The Upstarts

How Allbirds went from Silicon Valley fashion staple to a $1.4 billion sneaker start-up

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How Allbirds became a $1.4 billion sneaker start-up

In 2012, Tim Brown called it quits on an eight-year professional soccer career that included a trip to the 2010 FIFA World Cup as New Zealand's vice captain. After retiring, one thing from Brown's playing days would not stop bugging him: the sneakers.

Throughout his playing career, Brown's teams (he played in the U.S., Australia and New Zealand) were sponsored by big-name sneaker manufacturers like Adidas and Nike. But Brown felt the sneakers he wore on and off the field were often too flashy, awash with too many different colors and packed with corporate logos.

He wanted something simpler. So, he decided to make his own.

Today, Tim Brown, 37, is co-founder and co-CEO of Allbirds, the San Francisco-based sneakers start-up that's taking the world by storm, one pair of feet at a time. The billion-dollar company's shoes are famous for being both unbelievably comfortable and constructed with natural, environmentally friendly materials like merino wool and eucalyptus tree fiber.

Google reviews of Brown's increasingly ubiquitous footwear include phrases like "shockingly comfortable " and "they're like slippers made of clouds. "

Not only are Brown's sneakers cozy and sustainable, they're also minimalist in look and sales strategy. Allbirds sells only about half a dozen varieties of its shoes in solid, often understated, colors such as "Natural Grey" or "Tuke Honey" (which shares the name of a New Zealand river). That model stands in contrast to much of the $64 billion global athletic footwear market, where companies like Nike and Adidas churn out hundreds of varieties of shoes with endless options for customization while "sneakerhead" culture creates a market for flashy collaborations involving brands, athletes, celebrities and designers that can see the most coveted shoes sell for thousands of dollars per pair.

"I had a very, very simple insight that shoes were over-logoed, over-colored and changed all the time for no reason," Brown tells CNBC Make It. "And, it was very, very difficult to find 'simple.' And I set out to solve that."

Nearly all of Allbirds' shoes sell for $95 per pair (high tops released in November go for $115) and Brown says the company sold its 1 millionth pair just two years after officially launching in March 2016.

Allbirds co-founder Tim Brown (L), pictured during his days as vice-captain of New Zealand's national soccer team, in 2011.
Mark Dadswell | Getty Images

A $200,000 grant and a dream

Raised in New Zealand, Brown attended the University of Cincinnati on a soccer scholarship as a teen before embarking on his professional career. When he decided to put aside professional athletics at age 31, he returned to school to study business and, in 2013, he earned a master's degree in management, with honors, from the London School of Economics.

Brown had spent the final few years of his soccer career mulling over the idea of creating his own line of sustainable sneakers — he even remembers spending time in the offseason researching footwear factories online. No footwear company had yet made a running shoe with an all-wool upper (in footwear parlance, the "upper" is the entirety of the shoe that encases your foot and connects to the sole). But Brown, who lovingly refers to New Zealand "the land of 27 million sheep" (it's the world's second-largest wool exporter), grew up wearing homemade wool sweaters and socks. So his sneaker idea took focus around the natural material that Allbirds describes as "breathable, temperature-regulating, and moisture-wicking."

With a $200,000 development grant Brown won from a New Zealand wool industry research group and help from a group of New Zealand government agricultural scientists, Brown developed a patented wool shoe material that had the necessary strength to endure the wear and tear of footwear, while still being extremely comfortable and non-itching.

The result is a super-fine wool from the South Island of New Zealand that is the same quality level used to make luxury men's suits for labels like Tom Ford, Giorgio Armani and Gucci, Brown says. Allbirds are knitted in Italy with proprietary technology and have soles made from a combination of rubber and foam (as well as more-sustainable castor bean oil-based components) that is both lightweight and resilient enough for running.

The name, Allbirds, is also a nod to New Zealand — it references the fact that the island-nation's first settlers found hardly any mammals when they arrived in a land of "all birds," Brown says.

In March 2014, with prototypes in hand, Brown launched a Kickstarter campaign.

"Quite honestly, I wasn't sure if this problem I was trying to solve personally was going to be a problem that other people had, and that was a way to test that theory," Brown tells CNBC Make It.

The campaign described Brown's minimalist sneakers as "a world first: woolen running shoes specifically designed for sockless wear." The Kickstarter profile touted the shoes' comfort and utility — "as comfortable in a pair of jeans as they are in the gym" — as well as their machine-washability and the idea that the primary material, wool, offered "natural, renewable and biodegradable benefits" typically not seen in a footwear category that, traditionally, has a sizable carbon footprint due to the excessive amount of chemicals and carbon dioxide used in the manufacturing process.

The Allbirds Wool Runner in Kotare Jo (dark grey).
Source: Allbirds

Brown was looking to raise $30,000; the campaign shut down within four days after selling 1,064 pairs of Brown's Wool Runners and raising nearly $120,000 from over 950 investors.

Brown was thrilled and encouraged by the response but also caught off guard. "I had to stop the campaign, because that was all the material that we had," he says.

"You celebrate for a split-second and then you realize that 'Gosh, there's an enormous amount of work to do, an enormous amount of expectation that's come on the back of this little bit of success I've had,'" Brown says. "So, it was very, very quickly about heads down, trying to work out how to deliver this to customers."

Turning Allbirds into a business

Brown needed a partner with experience establishing a supply chain that could help move Brown's idea forward.

Enter Joey Zwillinger, the second co-founder and co-CEO of Allbirds. Zwillinger is an industrial engineer and a Wharton graduate (where he befriended the founders of Warby Parker, who later became Allbirds investors). He was running a chemicals business unit of a biotech company in San Francisco.

Allbirds co-founders Tim Brown and Joey Zwillinger.
Source: Allbirds

Zwillinger's wife and Brown's wife are best friends who roomed together in college at Dartmouth, and Zwillinger was among the early investors in Brown's Kickstarter. After the campaign closed, Brown flew to California to meet with Zwillinger, seeking advice on his next steps. Zwillinger cooked Brown, fittingly, a lamb stew, and the two spent the weekend pondering what type of business Brown had on his hands.

"There was a huge opportunity in the fashion industry, and in the footwear industry, to make better shoes in a better way, and we were uniquely positioned, potentially, to try and do that," says Brown.

Brown moved to San Francisco to formally establish Allbirds in 2015.

Instead of trying to roll out several different types of shoes, Brown and Zwillinger decided to stick with just the Wool Runner ahead of officially launching Allbirds to the public.

"Sometimes, the assumption with innovation is it's about adding lots of things — bells and whistles," Brown says. "And, in the case of what we were asked often in the early days — 'Why does the world need another shoe?' — sometimes innovation can be about taking things away. It can be whispering when everyone else is screaming."

Brown and Zwillinger also decided to eschew the wholesale business model, a staple of the footwear industry where shoe manufacturers make a variety of different styles and sell them in large quantities to retailers around the world, who then sell them to customers. Instead, Allbirds jumped on the recent trend of opting for a direct-to-consumer model, where brands control all of their own manufacturing and distribution, selling products directly to consumers online or in brick-and-mortar retail shops, or both (like Warby Parker or the apparel brand Everlane).

The direct-to-consumer model has allowed Allbirds to move faster and have a direct relationship with customers and allows Allbirds to constantly improve the product, according to Brown.

On the same day that Allbirds made its Wool Runners available for customers to buy on its website (March 1, 2016), the company announced its first major fundraising round, a $2.7 million investment from a group led by Lerer Hippeau (which has also invested in Everlane and glasses start-up Warby Parker).

Winning over tech, and the country

Allbirds benefited from some positive press right off the bat, with a Time magazine profile on the day of the release anointing the Wool Runners "the world's most comfortable shoes."

Brown remembers the article as a "an enormous moment of validation for us," and a major turning point that convinced him Allbirds could succeed. "And then it's just taken on a life of its own."

Allbirds Wool Runners come in a variety of minimalist colors.
Source: Allbirds

Allbirds first caught on with the tech set. In fact, 15 months after launching, The New York Times was already referring to Allbirds as "Silicon Valley's cobblers."

Based in San Francisco, with Silicon Valley's legions of programmers and tech CEOs next-door, Allbirds became a standard part of the casual workplace uniform at start-ups and venture capital offices. Of course, it helped that Allbirds had the backing of the venture capital community from the start, and within months of launching in March 2016, the company had landed another big investment round ($7.3 million from a group led by VC firm Maveron). The more investors Allbirds reeled in, the more pairs of its shoes you could find strolling through Silicon Valley, and vice versa.

Brett Jackson (an early investor and employee at Crocs), Brand Foundry Ventures' Andrew Mitchell, and Great Oaks general partner Henry McNamara were among the influential venture capitalists who spent the summer of 2016 showing off their new Allbirds on social media — and who now count themselves as investors in the shoe start-up.

And they weren't alone. Other Silicon Valley titans known to wear Allbirds included Google co-founder Larry Page, former Twitter CEO Dick Costolo and venture capitalist Ben Horowitz, according to The New York Times.

"I think [Silicon Valley] is a group that are naturally attracted to the idea of innovation and of doing things differently in old-fashioned categories, which I think in many ways is what Allbirds stands for," Brown says of Silicon Valley's early appreciation for Allbirds.

Last year, a number of trendsetting celebrities in Hollywood such as Oprah Winfrey, Matthew McConaughey, and Goop guru Gwyneth Paltrow were reportedly spotted wearing Allbirds, while a whole cadre of Hollywood moms (like Mila Kunis and Jennifer Garner) have also adopted the comfy kicks in recent months. Even former President Barack Obama is reportedly an Allbirds fan.

Leonardo DiCaprio on August 28, 2018, in Los Angeles, wearing Allbirds
Max Shelton | FilmMagic | Getty Images

In August, Leonardo DiCaprio announced that he'd personally invested in Allbirds, noting the company's use of environmentally friendly materials.

Allbirds does, on occasion, send free products to high-profile customers, including celebrities, but an Allbirds spokesperson noted that this typically happens after those big-name customers have already started wearing the brand on their own.

According to Sullivan, a "big part of Allbirds' success" was happening even before celebrities started wearing them. The company had already sold more than a million pairs months earlier.

The trend that started in Silicon Valley, seamlessly expanded into mainstream fashion. The "style that they've adopted is very comfortable, but meaningful and sustainable, [and] is spreading beyond its borders," Esquire magazine fashion director Nick Sullivan tells CNBC Make It. "I think people are naturally intrigued by the whole Silicon Valley thing and start-ups and app designers, and everything. It sort of feels like a modern thing to do.

"So it's natural that [Allbirds], at those very reasonable prices, anybody can get in on that."

"I think we could never have imagined how fast and how far the idea would have traveled," Brown says. Indeed, in addition to a strong presence on social media, including an exclusive shoe sale on Instagram in March, and a rare retail collaboration with Nordstrom earlier this year, much of the buzz around Allbirds, especially early on, spread via word of mouth.

While Allbirds tends to inspire die-hard devotion from many of its wearers, some customers have voiced complaints that the shoes wear out too quickly, despite the company's assertions about the resilience of its natural and sustainable materials. The company has also said it is constantly improving upon its shoes and that newer iterations are more durable than the earlier versions.

Also, one reason for Allbirds' growing ubiquity has been the fact that the shoes have strayed, somewhat, from Brown's original vision of a purely athletic sneaker made from wool. While Allbirds sneakers can be worn for light athletic activity (the company says they work best for "short runs and casual [<5 mile] hikes"), most customers wear them for more casual purposes — anything from lounging around to running errands — or even in more traditionally dressed-up situations.

One reason for that shift is the years-old "athleisure" trend — think yoga pants and running shoes as an outfit for brunch, or even a casual Friday work meeting — pioneered by the likes of Lululemon and embraced by athletic brands like Nike and Adidas.

Allbirds showed up just in time to ride that athleisure wave, according to NPD Group Vice President Matt Powell, a sports industry analyst. "I think they read the market correctly," Powell tells CNBC Make It.

"One of the things we've seen over the past few years is really the blurring of what's athletic and what's not," Powell says. "More and more, people are able to wear sneakers to work, or a sneaker-like product, and I think [Allbirds] really meets that niche in between the two categories. It looks dressy, but it feels like a sneaker."

Still, it might be easy to look at Allbirds and wonder what all the fuss is about. Wool has been used in all types of clothing for thousands of years, Sullivan points out, and Allbirds' designs are so minimal that they almost seem boring or over-simplified. But, that might also be the point.

"Sometimes, simplicity really appeals to people," Sullivan tells CNBC Make It. "You just slip it on and go. You put it in a washing machine. Those kinds of advances really do revolutionize fashion, if they're done by the right people, in the right moment, and with the right distribution. Yeah, that's how they get huge."

The 'secret sauce'

Allbirds is a private company and, as such, Brown is tight-lipped about its financials. However, Axios reported in October that the company has been profitable since 2016, with roughly $80 million in revenue last year and nearly double that amount expected this year.

The same month, Allbirds received its largest outside investment to date: $50 million in funding from investment management firm T. Rowe Price, valuing the start-up at a whopping $1.4 billion. Allbirds has now raised a total of $77.5 million from outside investors.

Allbirds continues to grow around the world, with the brand launching sales in the U.K. in July after previously being available only in the U.S., Canada, Australia, and New Zealand. In October, the company opened a brick-and-mortar store in London, joining Allbirds' two other physical locations in San Francisco and New York. And, Allbirds is planning to open at least eight more retail locations across the United States in the next year.

Allbirds' New York City retail store is located in Manhattan's trendy SoHo neighborhood.
Source: Allbirds

Meanwhile, Allbirds has also been expanding its product line, including adding slip on Wool Loungers in April 2017. Later in 2017, the company introduced Smallbirds, a kiddie-sized version of its signature shoe. This summer, Allbirds unveiled a line of flip-flops made with SweetFoam, which uses sustainable sugar cane to build shoe soles.

And in March, Allbirds introduced its first line of nonwool shoes called Tree, made with fiber derived from eucalyptus trees. (The company added a high-top version of those shoes, called the Tree Topper, in November.) "We chose [eucalyptus] because of its cooling qualities," Brown says. "So we've created a shoe that's better when the weather gets a little bit warmer."

"Most importantly, we need to keep innovating," Brown says, adding that Allbirds sees an opportunity to eventually develop a wide variety of products that use sustainable materials, though he declines to identify any specifics.

The new Allbirds Tree Topper, a high-top sneaker with materials derived from eucalyptus tree fiber.
Source: Allbirds

Sustainability and natural materials alone aren't enough to sell a product, Brown admits. "People don't buy products because they're sustainable, they buy them because they're great," he tells CNBC Make It. And that's where he expects Allbirds to get a leg up on competitors.

But even with its billion-dollar valuation, Allbirds still pales in comparison to those footwear behemoths, with Nike's annual revenue alone dwarfing Allbirds' entire value by a factor of nearly 25 (Nike reported $34.4 billion in global sales last year). But Allbirds' rapid rise and growing popularity have certainly not gone unnoticed by its rivals, as the growing demand for knit wool sneakers across the market actually spurred a 30 percent spike in the price of wool in 2017.

Allbirds even sued shoemaker Steve Madden in 2017, claiming the latter company knocked off its signature Wool Runners. (Steve Madden denied Allbirds' claims in a court filing and the companies reached an undisclosed settlement in March 2018.)

"The hope is that, as people copy us, that they really copy the use of sustainable materials as much as the look of the products," says Brown. "We haven't seen that as much but hopefully that happens more, and that would make us even happier."

Still, NPD's Powell doubts that Allbirds will ever reach the size of Nike or Adidas. "[Allbirds] would have to be much more broadly focused in their mix of products to be more competitive," Powell say. In other words, the very thing that sets Allbirds apart from its larger rivals could be what keeps it from joining those ranks.

But Allbirds can make an even bigger mark on the footwear industry if the company's business model serves as an example to much larger rivals of how to cut out excessive costs. It's rare to have a billion-dollar start-up in the footwear industry, Powell says, simply because the costs of production and development are generally prohibitive for small businesses.

"Some of the magic of what [Brown and Zwillinger] have done is that the most expensive parts of product development, they've essentially eliminated," he says. "They're basically using the same outsole over and over, and that's the greatest expense in developing a shoe." Traditionally, large footwear companies use different outsoles for each shoe design, which racks up costs across hundreds of styles.

Allbirds' business model is what has helped the start-up grow so quickly, and that is where the company could have the greatest influence on its much larger rivals, Powell tells CNBC Make It.

"Lots of people know how to make trendy shoes and comfortable shoes," Powell says. "But, I think the real secret sauce here is much more on the supply chain side of things. [It] is prohibitively expensive to try to build a shoe company from the ground up, and that's why you don't see a lot of companies doing this."

Allbirds' founders may be in agreement there: "The Allbirds brand wasn't built to be just to be about shoes," Brown says. "I think the idea that underpins it is much larger and it's about finding better ways to make stuff."

—Additional reporting by Mary Stevens

CORRECTION: This article has been updated to show that Allbirds released its Tree Topper high-top sneakers in November 2018, not in March.

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