision was considered risky and unconventional at the time.
  • Over the last 20 years, Jim grew Brooks to over a billion dollars in revenue.

"Jim came in and bet the company exclusively on serving active runners as a segment and he cut all other business lines."

• Acquisition by Berkshire Hathaway:
  • Brooks was acquired by Berkshire Hathaway.
  • Warren Buffett personally elevated Brooks and Jim to make the company a direct report to him.

"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."

• Previous Experience:
  • Jim had a varied career, including roles in banking, corporate development, and strategy at Pillsbury.
  • He had experience turning around businesses at Coleman Company and O’Brien Water Sports.
  • Before Brooks, he was involved in middle market M&A and marketing companies to investors.

"I became a consumer products person after some banking, Pillsbury, M&A, corporate development strategy, got to run a brand, and then ended up following an exec to the Coleman Company."

• Joining Brooks:
  • Jim joined the board at Brooks and had an inside view of the company’s challenges.
  • He took over as CEO in April 2001 amidst a crisis, with the company having gone through three CEOs in a short period.

"On the board at Brooks, I had an inside view of what was happening there. A good friend of mine, Helen Rocky, had run it successfully in the 90s but she left, and it started to go sideways."

• Focus on Performance Running:
  • Jim’s strategy was to focus solely on performance running, abandoning other product lines.
  • This focus was unprecedented in the industry and initially met with skepticism.

"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."

• Financial Turnaround:
  • Brooks has not taken outside capital since 2001.
  • The company has maintained high margins and good cash flow, contributing to its profitability and growth.

"We haven't needed a dollar of capital since 2001."

• Economic Model:
  • Brooks operates on an asset-light model, focusing on high-margin products.
  • The company’s return on tangible net assets has been over 50% annually for the last 15 years.

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

• Purpose-Driven Culture:
  • Jim emphasizes a purpose-driven, culture-driven brand.
  • He believes in cherishing the journey and building a brand with long-term value.

"I'm a person that believes in life, the journey is to be cherished and enjoyed because the finish lines are fleeting."

• Niche Challenger Brand:
  • Brooks positions itself as a niche challenger brand in an industry dominated by large platforms.
  • The company focuses on creating value and attracting investors by selling the future potential of the 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."

• Leadership Style:
  • Jim is described as a leader, visionary, and fighter, having personally fought and beaten cancer.
  • He is committed to playing the long game and building a sustainable business.

"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."

• Book Release:
  • Jim released a book titled "Running with Purpose," detailing the journey and transformation of Brooks.
  • The book emphasizes the importance of enjoying the journey and building a purpose-driven brand.

"The book is 'Running with Purpose' and Brooks has been a fabulous journey. I believe in life, the journey is to be cherished and enjoyed because the finish lines are fleeting."

These comprehensive notes cover the key themes, strategic decisions, and leadership insights discussed in the transcript. Each theme is supported by relevant verbatim quotes and explanations to provide a clear understanding of the core messages.

• Frequent runners are essential customers, running 20-30 miles a week and using approximately 2.6 pairs of shoes annually.
• Customer loyalty is crucial due to the recurring need for new shoes among frequent runners.
• High average selling price for running shoes ($130 per pair) highlights the economic significance of loyal customers.

"A frequent runner will put 20 to 30 miles a week; they'll go through 2.6 pairs of shoes a year."

• Frequent runners are consistent customers, ensuring steady sales.

"Your average selling price for a pair of shoes today is 130 bucks. Times 2.6 per year, and a loyal Brooks customer stays with you for maybe, you know, we had to earn them."

• Loyal customers provide reliable revenue, reducing the need for constant re-marketing.

• Sponsoring marathons is a strategic move to showcase the brand to dedicated runners.
• Shoe count at marathons serves as a metric for brand popularity and performance.

"We sponsor Boston just happened, incredible race. We're always the number one or two shoe on course."

• Sponsorships at prestigious events like the Boston Marathon elevate brand status.

"Houston Marathon, eight thousand six thousand marathoners, twelve thousand halves; number one shoe in the half, Brooks."

• High visibility at marathons reinforces the brand's association with serious runners.

• Brooks decided to focus exclusively on running shoes, abandoning other product lines.
• This strategy involved significant risks, including potential loss of revenue and retailer relationships.

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

• Building a brand focused solely on running shoes required a grassroots approach.

"We had to build it in the specialty run community pre-internet, pre-e-commerce."

• Developing a niche market in specialized running stores was crucial before the rise of online sales.

• Brooks faced challenges with retailers who preferred lower-priced, non-specialized footwear.
• The decision to abandon certain retail partnerships was driven by the need to focus on high-quality, specialized running shoes.

"Sporting goods didn't want to sell your hundred-dollar shoes; they wanted to sell 20, 30."

• Retailers focused on low-cost footwear did not align with Brooks' specialized product strategy.

"We left and generated 5 million of cash by getting the inventory out of it."

• Exiting unprofitable retail partnerships freed up resources for more strategic investments.

• The focus shifted from racing shoes to trainers, recognizing the broader market of fitness and wellness.
• Brooks positioned itself as a brand for all runners, not just elite athletes.

"The business is in the trainers. It wasn't in racing shoes; it wasn't in spikes."

• Trainers became the core product, catering to a wide range of runners.

"The sport is the soul of running, but the business is people investing in themselves, fitness, and health."

• The broader appeal of running as a fitness activity expanded the market beyond competitive athletes.

• Brooks' brand is about performance without being overly serious or exclusive.
• The focus is on personal achievement and inclusivity, welcoming all types of runners.

"We're celebrating every one of those people, first 5k, run around the block, man, that's your run."

• The brand celebrates all levels of running achievement, not just elite performances.

"The unseriousness of our brand is all about welcoming and including everyone, no matter if you're just starting or your 20th marathon."

• The approachable and inclusive brand positioning aims to attract a broad audience.

• Brooks invests heavily in R&D focused on running metrics and biomechanics.
• The goal is to create high-performance products tailored to the needs of all runners.

"We invest more in R&D in a focused running metrics manner than any other company."

• Significant investment in research ensures the development of superior running products.

"Every product we make starts with your biomechanics and your habitual joint motion and what your needs are."

• Products are designed based on detailed biomechanical analysis to meet individual runner needs.

• The leadership focused on gaining trust and delivering on outcomes to turn the company around.
• Strategic decisions included reducing profit expectations and focusing on cash flow and product quality.

"The real puzzle in that first year was gaining trust from everybody that mattered."

• Building trust was crucial for implementing strategic changes.

"We had to get the adrenaline right because that shoe was critical for us."

• Focusing on key products like the Adrenaline shoe was essential for the company's success.

• Developing running shoes involves significant investment in tooling, inventory, and meeting specific performance criteria.
• The process is complex and requires careful planning and execution over multiple seasons.

"It takes a half a million to a million bucks to bring one style to market."

• High costs and complexity in product development necessitate careful planning and resource allocation.

"If you come to market with a ho-hum product line, you're going to shrink that year."

• Ensuring high-quality product releases is critical to maintaining market position and growth.

• Initially expected to be acquired by another private equity firm.
• Prepared for the transition and practiced management presentations.
• Negotiated independence from Russell Athletic, maintaining operational autonomy.

"We knew we were going to have to sell so we were prepared and we thought for sure it was going to be another private equity firm."

• The team was mentally prepared for a private equity acquisition but ended up with Russell Athletic.

"We negotiated our independence because we knew where we were going."

• Successfully negotiated to maintain operational independence under Russell Athletic.

• Russell Athletic was acquired by Fruit of the Loom, which is owned by Berkshire Hathaway.
• The transition involved maintaining operational independence and avoiding relocation.

"Fruit was already owned by Berkshire."

• Fruit of the Loom, under Berkshire Hathaway, acquired Russell Athletic.

"Warren basically said I'm not going to get involved; it's up to Fruit."

• Warren Buffett chose not to interfere, leaving decisions to Fruit of the Loom.

• Learned competitive strategies and brand management from Warren Buffett's letters and actions.
• Emphasized the importance of quality and never quitting.

"Warren plays to win signals he will never ever ever ever quit."

• Buffett's tenacity and strategic investment in quality were highlighted.

"The way he talked about brands and the moat around the brand, I hadn't seen that before."

• Buffett's insights on creating a competitive moat around a brand were influential.

• Negotiated to stay in Seattle and avoid relocation to Bowling Green.
• Achieved significant growth during the Great Recession, tripling the business from 2009 to 2014.

"We had to negotiate our independence from them."

• Negotiated to maintain operational independence from Fruit of the Loom.

"We tripled the business from 2009 to 2014."

• Achieved substantial growth during a challenging economic period.

• Personal meetings with Warren Buffett led to strategic decisions, including spinning out as a standalone subsidiary.
• Buffett’s focus and support were critical to Brooks' success.

"Warren saw it, circled it, and said, 'Jim, this is great. We just need a couple million more.'"

• Buffett's attention to detail and encouragement were pivotal.

"From here on out, I'm going to take all the credit for your success."

• Buffett humorously claimed credit for Brooks' future success, indicating his confidence in the company.

• Emphasized guerrilla marketing and direct engagement with customers.
• Notable incident of guerrilla marketing at the U.S. Track and Field Olympic Trials.

"We put a run happy banner on an airplane and we just flew it around that stadium all day."

• Creative marketing strategy to increase brand visibility.

"They kicked me out, our head of marketing, and our head of sports marketing."

• Faced repercussions for guerrilla marketing, which became a legendary story in the industry.

• Focused on runner participation and digital sales to navigate the pandemic.
• Utilized data from Strava and direct observations to track and respond to trends.

"We put them in parks, high traffic running parks at 4 pm every afternoon and they counted runners."

• Used field marketing to monitor and respond to increased runner activity.

"We sold more in May 2020 almost all through digital than we did in May 19."

• Digital sales surged, compensating for the closure of physical retail stores.

• Leveraged multi-channel sales strategies to adapt to market changes.
• Continued to grow and innovate, maintaining a competitive edge in the industry.

"We grew 27% in 2020 in that COVID year."

• Achieved significant growth despite the challenges posed by the pandemic.

"Our ability to work multi-channel was a big advantage in that time."

• Multi-channel sales approach provided flexibility and resilience.

• Importance of inventory management in retail, especially for apparel and footwear.
• Multi-channel retailing as a significant advantage during uncertain times.
• Early activation of supply chain to meet demand for performance running gear.

"If it isn't there you can't sell it, so multi-channel was a big advantage."

• Effective inventory management is critical for retail success.

"We turned our supply chain on at least six to 12 weeks before anybody else did."

• Early activation of supply chain ensured readiness to meet demand.

"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."

• Proper inventory management is crucial to avoid overstock and ensure future sales cycles are not impacted.

• Brooks' significant growth in revenue over recent years.
• Achieving over a billion dollars in revenue and joining the "billion-dollar club."
• Focus on premium, full-price products differentiates Brooks from other brands.

"We grew 27% in 2020; we grew 31% in 2021. We would have been up 40% if not for supply chain issues."

• Demonstrates significant growth despite challenges.

"We cracked a billion. Our industry, the billion-dollar club, is actually a rarefied club."

• Achieving a billion dollars in revenue is a notable milestone.

"What makes us unique is it's all premium, full-price, full-margin product."

• Differentiates Brooks from competitors with a focus on premium products.

• Importance of business model execution in creating a competitive moat.
• Strong retail partnerships and digital marketing strategies.
• Focus on product quality and consumer experience.

"One of the things you can do as a company to create defensive moat structures is business model execution at scale."

• Effective business model execution can create a strong competitive advantage.

"We now are executing retail partnerships with the best retailers for running gear."

• Strong partnerships with top retailers are crucial for success.

"Great product is not as common as you might think. The first brand experience is product experience."

• Emphasizes the importance of product quality in creating a strong brand.

• Exploration of digital tools and data for enhancing the running experience.
• Challenges faced by competitors in monetizing digital tools.
• Building a Brooks Run Club to engage loyal customers and gather data.

"Quantified self and those tools have been ubiquitous. The Apple Watch is a great product."

• Digital tools are widely used and offer valuable data.

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

• Brooks is developing its own digital platform to engage with customers.

"We want to come up the kinetic chain and find a sensor system that can get to your biomechanics as you're running."

• Aiming to gather real-life running data to improve product offerings.

• Long-term vision for Brooks to become a global brand.
• Targeting significant growth in customer base and revenue.
• Importance of international markets for future growth.

"We just created a north star 10-year vision for Brooks. It's global for sure."

• Long-term vision includes global expansion.

"We see an opportunity for 60 million customers, up from maybe 15 million today, and four billion in revenue."

• Ambitious growth targets for the next decade.

"A plus case in five years is 20 to 30 percent growth every year annually."

• Targeting consistent annual growth.

• Single points of failure in the supply chain and operational risks.
• Impact of COVID-19 on production and supply chain.
• Need for resilience and agility in supply chain management.

"We launched a distribution center, and it didn't work. We disappointed customers for three to six months."

• Highlights the risks of operational failures.

"In Vietnam, the south was shut down last Q3. 45% of my factories didn't make a shoe for three months."

• COVID-19 caused significant disruptions in production.

"What does resilience and agility look like in supply chain? You got to diversify risk."

• Emphasizes the need for a resilient and diversified supply chain.

• CEO's battle with cancer and its impact on his perspective.
• Importance of focusing on what matters and living without fear.
• Balancing professional responsibilities with personal life.

"I didn't expect it. Esophageal cancer, I just felt awful."

• Personal health challenges can arise unexpectedly.

"I decided that I was doing exactly what I wanted to be doing. I love what I'm doing."

• Importance of finding fulfillment in one's work and life.

"I want to soak in everything I can on any given day. I want to be a CEO, a dad, a husband, a papa."

• Balancing professional and personal life is crucial for overall well-being.