How Footwear Startup Allbirds is Decarbonizing Fashion - Joey Zwillinger Flashcards
Allbirds is a footwear startup focused on simple design, comfort, and sustainable natural materials–substituting natural materials for conventional petroleum-based materials and leather. The company is diversifying into apparel and expanding beyond its online store to open more retail stores around the world.
According to ShopSmart magazine, the average American owns 19 pairs of shoes, which takes a lot of energy and raw materials to make. And we toss about 300 million pairs into landfills every year, which is to say, though your time with your shoes may be relatively short, they and their impact on the environment will likely be around long after you’re gone.
Joey Zwillinger is a biotech engineer and renewables expert and the co-founder and CEO of Allbirds.
May 2022
01/03/24
Allbirds’ shoes are very popular among folks like MBA students. Their marketing and their whole brand value is around these three concepts of design, comfort, and natural materials. It’s a really interesting question to think about how do you sell a product whose main value drivers is comfort and yet selling it online where people don’t actually try it on?
Two of the main ways that footwear has an environmental impact, especially when we’re thinking about casual shoes, is there’s often fossil fuel derived products, so polyester and the soles are fossil fuel derived. When you think about natural materials for footwear, often you’re thinking about leather. While it is a natural material, the tanning of leather, the dying of leather, all of that involves often toxic materials, which have water pollution concerns. And then of course there’s the shipping. Products are shipped globally, so that creates another whole fossil fuel based environmental impact. And it’s really on each of these dimensions that Allbirds is trying to develop new uppers, the soft part above the sole, and even new midsole, which is the squishy part under your foot. They’re trying to create those all out of natural materials and it’s really quite a revolutionary approach.
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Joey Zwillinger
Tim and I co-founded the business in 2015. At our fundamental core, we actually think about ourselves as a material innovation company. And the reason we start there is because we know that the vast majority of the impact of carbon pollution and the effects of global warming from consumption is born on the materials that we sourced to make the products. So we really focus, and you called it “natural” materials. We’re using things like biotechnology and green chemistry and a whole bunch of other really unique tech technologies to bring to bear amazing comfort and amazing performance to do this. It’s through sustainability that we unlock incredible comfort and incredible performance.
Tim and I come from quite complementary backgrounds. Tim was a professional soccer player actually before he started Allbirds with me and he had a design background from his undergrad degree. He did 10 years as a professional soccer player in a couple different places, but largely in New Zealand, Australia. And in fact, he was the vice captain of the New Zealand National Team and went all the way to the World Cup in 2010 in South Africa. So really rose to the pinnacle of his career. And he was endorsed by all the big sportswear companies.
It became very clear that the way that the footwear industry in particular marketed itself was around these peak athletes and developing interesting products for the peak athletes. And it was less about the innovation for consumers, comfort, performance, and more about just utilizing athletes to get the brand out there and get some good marketing awareness.
He was really left wanting for something more that was on trend with the casualization of a wardrobe. And you’ve seen it in apparel. Athleisure, it was a word that was used maybe five, 10 years ago, quite significantly. Lululemon is a great example of a company that changed the way that we dress forever. And that had not really happened in footwear.
I was at a company called Solazyme, where we were utilizing biotechnology to engineer microalgae. And we would take that microalgae, we would program it to eat low carbon intensity sugars and turn those into high performance products that could replace petroleum and petroleum derivatives. I ran the chemicals business unit. And I was going around the world, compelling big brands and some industrial players to take these components and replace petroleum derived components. And what I found was that these brands, they said all the right things. They love sustainability, they were saying it to their consumer. And when it came down to buying product, they didn’t actually care.
Fortunately at that moment, Tim’s wife and my wife, who happened to be best friends from college, said, “Hey, this project that Tim’s working on is going well, but he’s kind of struggling on some of the business side, some of the material side.” I was looking for a brand opportunity that was the meeting of two separate paths, so that came together for material innovation and consumer insights and design to bring something and make something special.
Focusing on an initial product concept, like the wool runner and unlocking value through a go-to- market strategy was something that was compelling to our seed investors. There was a handful of folks in there, our lead investors at the time, who really saw the very long term potential of being able to say, “Okay, that might be a interesting 100, 200, $300 million business over time, but could it be something bigger?” And to be something much bigger, it had to be a platform that could extend well beyond a single product or a single material innovation. And that was a very helpful moment to get our first two million bucks and be able to really inject into the business and invest into the business
Mike Toffel
I’m not sure how many Allbirds customers actually believe that it’s premised on sustainability. I think a lot of them believe it’s premised on design and premised on comfort. And then sustainability is like a, oh, that’s really cool. I can feel good about this product even more than I physically feel good stepping into the shoes.
Joey Zwillinger
I think it’s a growing portion that’s coming for sustainability, but it’s still a minority.
Mike Toffel
I think that gets to the question about other examples of brands premised on sustainability. I think it’s still a bit nichey in some ways. I think folks think of them as upscale brands like Patagonia, where the pricing is 3X competitor pricing sometimes, or folks like Ben and Jerry’s, who’ve long had sort of a sustainability angle to them. Of course, there are large brands like Unilever and HP and Google and Microsoft, who are now characterizing themselves as sustainability for a variety of reasons. Unilever’s reaching into its supply chain, trying to figure out how to reduce the environmental impact of growing a lot of the food-based products that they sell. Microsoft and Google are buying offsets and trying to make themselves carbon neutral, even back to their inception.
I think the history of sustainable brands is such that there’s, in some areas, a trade off between sustainability and other desirable features. I think you and I are old enough to remember the emergence of recycled photocopy paper, which was more likely to jam your photocopier. So there really was a trade off in function and in sustainability attributes. My sense is that one needs to go cautiously, because you don’t want to imply that you’re going to sacrifice other attributes you really value. Because although a lot of people say they’re willing to pay more for sustainable products, a lot more people are willing to say it than actually do it. When push came to shove, they aren’t ready to really go down that route and invest in it.
Joey Zwillinger
I’d say still the vast majority of people are looking for something that makes them feel good, makes it perform well and that they love. I would point to two different groups of companies. There’s a company like Unilever, which is doing a fantastic job on taking a legacy model and trying to evolve it into a more sustainable company. Then there’s a purpose native company that is starting with a blank canvas and starts with the idea that sustainability is going to be the engine that fuels their growth and that they constrain their innovation process to looking at making great products through R&D that happens to be sustainable. And the ripple effect can be much, much broader. Tesla is a great example. You don’t get in a Tesla because it’s sustainable, you get in because it looks awesome and it goes really fast and it performs well. We do not have legacy baggage and we can just unlock great performance for customers without making any trade offs.
Does the purpose-native philosophy extend up and down the supply chain? Do you really vet your suppliers in such a way that you can make that claim?
100%. And Mike alluded to something that’s really important in terms of making sure that we’re held accountable by everybody, including our consumers, and that’s this innovation we’ve done where we’ve created a tool that can track down to the gram, what is the carbon emission for the entire life cycle, go from farm to foot and to end of life of that shoe or any product that we make. And we actually label that carbon footprint on every single product that we make, either product or packaging.
In order for us to drive that down to zero, which is our objective here, and then beyond that, to the extent that we can, we’d like to do that quickly and we’d like to do that with the partnership, with our suppliers, our supply base, and other folks, including governments.
Mike Toffel
I think there’s been a lot of critique of other types of companies whose sustainability efforts are highly visible, but also highly symbolic. So you can have a lot of solar power at your headquarters, but if your products is where the impact is, then that’s really where you ought to be making your investments. That’s a real critical piece of an authenticity play if you’re trying to be a sustainable brand.
How sustainable is your business model? Sustainability is the great focus for Allbirds, but is this the kind of thing that can be sustained sort of indefinitely, given the added investments that you probably have to make in R&D to continue to be authentic.
They’re working hard with existing suppliers who have scale and the technology to create, for example, what they call SweetFoam, which is the substitute for a fossil fuel based product that sits between your foot and the outer soul. That’s the part that gives you cushion. When they did that, they could have tried to create that in a proprietary basis. But in fact, they’re working with their supplier, trying to get others to adopt that material as well as a way to drive down its cost to increase economies of scale.
So there’s an interesting play, should we try and do this and keep it proprietary, or we try and get this to be spread across our own industry and across other industries. And so far, in a lot of these dimensions, they’re trying to create scale. Think about the wool side. They’re involved in trying to create a certified wool to have grown in a sustainable way. Again, could they have created their own certification scheme or their own standards? Sure. But then they don’t really have scale.
Does that feel to you like you guys might be giving away some competitive advantage if you are sharing your platforms and your technologies with others in the field?
Mike points to wool, which I think is a great example where we’re working literally down to the farm level in New Zealand, working to make regeneratively farmed wool, which gets to carbon negative actually. And we’re doing a great job and we’re doing that in partnership with some other brands. So that’s one good example where we’re coming down the cost curve and doing something that’s going to benefit others.
SweetFoam is the squishy stuff underneath your foot in the middle of the shoe. So it’s the midsole we call it in the shoe industry. We knew that the entire industry used naphtha from petroleum, or natural gas to derive this foam called EVA. And that was what the whole industry did. And there’s 20 billion pairs of shoes sold around the world every year. And so there’s a huge impact that EVA is having as a component. It’s probably number one or number two in terms of its ubiquity in the footwear industry from a component perspective. And so we went down to Brazil and linked up with a biochemicals company that could produce at scale, an EVA equivalent, utilizing the waste stream from sugar cane production.
It became a carbon negative material, meaning it actually, when you think about the life cycle of it and you study it, it will suck more carbon out of the atmosphere in the manufacturing of this process than it will take to create it. But the only way to get a biochemical company, which has invested billions of dollars of infrastructure in their equipment to work with a company like us, is we had to open source that. And so we wanted to open source that to get the entire industry involved in this. And because the volume of the industry is so large, we could compel a large upstream chemicals company to invest many millions of dollars to create this for the industry broadly.
The EVA costs have gone up from traditional sources. Whereas when you get it from sugar cane, we’re actually paying less. And so these kinds of impacts, when you diversify the streams of inputs that you have on your products, could actually be a benefit over time. And so this is now a financial benefit, it’s an environmental benefit, and it’s a comfort benefit for our customers. That is the win-win that we’re trying to get every single time. And it’s been a great boon for our partner down in Brazil, Braskem, great for our company. And there’s dozens of brands that have launched this product, big brands and small brands alike that have launched green EVA inside of their product. So big win for the industry.
**How much of your job is about educating others in the industry? **Consumers are so smart. But they’re very busy and they’re not going to give you more than half a second to think about you, because they’re busy with their own stuff. And so we have to put sustainability into a digestible format that they can pick up in an instant. And that’s our effort with this carbon label. When we say here’s the scorecard, it’s like calories on the back of a label of food. You don’t really know what a calorie is, but if it’s higher, you got to work out again to burn it off if you want to burn it off. And if it’s lower, you don’t have to as much. That’s carbon footprint. You get that down to zero or negative, you’re helping. If you get it higher, you’re hurting.
From an industry perspective, I would say that our industry comrades know exactly what they should be doing. It’s about the willpower to do it. So how do they disrupt themselves without harming their core business? And that innovator’s dilemma question that they’re facing is a real one when it comes to sustainability, and the reckoning is coming. Just this week I’m reading about deforestation in the Amazon because of the leather production in Brazil. And all the big companies in our industry are using this leather. And it’s a huge source for leather around the world. And so what we’re doing instead is investing in US innovation to use naturally-derived oils that can replace leather in a plant-based alternative, that is 98% reduction in carbon emissions.
I think by focusing primarily on the attributes that customers value and being able to pull that off in a more sustainable way without a huge price premium, that’s really a great business model. It’s very hard, it’s very rare because it’s very hard. Another example that I could think of offhand might be like Impossible Foods. Impossible Foods has really opened up the idea of veggie burgers.
I think the point that Joey’s making, using the word native, which brings to mind the idea of digital native so you think about Airbnb versus Marriott, a case that we teach in our classrooms. And they’re going after an increasingly similar user base and they have very different capabilities and very different ways to manage data. We have to think about the Allbirds example holistically. It’s not just about design, it’s also about the go to market. So the fact that they control the distribution channel means they’re not having to give 50% margins to distributors or to retailers, so that’s one reason in my opinion, that they’re able to even invest more than competitors in some cases, because they can still offer a comparable price point and still make a reasonable margin, because they control the distribution channel.
It’s been publicly announced that you guys are going for an IPO. Can you talk a little bit about what that process has been like and where you see it heading?
The reaction from investors was incredible. I think they understood the systems approach that Mike just outlined. And we went so far as to create a sustainability framework that we injected into the IPO and doing things in a better way. When we looked to the capital markets, we saw a void in capital markets for a positive ESG, environmental social governance, in terms of the structure that companies were running. So we wanted to institutionalize our approach to stakeholder growth. And stakeholder growth for us was attenuating the needs of varying stakeholders, not just shareholders. And the way we are doing this is through this SPO framework (Sustainability Principles and Objectives Framework) that we put forward. I think we actually got to meet a lot more pockets of capital from large institutions that historically hadn’t played in the IPO market, because they’re interested in ESG. It seems like the growth in capital up to US$30-40 trillion focused on ESG has been a massive rise over the past five years. And that’s looking for a home that’s authentically sustainable and durable and has the growth characteristics that Allbirds has.
When you find companies that actually are trying to hit all the numbers here, with both a sustainable product that is very attractive to customers and has a potential huge upside, that’s I think a really attractive investment. And I think that’s where Joey is finding so many pockets of capital as he described.
