Pod Insights How I Built This with Guy Raz Cotopaxi: Davis Smith About this episode By his mid-30's, Davis Smith had co-founded two businesses. The first ended well, but the second was such a disappointment that he wondered if he should even bother trying again. But he did. In 2014, he launched Cotopaxi, an outdoor gear company with two fluffy llamas as mascots and an expressed mission to do good in the world. The brand is now making tens of millions of dollars a year, and Davis hopes that the current pandemic will not slow its ambitions to grow and to give back generously.
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Transcript 13,215 words · 3 speakers
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0:25 Speaker 01 We chose a llama as our, in our logo, kind of our mascot. And we bought two llamas on Craigslist.
0:31 Guy Raz? Wait.
0:32 Speaker 01 And we started taking-
0:32 Guy Raz? Sorry, you bought two llamas?
0:34 Speaker 01 Yes.
0:35 Guy Raz? You're in Salt Lake City. Can you just go on Craigslist and get a llama?
0:40 Speaker 01 Believe it or not, I bet pretty much anywhere in the country, you could find some llamas on Craigslist.
0:43 Guy Raz? Oh, my God, really? I'm going to go on Craigslist while we're talking, here in the San Francisco Bay area where I am.
0:49 Speaker 01 Yeah.
0:49 Guy Raz? And let me just see. There you go. You can buy a llama on Craigslist. $750.
0:55 Speaker 01 Right, yeah. I think we might have paid a little less than that. But you're in the Bay Area, so that's probably, you know, that sounds about right.
1:05 Guy Raz? From NPR, it's How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.
1:19 Guy Raz? I'm Guy Raz, and on today's show, how Davis Smith launched the brand Cotopaxi with two llamas and two main goals: to make money and to make the world a better place.
1:38 Guy Raz? Here's a story we've told many times. A founder has a great idea for a product or business. She pitches friends, family, VCs, angel investors, anyone who will give her the time. And the message of the pitch is basically this: if you give me your money today, there's a good chance you'll get that money back, plus a lot more, tomorrow.
2:01 Guy Raz? But now imagine a pitch that sounds something like this. I've got a great idea and I need your money to launch this idea. And eventually, we might make a little bit more off of it. But initially, I'm going to take a bunch of our earnings and give them away to charity. And I'm going to build a supply chain that costs tons more than my competitors, but it will guarantee a living wage for the factory workers. Oh, and I'm launching this business as a B Corp, which will legally commit our company to think first about things like the well-being of the planet instead of profit. Sounds like I'm setting out to build a nonprofit, right? Except that Cotopaxi, a brand that makes outdoor gear like backpacks and jackets,
2:45 Guy Raz? is very much a for-profit company. And the pitch I just laid out? That is essentially how its founder, Davis Smith, sold the idea to investors. And as you can imagine, this made raising money a lot harder. But Davis was, and still is, determined to make it work for two reasons. The first is that for a long time before he founded Cotopaxi, Davis had spent most of his career focused mainly on making money, which wasn't particularly fulfilling. The other reason is that Davis spent most of his childhood in Latin America. His dad worked for the Church of Jesus Christ of Latter-day Saints, better known as the Mormon Church.
3:25 Guy Raz? And as a kid, Davis was surrounded by poverty, but also conscious of his comparative privilege.
3:33 Speaker 01 One of my very earliest memories, actually, was as a four-year-old, when we first moved to the Dominican Republic. And I still remember seeing children that were my age, three or four years old, that were completely naked on the sides of the street. And having to reconcile why my life was so different from theirs. And one of the things that I learned from that very early age was that I was not special. I was not better than them, or smarter than them, or harder working, or more ambitious. My life was different simply because of where I was born. And you know, those learnings as a young person, they really shaped the lens in which you see the world. And so from the time I was a young kid, that was, this is what I thought about every day.
4:15 Guy Raz? And as a member of, of the church, was it always clear to you that you would do a mission? That you would do what a lot of young Mormons do, spend two years abroad in, in some country as a missionary?
4:28 Speaker 01 Yes, from the time I can remember, I dreamed of being a missionary. I heard the stories of my dad, uh, living in Argentina as a missionary. And it just seemed like an amazing adventure. It seemed like an opportunity for me to, to serve others. And you know, as a 19 and 20 and 21 year old, like you're typically thinking a lot about yourself. But that experience where every single day, you know, there's a routine. You wake up every single morning at 6:30. There's no days off for two years. There's no vacation time. And I remember the first month being in Bolivia, feeling so lonely.
5:02 Guy Raz? You were in, where in Bolivia were you?
5:04 Speaker 01 I served in a number of different parts of Bolivia, everywhere from the Amazon Basin in Santa Cruz to up in the Altiplano and some smaller, little tiny towns of a few thousand people. There was no paved roads, there was no flushing toilets, there was no, there were no telephones. And, uh, you know, I spoke Spanish already when I started my mission, but it was, it was very difficult. And it took some time to get used to, you know, when you, every single day, sharing something that to you means the world. And being rejected over and over again, having doors slammed in your face, having people yell things to you. It's a painful experience. Every day is hard as a missionary.
5:43 Guy Raz? But I guess what makes it easier is this idea that you are there for a purpose. It's not about you or your ego or your achievements. You're there as, you know, fulfilling something much bigger than you.
5:57 Speaker 01 Yes, and I think that is one of the greatest lessons I learned as a young missionary. It's something that I've tried to apply in my life because I've just found that when I have something that I'm focused on that's not about me, that is when I'm the most happy and that's when I feel the most fulfillment in life. And when you come home from that two-year experience, there's a level of maturity that you have. And I actually, I found it much harder actually to come home, surprisingly. It was the loneliness that I felt on the mission, I felt it all over again when I came home, you know, and I, I felt a lot of guilt, you know, coming home and living in a place where I didn't have to worry about where I was gonna get my next meal and was able to go into a beautiful home compared to these places that I'd been living. And that took a lot of adjusting and it was something that weighed heavy on me for the
6:42 Speaker 01 first few months I was back.
6:43 Guy Raz? All right, so you come back from your mission and you go to college to BYU, right?
6:48 Speaker 01 Yes.
6:49 Guy Raz? And what did you study?
6:50 Speaker 01 You know, I studied international studies. I, I knew that I was passionate about the world and culture and languages and politics and it just seemed like the perfect thing for me to study.
7:02 Guy Raz? And, and did you have this idea in your mind that you would get into business, that you would start a business or, or was that kind of not front and center?
7:11 Speaker 01 No, I, I didn't really think I'd be an entrepreneur at all. I never really had thought of that. I believed I'd have an international career. That was something I talked a lot about. But I actually read a newspaper article about a man named Steve Gibson, who was a successful entrepreneur and he and his wife had sold their business. They were probably around 60 years old and they moved to the Philippines and they started teaching entrepreneurship. And they were helping people get out of poverty by teaching them how to run their own small businesses. And this article was, oh my gosh, it was so inspiring to me. And I ended up cutting it out and I put it in the face of my binder at school, this clear face binder.
7:53 Speaker 01 And I walked around with this article for three and a half years in undergrad and I saw it every single day. Honestly, it wasn't the fact that he was a successful entrepreneur that inspired me. It was the fact that he'd, he'd identified what talents he had and that he was using Using those to help other people and that's what I was really trying to do.
8:10 Guy Raz? And it was just some random story about this guy Steve Gibson in like the local paper?
8:15 Speaker 01 Just some random story, you know, it just stuck out to me and I was actually on campus as I was finishing school for this social impact conference and as I was on campus and I was walking in between some different sessions, I saw Steve Gibson, the guy from this article, he was walking into an elevator and I recognized him, so I ran down the hallway. I jumped into the elevator and he was trapped, he had to talk to me, you know, and he's acting so flattered that I recognized him and he invited me to go meet with him in his office in a couple of weeks, so I took him up on the offer. I prepared a pitch, I practiced in the mirror, I recited this.
8:52 Guy Raz? A pitch to do what?
8:54 Speaker 01 Well, I, I wanted to convince him to let me go work for him. I wanted him to expand his program from the Philippines to Latin America where I'd grown up and that I loved so much. So yeah, I gave him the whole pitch and you know, he was smiling and nodding the whole time and I was thinking in my head, nailing it.
9:08 Guy Raz? Do this, yeah.
9:09 Speaker 01 Yeah, I'm nailing it and you know, at the end he goes, Davis, I, I love your passion around finding a way to help people, but what I see in you is you would be a great entrepreneur, you should go start your own business and you'll go find your own way of making an impact in the world 10 or 20 years down the line and that's really the first time in my life where I thought, you know what, I'm going to be an entrepreneur, that's, that's what I need to do.
9:31 Guy Raz? Wow. Meantime, you, uh, you graduate Brigham Young and I should mention, you got married.
9:37 Speaker 01 Yeah.
9:38 Guy Raz? While you were Brigham Young, so you got married pretty young, like 21, 22?
9:42 Speaker 01 I was 22, yeah, almost 20, yeah, almost 23.
9:46 Guy Raz? So what, what did you decide to do? I mean, what, you graduated and you have this kind of inspiration from Steve Gibson, so where do you start to kind of turn to for ideas?
9:58 Speaker 01 Yeah, so you know, I started talking to my cousin and you know, Kimball Thomas, my cousin, we were just, you know, we were around the same age and because I'd grown up in Latin America, we didn't see each other a lot, but every summer when we'd come back to the US and spend a few weeks here, we'd hang out and you know, we developed a really close friendship and so we started talking, we were both in college at the time and I started talking to him about Steve Gibson and he shared this passion for entrepreneurship and so we just started brainstorming ideas and one of the ideas that I'd had was this idea of selling pool tables on the internet.
10:32 Guy Raz? How did that, pool tables, like how did you even, the two of you basically said, let's start something and then what, you both like went on Google and just started researching what you could possibly do, like how did pool tables even even happen?
10:46 Speaker 01 Yeah, I mean, we really were thinking all over the board. We were just trying to think of something we could do and I had a friend that worked for eBay and as he told me about eBay, eBay was pretty new at the time, it blew my mind. For me, it was like the invisible hand that you learn about with Adam Smith, The Economist of supply and demand and I loved scuba diving and I thought, you know, I can't really buy the gear that I'd want or go on a trip, but I started going on there and I'd see all these people selling their gear and I found if I bought an entire set of dive gear and then I broke it apart and sold each hose and the regulator and the B C, all this stuff separately, I could make a few hundred dollars. And so I did that a handful of times and I just found that I really, I loved it. And so one night we were talking and I was asking about who else is
11:29 Speaker 01 selling a lot on there and he mentioned a jewelry company and electronics and he mentioned, he just randomly mentioned, you know, there's even people selling pool tables and it just clicked. It was like, I could do that. I bet there's a factory in China that already manufactures pool tables. So I went home that night, you know, this is before mobile phones and I just, I had one of those discs from AOL that was like free internet for 60 days or whatever.
11:51 Guy Raz? Yeah.
11:51 Speaker 01 Every 60 days I'd renew, get a new one and I did a search for pool table factory China and I found some factories that made pool tables and we started selling them online.
12:02 Guy Raz? Wait, but that's, that's a pretty quick leap. You started, you found a factory that makes pool tables and how did you know pool tables were going to be a good business?
12:13 Speaker 01 Well, you know, that was the cool thing about eBay was that you could actually watch other people's listings. And so I watched every other pool table that was being listed. And I would just saw them being sold. I had a spreadsheet where I tracked every single one, what it was sold for. And I knew what I could sell them for. And after I contacted this factory, I knew what I could buy them for. And so we just, we took a risk and we filled a container, 50 pool tables before we'd even bought anything. We did a test and we thought, okay, let's see if anyone buys this and created a listing on eBay. And I remember watching it. We had it in his mom's basement. We were down on this computer, watching this listing. And the price kept getting higher and higher. And I mean, when it sold, it sold for $1,384.
12:55 Speaker 01 And I remember we were doing like, we were dancing, we were jumping up in the air. I mean, we were just like so excited. And that's when we knew we had something.
13:04 Guy Raz? I, I mean, you had met this guy, Steve Gibson, right? And he's like, go out and do something good and you can make an impact on the world. And I'm not trying to like diss you at all because I have so much respect for you, Davis. But pool tables, right? Did you ever think about?
13:19 Speaker 01 I know.
13:20 Guy Raz? I'm gonna sell pool tables and change the world.
13:23 Speaker 01 Oh, it's so funny. So yeah, I have thought this, and this is like, honestly, this is, this was so discouraging for me because I didn't know how to do it. It took me 10 years as an entrepreneur to finally figure out how I could have an impact and tie that to a business. But I honestly just didn't know how. And I think, I think I really just needed to figure out how to become an entrepreneur in the first place. I had to learn some painful lessons. I had to have some success along the way. But it was through those experiences that allowed me to go build what I'm building now with Cotopaxi.
13:53 Guy Raz? And of course, we're gonna get there in a bit. I'm trying to understand. So this is, by the way, this is 2004. And, and how much was a pool table? How much did it cost to buy one from the factory?
14:03 Speaker 01 Depending on the pool table, but around 450, 500 bucks.
14:07 Guy Raz? So relatively cheap. So you were, you had 500 bucks per pool table. And your initial order was like 50. How did, by the way, how did you have the cash to buy 50 pool tables?
14:18 Speaker 01 Well, we, you know, those credit cards that you get in the mail that say like, interest free for six months.
14:23 Guy Raz? Yeah.
14:24 Speaker 01 We use those. We, we borrowed money from my grandma, from, you know, eventually I got my parents and my in-laws to mortgage their homes.
14:33 Guy Raz? Oh my god, because it started to grow so fast?
14:36 Speaker 01 We started growing. We did, yeah, we did a million in sales our first year in business.
14:41 Guy Raz? Your first year, and this was entirely through eBay?
14:44 Speaker 01 Yeah, we started only on eBay and then we eventually, within the first year or so, we opened up a store in Salt Lake City. You know, we had the inventory here already and then we also saw that we were shipping so many to the East Coast. We actually had a map where we put pins every time we sold a pool table and we just saw a massive amount of pins in like the Atlanta, Georgia area and then up in the, you know, the tri-state area of near New York and New Jersey. And so we, we ended up opening up warehouses in Atlanta and in New Jersey. And where we had the pool tables already, it just made sense to open a small showroom where we could set up some tables.
15:18 Guy Raz? Wow. What was the name of the, what was the name of your business?
15:21 Speaker 01 Yeah, so it's called pooltables.com and, but yeah, we ended up having a small team. We had around 25 employees and, you know, as a young person in their twenties, it was a great experience. I mean, we learned a lot through making mistakes and, you know, we weathered the Great Recession. That was terrifying, of course, selling pool tables. People that buy pool tables are buying new homes or they're finishing a basement. Like that stopped overnight and it was terrifying because I could not lose my parents' home. I could not lose my in-laws' home.
15:53 Guy Raz? Because they had all, they had all taken out mortgages, mortgages to, to invest in this company.
15:59 Speaker 01 Exactly. And it wasn't even like investing. They had lent us the money. It was debt, you know? So it's not like they'd taken, you know, some ownership in the business like a venture investor or an angel investor. And like they invested the money knowing that it could be lost. I mean, they lent us the money with the expectation that we'd be able to pay it back.
16:16 Guy Raz? So when the economy sort of tanked in 2008 and 2009, you started to see your business really take a hit like right away?
16:26 Speaker 01 Immediately. We immediately saw sales just turn off and it was very, very scary. So we started taking some immediate action. We went to all of our landlords and renegotiated our leases. We went through line item by line item, finding out which expenses we needed, where could we save a dollar, renegotiated pricing with factories. I mean, we went, we came up with every possible way we could to save money. And in the end, we weathered that storm and it became truly one of the most wonderful learning experiences for us. And while it was very stressful at first, it shaped us as leaders.
17:02 Guy Raz? All right. So pooltables.com, at its peak, what kind of revenue were you doing a year?
17:08 Speaker 01 Yeah, I mean, it was a small business. We were doing like 6 million in revenue, maybe a million dollars in EBITDA. It was a small business, but it was ours.
17:17 Guy Raz? And it was profitable. You were making a little bit of a profit. Okay.
17:21 Speaker 01 Yeah, a nice little profit. And to be honest, like, Pool Tables, is that something I'm really passionate about? No. But what I loved about it was that it was mine. It was ours. It was our business. It was an idea that we had ourselves, that we created something that didn't exist before. And that was incredibly fulfilling.
17:38 Guy Raz? So you, I guess, both you and your cousin Kimball decided to go to business school as you were kind of winding this business down? Is that right?
17:49 Speaker 01 Yeah. So the business was still, it was actually, it was one of our best years ever. But my cousin and I had always talked about going to business school. And my cousin just said, you know, this is the time. Let's go back. Like, let's not be the pool table guys forever. And so I agreed and we started applying to schools. I only applied to one school. I'd always known I wanted to go to the Wharton School. They had a program called the Lottor Institute, which was a dual degree, an MBA and an MA in international studies. To get into the program, you had to speak a foreign language and at advanced level. Everyone had lived, and they got admitted, had lived all over the world. It was just exactly what I wanted. And my cousin ended up going to Harvard Business School when I was at Wharton. And it was a really fun, shared experience together.
18:32 Guy Raz? I'm just curious, why did you think that business school was something you had to do? I mean, you guys ran a successful business. You were doing it at a million dollars in profit, maybe? I mean, that's pretty great. I mean, that's more successful than Uber, which has never made a profit, right? So you weren't, I mean, so why business school?
18:51 Speaker 01 Well, there were, I mean, there was a few things. Number one, I think we always believed in furthering our education and that that was really important. I think we both believed that we could either invest that money, the cost of going to school is not cheap, but we could either invest that money into the business or we could invest that into ourselves. And we just felt like investing it in ourselves would be a more valuable, long-term investment. And we wanted to build networks. We also saw some really interesting things happening. You know, Mark Zuckerberg started Facebook the same year that we started our pool table business. And we kind of saw Facebook, I mean, this was 2008-ish, you know, we saw Facebook really blowing up and it was like, oh my gosh, that's what we could have built instead of the pool table business. So, you know, there was some, some drive there of like, okay, what if we wanted to
19:35 Speaker 01 build something bigger and more exciting? Business school would allow us to think about how to do that.
19:39 Guy Raz? And you kept running pooltables.com from, from the...
19:43 Speaker 01 Yeah, yeah, we kept running the business from school. And then there was a gentleman who owned a handful of domains and businesses and we didn't even put the business on the market, really. We just reached out to him and said, hey, we're in business school, we're thinking about starting something new, like, would you be interested in buying this business? And he ended up coming back and saying, yeah, and so he bought it from us.
20:04 Guy Raz? So you graduate from Morton, your cousin Kimball graduates from Harvard, with this idea that you both graduate and create something new, the next business. And you decide to create like a baby supply company in Brazil, baby.com.br. First of all, how did that idea even begin?
20:27 Speaker 01 Yeah, so a bunch of my friends in business school were Brazilian. You know, I had grown up in Latin America, I was in this international program, the Lauter Institute, and I'd grown up in Spanish-speaking Latin America, but Brazil was this large economy, 200 million people, more people in South America speak Portuguese than Spanish. And one of my Brazilian friends in business school, he had his first child while we were, while we were students in grad school. And he was telling me how in Brazil, all the baby products are just very, very expensive and that a lot of Brazilians will come to the United States to buy baby products and then bring them back. And when he said this, it just clicked. Because I knew the founder, Mark Laurie, the founder of diapers.com.
21:10 Speaker 01 You know, I was kind of sharing in the early days of the stories of the pooltables.com business and he was sharing the story of his diaper business. And every time I connected with him, his business was like bigger than my business. And I started thinking, wow, we made a mistake. Like the pool table business, like it's just not that big of a market. The total addressable market is way too small. We should have chosen something bigger. And so when this friend was talking about Brazil, it just clicked. And I thought, this is a place that there's not a lot of competition, but it's growing rapidly. People are online. And I thought, this is a place that could use e-commerce, that could use a place where the moms can go buy all their baby products in one place and have it delivered to their home.
21:48 Guy Raz? All right. So you decide we're gonna do, because presumably by 2010, 2011, when you founded baby.com.br, this was already like baby.com must have, must have already been a business in the US.
22:01 Speaker 01 Yeah, so there was, there was definitely, there were existing businesses in the US that, that were selling baby products, obviously. The domain baby.com.br in Brazil was available. No one was, it was just basically, there was a placeholder on that site. And we started talking to investors and to convince investors to help us raise the money to go build this business and to buy that domain.
22:23 Guy Raz? I'm curious, what kind of research did you do to make the case? Like, what were you saying in the pitch deck? Like, hey, this is an underserved market here. Let me show you the data. Like, what data did you have?
22:35 Speaker 01 Yeah, so Guy, this is what the benefit was of being in school. Like, we had these great professors, so they were able to help us think through the business. We had access to all these studies that were done through the university library. These are studies that normally might cost like 15 or 20 grand to buy. They were free as a student. So we had all this data on Brazil, on e-commerce in Brazil. We actually had paid a few hundred dollars to get a survey done in Brazil for mothers that use the internet. And we asked them like 60 or 70 questions about where they shop and do they have, how many cars do they have, zero, one or two? And we had all these questions. So we had all this data that really helped us understand this market. And I spent hundreds of hours on that deck. I mean, I understood, I think I understood the baby market, e-commerce market in Brazil
23:20 Speaker 01 better than maybe anyone on the planet.
23:21 Guy Raz? And your pitch to investors, first of all, how did you even find investors who would be interested in backing this?
23:29 Speaker 01 So we had, you know, through business school, we had a handful of friends that had raised money and they connected us with people. And I remember one of our first pitches, we were, we went to New York and we met this, this venture capitalist that invested quite a bit in Brazil. And we gave him the whole spiel. And I remember like partway through the, the pitch, he was like, he took a phone call.
23:49 Speaker 01 It seemed like he didn't really care that much about us. And it was probably an hour and a half. It was a long meeting. And we went down this elevator and I remember just looking at each other going, this is not going to work. You know, but as we were walking down the street, uh, you know, we got an email from him and he said, I'm in, I want to put a million dollars into the business. And that's when we realized we had something that could work.
24:11 Guy Raz? And, and you raised, you got, how much did you raise by the way?
24:16 Speaker 01 4.3 million.
24:17 Guy Raz? Wow. All right. So you raised 4.3 million dollars from investors. And how do you even begin to do, it's you and your cousin. I mean, you have to find a place to live and an office. And do you, either of you speak Portuguese, by the way?
24:33 Speaker 01 I'd taken some Portuguese classes as a student in undergrad. And so I had a base to kind of build off of and Spanish and Portuguese are relatively similar. So I felt confident in my ability to figure out the language. And Kimball had a younger brother named McKay, who had worked with us in the pool table business. And he was still running, helping run the pool table business when we were in school. And so we told McKay, hey, are you ready for the next adventure? And he's like, of course. And so we said, would you move down to Brazil while we finish school? We didn't want to drop out of school, but we needed someone on the ground getting things done.
25:09 Guy Raz? But what did he know about, about?
25:11 Speaker 01 Nothing, nothing. He knew nothing about it.
25:14 Guy Raz? You just said, go down there and, and did he have money to work with? Did he have?
25:18 Speaker 01 Yeah. So we had, yeah. So we'd raised that money, which, uh, you know, he got a little place to live with his, his wife and they had a brand new baby. So they, they went down there and he's, you know, brilliant graphic designer, designer logo, started designing, you know, what the website would look like, started building. He's a great people person, started building relationships. I reached out to probably 200 people. In Brazil, anyone that I could find on LinkedIn that had anything to do with e-commerce, I reached out to, there's a cold email and just said, hey, we're starting this new business. I'd love to connect. And we just started building a network and a community.
25:52 Guy Raz? And so you graduate, you move down to Brazil with $4 million in startup cash. You buy a bunch of what? What were you buying? Diapers and bottles and formula, like that kind of stuff?
26:06 Speaker 01 Baby clothes, yes. Strollers, car seats.
26:09 Guy Raz? Just whatever you could buy. And then how were you getting the word out? I mean, you were two Americans moving down to Brazil. Did that money also allow you to just put advertisements everywhere?
26:21 Speaker 01 Yeah, we advertised a lot. We had a lot of PR. Our story got a lot of traction in Brazil. One of our investors, early investors, was a Brazilian investor. And he said, hey, I know this celebrity couple that you should connect with. And I think there's an opportunity for you to use this woman as a spokesperson for your brand. So we went out there and met with them and they were the kindest people. And we immediately hit it off. And so this woman, she's one of the best known people in Brazil. And so she became the face of our brand. And those kind of things really drove a lot of just organic traffic to the site as well.
26:59 Guy Raz? Now, by the way, I've read that Brazil is like one of the hardest places in the world to launch a business. Like it's really bureaucratic. Is that true?
27:10 Speaker 01 That is true. It took us six months to get a business license and entity set up. Something you can do on the internet in the US in like 10 minutes.
27:17 Guy Raz? Why does it take so long in Brazil?
27:19 Speaker 01 Everything is complicated. Everything is bureaucratic. A lot of times there are bribes involved. And we just made a decision from the beginning that we would not pay bribes, no matter what. And so that slowed things down for us. I remember the first month of the business, we started, things really took off. And our warehouse instantly became too small. So we, my cousin and I went and found this new warehouse with Ian, our COO. And it was like 10 times bigger than our previous warehouse. We thought this will be great. This allows to grow for the next few years. And we went and told Eno, said, okay, we just signed the lease like over the weekend. Let's move everything over to this new warehouse. And he's like, oh, we can't do that. We have to get permission from the government to move our warehouse. And we're like, you're kidding me. Like, how long does that take? And he's like, uh, maybe a month or two. It took us two months.
28:04 Speaker 01 So, I mean, we used the space to have like a roller skating party once or something like. We tried to like, uh, use the space that we were paying for. It was like a hundred thousand dollars a month for this warehouse. At the meantime, we were using this tiny little warehouse. Our buying team was ordering more and more product because we were running out. And the warehouse team was rejecting shipments from the warehouse because they had no place to put it. I mean, it was like, it was a nightmare.
28:27 Guy Raz? Wow. And, and I mean, this is as the business is really starting to take off.
28:32 Guy Raz? And, and as you mentioned, you got this, this celebrity endorsement of baby.com.br. And by the way, this is like a celebrity couple who were like, were they like huge TV stars in Brazil?
28:44 Speaker 01 Yeah. In fact, I remember we had a bunch of press that came out one day. And then the next day we had, um, the husband of the celebrity that was our face, the face of our brand. He was maybe even more popular than her. He did a Facebook post about us and it actually crashed our website. I mean, the amount of traffic that was happening, the growth of the business was crazy. I mean, we went to like 400 employees within 18 months of our launch.
29:10 Guy Raz? Wow.
29:10 Speaker 01 You know, we were doing a lot of things well, and we were doing a lot of things not well. You know, when you're growing that quickly, um, you're just trying to keep the wheels from falling off.
29:19 Guy Raz? Yeah.
29:19 Speaker 01 And this was a country that we were not super familiar with. There were some unique challenges there and we were learning a lot of lessons. And there were some things that we had control of, other things that we didn't.
29:31 Guy Raz? So what, I mean, it sounds like the business was, was great. I mean, was it profitable?
29:36 Speaker 01 It was not profitable.
29:37 Guy Raz? Yeah.
29:38 Speaker 01 And I think investors, what they saw was a business that was growing very quickly, that had built a strong brand within Brazil. They had, um, some scrappy founders that had had some success in the past and that were very driven and committed to, to the business. And, you know, they kept seeing opportunities and we, you know, we felt very optimistic about the business. And it was growing rapidly. And while we had some challenges, we also really believed in it. And so we ended up raising quite a bit of venture capital over the, over those months.
30:10 Guy Raz? You left.
30:12 Guy Raz? Brazil in 2014, so two years after, I think after you got there, if I'm not mistaken.
30:17 Speaker 01 Yeah, so I actually left in, at the end of 2013, so about two and a half years after we arrived.
30:23 Guy Raz? What, what happened?
30:25 Speaker 01 Yeah, so this is, this is a lot of the pain that is associated with some of the, you know, those memories there. And, you know, my cousin, Kimball, I mentioned that, you know, we grew up together. We were best friends. We were like brothers. We built our first business together. We went to business school at the same time. We built homes on the same street as each other before we'd gone to business school. Like, we were, we were inseparable. And when we were in Brazil, we started just kind of separating. It made it not fun to be working together. And I know this is not a unique story for co-founders. This is maybe a very common story, but for us, it was very painful because we were so close and because we were family.
31:10 Guy Raz? Was it the tension around the business started to affect your personal relationship?
31:17 Speaker 01 Definitely. When I left at the end of 2013, there was still a lot of optimism, but there were some tensions there around, you know, who's the leader of the business? We were co-CEOs and we had very different management styles. My team had a very different culture than his. You know, he gave me some, some feedback that, you know, I wasn't great at leading people because I wasn't great at following up and holding people accountable. And it actually is true. That's something that I've had to work on a lot as a leader and that, that experience helped me learn that. But eventually I just, I decided that the business didn't need both of us and it was a very, very difficult decision. I was walking away from something that I loved. I was in Latin
31:59 Speaker 01 America with my two daughters and my, my wife. You know, my girls were speaking Portuguese and going to an international school like I had as, as a kid. Like, it was a dream come true for me. At the same time, like, I knew I had to leave.
32:10 Guy Raz? What did it mean for your relationship with Kimball?
32:13 Speaker 01 It was a very painful time. You know, I can't really speak to, you know, exactly how he felt, but probably a lot of feelings of wow, like I'm on my own now and we've worked together for so long. And then as Brazil imploded after, after we left, I mean, that was a very difficult time to be a leader of a company in Brazil.
32:33 Guy Raz? When was that?
32:34 Speaker 01 Yeah, so in 2014, Brazil basically hit a wall and there was a massive recession in Brazil. Inflation, you know, the currency went from, when we moved to Brazil, it was 1.5, 1.6 reals to the dollar and it went up to about four. So everything became more expensive to buy. People were out of work, you know, it became an incredibly challenging time and a time that the business was, was not really prepared to weather. And so Kimball did a phenomenal job continuing to run that business as best he could, but it was an uphill battle in a country that's very complicated.
33:15 Speaker 01 The tax system, the taxes are astronomical and a lot of businesses cheat. They don't pay their taxes. They, they don't report things correctly and we weren't willing to do that. And so it put us at a major disadvantage.
33:27 Guy Raz? This is, I mean, the two of you had some great success with pooltables.com. You go to these incredible business schools with a lot of connections and experience now. And this was kind of a failure. I mean, this, right? I mean, I'm trying to say this delicately, but it, but it kind of was.
33:51 Speaker 01 Yes, it was a, it was a very painful experience for, I think, for both of us. And I think even more so for Kimball than for me, because Kimball stayed in Brazil, running that business until the summer of 2019. He spent so many more years down there trying to make this business work. And when he left, he sold the business to another company, but it was not a great transaction that I don't think that's ended up working out. And I can only imagine how hard it was for him and for him to be there alone without a partner to kind of navigate it, the whole thing. And so it was very damaging to our relationship.
34:33 Guy Raz? I mean, I, I don't mean to make light of it, but people always say, don't, don't start businesses with your family, right?
34:40 Speaker 01 Yes, you know, this is interesting, actually, Guy. I think this is a great lesson that I've learned, which is, I think there's two different ways to think about the early days of starting a business. You can either find someone that you think you want to work with, a close friend or family member, someone that you trust immensely, and together you can go find a business opportunity together and go pursue it. And that's a lot of fun in a lot of ways. The other way to do it is to identify an opportunity on your own, and to go build a team around that, and then to go bring in experts that can help you go solve problems that you need to solve for that specific business. And those are likely not going to be your best friend. It's likely not going to be your cousin, or your sibling, or your spouse. And not to say that doesn't work, it does work. There are plenty of stories. And Guy, you've interviewed
35:25 Speaker 01 so many that it has, but I think that's, for me, a better approach.
35:30 Guy Raz? So you go back, what, to the US with your family?
35:35 Speaker 01 Yeah, so I made the decision to come back. And honestly, I didn't even know what I was gonna do.
35:41 Guy Raz? You didn't have a plan?
35:42 Speaker 01 I did not have a plan initially, but that changed quickly. I made the decision I was gonna leave, and I knew I wanted to do something that was about helping people. I had the story that I kept in my mind for my entire adulthood. My wife, Aijalene, and I, when we were in college, we did an internship in Peru. We went to a little city called Cusco, which is near Machu Picchu. And our first hour there, we sat on this park bench, we were eating this food, and all these little kids ran up to us to sell us things, finger puppets and postcards. But there was one little boy that sat next to me on his shoe shining kit. And his name was Edgar. He was nine years old. He kept sitting there, and he was watching us eat. And then I realized, maybe he's watching us eat because he's hungry. So I offered him
36:24 Speaker 01 the rest of my food, and I'd never seen somebody eat like that. He absolutely devoured it. And that night, Aijalene and I decided, let's save some of this food for dinner, and let's go see if we can find this little boy, find Edgar. And this became a daily ritual for us every day. The highlight of our day was finding Edgar. Our last night in Cusco, as we were walking back to our place, it was close to midnight. We saw two little boys cuddled against each other on the sidewalk, trying to stay warm with their sweaters pulled over their knees. We could see our breath in the air. And as we got closer, we recognized that one of them was Edgar. And I woke him up and I asked him why he was sleeping on the street. And he told me that someone had stolen his shoe
37:06 Speaker 01 shining kit and he was too afraid to go home. His mom relied on him to help feed his family. We gave him the little bit of cash we had. We didn't have much. And the next morning, we got on a bus to leave Cusco. We went around the main plaza with this bus and at the stop to let some people on and off, we looked out the window and we saw Edgar and he saw us. And we had just enough time where we slid open the window of this bus and he like ran next to it waving goodbye to us. And he had a big bag of candy in one arm that he'd bought with the money we gave him. And he was now selling that candy in the streets. And he's, you know, an entrepreneur, which I just love now. So every day since 2001, I've thought of Edgar. And pretty quickly, I landed on this idea of building a business that could help others. It was, I was inspired by Warby Parker, my classmates in school.
37:50 Speaker 01 I was inspired by Tom's shoes. And I thought, you know, this is a way I could make a meaningful impact in the world.
37:56 Guy Raz? To figure out a way to do something that would, like Tom is obviously one for one and Warby Parker, provide a pair of glasses to somebody in need around the world for every pair sold. So this is your idea. I'm going to come up with something that will enable me to do something like that.
38:15 Speaker 01 Exactly.
38:15 Guy Raz? Now, before you kind of dove into this, all the businesses you had done up until this point were with your cousin, with Kimball.
38:23 Speaker 01 Yes.
38:23 Guy Raz? Were you nervous, I mean, about doing this on your own?
38:26 Speaker 01 I was terrified. I was so scared. I wasn't sure I could actually manage. I was, I was so stressed out. I was terrified that if I went into something on my own, that I would fail and that everyone would look at me and say, you know what, it turns out Davis wasn't a great entrepreneur. It was actually his cousin Kimball that was a great entrepreneur and he just wrote his coattails. Kimball was just a great leader. And so I, you know, there was a lot that I looked at him and thought, I just don't have everything that he has. And so those were the fears in my head. And I had a lot of self doubt about whether I could do this on my own.
39:00 Guy Raz? When we come back in just a moment, how Davis actually put together a team of people to build his next company, and how two of the members of that team weren't even people. They were llamas. Stay with us. I'm Guy Raz, and you're listening to How I Built This from NPR.
39:32 Guy Raz? Oh, and one more thing before we get back to the show. I'll be on The Tonight Show with Jimmy Fallon this Friday, May 8th, so check it out.
39:41 Guy Raz? Hey, welcome back to How I Built This from NPR. I'm Guy Raz. So it's early 2014, and Davis Smith has just settled back in the US after going through one of the most intense periods in his life, starting and then walking away from a business in Brazil. And he's got this nagging feeling that if he tries to launch a new business without his cousin Kimball, he'll fail. But he also has this other nagging feeling, which is that, well, he needs to start another business.
40:10 Speaker 01 Yeah, so I mean, the idea, the concept for me was I wanted to find something that could inspire people to go out and do good with us. But I needed a brand. I needed a product. And I'd always loved the outdoors. I'd spent a lot of time in the outdoors as a kid with my dad. I still go backpacking every summer with my dad and brothers. And I just thought, you know, there's no digitally native brand in the outdoor industry. I felt that there was an opportunity to go build a brand that really connected with this young consumer, this millennial or Gen Z consumer that was very passionate about the world. And so the idea was to build an outdoor brand, like Patagonia, like The North Face, like Columbia, like all these brands that have been around for 50 to 70 years, but to build one that was really built around this young generation.
40:51 Guy Raz? So you, all right, so you come up with this idea and this concept and you're back in Utah. And how did you even begin to research this idea and to, who did you call? Who did you start to talk to? I mean, you've got to manufacture this stuff. You've got to make it. So walk me through what you did.
41:08 Speaker 01 Yeah. So the first thing I did is I decided I need a team. I may not have everything that I need to go build this, but I can build it. I do know that I have the ability to go build a team of people that do. And so I immediately went on LinkedIn and I started looking for award-winning designers, product designers, a pack designer, apparel designer. And I started reaching out to some people on Skype and just started doing phone calls and interviews with them. And I reached out to a friend who, Sam Ricks, who was an amazing graphic designer. And he started helping me think through the brand itself and what it would look like. So yeah, I just started building this great team of people around me. And, you know, they had relationships with factories. They started designing product and we started developing what the brand would look like and feel like and what it stood for.
41:52 Guy Raz? And let me, let me ask you this question. What was going to differentiate your brand? I mean, I understand the values, Patagonia has great values, right? Incredible company, Yvonne Chenard, inspiring, incredibly inspiring person. Was there going to be something, a design element or a, an ingredient or something that you were going to use that was going to also make this different?
42:13 Speaker 01 Yes. What really set us apart was, number one, that we were digitally native. We weren't reliant on these legacy channels that everyone else was reliant on. We would sell online. So that was more of a business model innovation.
42:27 Guy Raz? Right, okay.
42:28 Speaker 01 The brand innovation was really around people. All these other brands in the outdoor industry focus on the environment, which I think is wonderful. I love the environment. We need to protect it. I'm so glad that so many care about it. But what I felt needed to happen moving forward was like, we need to take it a step further. We need to care about people. Like, what about people that live in extreme poverty? You know, we have an opportunity to eradicate extreme poverty in our lifetimes and I want to be part of that. And so that was really the, the focus of what our brand was going to represent and stand for.
43:00 Guy Raz? All right, you decide, all right, we're gonna do this, I'm gonna launch this company. First of all, I mean, you left Brazil. I can't imagine you had a whole lot of cash to use. Is that?
43:12 Speaker 01 No.
43:12 Guy Raz? Okay. And so you have to, you decide that you're gonna raise money for this company. And where did you go seeking money?
43:23 Speaker 01 So originally, I thought that impact investors would be really interested in this. I didn't know much about impact investors, but I'd read about them and I knew that they had, you know, big hearts and they cared a lot about finding ways to innovate and help people living in poverty. So I started meeting with some of them and I was rejected instantly by all of them.
43:43 Guy Raz? Why?
43:44 Speaker 01 They weren't used to investing in a business that hadn't done anything yet. You know, they were shocked that I was coming to them and we hadn't sold a single product.
43:50 Guy Raz? Right.
43:51 Speaker 01 So then I, the other option was to go to traditional investors and I'd always lead with our mission and why the brand needed to exist. And then I'd talk about the opportunity in this outdoor industry to go build the first digitally native brand. And I got rejected a lot, too. You know, it reminded me a lot of being a missionary where you get the door slammed in your face and, yeah.
44:11 Guy Raz? They were saying, hey, this is great. We're really impressed with, you know, your idealism, but we're in the business of making money.
44:17 Speaker 01 Yes. You know, one of the first pieces of advice I got was from my attorney. And this is an attorney I'd used in the past. I told him, when I was in Brazil, I told him, hey, I'm gonna be coming back. I wanna build a benefit corporation, a business that's giving back.
44:31 Guy Raz? Right. And so we should just be clear, this is a B Corp. It's like, it's not an official designation in all states, but essentially it's, it's a company that operates like a nonprofit, but is essentially a for-profit. So it's-
44:42 Speaker 01 Exactly. It's like a hybrid, almost, of a for-profit and a nonprofit. It is a for-profit, but-
44:47 Guy Raz? And there are some big B Corps, I think Denon and Method Soaps and, there's tons of Ben and Jerry's. So there's lots of big companies that are B Corps.
44:56 Speaker 01 Yes. Uh huh. And the difference is that all of these companies to date had converted to benefit corporations after they had been a real business. And this attorney told me, Davis, don't incorporate as a benefit corporation from inception. No investor's gonna wanna invest money in a business that's giving away money before you've even figured out what, who you are and what you're doing. Yeah, that's really good advice, actually, but I didn't want to take it. I didn't take it. I just felt like this is so core to who I am and why I want to build this business that it has to be part of us from inception. And, you know, there were certainly investors that didn't invest in us because of that mission of us giving away money. It is hard enough to build a business, a normal business, but to have a business that you're building
45:37 Speaker 01 while you're also giving away money before you've made money is a challenge. And so, but eventually, we found investors that believed in us. We had Kirsten Green led our first round. This is an investor that she's backed, Warby Parker and Away and Birchbox and Dollar Shave Club. And she believed in us and she believed in our mission. And so she, she wrote the first check and that was the beginning of the brand.
46:02 Guy Raz? And by the way, how did you come up with the name Cotopaxi?
46:06 Speaker 01 Yeah, so the name Cotopaxi comes from a volcano in Ecuador where I grew up as a kid. And I, we chose a llama as our, in our logo, kind of our mascot. And that was actually the first place I saw llamas in the wild was in Ecuador at the base of Mount Cotopaxi. I just felt it connected back to my roots. It was connected to this place that really mattered to me, that was important to me. The school I went to in Ecuador was called Academia Cotopaxi, named after this volcano. So that's where the name came from.
46:35 Guy Raz? All right. So you come, go to these investors, you do actually raise some seed money with investors, right? I think almost $3 million.
46:43 Speaker 01 Yes.
46:44 Guy Raz? So the pitch was, I'm going to make outdoor apparel, you know, sort of puffy jackets and clothes that you wear for hiking or running and backpacks and, you know, camping and stuff like that. And I'm going to be really connected to the people who make this, that they're going to be treated fairly and well, and I'm going to enforce it. Is that, was that more or less your pitch?
47:08 Speaker 01 Yes, like people is one of our core values as a brand and that included our supply chain. And so we thought deeply about how we could impact those lives. And so, for example, the llama wool products, I mean, we went to these little communities in Bolivia, where I'd been a missionary and that I fell in love with and had always wanted to go back and find a way to help. And we built a supply chain buying llama wool from these communities. You know, we went to our backpack factory. This is a factory that manufactures for many of the outdoor brands that you've mentioned already as well. And we just saw a massive amount of waste from the cutting and sewing process. And we also saw that the sewers, they've been there on average 11 and a half years. It was a great place to work. They're paid fairly and treated fairly, but they never got to innovate. They just sewed what
47:52 Speaker 01 people like us told them to sew. And we wanted to change that. And so we went to them and said, hey, all this remnant material that we see, all this leftover, we want to use it. And we want you guys to design the bags. The only rule is to make no bag alike. And so that's been really fun.
48:06 Guy Raz? What did you know about making jackets and outdoor gear? I mean, you didn't, right? It's like you didn't know anything about pool tables or baby products. You just figured you would learn about it, figure it out?
48:19 Speaker 01 Yeah, exactly. I knew that I had certain things that would serve me well in building a business. And I knew there were things that I didn't have a lot of experience with. And so, one of the most important pieces of our success has been finding a great co-founder. Right when I was moving back to the US, but before we'd started anything, I was at a school reunion for Lauter, the Lauter Institute with Wharton. And I was connecting with one of my closest friends, Stefan Jacob, who is from Germany, from Munich, and had stayed in the US to build a business himself as a CEO after business school. And I was catching up with him and telling him how I was moving back. I was going to build this new brand. And he was just selling his business. And within 24 hours of that conversation, he
49:00 Speaker 01 had committed to moving to Utah and joining me. And it was crazy. And Stefan has just been one of the greatest gifts I could have received as a founder, especially in that time where I was feeling so insecure about myself. And, you know, we've worked together for six and a half years now, and we've never had an argument. I mean, it's just been an amazing experience.
49:21 Guy Raz? So you get these factories going?
49:23 Speaker 01 Yeah.
49:24 Guy Raz? And you've got $3 million, which isn't, I mean, again, this is a capital intensive business because you've got to, right? You've got to buy product and you've got to get designs. And so how long was $3 million going to last?
49:38 Speaker 01 Yeah, so we suspected that it would last us about 18 months executing on the plan that we had, which was let's keep it simple. Why don't we just start with five backpacks? And so that's what we started with. We started with five backpacks.
49:48 Guy Raz? And it was gonna be all online, all sold online?
49:50 Speaker 01 All online. And the one thing that was a little bit different, though, about our approach was that we wanted to find a way, we knew that this young consumer really valued experiences more than things. And so just trying to sell them a new backpack was gonna be challenging, but we wanted to create an experience that allowed them to connect with our brand. And so before we launched, we started coming up with this idea of creating an experience, an event that allowed people to go live the Koto Paxy values. So we called it the Questival. We bought two llamas on Craigslist.
50:20 Guy Raz? Wait, sorry, you bought two llamas? Like, what, like, for marketing?
50:25 Speaker 01 Yes.
50:26 Guy Raz? And, and you're in Salt Lake City. Can you just go on Craigslist and get a llama?
50:32 Speaker 01 Believe it or not, I bet pretty much anywhere in the country, you could find some llamas on Craigslist.
50:36 Guy Raz? Oh, my God, really? I'm gonna go on Craigslist while we're talking here in the San Francisco Bay Area where I am, and I'm just gonna write down llama. And let me just see llama for sale. There you go. You can buy a llama on Craigslist.
50:52 Speaker 01 That's right.
50:53 Guy Raz? Yeah, llama for sale.
50:55 Speaker 01 Yeah.
50:55 Guy Raz? 750 bucks.
50:57 Speaker 01 Right, yeah, I think we might have paid a little less than that. Bay Area is more expensive, you know, prices are higher.
51:01 Guy Raz? Okay, I got you. Oh, my God.
51:03 Speaker 01 Yeah, so we bought two llamas, Koto and Paxy, and they became our buddies. And we went around college campuses with them. And the idea was if we went to a college campus and started handing out flyers, people would just ignore us or throw the flyer in the trash.
51:15 Guy Raz? These are college campuses in Utah you went to?
51:17 Speaker 01 Yeah, so for example, we went on to BYU's campus where I'd gone to school. And we showed up in the middle of the heart of campus. Of course, we didn't ask for permission because no one's gonna give us permission to bring llamas on campus. But we thought, you know, better to ask for forgiveness later.
51:31 Guy Raz? Sure.
51:32 Speaker 01 Within minutes, we had hundreds of students gathered around us, taking selfies with the llamas, saying, "What are the llamas for? Why are they on campus?" And we'd say, "Because we're this new brand. We're going to be launching in two weeks. And we've got this event, this 24-hour adventure race, this scavenger hunt that we're calling the Questival. And you can win gear, you can win trips with your friends, you form a team, and we'll have hundreds of challenges that you can choose from." And it was a huge hit. We ended up with thousands of people that showed up at this first Questival. And every one of them was wearing one of our backpacks. You got a backpack for participating, for registering for the race.
52:07 Guy Raz? And the race was a... What did you do? It was just like a...
52:10 Speaker 01 Yeah, so we gave challenges like, you know, "Go do this hike," or "Catch a fish and cook it on a campfire," or "Go do service in the local community. Go work at a soup kitchen for an hour." There were all these quirky challenges that we gave them as well. So, people were documenting this all on social media. We had 30,000 social media posts the day of our launch, of people using our bags, outliving our brand values. And it was a really special way for us to go build the brand.
52:36 Guy Raz? All right. So you launched this thing, and you've got these llamas. By the way, where do you keep the llamas?
52:42 Speaker 01 You know, we had an intern that was tasked with the challenge of finding a place for these llamas. At first, they were in my backyard for a couple of days. And then Stephane, my co-founder, had them in his backyard. And he was renting, and he almost got... His landlord came and said, "We're going to evict you if you have llamas in the backyard." So... But this intern went around and knocked doors. He looked on Google Maps and started looking for places that had horse properties, and went and started knocking doors. And I think the second door he knocked on, they said, "Yeah, we'd take care of your llamas." And they had a little 11-year-old boy that we'd pay a dollar a day per llama to take care of them. And, yeah.
53:21 Guy Raz? All right. Now, this is a question I've asked other founders: Swell Bottles, and Outdoor Voices, and, you know, Away Suitcases, and Warby Parker. I've had them on. And they're different stories. How did you get people to even be aware of the brand? I mean, having these festivals, or going to college campuses, primarily in Utah...
53:41 Guy Raz? Is not going to be enough to get critical mass of people to the website. So how did you get people to even become aware of it?
53:49 Speaker 01 So it was a combination of things. There's not one silver bullet that allows you to do this. You just have to do a lot of things really well. And so we started doing Questables all around the country. We did them in San Francisco, in Las Vegas, in Denver, in Boise, in New York, in Boston. So we were doing these all over the country. We had over 100,000 people participate in one of our Questable events. At the same time, we were doing, using traditional digital marketing. And then a lot of word of mouth. And eventually, we started getting the product into other retailers like REI. And so people were discovering the brand through their regular retailer.
54:23 Guy Raz? All right. I want to talk, I want to ask you about this Benefit Corp. side of the business. What does that actually mean? Like, what percentage of your money do you, are you committed to giving away every year? How does it, tell me how it works?
54:36 Speaker 01 Our model's a little complicated. It's not as simple as a buy one, give one model. I just felt there was something that we could do that would be much more impactful. And so we identified healthcare, education, and livelihood training as the three things that we believed were inextricably linked to poverty alleviation. And we started focusing our efforts on identifying nonprofits that were world-class in how they operated. And we started partnering with them. And so we have that part of the business, which is the giving. And that's what we do through our, through the Cotopaxi Foundation. So we dedicate 1% of all of our sales to that foundation. But we also dedicate money to our local community. We have this number of refugee programs here in Salt Lake that we support.
55:21 Speaker 01 We also invest a lot in our supply chain, you know, in fair trade manufacturing and in other activities. For example, one of our factories, we built a community garden. So it ends up being somewhere around four to, as much as 5% of our total sales end up getting dedicated towards impact in one way or another.
55:39 Guy Raz? Okay. Now, ultimately, the idea is that you will make a lot of money and then you could give more money away, or you could create bigger scaled projects, right?
55:50 Speaker 01 Yeah, definitely. The whole idea behind a benefit corporation is that as we scale, our impact is able to scale with us. And so, of course, in the early days, you don't make much money, or you don't make money at all. And so, eventually, as the business scales and grows and becomes more profitable, like, hopefully, there'll be some profit left over to continue to invest in our growth, where you don't have to continue raising venture capital.
56:11 Guy Raz? Davis, you obviously have a really ambitious mission here. But here's my pushback to you. There are lots of companies that say, oh, we have, you know, we really kind of make sure that our supply chain is ethical, and blah, blah, blah, and this and that. And then we find out that actually, it's not the case. How do you know? How do you make sure that a factory in the Philippines, or in China, or, you know, in one of these countries in the developing world, are really actually behaving in the way that you would expect them and need them to behave?
56:47 Speaker 01 That's a really, really important question. You know, I'd say in the early days of our business, we relied on our product team. You know, they were on the ground at factories for weeks at a time. We oftentimes were using the same factories as other great brands that also had similar values. And so, we relied on the vetting that they did as part of that. But as we've grown, we've been able to invest in our own resources. We hired someone to head up our impact work in the first year of our business. Before we even hired someone in marketing, we hired someone in impact. And so, we really started dedicating resources to making sure we were giving in the very best way. And we know that we're making mistakes. You're going to make mistakes along the way. And I think we can't let that get in the way of us finding ways to do good. You know, we look at Tom's
57:32 Speaker 01 shoes, for example, and I think they learned some really valuable lessons about impact and about there were some unintended consequences as they were distributing their shoes around the world, disrupting local, you know, economies. And they changed. They evolved their giving strategy. And we watch very closely what others are doing, so that we can learn from them. And my hope is that young entrepreneurs that might be listening to this are learning from us, and that one day, they can look at us and say, wow, they did a really good job, but they could have done this better. And I'm going to do that better when I build my business.
58:01 Guy Raz? So, so last year, I read that your revenue was about $30 million, which is great. I mean, you're getting some traction there. But so, I'm assuming that you're not totally profitable, right? Because this is a labor and capital-intensive business, right?
58:16 Speaker 01 Yeah, it is a capital intensive business. You know, over the last two years, our focus has really been on becoming sustainable and profitable. And we've made some amazing progress and we're finally to the point where we don't have to raise more venture capital moving forward. We also knew that there was a potential downturn coming at some point. And so the last two years, we've been really working towards being in a place where we could weather that storm if it came.
58:40 Guy Raz? And you could basically fuel the business off sales.
58:45 Speaker 01 Exactly.
58:46 Guy Raz? So here's the question, what is the, the value proposition for investors? Cause you know, they always say, what's your exit? You'd either go public or you sell. So, I mean, there's a chance that your investors are not going to make a whole lot of money off of this down the road.
59:01 Speaker 01 Yeah, so our investors will have an opportunity. Definitely when we raised money, we understood that we, we had to create a return on investment. And we've built a brand that is a respected brand in the outdoor industry. It's a brand that people are talking about. And you know, there's certainly opportunities for, and we've had interest in, in larger companies that have come in and said, hey, we'd love to help be a steward of your brand as you try to grow to the next level. And as, you know, I believe we can go build a billion dollar business. And that's motivating to me, not because of the money, but because if we could build a billion dollar business every single year, the amount of impact that we could have on the world would be tremendous.
59:37 Guy Raz? Yeah. All right, so you, um, seems like you just hit a point where you're really the tipping point and now we're in this crisis. You are talking to me from your basement and I'm talking to you from my, my backyard. What do you think? What are you thinking right now?
59:57 Speaker 01 I was actually in Ecuador two or three weeks ago when this all started unraveling. And I was visiting some of our impact partners there that were supporting. And I cut the trip short to fly back to the US because I, I saw kind of what was, where this was headed and. My first thought is how lucky we are.
1:00:16 Guy Raz? Yeah.
1:00:17 Speaker 01 Flying from Ecuador where people have so, so many people there have so little. Like the fact that we can sit in comfortable homes, we have food to eat, we have hopefully toilet paper. You know, we have all, all these things that, that we really need. And at the same time, it is incredibly stressful. I went to bed with tears in my eyes multiple times that week, just worried about my team and thinking about how, how this is going to impact these people that I care about. And, you know, we had to close our, our retail stores, our retail partners like REI and 500 other retailers all had to shut their doors. We've been deeply impacted. At the same time, it's been beautiful because I've, I've never seen my team rally together like it has the last couple of weeks.
1:01:02 Speaker 01 And that's been a really special thing to watch.
1:01:06 Guy Raz? I mean, companies don't plan for this because nobody plans for zero revenue day. Most companies don't have 18 months of cash lying around. I mean, you're going to have days like that.
1:01:21 Speaker 01 Yeah, these are definitely challenging times. You know, for us, we fortunately have some pieces of business that are still working, like the e-commerce. While our retail stores are shut down and other things are shut down, we still have some revenue coming in. But yeah, it's impossible to plan for something like this because in a normal recessionary period, you'd think, okay, we'll see a slowdown, we'll start having impact, you know, maybe sales will be impacted by 10%. In a worst case, maybe 20%, but you'd never expect revenue to just be completely shut down.
1:01:50 Guy Raz? Yeah.
1:01:51 Speaker 01 I read this great article about a week ago that talked about different CEOs and how they're managing this crisis. And there was this, the author interviewed 29 CEOs. The three categories that he grouped these CEOs in was the first was like this fear-based CEO. And they were using a lot of words like government and Trump and coronavirus and COVID-19. And really using words that they have no control over. And then there was this unfocused CEO, which was basically kind of head in the sand, hadn't made any decisions yet. Was just kind of waiting to see what happened. And then there was the strategy-focused CEO. These were CEOs that were making changes, they were four times more likely to have already made changes in their team. They were using words like innovate and opportunity.
1:02:36 Speaker 01 They were using these forward looking, positive words. And so we've, our team has rallied around this idea of innovating. We've come up with some really fun ideas. We've created a shirt that we're calling One Utah. And the entire, we're donating a hundred percent of the proceeds of the shirt to support the COVID-19 response here in Utah. Over the last 48 hours since we launched, we've, we've sold thousands and thousands of these shirts. You know, these are really, uh, these are really hard times to prepare for. And as a leader, what's important is to stay optimistic. It's to unite your team around your mission, around each other. And that's what we've found has been really interesting. And I feel like, I feel more connected to my team now than I, than I did before this crisis.
1:03:18 Guy Raz? When you think about, um, you know, all the craziness and also the success you've had, cause you've had some significant success. And how much of your success do you attribute to your hard work and your intelligence and skill? And how much do you think is because you were lucky?
1:03:32 Speaker 01 Well, it's, it's certainly a little bit of both. I mean, I can't say that, that hard work and skill don't matter. Of course, of course they do. But the reality is that I think most of the success that I've had has been because of luck. I was lucky enough to be born where I was born, at a time that I was, that I was born in. I happen to have certain skills that those skillsets may not have been worth much a thousand years ago. I don't know if I would have been a great hunter or a great farmer. So it's really luck that has allowed me to be in the position that I'm in. I feel lucky every single day to live the life that I have. And I, and with that comes a deep sense of responsibility and a duty to find ways to help others that, that maybe weren't as fortunate.
1:04:19 Guy Raz? That's Davis Smith, founder and CEO of Koto Paxi. By the way, in case you're wondering what ever happened to Koto and Paxi, the llamas who were the early mascots for the brand? Well, sadly Paxi was born with some health issues and he passed away about a year ago, but Koto is doing pretty great. He now lives on a llama sanctuary in Utah where he gets to roam free with dozens of his fellow llamas.
1:05:02 Guy Raz? And thanks so much for listening to the show this week. You can subscribe wherever you get your podcasts. You can also write to us at [email protected] . And if you want to send a tweet, it's at howibuiltthis or at Guy Raz. This episode was produced by Casey Herman with music composed by Raptine Arab-Louis. Thanks also to Candace Lim, Julia Carney, Neva Grant, and Jeff Rogers. I'm Guy Raz, and you've been listening to How I Built This. This is NPR.
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