20VC: The On Running Memo: From Swiss Mountains to NASDAQ IPO: The Story of Three Friends Who Built a Sports Giant

0:00So Roger said, hey, I would love to get involved. But how about not us giving you money, but you giving us money and becoming a co -investor and a co -entrepreneur together with us. And it has turned into a fantastic partnership and friendship. And he now probably spends 30 to 40 days per year with us here in on -labs working on products and that we're completely aligned. This is 20VC The MMO with me Harry Stabbings. Now 20VC The MMO is the monthly show. where we simply tell a story of an incredible company. Today, I'm so excited to feature on. On is one of the fastest -grown global sports brands with over 17 million products sold in over 60 countries.

0:41Joining us today from on is their co -founder, Anko Chairman, David Allerman, where we discuss the journey from idea in the Swiss mountains with his two co -founders to IPO -ing on the NASDAQ. This is such a special show, as David does not do much public speaking, and so I'm hugely honored to have had the chance wants to sit down and do this one today. But before we dive into the show's day, we need to talk about Sona. Sona is an AI -powered learning and knowledge sharing platform, think of it like Chatchy PT, for all of your company's knowledge. Sona integrates with all your company's apps in under 5 minutes, and can search through every single file, doc, pull requests video and more in under 100 milliseconds.

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3:45You have now arrived at your destination. David I am so excited for this as we just said I am one of the biggest on fans so this is the personal highlight for me and thank you so much for joining me stay. Hey Harry thanks a lot for having me great to be with you. I've been following the on story for years and it's just such a great one so I will the start of the beginning with 2010 to other co -founders. What was that co -founding our home moment for the three friends? You know it was actually 2009 and the rainy morning when Olivier, my co -founder and Dua Thlone, world champion, tried to let me know.

4:22I have this amazing idea of a new running shoe and invited Casper and Mead for a test run. And so it was a morning he was raining, he had some bad shoes because he had already had some tests done some testing and he had shaved off a pair of running shoes and glued rubber pieces that he had gotten from cutting his garden hose underneath the shoes so these hollow elements and his Casper and I had said before hey why do we let Olivier in the West his hard earned athlete money into a crazy idea but then we took the shoe for a spin and it was just an amazing sensation. Can I ask why was it an amazing sensation what did it feel like?

5:00So Olivier obviously as a tried it, it had had a lot of time to think while running. And he is himself, hey, I go for this training runs on very cushioned shoes, but then when you compete, you literally run in shoes that are called racing flats. So they're very hard and you feel it the next day. Wouldn't there be a way to engineer it that I have best of both worlds in Wanchu? And that was the breakthrough idea and what these hollow elements do is they give you a lot of cushioning when you land, but then they fully compress and they give you this flat surface so that you can push off with all your energy.

5:40And so that made this sensation of being super soft but also super responsive and explosive when you push off. And that got us. We also had been a generation that first discovered suspension bikes, full suspension mountain bikes and carving skis. And in both of these occasions it was a revelation where you felt, hey wow, This change is skiing for me or this change is biking for me and so on this morning we had that pattern recognition of Hey, this could change running for me. Okay, so you have this revelation that this can change running for you and millions of other people What do you do then?

6:15How do you make the first shoe and what was that process? You know that was a little bit messy at first because we were full in exploration stage And so we weren't sure about it yet So it was this unsure, confused face that is the start of innovation. So we went out to athletes and had them test -tuse just to give us confidence as well. Many of them said when they stepped into the shoot, as it wow, that's different. That's what we always heard. Casper went off to talk to first specialty running retailer, so the hardcore running mom and pop shops, a little bit outside in the village, where all the serious runners go to to get the best advice.

6:56And I was actually boarding a plane to Asia because a friend of mine had given me the contact to somebody who works in a shoe factory. And we didn't come from the sports industry, so I went there and learned how to make shoes. What did you learn learning how to make shoes in Asia? How was it? You rock up to a shoe factory, and you're like, I've got an idea for these new form of shoes? Yes, it was pretty much like that. And of course, they said, Hey, you know, we have hundreds of guys that are coming to us telling us that they have an idea for a shoe and you have a specially complicated one because you want to do these hollow elements, which later became cloud tech in the shoe and it's impossible to make these molds because putting holes into a sole, you need kind of tooling that puts almost sticks into the sole and how do you get the tooling out and it's complicated.

7:46So first I had to convince them that it's possible to build the tooling like that. How did you convince them? You know, I brought them some prototypes that all he had done and then asked them to step into the shoes. By the way, all he had and Casper were doing the same, all the way with athletes, Casper with first retailers and that was always the replication of the aha moment that we have had on that rainy morning that happened for many, many other people and in fact I came back then with first prototypes out of the factory and then we sent it to the largest sports expo eSpo in Europe. They called us two weeks later and said, hey, you won the eSpo Gold Award, which is the innovation award for new sports innovation.

8:27And a week later, Tecla Loro called us, we didn't understand her name, and she just told us, in broken English on the phone, hey, somebody has given me these shoes and I just ran from Germany to the Pope on a peace run and it was the best show ever so we kind of understood she probably ran quite a distance so she must have to do something with running because we didn't understand her name then we found out that she's a marathon world champion so a lot of things happened at the same time that was January 2010 just a few weeks after we had founded the company and we're eating this full time at the time the three of you full time had you put your own money in did you have supplies when she got given them could you send her more.

9:10So 2009 was kind of our exploration phase probably second half of 2009 and you know we had well -paid jobs kind of very acclaimed positions in companies and so first of all we had to convince each other that we actually do this and there's no better way to do that than on a long hike in the Swiss mountains and that's exactly what you did and while we were climbing the mountain and the view got better and better, we had a realization and that is if you're coming out of Switzerland you're coming out of one of the richest, safest places on the planet. That sometimes can be an inhibitor because then you're in such a safe place that you probably don't take risks anymore and so we ask ourselves, if we can't take risk of doing something crazy like this, who can?

9:58And that was the challenge travel selves and so after that I quit my job, cast but quit his job, stopped to do, his athlete coaches and we really fully committed and then fully started at the beginning of 2010. When you look at that start in 2010, we hear about winning the award, the incredible math and runner who's like globally renowned loving your product, it seems like the dream start. What was some of the really hard elements in that first year or two that you go, oh that was hard. Hey, it was this dream start, but then of course reality sets in as well. And so some of the retailers told us at Eastpo because they already wanted to write orders, they didn't realize that we were just showing them prototypes that we just got out of the factory.

10:41Hey, if you can't deliver in tune, you don't bother because then the season, my running season is over. And so I boarded a plane right off 3spot to make sure that we have shoes in tune, pushing out that first batch of probably 2000 shoes, that was really hard and to say you think it's yourself at that point? No, at that point not anymore. For the first flights in 2009 we all paid ourselves, but then we had put all our money into the company and so I always flew, I think from Zurich to Dubai to Hong Kong and then took the train because that was the cheapest option and pushing shoes out. But then also for Casper and Olivier who visited a lot of retailers, getting that first conversation opportunity to present the shoe was hard.

11:25So their tactic was to call a retailer up at the local running shop. Hey, I just happened to be in town. What's your size? And up, by the way, I just have your size with me. Can we go for a run over lunch? So it was really one by one. The hard ground work of getting your first wins. My favorite is that, oh, I just happen to be in New York today. That is fantastic. What a coincidence. My question is, you know, the brand is so synonymous with the design. When he looked back at the early design and funding presenting that to retailers, X -Pose, was that difficult in terms of customer education? Telling them about this fundamentally new shoe that looks so different?

12:08You know, it's interesting because from the very beginning, design was part of the DNA because that's part of my background and also of Tilo's background, our head of design who was with us even before we started the company and we had asked Tilo because he's a product designer and not a not a shoe designer, he had never designed a shoe and so we felt that's a good fit with us because we also never were in the shoe business. So let's completely break conventions. So what we did is this outsole which is very much visual technology so if you see the shoe in a shoe wall you gravitate to that so that's definitely But then we also decide to do something unconventional in the industry.

12:49Let's forget about all the decoration and the lines and the shiny things on the shoe. To yell, I'm a performance product, but let's completely strip it down. Let's do form follows function, where we make it very minimal, very much in a Swiss design tradition. And at the beginning, people told us, don't do that. You need the running shoe bling because that's going to put you at the disadvantage. it, and we did it anyhow. And so at first it probably was almost a little bit an inhibitor, but it made it to a very distinctive design, so people gravitated to the technology. It was very unusual, it was a different aesthetic, so at the end it helped us.

13:27You mentioned that, you know, you're dealing with the product design background, and you're lack of experience respectfully in the shoemaking business. When you think about the benefits of naivety, often we're told about entrepreneurs it's good to be naiv. But then bluntly, if you were starting another shoe business today, I'm sure you would know a lot more and be a lot more efficient in the way that you started it. How do you think about the benefits of naivety when starting businesses? What we lacked in knowing about producing shoes and selling shoes, we probably brought some different background to the table.

13:58So we brought an eclectic mix to the table and sometimes it's probably good to have an eclectic mix but then also that naifte that you mentioning because if you know what's coming your way you probably thought we wouldn't have started in the first place. Which is not exactly true because if you know what's coming our way today we would have started in the first place. My question to you is like when you think about like going back to those one by one regional stores or in the same place what was the inflection point where it really started take off? What was that moment when I went from one to one to boom?

14:32You needed quite a bit of perseverance and patience as well. The first two, three years in a market are hard. You see the lot. You convince a lot of very dedicated small retailers. You talk to people, you get influence in the running community, you do a lot of test runs. So until you hit a certain scale, it probably takes two to three years. And then after three years, we were seeing in our small home market that how K -Stick moment where it's taking off. Fortunately, we had decided at the very beginning that we're coming from a very small market, Switzerland is 7 million people. And so there's no option to build a global sports brand out of Switzerland.

15:17And so we were pretty much a global company from the start. So we were in Europe after East Pole from day one. Then in the second year we went to the US. We established our US presence in the third year. We went to Japan. And so we built that opportunity to grow into different markets almost one by one and half this hawkistic moment coming your way every year again just in a different market. And so it's been a great a great foundation for on. The US in year two is a very big decision. It's a big investment to go into such a big market and respectfully in year two you didn't own the market in Europe.

15:53What was the decision making process behind the decision to move to the US? So you soon in year two. It was very clear to us if you want to be a sports brand you have to be in the US and you have to be firmly eroded in the US as you have to be in many other countries like Japan, UK, so some of the biggest drowning countries and so we want to do that from the very start. So that's a massive decision number one. How do you launch US? It's a big market, it's a crowded market. How did you approach the launch strategy for respectfully on an unknown Swiss European brand? We just go out and start with some of the most important influencers.

16:30In the US you probably don't go out to the whole country at once, but you select your metropolitan areas. So for us it was for example at the very beginning it was New York and then other parts like San Francisco, LA, Miami, Portland of course, wherever offices in the US. These were then attached and we started to work with the local community. Is it enough to just get it in running stores? Because once it's in running stores, you need people to engage with it, you need the retailers to want to continue to buy it from you. How do you turn its in store to sales and converted customers? There were probably two other important pivot points for us.

17:08Being a digital native company, we decided in year two as well. Hey, let's really partner with the best retailers because we feel it's much more effective if they talk about the shoot. There's been so much said about running shoes by so many different brands. If we go out there and say, hey, now we did the most amazing running shoe on the planet, nobody will believe you. So you need some allies. And that's been very much also the incredible role of our partners. At the same time, we also went out and said, hey, we also want to have a direct connection to our community. And so we built our first website and our first e -commerce presence.

17:44And so we were very happy that in the first month, I think we sold 50 pairs of shoes back in 2012 I believe and so we launched this D2C presence as well and that was right in Flicction point when of course social started to rise then also the pivot from desktop to mobile you remember iPhone 2008 and so we fully leaned into that to make sure that we also have the digital connection apart from all the physical stuff that we were doing so we were hosting at least three four hundred fund runs community runs all over the planet but at the same time, you also built that digital connection. He said about influences earlier.

18:22In the early days, did you just send them like famous math and runners, famous triathletes, famous athletes? Did you just send them shoes? Did you ask them to wear them? What was that process like? Yes, absolutely. And of course, Olivier is fully ingrained in that community. And so he called all his friends and his friends called all their friends. And so we made sure some of the best athletes were in our shoes. And I remember a moment in I think it was 2013, so as three years into the journey where Frederick from Lyrde, one of the top talents and contenders for the Diamond Triathlon on Kona for the World Championships, he wore our shoe.

19:02And it was a prototype, so Olivier was always cycling behind him on the running route because Olivier was afraid that the shoe is going to fall apart. But it didn't fall apart and fret on the World Championship in Triathlon. In our show and was on that podium wearing the corner crown, which is the trophy of the World Championship of the Iron Man. That was an amazing moment for us that probably stands for how we connected to the athlete community and really built on out of coroning and together with athletes. Were you ever worried that the alignment of such brilliant athletes would alienate normal people, the general public?

19:39You become known as, I think bluntly, Hoka are often known as a running brand just for very extreme ultra marathon runners as an example. We worried about cornering a market to niche into real athletes who oppose not the general public. No, I think we weren't because as an innovation brand and as a sports brand you have to come from the core and if you would have been afraid of that then you would have definitely be put at ease probably in 2014 because at some point we saw a variety magazine and on the variety magazine There was the three -time Oscar winner in Tuxedo on the red carpet of the Oscars and he was varying the cloud That was for us a sign that now all is crossing over into popular culture And so that was an important moment for us But you think about like the movement into clothing as well That seems like a big decision too because you go from my beloved footwear brand to hey We're gonna do clothing as well when was that a decision and why did you decide to make that decision?

20:39It was quite organic, so at some point it just said, hey we hate to run in gear from other brands. And Tila and I started to work on a first little capsule collection of a pair, just a few pieces, ten pieces, the perfect running short, the perfect t -shirt, the perfect lightweight jacket. We presented that internally and then we decided that we start selling that. And I think it's a natural progression for a sports brand. Now, we're much more serious about that because we feel if you're building a global brand, you want to happen on the full body and you also want to bring the capability of what your technology and innovation team can do to the full body.

21:21What was the hardest element of launching clothing alongside the very successful existing shoe brand? One of the hardest part, I think the innovation part, what we wanted to have was pretty clear and also all the detailing and the cuts. What was hard is sizing because shoe sizing itself is hard and we learned a lot about shoe sizing and then a parallel sizing is even different and then what body shape are you are you building to because you can't be too wide at the beginning and so getting the sizes right and then the second thing is finding the right partners to sell a parallel because selling a pearl is a completely different thing than selling shoes.

22:03How so? Why is it so different? Shoes you put on a wall and immediately shoes have a volume and you understand the product. If you just hang a pearl on a hanger, it's not going to sell. You have to understand how you present a pearl, how do you create almost scenes, how do you combine it, you're not just buying one apparel piece, like in shoes where you probably by one pair, but you're buying a full look. And so you have to have the right partners who understand how to create that universe around the parallel put the right looks together. We also had to learn it not just with our partners, but also on our website.

22:39How do you present the parallel? And I think something that we're still learning. Can I ask, would it be your biggest lessons and what it takes to make retail work so well? The biggest question that we had when we developed the retail concept is, Why would you go back to a shop to buy shoes and then also a pearl? Why would you not just do that on a website? And we realized that often if you go to a sports store that you don't spend so much time with actually the people of the brand and of the store because it's about, hey, what is your size? And then somebody disappears for five minutes somewhere in a locker room or in the back room and comes back with the size and then it's for not the right size.

23:19and then this person disappears for another 10 minutes and then after 20 minutes you're there with a lot of boxes and it's the first time that you speak to each other and so our thought process was how can you reinvent that? That's again, and on we always try to do things a little bit differently and so we created a huge piece which we call the archive and you see every shoe of on on that big archive. it's landed like an object from outer space in that space and then there's the magic move which is with the secret button you can open this archive and you pull out the drawer and then of each of the shoes you have all the sizes of that shoe.

23:59So within seconds that shoe is on your feet and then if you decide that's this is the model then of course we get you a fresh pair from the backroom. How can you innovate on retail? We're important for us and it's been so rewarding for us to see that it really works, so people love it. It's maximizing the interaction time and not the transaction time. How do you think about the things which are great to be different on like that amazing experience? Versus things that are fine the way they are. We don't need to change that. What's existing works? Let's leave that. Versus no we can innovate. How do you think about that?

24:31One has a very strong culture and we have five spirits that are important to us and one of these probably my favorite spirit is the Explorer spirit. It's the spirit that you try to discover something new and use that sale and you don't call back the next day. So it's very much a you embark on that journey and so we also have very much empower on our team to think for themselves and to assemble a great team of with different skill sets because you need that on an explorer boat. So many things I think add on are always results. We always question ourselves. At some point you probably find out hey the solution that we find is probably not so far off from a industry convention but in many cases we find hey there's there's an opportunity to do it slightly different or sometimes radically different what have you explored on that it hasn't worked and how do you think about how long is the right amount of time to give something before deciding that it doesn't work you know I mean we had some difficult moments in the early days when we started out and we also scaled production at some point I remember very clearly in 2013 our production partners called me and said hey David We have a little problem just our factory vent broke they're shot down and all the materials for next seasons Production are already in there, but they haven't been assembled and so that was pretty much a near death experience I told them on the phone hey you have to find a way to get the raw materials out so that we can assemble somewhere else So they called me back the next morning and said, hey, we found a way, somebody climbed over the fence and got the materials out.

26:11And now it's a semi, we're assembling in another factory. That was not exactly my assignment. But in hindsight, I'm probably pretty happy that they didn't completely understood me right, but it's something that only an explorer would do to save on essentially. That, that was an incredible moment. It also made because back then we were probably something like 30 people. A lot of things were on caspers, olivism, my shoulders. And we realized we have to bring other very experienced explorers in together with us to just create the bandwidth. And that's probably been a realization that I would wish I would have known from the very beginning.

26:50Don't go too far alone and risk the company, but bring great people in and Mark and Martin who are now the co -ceos of on joined us back then and they took a lot of the responsibility especially when it comes to finance operations execution and they have been brilliant in scaling on with us together. How do you know is when is the right time? Often we hear this kind of idealization of founders. I totally agree with you by the way in terms of bringing great people and working with you but founders are idealized today and go the distance you need to be CEO David until the company is you know a thousand years old.