HIBT Lab! Cotopaxi: Davis Smith

26:06He reached out and just said, you know, there's no tourists allowed in Peru. I don't know how to support my family. We have nothing. We have no safety net. And I went to bed that night just ill. You know, he was asking for help and I didn't know what to do. Like, do I just send him money? Like, that seems so easy, But do I create this problem where all of a sudden he's coming to me anytime there's an issue? And I wasn't sure what the right thing was. And I'm a religious person. So I went to bed that night and I prayed. And I asked God to help me, to help me know how to help Edgar and what to do.

26:40And in the middle of the night, I had this idea, not necessarily in a dream. I was kind of half awake, half asleep. And I could hardly sleep just worrying about him. And I had this idea that I knew would work. And I reached out to Edgar and I said, hey, what do you think of this idea of creating a virtual walking tour of Cusco? And I know I could sell it to my friends and family. People would pay$10 to go get a virtual walking tour of Cusco. Everyone's locked in their homes during the pandemic. And he created this video on his own and it's amazing. And he now has his own. You can go to edgartours.com.

27:16He's got it. He is a tour agent. He's amazing. He's just so inspiring to me. So this has just been a beautiful experience. I've loved it. Yeah, it's an incredible story. Okay, so Cotopaxi, I want to ask you about, is a B Corp, and we've had several B Corps on How I Built This in the past. Basically, these are for-profit companies that are committed to donating a percentage of their revenue to charities and to sort of commit to doing right by the planet. And, you know, there's a lot of, I think, understandable skepticism around this, right? Because people think, oh, you know, this is greenwashing or it's really just about making more money.

27:54But I want to sort of get a sense of what that actually means. Because I know that you're committed to giving at least 1 % of your revenue, not profit, right, your revenue to nonprofits and charities, right? And I know you've given more than that, sometimes up to 3 % of your revenue, but still to a lot of people that might not sound like a lot. So can you explain at least from your perspective why that is a lot? Yeah. Yeah, absolutely. You know, in the first five years of the business, we'd given away more money than we ever made. In fact, the last conversation you and I had, at that point, we'd given away money every single year that exceeded any profits that we'd made, which I think is important.

28:36Because if a company says profits, it's like, well, if you're not making money, then you're not giving anything. So, um, and it's a sacrifice and it was painful. And I think actually, I think that's good. I'm a believer in sacrifice, personal sacrifice, business sacrifice. When you do things that are a little bit uncomfortable and painful, I think it makes you better. And so, you know, for us, those first few years were challenging, but we always made that contribution typically about 2%, which was more than we'd committed to, which was, you know, we committed to 1%. Um, in 2020, we had a better year.

29:06So we actually gave close to 3%, 2.9%. And we try to be as generous as we can. And over the history of our business, the last almost nine years, we've helped and aided 3.8 million people living in poverty through our efforts. It's the reason we exist. We don't exist to sell backpacks or to sell jackets. We exist to fight poverty. It's why people join our team. It's why I'm here. It's what I wake up thinking about every single day. And it makes us who we are. On that note, you received a$45 million investment from Bain Capital in 2021, which really helped supercharge the growth of Cotopaxi. And now, I mean, when we spoke, you were$30 million.

29:46I think now you're on track to be about$160 million in revenue in 2023. So that also means you're producing more stuff, right? You're making more stuff. And I know that an important part of what you do is that you wanted the materials you use to be recycled materials or upcycled materials. And how much of, you know, given your growth and the fact that you're making more stuff, how are you able to make sure that, you know, your environmental impact is mitigated, right? Because more stuff you make, the more pollution you create, the more carbon you're burning. That's right. Yeah, that's right. Yeah.

30:26So, you know, a lot has happened in the last three years, as you pointed out. Bain Capital, Double Impact, it's their fund that's focused specifically on social impact companies like ours invested. And they've been unbelievably great. They are fantastic people, fantastic investors. The first thing that they did was they tied our bonuses, our compensation as leaders in the company to our impact work, which is so unique. Like I don't know any other investor that's thinking that way. So they've been a really great partner over the last couple of years. To your question about manufacturing, this is a real challenge for me, actually.

31:01I feel very proud of the way that we built the business. We call it the three R's, remnant, recycled, and responsibly made materials and products. Last year, 97 % of all of our products that we sold were made of one of the three R's. A huge amount of our product is made of remnant. It's not virgin material. We're using leftovers, and that's positive. At the same time, Guy, the conflict I feel is I know that in 20 years when that backpack's life is over, it's going to go into the landfill anyway. So we've kind of delayed the inevitable, but how do we stop making stuff out of products that are semi-permanent?

31:40And so that's something that we're thinking a lot about and our team is working hard on. And I think one of the things that we have to remember, and I have to remind myself is like, while we're not perfect, we can't let perfection get in the way of solving big problems. And the way we're going to be able to solve big problems is by having companies that are truly mission-driven go out and tackle these things. And so I'm a believer that we're going to be able to solve this. Yeah. You know, one of the things that I appreciate about you and did in our previous interview is that you've got a lot of self-doubt, which I think is important.

32:14I'm always a little skeptical of entrepreneurs who are 100 % confident. I think self-doubt is critical. and you know you even struggle with things like this kind of this idea that you know could your business by doing good actually have unintended negative consequences right like there have been stories about tom shoes we did tom's we had blake on the show it's a great product great company he doesn't own it anymore but you know there were stories about how this one-for-one model actually put small businesses out of business in parts of south america because everybody's getting a free pair of shoes.

32:49And this model, the one for one, was really popular for a while. It's kind of gone away. How do you sort of make sure that what you're doing, because your mission is not to sell jackets and bags, as you said, your mission is to end poverty, but how do you do that without the unintended consequences? Yeah. So a year into our, less than a year into our business, I ended up hiring a chief impact officer. And this was something that was a little bit contentious with the board because they were like, Davis, we don't even have a marketer on the team yet. Why are you hiring someone to go give away the money better?

33:25And the argument that I made was, if we can't do impact better than anyone else, we have nothing. So if we can figure out how to do this better than everyone, and we have something to go stand on as a brand. And so they supported me. We hired this amazing chief impact officer. And one of the first questions she asked me was like, hey, so tell me about the impact you're doing so far. And I was telling her about some of these causes I was supporting. There was an orphanage in Bolivia that I'd visited when I was a missionary when I was 19. I was living in a little town in Bolivia. I was away from my family.

33:59I was feeling totally homesick. I just got off the phone with my parents. For the first time in six months, I talked to my parents. At that time, you only spoke on Christmas and Mother's Day to your family. Wow. So I was feeling really down. And then we went that afternoon to this orphanage and we had saved up some of our money and we bought these little stockings and we brought them to the kids. All those feelings of self-pity went away. And I felt so uplifted. And like, I've gone back to that orphanage a number of times over the years. And I was telling this chief impact officer about like I'd gone there and I actually delivered cash to these nuns that were running this orphanage to help them.

34:34And she's like, Davis, that's horrible. And I'm like, wait, what do you mean? And she's like, well, what did they do with the money? I'm like, I have no idea. She's like, well, how do you know they didn't just take it? It's like, well, they're nuns. Like, they wouldn't take the money. But the point that she was making was like, we have to be incredibly disciplined about where our money is going and how it's being used and measure it and track it. And so from those earliest days of the business, we were very intentional about how we thought about impact. And we don't use a buy one, give one model.

35:02We never really have. Having grown up in the developing world, I knew that giving someone a backpack for every backpack we sold or something wouldn't solve any problem. So, you know, we've really focused on education, healthcare, and livelihood training. Last year, we helped over 19 ,000 kids. We sponsored the education of 19 ,000 children in 2022. So, like, these are the areas that we're really focused on. Yeah.

35:26We're going to take another quick break. Coming up in just a moment, more from Davis Smith about the future of Cotopaxi and why he's decided to step down from his role as CEO later this year. You're listening to How I Built This Lab.

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37:43Welcome back to How I Built This Lab. I'm Guy Raz, and my guest is Davis Smith, the founder of Cotopaxi. So one thing I've been wondering about since you were last on the show, and we've talked from time to time, But I know that you started baby.com.br, which is a baby supply company in Brazil, with your cousin, Kimball. And he was somebody who you were very close to as a child. He was like your best friend growing up. And the experience of running the business really took a toll on your friendship. Has that changed? Have you had a chance to – because you spoke very fondly of him in the show, in the episode.

38:18And I wonder if you guys have had a chance to, I don't know, mend things or reconnect. Yeah, Kimball and I, I mean, we were like brothers. There's no other way to say it. I mean, we did everything together. We, you know, we built homes on the same street. We went to business school at the same time. We vacationed together. And honestly, it's one of the most painful things in my life that that relationship is gone. And I'm not sure what will happen in the future. It's something that I think about a lot. And, you know, we do communicate here and there, but it's not the same. And I'm guessing it probably never will be, which pains me to even say.

39:01But yeah, that's a hard, that's one of those sad moments that I have in my life for sure. Yeah. Yeah. Well, I hope it one day, you know, to use a cliche, time is a great healer. Yeah. You know, Guy, I will say like since that last interview that we did, it's probably the question I get more than anything else from that podcast. It was like people want to know how things are going with him. And I hope that someday I can come back and say, you know what? It worked out. Like we figured it out together. Yeah. You are an active member of the Church of Jesus Christ of Latter-day Saints. And you did a mission.

39:39You grew up. Your parents did missions. And you grew up in South America and in Brazil. And, you know, spent a lot of time there as a kid. And in January of this year, 2023, you made kind of a bombshell announcement, which is you announced you were stepping down from your role as CEO of Cotopaxi to spend three years in an unpaid leadership role on behalf of the church as the mission president in Recife, Brazil. You're going to oversee about 600 missionaries. Yeah. You're leaving your business to do this. Obviously, you're committed to your church and your faith, but that's a big deal. Yeah. Yeah, this wasn't on my radar, Guy.

40:25It wasn't something I'd ever really anticipated or planned on. I mean, I wanted to just do Cotopaxi the rest of my life. I mean, I just feel so called to this work. And then we got a phone call from a senior leader of our church at the very end of last year. And he asked if Ajalene and I would be willing to come meet with him. This is your wife. This is my wife. Yep. And a few hours later, we were in his office and they just said, we were wondering if you would set aside your life for three years and move somewhere in the world. At the time, we didn't even know it would be Brazil. We had no idea where they would send us.

41:01And Ajalene and I looked at each other. It took about one second. And we looked back and we both said at the same time, yes, we will do it. And, you know, it makes no sense financially. It makes no sense professionally. but from a values perspective, it means everything to us. There's nothing we could do that would be more meaningful. And we've taught our kids every day that this is what life is about. It's not about making money. It's about finding ways that we can use our lives to lift others and to give back. And sometimes we have to put aside our own wants to go do something, to be part of a great cause or a noble idea.

41:37And so for us, what better way to show our children that what we're saying we really mean than to go do it ourselves. And so, yeah, we're thrilled. I mean, we're very nervous, to be honest, too, but we feel so honored to be asked and we're very excited. Is that something that really you can't say no to, right? I mean, because on the one hand, like I'm thinking about the church leadership and like who in leadership was like, let's get this guy who's got this really successful business and let's pull him away from it for three years. But there's a reason why they picked you. And so I guess you really can't say no to that, right?

42:13Well, it would be like if Moses came and asked you to do something, it would be like, sure, you could say no. But if you really believe, if you have faith, why would you? And I will say too, Guy, we're not special. We're one of over 400 other couples that have been asked to do this around the world for three years. And I'm one of about 60 ,000 missionaries in our church that have set aside their lives. And some of them have made much bigger sacrifices than I'm making. And these are young kids at the beginning of their lives. These are older, senior people that are done with their careers, that are leaving behind grandchildren to go somewhere in the world.

42:47They're people like me that are in the middle of their career, maybe the peak of their career. And so there's nothing really that special about what we're doing, but we feel part of this great cause that we really, really believe in. And you're going there with three of your children. I know one is going to stay behind. She's in college. So it's, I mean, that's also a big change for the whole family. Yeah. Yeah. And honestly, this is one of the things I'm most excited about, Guy, is that our kids get to have this amazing experience internationally, like I did as a kid. And our two oldest daughters had this experience living in Brazil when I built that last business.

43:20So our daughter that's going to be a senior in high school next year, she's going to miss her senior year in the US, but she remembers going to kindergarten and first grade and second grade in Brazil. And she has these fond memories there. And she's been so positive. She's not complained once. And in fact, when we got the assignment, Ajalene read it out loud. We waited two months to know where we were going to go. And she read it. And when she read Brazil, both of our girls started crying out of happiness, just the emotion of like, oh, we're so grateful that it's Brazil. And that's where our little boys are going to have this experience.

43:50So yeah, we're so excited. Yeah, I was joking with you before I started recording that, that I know it may seem like a sacrifice, but you are going to Recife, Brazil, which is a beautiful beach town. So it may be okay. Yeah, it is a beautiful place. We're talking to the mission leaders that are there now that we're gonna be replacing. And they said there's four seasons, hot, hotter, even hotter and rain. So, but it is beautiful. And there's certainly a lot of poverty in the Northeast of Brazil. And the most exciting thing, I think for me, guy is like these young missionaries, they are gonna have a life-changing experience because I know my two years in Bolivia were life-changing for me.

44:27And we just hope that we can inspire them and move them to do something, not just for these two years, but something beyond that, that they can go make a difference in the world, that they can use their lives to be a force for good. And they're going to be able to influence us, and we're going to be able to influence them for the next 40 years. And so we're so excited about that. I mean, obviously, your investors and your leadership team, you know, and I think in part you brought in that leadership team because of this change, but I know that they obviously support this, But I wonder, will you be able to fully unplug from Cotopaxi during those three years?

44:59Or are you going to stay kind of updated from time to time? Yeah, I'm going to stay updated. I'm going to be joining the board meetings. I'm going to be moving into a chairman role. Every quarter, I'm going to do a meeting with all new employees, which I love doing this currently. Actually, currently, I do it every month. But all new employees I have a meeting with, and I just kind of walk them through our history as a brand and why we do this and what our mission is and purpose. And really it's about inspiring them and for me to get to know them a little bit. So I'm going to do that once a quarter.

45:28Other than that, I'm not going to be super involved. I'm not going to have, I don't think the time or the bandwidth to do it. And I really trust this team that I've hired. They're incredible. They're so, in fact, Damien, I mean, I'm watching him. He joined our team in May of last year. As I watch him lead, I'm just blown away. I'm thinking, oh, that's what a CEO is supposed to do. Like, this is amazing. Like, I just have so much confidence in him and this team that like, in some ways I feel like, ah, they don't even need me. Like, and I will say there's a little bit of sadness and grief that comes along with moving away from a CEO role.

46:05Because it's so much of who you are. And I feel like it's part of my identity and that's probably not a good thing, but I just feel so connected to what we are. It's natural. It's natural for that to be part of a central part of your identity. But I mean, you've made a decision that I think a lot of people would admire and certainly respect that, you know, doing something that is, because you're not going to be paid for this, obviously, this is not a financial incentive. It's a, this comes from a deep place inside of you. Yeah. I've loved over the last nine years being able to spend my time working on something that I really believe in.

46:41And I think these three years are going to be that dialed up another level because this is something that's brought me so much joy, so much peace and direction in my life. And I've seen it do the same for others when I was a young missionary in Bolivia. And I stay in touch with the people that I met in Bolivia nearly every week. I'm on a call with somebody and I've seen the impact. And so for me, it's like, yes, this is something I believe in that I'm so excited to be a part of. And you know what? I'll have the rest of my life to continue to build Cotopaxi when I get back. This is just three years to go do something that maybe is a little uncomfortable, that I'm a little bit scared and nervous about, but that will make us better and that will strengthen us and our family.

47:21One of the things I talk about in my book, and this is not a plug for my book, you don't have to buy my book if you're listening, but I do talk about legacy. And it's a little bit early to talk about that. You're still a young man and Cotopax, you're still a young company, but you've taken it from nothing, zero to now 160 million in revenue as you prepare to leave. When you think about what you want this company to be, not as a brand, but as a mission, what does that look like? You know, last year, of course, famously, Yvon Chouinard sort of gave away the ownership of his company to a trust. And 100 % of the profits are committed to going to environmental causes, right?

47:58And this was sort of, you know, got a lot of attention. I mean, is there a world where Cotopaxi does something like that, something similar to that? I love that you're asking this. It's something I've been thinking a lot about. actually for years. And I've been inspired by Yvonne Chouinard and by Patagonia since I started Cotopaxi. And I love what he did. I mean, this really bold move to protect their values and their mission in perpetuity, even beyond his life. And I've been asking myself, what can I do? And I'm 44. Yvonne Chouinard is 84. I don't know if I want to wait 40 years. Is there something I can do today that would allow us to cement our mission forever and protect it forever.

48:44The challenging thing, of course, is that I don't own 100 % of my business like Yvonne. Right. You've got investors. Yeah. And honestly, I'm really proud of that. I have over 70 employees past and present that own equity in this business. And I hope it becomes many more than that. And actually, I think modern businesses, if we're going to transform capitalism, part of it needs to be ownership. I would be most proud if in 40 or 50 years, we had hundreds of people that had worked at our business and helped build it and grow it, that were able to put their kids through college, that were able to buy a home, that were able to even pass along wealth down the next generation.

49:22And especially as we build a team that's more diverse and that has women in leadership and all these things, we're going to do capitalism differently. And I'm actually working on something right now that I'm really inspired by, this idea of maybe thinking a little bit differently where we don't have to go public today or have to go sell to a private equity firm that goes and levers the business. How do we go get investors that are truly aligned with our purpose and mission and that maybe even groups that have committed any gains that they have, they're going to go back and build their communities and make the world better, where it's not just gear for good, our slogan, but it's actually capital for good.

49:59And I'm really moved by this idea. And so I'm working on something now, and I don't know exactly where to go, but I'm a big believer there is a better way. Yeah. You know, on that topic of capitalism, how do you make the case to people who, you know, especially in the United States now, There's a lot of conversations about what does fairness mean? What does equality mean? Do our values comport with these huge inequalities that we see? I'm curious to get your take on what is the case you make for capitalism and for capitalism being a force for good, if it can be? Yeah, I really believe it can be.

50:39That said, we are destroying the planet and we are leaving people behind. And the gap between those that have and those that don't is becoming wider. And so the question we have to ask ourselves is, what are we going to do about that? And are we okay with that? And I frankly am not. And I think we have to do capitalism better than we have. And I'm a believer that we can. And I'm hoping that there are people, just like Yvonne Chouinard has inspired me, I hope there are young people listening to this and saying, I want to make a difference in the world and I'm going to be able to learn from Cotopaxi and hopefully they can even do it better than we are.

51:13And that's the hope I have. But I believe in 100 years, those next generations will look back at ours and that'll be the biggest criticism they had of us is this overconsumption of things, the creation of garbage and waste and the fact that we ignored populations of the world, huge swaths of people that were just left in poverty. And so that's where I think and I'm inspired to go do more. David Smith, thank you so much. Thanks, Guy. Thanks for having me back. That's David Smith, founder and CEO of Cotopaxi. Hey, thanks so much for listening to How I Built This Lab. Please make sure to follow the show wherever you listen on any podcast app.

51:52Usually there's just a follow button right at the top so you don't miss any new episodes, and it is entirely free. If you want to contact our team, our email address is hibt at id.wondery.com. This episode was produced by Chris Messini with editing by John Isabella. Our audio engineer was Catherine Silva. Our music was composed by Ramtin Arablui. Our production team at How I Built This includes Alex Chung, Carla Estevez, Casey Herman, JC Howard, Liz Metzger, Sam Paulson, Carrie Thompson, and Elaine Coates. Neva Grant is our supervising editor. Beth Donovan is our executive producer. I'm Guy Raz, and you've been listening to How I Built This.

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