How Footwear Startup Allbirds is Decarbonizing Apparel | Cold Call

0:28This episode is brought to you by Google Chrome. You know back to school is coming in fast. So why wait to find your new fave footwear? Step into a local croc store and step into your new look. Try it. Style it. Make it yours. Because the right pair doesn't just show up. It shows off. First day fits, handled. Walk out ready for whatever's next. Visit your nearest croc store today. I'll bet there's something you're wearing that's 40 ,000 years old. You heard me right. Look at your feet. That little wearable is thought to have originated in the Middle Paleolithic period. The earliest versions were made from wraparound leather like moccasins.

1:12Within a few thousand years, footwear evolved from basic necessity to must-have accessory that varied depending on social class. The closer one was to nobility, the fancier the shoe. no matter the fit. Today, footwear is as much a part of pop culture as it ever was, and business is booming. According to ShopSmart magazine, the average American owns 19 pairs of shoes, which takes a lot of energy and raw materials to make. And we toss about 300 million pairs into landfills every year, which is to say, though your time with your shoes may be relatively short, they and their impact on the environment will likely be around long after you're gone.

1:51Today on Cold Call, we've invited Professor Mike Toffel and case protagonist Joey Zwillinger to discuss the case entitled All Birds, Decarbonizing Fashion. I'm your host, Brian Kenney, and you're listening to Cold Call on the HBR Presents Network. Mike Toffel is faculty chair of the Business and Environment Initiative and host of Climate Rising podcast. He's a fellow podcaster, which has a new season of episodes starting this month. You can find those on, I'm going to guess, Apple and wherever you listen, Mike. Is that right? That's right. And thanks for joining us again. This is your second spin on Cold Call, so we're glad to have you back.

2:27Joey Zwillinger is the protagonist in the case. He is a biotech engineer and renewables expert and the co-founder and CEO of Allbirds. Joey, thanks for joining us today. Thank you so much. I don't often get called the protagonist, so this is fun. Well, you're going to have to answer for that today. We're going to ask you some questions. So we're looking forward to hearing more about the case. And I will admit I didn't know a lot about Allbirds before reading the case. But after reading about the story and looking at some of the images, I'm going to go get me a couple of pair of those because they are great-looking shoes.

2:58I think people will enjoy hearing about how the company came to be and the very distinctive position that you've taken in the market. So, Mike, let me ask you to get us started here by talking about the central issue of the case and what your cold call might be. I know you haven't taught this yet, but you can already start to think about what your cold call might be when you step into the classroom. Thanks. So there's a lot going on in this case. We wrote the case because we were looking for companies to shine a spotlight on that were taking innovative approaches to decarbonizing. It's an unusual thing to have a footwear company be in a leading position in that area.

3:34And when we dug in a bit, we found that not only were they taking a leadership position in a sustainability and climate change perspective, but they were also doing things quite differently from traditional footwear companies in terms of their product development approach, their go-to-market distribution approach. So I would open up this conversation by asking students to reflect what is Albers doing well and what do they need to do better? Okay. And let me ask you how this relates to the kinds of things that you look at as a scholar, how you heard about them, and why you decided to write the case.

4:07It's very popular among folks like MBA students. So we see all birds in the halls here, if you look down to see what folks are wearing. Their marketing and their whole brand value is around these three concepts of design, comfort, and natural materials. So I came into this thinking about the natural materials piece. But then it's a really interesting question to think about how do you sell a product, one of whose main value drivers is comfort, and yet selling it online where people don't actually try it on. Some really interesting questions. And especially when you think about go-to-market, where they sell, again, through their own channels and not through the footlockers of the world, or even on Amazon, I believe.

4:46You have a really interesting company. So that's sort of how I ended up. It really merges my interests in climate and decarbonization and operations management. brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+.

5:22hey Chicago class it up with Crocs you know back to school is coming in fast so why wait to find your new fave footwear step into a local Crocs store and step into your new look try it style it make it yours because the right pair doesn't just show up it shows off first day fits handled Walk out ready for whatever's next. Visit your nearest Croc store today. It's been innovation, which is what I teach here at HBS. Yeah, it raises so many interesting questions. As a branding person, I was really interested in the whole branding piece of it. But as you say, it raises a ton of other questions. And what I think I heard you say is that if I get some Allbirds, I will be cool because I will be dressing in the same fashion and style as our MBA students.

6:07Sort of dad cool. Sort of dad cool. Great. So Mike, tell us, before I turn to Joey, just tell us a little bit about the footwear industry and the impact that has on the environment, because I know it's significant. Two of the main ways that footwear has an environmental impact, especially when we're thinking about casual shoes, is there's often fossil fuel derived products. So polyester and the soles are fossil fuel derived. For all of those, you have a carbon impact to be considering. And then an alternative, when you think about natural materials for footwear, often you're thinking about leather.

6:39While it is a natural material, the tanning of leather, the dyeing of leather, all of that involves often toxic materials, which has water pollution concerns. And then, of course, there's the shipping. Products are shipped globally, so that creates a whole other fossil fuel-based environmental impact. And it's really on each of these dimensions that Allbirds is trying to develop new uppers, the soft part above the sole, and even new midsole, which is the squishy part under your foot. and they're trying to create those all out of natural materials. And it's really quite a revolutionary approach.

7:12The volume, as I teased in the intro, is huge. I was amazed to see that people, I do not own 19 pairs of shoes, but apparently the average person seems to. That's just an amazing number. Yeah, well, the costs have come down quite a bit since you started buying shoes. So that helps, and it's become more of a fashion item than a fundamentals. Yeah, for sure. So, Joey, let me turn to you, and thank you for joining us. You're in the Bay Area this morning as we're talking, So I appreciate you getting an early jump on the day with us. Let me just ask you simply how you would describe Allbirds and a little bit about what your goal is for the business, you and your partner.

7:46Tim and I co-founded the business in 2015. And when we did that, we had the view that we had a big leadership opportunity around doing things differently. But at our fundamental core, we actually think about ourselves as a material innovation company. And the reason we start there is because we know that the vast majority of the impact of carbon pollution and the effects of global warming from consumption is born in the materials that we sourced to make the products that we love. We wanted to focus there. So we really focused, and you called it natural materials. Mike, I want to just expand that a little bit to say naturally derived materials, because we're using things like biotechnology and green chemistry and a whole bunch of other really unique technologies to bring to bear amazing comfort and amazing performance to do this.

8:32But at the core, material innovation, we happen to be selling shoes and apparel, and we do this in the effort to make better things in a better way. That's our mission as a company. And let me just unpack that for one minute. Sure. Better things means we are making the best products in the world. So when you step into a pair of wool runners, into our running shoes, the dashers and the trail shoes, you're going to feel something unlock in your mind. You're going to say, wow, this is incredible. And when you use it for weeks and weeks, you're going to say, this is delivering on the promise. This is an amazing product.

9:02And there's nothing in what I just said about being sustainable. The way we unlock that value is through this naturally derived innovation. It's through sustainability that we unlock incredible comfort and incredible performance. And so it's the mechanism or the means with how we get to make better products. We want to play a role in contributing to the reversal of climate change. And our volume of material and our impact on carbon pollution is going to be small. But I think the leadership opportunity and what that can cascade into consumer products inside the footwear industry, outside of the footwear industry, rippling across lots of different industries can be seen really broad.

9:36it. And I think that's what excites me most about the mission that we're on. Yeah. And so often on this show, we talk about firms that are producing products or providing services that have some sustainability benefit to them, but that's not why they're doing it. They're not doing it for the altruism. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks.

10:07Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required. Compatibility and availability varies 18+. Hey, Chicago. Class it up with Crocs. You know back to school is coming in fast. So why wait to find your new fave footwear? Step into a local Crocs store and step into your new look. Try it. Style it. Make it yours. Because the right pair doesn't just show up, it shows off. First day fits, handled. Walk out ready for whatever's next. Visit your nearest Croc store today. Of doing it. They're doing it because it's good for their product or their business.

10:50And if it differentiates them in some meaningful way, then that's almost an added benefit. I hear a little bit of that and what you're saying. Tell us a little bit about the origins of the company and Tim Brown and how you guys came together to start the business. I think part of why so far in our first five, six years it's worked is because Tim and I come from quite complementary backgrounds. Tim was a professional soccer player, actually, before he started Allbirds with me. He had a design background from his undergrad degree and had done some hobby design work on the side while he was a professional athlete.

11:19Did 10 years as a professional soccer player in a couple of different places, but largely in New Zealand, Australia. In fact, was the vice captain of the New Zealand national team and went all the way to the World Cup in 2010 in South Africa. So really rose to the pinnacle of his career. And he was endorsed by all the big sportswear companies. And along the way, it became very clear that the way that the footwear industry in particular marketed itself was around these peak athletes and developing interesting products for the peak athletes. And it was less about the innovation for consumers, comfort, performance, and more about utilizing athletes to get the brand out there and get some good marketing awareness.

11:59Yes. His light bulb started to click when he was really left wanting for something more that was on trend with the casualization of a wardrobe. And you've seen it in apparel. Athleisure was a word that was used maybe five, 10 years ago. Lululemon's a great example of a company that changed the way that we dress forever. And that had not really happened in footwear. And part of it was a relic of this wholesale distribution model where companies had to pop off the shelf with their logo on the side of the shoe to compel people to try on the shoes. That was the backdrop of the company and backdrop for that consumer insight that Tim brought to bear.

12:33And along the way, I was at a company called Solazine, where we were utilizing biotechnology to engineer microalgae. And we would take that microalgae, we would program it to eat low carbon intensity sugars and turn those into high performance products that could replace petroleum and petroleum derivatives. So I ran the chemicals business unit and I was going around the world compelling big brands and some industrial players to take these components and replace petroleum drive components. They were carbon neutral and they were super high performance. And what I found was that these brands, they said all the right things.

13:08They love sustainability. They were saying it to their consumer. And when it came down to buying product, they didn't actually care. And so this Sisyphean effort that I was undergoing where it felt like I was almost just pushing string all the time, trying to convince these people to do what they actually were saying to consumers that they were doing, felt like there was an opportunity to, instead of make the component, go downstream and curate these components. And fortunately, at that moment, Tim's wife and my wife, who happened to be best friends from college, said, hey, this project that Tim's working on is going well, but he's kind of struggling on some of the business side, some of the material side.

13:42I was looking for a brand opportunity, having not been a sneakerhead at all in my life. And some of my friends previously would laugh at the idea that I'm in the fashion industry now. But that was the meeting of two separate paths that came together for material innovation and consumer insights and design to bring something and make something special. Yeah, and we often see that happen. So things happen at the juncture of these things. So it's a great example of just, you know, two seemingly disparate disciplines coming together in a way to create something new and some true innovation. I'm wondering about your initial pitches when you went out to get some support for this in the investment community.

14:17How did you pitch it and what was the reaction? I would say early on the idea of unlocking naturally derived materials to create amazing products. That was in there, but we had to also add a compelling go-to-market strategy and really focus on that. And if you think back to 2015, there's no direct-to-consumer or vertical retail business in the footwear industry at any kind of scale. And so focusing on an initial product concept like the wool runner and unlocking value through a go to market.

15:10and availability varies 18 plus. Hey Chicago, class it up with Crocs. You know back to school is coming in fast. So why wait to find your new Fave footwear? Step into a local Crocs store and step into your new look. Try it, style it, make it yours. Because the right pair doesn't just show up, it shows off. First day fits, handled. Walk out ready for whatever's next. Visit your nearest Crock store today.

16:09that. When we coupled that together, we compelled some smart people to get on board. And that was a very helpful moment to get our first$2 million and be able to really inject into the business and invest into the business what we needed to to get a great start. Mike, let me ask you this. As we think about how Allbirds is differentiating themselves in the marketplace, we're hearing about the innovations that they're using in terms of materials. So this is a brand that's largely built around and premised on sustainability. And I'm wondering, as you look at other firms and other products and services out there.

16:40Are there other examples that you can give that will act as a parallel to this? First of all, it's interesting to question whether that's right. I'm not sure how many Allbirds customers actually believe that it's premised on sustainability. I think a lot of them believe it's premised on design and premised on comfort. And then sustainability is like, oh, that's really cool. And I can feel good about this product even more than I physically feel good stepping into the shoes. I think there's another segment, and maybe Joey could speak to this, who go there because they happen to know about their sustainability play.

17:11Yeah, I'd say that's a great summary, Mike. I think it's a growing portion that's coming for sustainability, but it's still a minority. Yeah, it's an interesting question about how forward they should be on the sustainability messaging. You know, when you go into an Allbirds store, we have one here in Harvard Square, you can tell if you know what to look for about the sustainability aspects of it. You can see the labels where they are quite innovative in coming up with carbon footprints of each shoe. But it's not hitting you over the head with, you know, come here, we're a climate-forward company.

17:42You have to kind of look and you have to ask, oh, what's that number near that shoe? And then, you know, sales will tell you their story, which is super interesting. But it's not like they're hanging banners out saying, like, come buy the most decarbonized shoe you can buy on the market, which they could do. But so far they've chosen not to. And I think that gets to your question about other examples of brands premised on sustainability. It's still a bit niche-y in some ways. I think folks think of them as upscale brands like Patagonia, where the pricing is 3x competitor pricing sometimes. Or folks like Ben & Jerry's, who've long had sort of a sustainability angle to them.

18:19Of course, there are large brands like Unilever and HP and Google and Microsoft who are now characterizing themselves as sustainability for a variety of reasons. Unilever is reaching into its supply chain trying to figure out how to reduce the environmental impact of growing a lot of the food-based products that they sell. Microsoft and Google are buying offsets and trying to make themselves carbon neutral, even back to their inception. So there's a whole variety of ways now that companies are stepping up to the climate challenge. It's sort of a mix. And I think the history of sustainable brands is such that there's in some areas a tradeoff between sustainability and other desirable features.

19:01I think you and I are old enough to remember the emergence of recycled photocopy paper, which was more likely to jam your photocopier. Yeah. Right. So there really was a trade off in function and in sustainability attributes. And I think folks haven't lost sight of those early missteps. My sense, but, you know, let's let's reach it here from Joey. My sense is that one needs to go cautiously because you don't want to imply that you're going to sacrifice other attributes you really value. Although a lot of people say they're willing to pay more for sustainable products, a lot more people are willing to say it than actually do it.

19:38Yeah, yeah. Well, kind of like those firms you were mentioning earlier, Joey, where you were trying to bring your technology.

20:10Hey Chicago, class it up with Crocs. You know back to school is coming in fast. So why wait to find your new fave footwear? Step into a local Crocs store and step into your new look. Try it, style it, make it yours. Because the right pair doesn't just show up, it shows off. First day fits, handled. Walk out ready for whatever's next. Visit your nearest Crocs store today. do them. And when push came to shove, they weren't ready to really go down that route and invest in it. I mean, what are you finding with consumers? Do they feel like the sustainability part is the most important thing, or they just want a really nice shoe that they look good in and they can feel good about?

20:53I'd say still the vast majority of people are looking for something that makes them feel good, makes it perform well, and that they love. I would point to two different groups of companies. There's a company like Unilever, which is doing a fantastic job on taking a legacy model and trying to evolve it into a more sustainable company. Then there's a purpose-native company that is starting with a blank canvas and starts with the idea that sustainability is going to be the engine that fuels their growth and that they constrain their innovation process to looking at making great products through R &D that happens to be sustainable.

21:29And the ripple effect can be much, much broader when you think about that. I'd point to Tesla as a great example. You don't get in a Tesla maybe because it's sustainable. You get in because it looks awesome and it goes really fast and it performs well. And it happens to be much better on the environment when you consider the replacement of, particularly if you use green electrons to fuel the car versus petroleum. And I would say the same thing applies to the approach that we've taken at Allbirds. And that purpose native means that we're liberated to not have legacy baggage and we can just unlock great performance for customers without making any trade-offs.

22:03In fact, we make better products as a result of it. Does the purpose-native philosophy extend up and down the supply chain for you guys? I mean, do you really vet your suppliers in such a way that, you know, that you can make that claim? 100%. Mike alluded to something that's really important in terms of making sure that we're held accountable by everybody, including our consumers, and that's this innovation we've done where we've created a tool that can track down to the gram what is the carbon emission for the entire life cycle from farm to foot and to end of life of that shoe or any product that we make.

22:35And we actually label that carbon footprint on every single product that we make, either product or packaging. That is inclusive of absolutely everything you can think of. We draw the boundary around our life cycle of our product very broadly. That is where we're held accountable. And so in order for us to drive that down to zero, which is our objective here, and then beyond that to the extent that we can. We'd like to do that quickly, and we'd like to do that with the partnership with our suppliers, our supply base, and other folks, including governments. The interesting thing about this approach of being very expansive in the supply chain, both reverse supply chain and forward supply chain, where it will end up in ultimate disposition once you discard your shoe or recycle it.

23:16The interesting thing there is it really does gets you to focus, if you want to minimize that total number, on where you get the biggest bang for the buck. I think there's been a lot of critique of other types of companies whose sustainability efforts are highly visible, but also highly symbolic. You know, you can have a lot of solar power at your headquarters, but if your products is where the impact is, then that's really where you ought to be making your investments. That's a real critical piece of an authenticity play if you're trying to be a sustainable brand. Yeah. Well, let me ask you this, Mike.

23:48How sustainable is this business model, I guess, would be the question. So sustainability is the great focus for Allbirds, but is this the kind of thing that can be sustained sort of indefinitely given the added investments that you probably have to make in R &D to continue to be authentic in that way? I think what's really interesting here is to look at the innovation processes that Allbirds has engaged in. So some of the innovation is with their own employees on design and on choices of material. But they're working hard with existing suppliers who have scale and the technology to create, for example, what they call sweet foam, which is the substitute for a fossil fuel-based product that sits between your foot and the outer sole.

24:27That's the part that gives you cushion. When they did that, they could have tried to create that in a proprietary basis. But in fact, they're working with their supplier trying to get others to adopt that material as well as a way to drive down its cost, to increase economies of scale. There's an interesting play, like, should we try and do this and keep it proprietary? Or should we try and get this to be spread across our own industry and across other industries? And so far, in a lot of these dimensions, they're trying to create scale. Think about the wool side, right? They're involved in trying to create a certified wool to have grown in a sustainable way.