Brooks Running: The power of focus
What Tech can learn from a shoe brand in today's market
A completely different narrative has emerged about once-mighty growth companies in the last few weeks. Many of the big names in tech are reeling due to the Fed tightening the support it provided the economy. E-commerce growth is lapping around a very successful 2021 and looking pale in comparison. Times like these are stressful and challenging, not just for companies but also for employees. Hiring freezes and pullback on spending have become the new hot discussion topic in Silicon Valley micro-kitchens.
The belt-tightening and consolidation can seem thrashy and challenging for many, especially those who haven't had the experience of going through a downturn. However, challenging times are often when great companies emerge. The focus and clarity often create blinders that help win the race. One story that epitomizes this is the story of Brooks Running and its CEO, Jim Weber, which I recently heard and was truly inspired by.
The Start
The company got its start back in 1914 with Bath and Ballet shoes (source). Before long, it was making a lot of different sports shoes, including cleats, roller skates, children's shoes, and so on. Brooks sold through retailers and got into running shoes in 1972. It produced several running shoes that became popular, including Adrenaline. By the end of the 90s, they had become a generalist athletic brand under the ownership of Wolverine World Wide.
2001: Enter Jim Weber
By 2001, the company was in dire straits. It had quickly gone through 4 CEO transitions and was close to bankruptcy. Sales were around $70M and they sold through large retailers like Dick's and Footlocker. Against this backdrop, Jim Weber, one of the board members joined the company as a CEO. Jim had a reputation as a turnaround artist and had turned around and sold several businesses before Brooks.
Jim took the bold decision to pivot the company into performance running shoes. They cut all other product lines and pulled out of the retail chains -- the majority of their business. The retail brands of the time were built around a "factory mindset" -- the factory produced many different product lines based on the season. The path to profitability was around the factory gainfully producing goods all year round. This mindset, however, had outlived its value by the turn of the century. For Brooks, it meant that it had a lot of cash tied up in inventory at various retail chains. Inventory turns were low, and the retailers were not as committed to creating the Brooks brand.
The decision to "focus" was by no means easy. The revenue of the company very quickly fell to $20M. They were able to pull together financing of $7M from J.H. Whitney, their private equity backer. I'm sure employee morale is one of the hardest things to get right in such turnarounds - people had expected Jim would sell the company after a quick turnaround. However, Jim decided to focus on "constancy of purpose" and building a brand. The company decided to work towards a financial plan where everybody got paid a "bonus" at the end of the year, which people had not gotten for several years running.
Payoff
The bet paid off -- the company turned around and started growing. They became laser-focused on the customer segment they were serving - Jim built an R&D lab focused on "running tech" and Brooks rolled out many innovations. It took three years to get revenue back up to $69M. The company was acquired by Russell Athletic, which later became a part of Fruit of the Loom, with Berkshire Hathaway as the eventual owners.
Brooks is now a $1.3Bn revenue brand and a top-level subsidiary of Berkshire Hathaway while also being one of the top running shoe brands in the world. Jim had a great story about how Warren's interest was piqued when Mark Zuckerberg wore Brooks shoes during the Facebook IPO roadshow. He spun the company out of Fruit of the Loom into a direct subsidiary.
Running Focus
Jim describes why the running focus is so powerful for Brooks. They focus on runners who put in 20-25 miles per week and need 2.6 shoes per year! That's high for a $130 shoe vs a $30 mass-market shoe at a retail store that doesn't wear out as quickly. Unlike the $30 shoe, brands need to build their demand for the $130 shoe, create loyalty and make the flywheel roll. This creates the moat - and explains why the top running shoe brands dominate the rankings year on year.
Running also happens to be a recession-proof sport - during the 2008-09 crash, running grew significantly since all you need is a shoe. A similar trend was seen during the Covid pandemic. Jim describes their ability to build conviction thanks to data from Strava and make a bet on increasing production during the pandemic, even though retail stores had shut down. Their business became digital overnight and it grew significantly in 2020 and 2021.
As a sidebar, I found it fascinating to learn how they measure success -- they count the number of people who wear Brooks shoes at the top marathons ("shoe count at marathons") and want to be the #1 or #2 player in each marathon. During the pandemic, they posted their regional salespeople at key trails to count how the number of runners was trending week on week!
The Power of Focus
Jim's story was fascinating for me, esp. at these times. In my personal experience, I have found this to be true. Several years ago, in my startup, we went through a challenging phase where we didn't have a clear product-market fit in a trying regulatory environment. My investor at the time, an accomplished entrepreneur himself, recommended that I consider downsizing the company. I hated him at the moment - we had built everything up brick by brick. Of course, as these stories go, sense prevailed and I listened.
We decided to downsize, extended our runway, and pivoted the company into an eventual exit. It was not an easy period. I took back the lesson in focus as something I often turn to when the going gets tough. I hope this lesson is as useful for you as it was for me. More food for thought during my run in my Brooks Ghost tomorrow!
References:
NYT article on Jim's turnaround and also his battle with cancer
If you are interested in watching the full podcast about Jim, you can find it here.
He's also written a book called "Running to Purpose" which I've now added to my list!
There must be some wisdom in the value of "focus"... I don't think I've fully embraced it yet even though my advisors nudge me towards it (narrow focus) all the time. Parker Conrad talks about the opposite of focus and describes "compound innovation" (https://twitter.com/parkerconrad/status/1363999391007170561). I'm curious what you think of that approach.