A more compassionate capitalism, with Cotopaxi’s Davis Smith

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1:22When we launched the business and we had this 24-hour adventure race. We actually needed to make backpacks for everyone doing the race and we needed to make it as quickly as possible. The only way for us to do it was actually to use remnants, leftovers. The clock was ticking for Davis Smith and his small team at Cotopaxi, so the new outdoor gear company got to work sewing bags out of salvaged fabric. They mixed bold colors, the wackier the combinations, the better. And in that moment, the signature look for the Cotopaxi brand was born. And then we really doubled down on it. And it was like, hey, what if we started making one-of-a-kind bags?

2:05And so a huge amount of our product that we sell is one-of-a-kind product. Every single bag is unique. And you could start seeing the personality of the sewers and the different products. It was really a cool thing to see. Whatever they got, no matter how funky it was, they loved it. The return rate was like zero. Just over a decade later, Cotopaxi has cemented a stellar reputation among outdoor enthusiasts and intrepid travelers with its gear and its apparel.

2:36This week, we hear from founder Davis Smith about the spark of inspiration that started it all. How he leveraged lessons from past struggles to build the Cotopaxi team. And why he stepped away from the CEO role in the midst of the company's meteoric rise. You've got to have incredible talent at every position. It's like this huge push. There are fires burning when you're going home. Can you believe it? Such an idiot. And then you go back to, this is totally going to be amazing. There are so many easy ways. I have no idea what to do. Sorry, we made a mistake. But you have to time it right. Oops.

3:12Working out of a three-bedroom apartment. Stuff that just seems absolutely nut balls. Ten years later, we're like, well, that's just how you do it. We haven't made it just how you do it. This is Masters of Scale.

3:52Cotopaxi is a B Corp, and it donates 1 % of its revenue to not-for-profits that fight poverty. This conscious capitalism model is driven by Davis' faith-fueled passion for helping others. That faith is also why he's taking a break from the business. Davis is currently serving his church in Brazil, and that's where he joined us for this conversation. We recorded this over video, and candidly, I sometimes struggle with our video interviews because it can be harder to create a personal connection. as I think you're going to experience here that really wasn't the case with Davis. He's heart-led, he's self-aware, he's candid, and he is a heck of a storyteller.

4:35Davis, welcome to Masters of Scale. Thanks, Jeff. This is so fun. I've been looking forward to this. Before we got into the Cotopaxi success story, I wanted to hear about the lessons Davis learned the hard way back when he moved to Brazil the first time as a recent MBA graduate and tried to make a go of it in e-commerce. I'd met along the way, along my journey, Mark Laurie, who had founded a business called diapers.com. And I kind of watched him scale that business pretty significantly before Amazon bought it. And I had this interest in Brazil and I knew Mark. I kind of thought, hey, what about a baby business down in Brazil?

5:13The internet's relatively nascent, not a ton of e-commerce businesses down in Brazil. And, you know, I had a couple of kids. And so I knew what the pains of buying things for kids. And I think like a lot of entrepreneurs, it's just naivete. You know, you just you have no idea the challenges you're going to face. So yeah, going to Brazil had all sorts of challenges. I'd never lived in Brazil, didn't speak Portuguese. Brazil is very, very bureaucratic, very complicated to do business in. And there were some challenges that we didn't anticipate. And, you know, the story was good until it wasn't good.

5:46What scale did you reach with the baby business and then what ended up going wrong? Over the next two, three years grew to maybe 20 million in revenue. So, you know, the business scaled, it grew. What we missed was there's a, there's, I think, a focus that needs to happen on efficiency before you go hit the gas. You need to make sure the business is actually making money. In that business, we didn't do that. You know, we, we validated that there was a business and there was a need, but we actually didn't build the efficiency that we needed to be able to be profitable as we scaled. So as rapidly as we scaled, we accelerated losses, which meant go raise more money.

6:24And that's a painful process to be in. Yeah. I mean, there also are myriad stories of companies where, you know, I mean, this is Reid Hoffman and blitzscaling and it is pour gas on the fire and grow, grow, grow. But what I hear you saying is that because you hadn't built the foundation exactly, right? You know, when you're one degree off at the bottom, you can be 20 degrees off at the top very quickly. Is that the right way to think about the challenges that you all face? Absolutely. And you had a co-founder in the baby business. Yes, my cousin. And things went sideways between the two of you.

7:02Yeah, unfortunately. That relationship was really impacted as we worked together over 10 years. And And honestly, it's one of the saddest things I think in my life is just that lost relationship. I don't want to dwell on such a sad experience for you, but I'm curious if there are lessons from the falling out there that are useful for our audience or that you've applied as you've gone forward in your own journey. Yeah, you know, I think one of the lessons I think I learned was, you know, when you're starting a business, it's so fun sometimes to have a best friend or a family member that you can go brainstorm with.

7:42But I think another approach to maybe starting is saying, hey, instead of choosing my co-founder based on who I love and, you know, who's close to me right now, why don't I go first, try to find a great idea? And then once I have the right idea, then I should go find a co-founder that really helps me solve the problem that I'm trying to solve. That best person is probably not going to be my brother or cousin or spouse. I'm sorry that that happened. And I'm glad you also were able to learn the lessons from that and apply them going forward. So let's talk about Cotopaxi. Where did the idea come from?

8:15So, you know, I'm living in Brazil and I'm having this experience, you know, building that business that was painful, especially this relationship that was kind of unraveling before my eyes. And my entire life, I had known I'd wanted to find a way to help people. When I was 19, 20, 21 years old, I actually was a missionary for my church in Bolivia for the Church of Jesus Christ of Latter-day Saints. And those two years were so transformational for me. And when I was living in Brazil, it was just in my face. I'm seeing every single day the poverty there. And I'm feeling so discouraged. I'm like, why am I, you know, I'm 34 at this point.

8:52How come I haven't figured out how to use my life to help people? And I went into bed and I started just having some ideas come to my mind. I started writing them down. And pretty soon I was out on the couch and I spent the next 36 hours that entire night, the next day and the next night where the entire idea for Cotopaxi came to me. the colorful backpacks, using the business to do good, everything. Did it feel at the time like an epiphany? Did it feel like divine intervention? How did it feel? I've never experienced anything like this in my life before. I don't know that I ever will again. I knew exactly what was happening.

9:30I wrote it all down. I have pages of journal from this 36 hours. And it was, for me, it was divine. I don't know how else to describe it. But I knew that all of a sudden, all these years of experience I'd had that I felt discouraged and disappointed about, that I hadn't found a way to help, I realized I needed all these experiences to be able to go do what I needed to do next. You know, no one wanted to believe that the world needed another outdoor brand. Every investor I talked to was kind of like, we already have Patagonia. We already have these other great brands. Why do we need another brand?

10:01But I had no doubt. I knew it would work. I knew it needed to exist. and we had a few great investors that believed. Kirsten Green from 400 Ventures was the very first and she stepped up in a big way and it made a big difference. And she's one of the very, very best on every level, not only a great investor, but a great human. Did you have a love for the outdoors? Had you grown up in the outdoors? Was it something that was a personal passion? Was that part of the origin here? Absolutely. I love the outdoors. My dad is an adventurer and I grew up spending a lot of time in the outdoors, camping, backpacking.

10:37You know, these different countries that we lived in, we made our own raft and floated the Amazon River and fished for piranha. We'd go survive on little uninhabited islands and make our own spears and spearfish and eat coconuts to survive. Like, I just, I loved adventure. I loved the outdoors. I loved travel. So I kind of was able to merge this love for the outdoors and this passion and desire to go do good and kind of blend these two things together. I want to understand what happens at the end of the 36 hours, but two questions before we get there. One, the name, how did that come to you? And then two, the llama.

11:14Where did the llama come from? Yeah. So the name came from my childhood. So when I lived in Ecuador as a kid and as a teenager, I went to a school called Academia Cotopaxi. And it was this American international school named after a volcano outside of Quito, Ecuador, this beautiful snow-capped volcano. I'd go camping and backpacking there with my dad and my brother all the time. My dad was our scoutmaster. We had this little international troop and my dad is just obsessed with anything he does. He does it all in. He was the best scoutmaster ever. We had so many cool adventures with these Boy Scouts, but I just loved that mountain.

11:54It meant so much to me. I loved that school experience that I had at Cotopaxi. When I started thinking of names, it was the first name that popped in my head. And I just thought I wanted a name that connected to my life experience and to the outdoors. And so it felt like the perfect name. And then the llama. The first place I saw llamas in the wild was actually at the base of Cotopaxi. We were camping. We had just moved to Ecuador from Puerto Rico where I'd spent some other years as a child. And it was just magical. We woke up. We were out making breakfast on the campfire. And these llamas just started walking through our campsite.

12:32And it was just, you know, I think I'm maybe 11 years old at this time. And it's like, for an 11-year-old, a llama, I mean, that's just one of those magical moments you just never forget. And, you know, they're mysterious. They're rugged. They're always in a herd. They're always together. They're never by themselves. And so I just thought, what a great mascot for a brand that's all about united together. Let's go make the world a better place. And so, yeah, I love the llama. Still ahead, how Davis scaled Cotopaxi and its global impact on extreme poverty.

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14:07And here's the best part. Join AWS Activate today and you could score up to$100 ,000 in AWS credits tailored to your stage and network. Go to aws.amazon.com slash activate and start building. Expanding your business in the U.S. can feel like a maze. Every state has its own payroll, benefits, and compliance rules, which can pull your focus away from growth. That's why founders use Deal. Deal is the professional employer organization, or PEO, that gives you a dedicated HR expert plus Fortune 500 level benefits for your team. The National Association of PEOs says businesses can grow twice as fast if they use one.

14:50So if you're scaling, make it simple with Deal. Go to deel.com slash mos and get up to three months free. Welcome back to Masters of Scale. You can find this conversation and more on our YouTube channel. This is a new category for you. It's a crowded category. story, how do you go figure out your founding team? And then how do you go find the money? How did you get the funding? Yeah. So I started looking online for the founding team and this is where I was like, I'm going to do it differently this time. And so I went onto LinkedIn and I just started looking for experts in the outdoor industry, people that had been award-winning designers of product.

15:34I reached out to a few of them on LinkedIn and they responded and somehow they believed. They believed in this vision of building a brand that could make the world better, where we'd use our profits to fight poverty alleviation. And so we built a small little team. I ended up resigning from my role there at my business in Brazil and moved back to the U.S. and flew into Utah. I decided to build it there. I felt it was a great place to build a business in the outdoor space. And the small group of five of us, we met in a mountain cabin, and I kind of laid out the vision for what I wanted to build.

16:07And those are just the most fun moments for any entrepreneur, that early visionary stage where nothing's been built, but like the world is yours, you know, to go do whatever you want to do. And, you know, it was just a magical moment, a magical time. And it, you know, took a few months, but we started making our first product and we ended up launching the business in a very, very unique way that blasted the business off in a way that I never could have imagined. Tell us about that. You know, I love llamas. So we actually went and we bought a couple llamas on the online classifieds. As one does.

16:41As one does. And we started going around college campuses in Salt Lake City with all these llamas. And we told everyone that we were launching this new outdoor brand, adventure brand, and that we were launching with this 24-hour amazing race-style event, this huge scavenger hunt type of event where you formed a team. Everyone that did the race would get one of these Cotopaxi backpacks, and they had 24 hours to go get as many points as possible. And you got points from doing all sorts of different adventures in the outdoors or service in the community. They were all living the brand for 24 hours, and we had 30 ,000 social media posts in that first 24 hours of our launch.

17:22And people were out living the brand, wearing our product, taking pictures of it, and sharing it on social media. and the winning teams got some trips and some gear. And that night when we were celebrating on stage with 5 ,000 people, all wearing the product, all like waving these little do-good flags, like it was just, it was surreal. I couldn't believe it was actually happening. At the same time, it felt divine, like it was divinely inspired. And so I felt like, yeah, of course this is working. That's beautiful. How did you fund the business to get it started? Yeah. So that's where I think having some experience raising some venture capital really made a difference for me.

18:02And so I was able to go to Silicon Valley and I actually met with a hundred, I have a list of every investor I've ever met with. And at this point I have around a thousand people and trust me, I've been rejected a lot. I've gotten really very good at rejection. My mission experience as a 19 year old kid really prepared me for a lot of the rejection that I dealt with as an entrepreneur. Just to be clear, for those who don't know, So as a missionary, you're literally knocking on doors and having doors slammed in your face multiple times a day, right? Absolutely. You know, if you're not resilient, it can really beat you down.

18:35But I think what keeps you going is a belief, a deep belief that what you have matters and it's worth sharing. And so I felt the same thing about Cotopaxi. It was like, this matters. I don't care how many people reject me. This needs to exist. And so we ended up with a handful of investors that invested, like I mentioned, Kirsten Green from 400 Ventures and a handful of other amazing people that stepped up. And some of my friends from business school, like the Warby Parker founders, the founders of Harry's and a few other good friends, Andy Dunn from Bonobos and some other founders that put a little bit of money as well.

19:11And it was enough to kind of get the business started. But they gave us money before I'd sold a single backpack. So it was really, you know, a belief in me and a belief in this vision that we had. And we've talked a little bit about the mission of the company beyond. I mean, because this 36 hour sprint in which the vision for the company on Spools is inspired by this personal mission, this need to do good in the world, to fulfill your own potential, to change other people's lives. So will you talk a little bit about the mission of the company and how that fits with running it as a business? So the mission that we have is to eradicate, I believe that it's possible to eradicate extreme poverty in my lifetime.

19:54In 1820, 200 years ago, 94 % of the world was living in extreme poverty. And when I was born, it was around 40%. Now it's under 10%. So we are eradicating extreme poverty, and I want to be a part in this movement of showing that business can be a force for good. Capitalism can be done better than it has been. It's this amazing tool that's lifted so many out of poverty, but it's a little broken. There's things that aren't quite right about it. And so what can we do better? And I really believe there's a way to help take capitalism in this better direction. And so that was the vision for this brand.

20:28And so we donate 1 % of all of our revenues, which to be clear, a lot of times is many years that was actually more than we made. We maybe weren't even making money, but we're still giving money away. As we all know, I think people that don't understand business think, oh, that's like nothing, 1%, that's nothing. But if If Amazon did that, I think that'd be all their profit or something. So it was a big commitment and investors really had to buy into it. But we've done it every year and it's core to who we are. It's why we exist. We are not an outdoor brand or a backpack brand. We are a brand that does good.

21:00We're a brand that shows that capitalism can be done better. And we happen to make really amazing and great outdoor and adventure gear to do it. And your setup is a B Corp. Is that right? Yeah. This was another thing that I reached out to our attorney before we started the business. I said, hey, I'm thinking about this new business. And I know that the Warby Parker team just converted to a benefit corporation. What do you think about me starting as a benefit corporation? And he actually said, I wouldn't do it. I wouldn't recommend it. I'm not aware of any business that started as a benefit corporation.

21:30This is in 2014 and that has raised venture capital. Investors might not be very interested. Warby Parker, they already have a brand. Their people are excited about them. They can kind of do what they want. But he's like, I wouldn't recommend it. I just felt so strongly about it. It's like, if I'm not going to do this, for that reason, for the right reason. And if there's investors that don't want to invest in us because of that, that's not the right investor for me anyways. And so we incorporated from inception as a benefit corporation, became a certified B Corp a year later. And that was almost 10 years ago.

22:00And then how do you decide where the 1 % of profits go? What's your process for figuring out how to make sure that that money is being spent as optimally as possible? Well, there was a learning curve. When we started the business, I was the one that oversaw our impact work because I was so passionate about it. And I'd been involved in some nonprofits around the world and in Latin America specifically that I was really excited about. For example, there was an orphanage that I visited and would frequently visit when I was in Bolivia as a missionary. I went there on Christmas Day. It was my first Christmas away from my family.

22:31I was incredibly lonely and sad and kind of honestly probably a little self-absorbed thinking about myself and how much I miss my home. And that afternoon, a couple of the other missionaries that organized for us to go to this orphanage. And after going there, it was like, how could I possibly feel sorry for myself? Like what a gift to be here. So that orphanage meant a lot to me. And so that was one of the first places we started helping. And we had a few other places that I was really passionate about. But a year into the business, I hired a chief impact officer and she came in, she'd worked for Salesforce and she basically said, okay, tell me about how you're doing this.

23:07And I said, oh, I was so proud to tell her about this orphanage. And she's like, Like, that's horrible. She's like, so wait, you just send the money? Like, you just send the money? Like, how do you know what they're doing with it? It's like, well, they're nuns. Like, the nuns aren't gonna, you know, do anything wrong with the money. She's like, you have no idea. You don't know, how are you measuring the impact? And she was right. You know, I had no idea what I was doing. And so she helped us build. And, you know, we invested. We had a chief impact officer before we had a chief marketing officer.

23:32Our board was like, Davis, like, are you, like, why are we spending money on someone, you know, telling you how to give away the money? Like, let's focus on making more money and, you know, selling, selling more stuff. But I just felt so strongly, if we don't get this right, nothing else matters in this brand. We've got to do the impact right. We've got to be best in class. We've got to do this better than anyone has ever done it. And if we can do that, then this brand matters and people will buy the product. Yeah. I want to just go back for a minute because we're in an era, the last, let's call it 40 years or so.

24:04It's relatively new in the scope of American capitalism where almost every company is optimizing just for shareholder value. The job is shareholder value. That is it. And there is not a consideration or there is diminished consideration of stakeholders, whether that is members of the team or that is the local community or that is the environment or that is eradicating extreme poverty. in our lifetime. You noted, and I think it's impossible to argue the counterpoint, that while capitalism is undoubtedly, in my view, the best and most impactful economic system we've ever created, it's also deeply flawed.