Acquired - Arena Show Part II: Brooks Running (with CEO Jim Weber)

Episode Date: May 16, 2022

For the final act of the Arena Show, we’re joined by Brooks CEO Jim Weber to tell the amazing story of how he transformed the company from a 3rd tier, deeply cashflow negative “also-ran�� into one of the world’s premiere fitness brands and a crown jewel of the Berkshire Hathaway empire — with compounding revenue and cashflow growth that rivals even the legendary Mrs. See’s Candies! Sponsors:ServiceNow: https://bit.ly/acqsnaiagentsHuntress: https://bit.ly/acqhuntressVanta: https://bit.ly/acquiredvantaMore Acquired!:Get email updates with hints on next episode and follow-ups from recent episodesJoin the SlackSubscribe to ACQ2Merch Store!Links:Jim's book, "Running with Purpose" ‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

So have you gone running yet in your custom acquired Ghost 14s? Dude, the Ghosts are amazing. They are the best sneaker I have ever owned. Bar none, hands down. I used to have Adrenalins. Adrenalins are also great, but I literally wear them like all day, every day. But David, those shoes are only for active runners. You're misusing the point of the ghosts.

Well, with a baby, I mean, I'm literally wearing a baby walking the hills of San Francisco. I'm burning more calories than I did when I was running every day. It's true. It's just a slow run at the end of the day. That's all you're doing. Is it you, is it you, is it you who got the truth now? Is it you, is it you, is it you sitting down saying straight another story on the way who got the truth? Welcome to Season 10, Episode 8, The Arena Show, presented by PitchBook of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert, and I'm the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund, PSL Ventures. And I'm David Rosenthal, and I'm an angel investor today back home in San Francisco.

But man, what a special day that was in Seattle. That it was. And we are your hosts. We're going to go right here into the onstage introduction of Jim and the Brooks story. So I don't want to give too much exposition here, except to say that if you've been sort of thinking Brooks is this like shoe brand and what can tech people possibly learn from a hundred-year-old shoe company, prepare to have your mind blown. Jim's one of the most dynamic guests that we've ever had on Acquired. And I just got so many comments leaving the arena,

just absolutely floored with all the great takeaways and lessons and quotes that people wrote down from Jim. So make sure you enjoy that. Okay, listeners, now is a great time to tell you about longtime friend of the show, ServiceNow. Yes, as you know, ServiceNow is the AI platform for business transformation. And they have some new news to share. ServiceNow is introducing AI agents. So only the ServiceNow platform puts AI agents

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collaborate, they learn from each other, and they continuously improve, handling the busy work across your business so that your teams can actually focus on what truly matters. Ultimately, ServiceNow and Agentech AI is the way to deploy AI across every corner of your enterprise. They boost productivity for employees, enrich customer experiences, and make work better for everyone. Yep. So learn how you can put AI agents to work for your people by clicking the link in the show notes or going to servicenow.com slash AI dash agents. All right, listeners, please note that this is not investment advice. It definitely wasn't investment advice last episode. And without further ado, on to our conversation with Jim Weber, the CEO of Brooks Running. All right. Now, for our final act of the evening,

we have a very fun local story that we've been dying to tell. Brooks running. I mean... So I think a lot of people are probably familiar with this brand, especially in Seattle, especially if you are a runner. But the story of this business is absolutely unbelievable and extremely undertold until now. So when the CEO, Jim Weber, took the helm in 2002, the company was losing $5 million a year. It was $30 million in debt. It was a week away from missing payroll. And the board was like having weekly meetings to figure out how to make payroll. It was a business of pretty modest size. It was a $60 million revenue business. And when we talk about this revenue number, you know, it's not SaaS numbers. Like, there's extremely real costs in

making shoes. So, you can imagine not making a ton of money. Well, actually losing $5 million a year. So, that business had been around for, like, 90 years. And it sold all sorts of products at every price point to, frankly, a pretty random set of consumers in every category, not just running. So enter Jim. Jim came in and bet the company exclusively on serving active runners as a segment. And he cut all other business lines. Over the last 20 years, he's grown the business to over a billion dollars in revenue, billion with a B, and well over a billion, and is thriving and thrived even through the pandemic. So along the way, Brooks was acquired by Berkshire Hathaway, and Warren Buffett personally elevated Brooks

and Jim to make the company a direct report to him. Jim is a leader, a visionary, and a fighter, not only growing the business over the last 20 years, but personally fighting and beating cancer. Please welcome Jim Weber. Hey, guys. It's great to be here, man. Thank you so much. Here we go. This is great. What a show. So, Jim, we figure you have a lot of footwear already. I've got some shoes.

And I sold six more pairs tonight. Woo! That's awesome. And this morning. Thank you for hosting the run. It was fun. So we have an acquired hat for you. Love it.

And an acquired bag with some more goodies in it. Very nice. From the acquired family. Best Jim bag at the company, for sure. Thank you. We hope to see this in the Trailhead store starting in 2023. I love the gold. That's the first gold trim we've got on an accessories bag.

It's great to be here. Well, my first question, and the way that I want to just tee this off, I mentioned it's an untold story until now. I hear you just launched a book. So congratulations on that. Thank you. Thank you.

Could you just tell us a little bit about that? What is the book? So the book is Running With Purpose. And Brooks has been a fabulous journey. And I'm a person that believes in life. The journey is to be, you know, just cherished and enjoyed because the finish lines are fleeting and we all want goals. We all want finish lines, but you got to enjoy the journey along the way. And I think we're all creatures of our journey.

So Brooks has been through a lot. And it's a David and Goliath story. It's a turnaround story. It's a purpose-driven, culture-driven brand story. It's a focus, niche, challenger brand story in an industry like so many that's dominated by platforms, one really, really fabulous platform. And so we've navigated that. We're building a really cool brand with lots of runway yet for growth. And it's a great business, too. And so I wanted to tell that story because if you're not a runner, we haven't marketed to you. I mean, we are so focused. Every nickel has gone to people that are putting one foot in front of another. But the story continues. And I wanted to tell it.

It's great. Well, David and I got to read an advanced copy of it. And then I actually just re-listened to the audio book when it dropped earlier this week, actually that you narrated, which was very fun to hear your voice while I was running on the Burke by your office, listening to your voice. It was a very surreal experience. I want to go all the way back. I'm going to play David's role in this one. Let's go all the way back to when you first encountered Brooks in 1998. Talk to us about how you came to the company and where the company was at at that point. Yeah. So I had a really fun career. I became a consumer products person after some banking. Pillsbury, M&A, corporate development, strategy, got to run a brand. I've always wanted

to run a business. And I ended up following an exec to the Coleman company. So I sort of became an outdoor sporting goods guy. This is Coleman like camping. Coleman camping, but they owned a whole bunch of different businesses. And I so badly wanted to run a business, a little division they had down in Phoenix hit the wall, you know, just almost fraud in the counting and everything else. And I came back from a SWAT team and I told my boss, I want to go run that. Put me in, coach. Put me in. Ran that, turned it around, sold it. Went up here to another Coleman division, O'Brien Water Sports. It's in our backyard here in Redmond, Washington, a brand. And I ran that for several years, turned it around, got profitable.

They sold it. There's a pattern here. And then, you know, I went on to Sim Sports, a snowboard company. And, you know, we turned that around, and it ended up changing hands. And so there I was. And I joined the board at Brooks. I joined the board at Nautilus, which was formerly Bowflex. Oh, yeah.

And I did some banking work, middle market, M&A, marketing companies to investors. But on the board at Brooks, I had an inside view of what was happening there. And a good friend of mine, Helen Rocky, had run it successfully in the 90s, but she left. It was owned by J.H. Whitney Capital, really a top-notch, for my money, middle market, M&A firm, private equity firm, and they bought it. But the partners had left. The CEO had left Brooks, and it started to go sideways. New partners at Whitney, all new management. They went through three CEOs. And you were on the board the whole time. I was on the board. So I had to look inside, and it was a crisis.

Weekly, you guys have experienced this, weekly board calls on Fridays. The bank is not going to fund. They want more capital. It was exciting, as they say. So after a couple of months, we did a lot of work. I saw an opportunity, and I jumped in. And I love running businesses. I love solving the puzzles. But by that time, and I sort of tell it in the book,

I really wanted to play the long game. I wanted to build a brand. And, you know, the TAM, I love your industry, the market in running, it's the biggest category in all of sporting goods. It's the biggest category in athletic footwear. It always has been. It's about a $ in all of sporting goods. It's the biggest category in athletic footwear. It always has been. It's about a $30 billion category globally, apparel and footwear. So all we had to do is get a little, you know, and we could survive,

and we've just kept at it by design because I just decided I want to play the long game and build a brand, build value, and so that's why I'm still there. I'm a weird duck, but I've got, I've had four owners and I've played through each one and kept that opportunity out there for the next owner. And so at that moment though, I mean, Ben mentioned you did a little this,

a little that. It's like that line in Wayne's World about like, oh, I've got a collection of hairnets and name tags. I mean, you were making football cleats. Like what was Brooks at that line in Wayne's World about, oh, I've got a collection of hairnets and name tags. You were making football cleats. What was Brooks at that point in time? Every brand in athletic footwear and apparel plays the whole athletic director's purview, right? You're in every sport.

And what no one understood that I found out later is that the mindset in our industry literally came from owning a factory. When you had a shoe factory, you had to keep it busy all year long and keep the people employed. So you went from baseball cleats to wrestling shoes, to bowling shoes, to running shoes, to foot, you know, every, you had to make everything and the business developed that way. And you had to view it as like the product you made was like a factory that made shoes. Right. And so most of it we were losing money on. And that was the secret, right? So we had good, better, best $30 shoes, $80 shoes, and then performance running shoes that really started at that point about $100. And then we had court shoes and family footwear. We called them barbecue shoes and lawnmower shoes because that's what you did in them. And all of it was very low margin. All of it was tying up inventory

and cash. And the retailers were ambivalent about it because we were number eight or nine at everything. Our brand was not strong. And so, but when we made the decision to burn the boats on everything but performance running, the industry had never seen that before. And most people thought we were crazy that we wouldn't survive. And so you came in as CEO, I think in 2002, maybe late 2001. April 2001. Okay. Was Whitney looking for you to do the thing that you had done several times in your career before, which was just get the business to profitability? Or did they have a notion that you had an inkling that you could

build a big, powerful brand here and actually build a tremendous growth business? Yeah. By this time, I understood what they needed. And I talk about a little bit in my book. I'd run three and I was a little bit smarter, fortunately. They had to liquefy. There was no question about it. They were going to sell. And the employees knew that I was just coming in there to sell this thing. They had a pool on how long I'd last. But I wrote on my board one of my favorite quotes from Benjamin Disraeli,

the secret to success is constancy of purpose. I wanted to create value. I wanted to build a brand. So I decided when I walked in, I was going to play through Whitney. I was to create value. I wanted to build a brand. So I decided when I walked in, I was going to play through Whitney. I was going to get them a good outcome, but I was going to stay and play through it. And I thought we'd get another private equity player. We didn't. But so the Whitney partners, Peter Castleman, Paul Vigano, I'll never forget the meetings. They said, this thing is, it's kind of a mess. We didn't know what we bought. You have to pick a

path and go. Might take you five years, but you got of a mess. We didn't know what we bought. You have to pick a path and go. Might take you five years, but you got to do it. And in Brooks' darkest hour, they wrote a check and recapitalized it. A little bit of a cram down, but they wrote a check. And that's when I came in. And so they were fantastic partners for Brooks. And we got them liquid. The pitch I made to our team, and it's what I believed,

is that companies with issues get sold. Companies with opportunity attract investors. And I said, we're going to have to park cars in the parking lot. We're going to attract somebody. But that's the mindset we had. We were going to sell the future, not just sell the current, right? Yeah. Yeah. And so, if I'm remembering right, Whitney put in $7 million. To recapitalize it. I think that's the last time Brooks has taken outside capital. Absolutely. So we saw a higher margin business. Yeah. And we benchmark against all the public companies. We're asset light. It's really an inventory and receivables business. And there's a reason we only have one store at our headquarters. And we think it's an advantage

for us right now in the development of our brand. But if you have high margins and good flow through operating profits in the teens and your incremental, obviously, capital, you can flow cash growing 20%, 30%, 40%. We haven't needed a dollar of capital since 2001. Wow. That's incredible. That's why Warren Buffett likes us. Right, you sent cash to Omaha, not the other way around. Our return on tangible net assets has been over 50% for the last 15 years.

Wow. Wow. 50% annually. Yeah. Wow. Yeah. On average net tangible assets. What?

It's a good business. I'd say that's a good business. Can you just walk us through, like, what is, how did the economics of Brooks work? You know, here was the insight that we saw. And, man, you know, monopolies are great. Network effects are great. You know, all those things are great. And what I saw in Brooks, there was a book that was meaningful to me when I was at Pillsbury,

The PIMS Principles. And one of the highest ROI businesses were lower price point consumable items. If you're buying a Boeing jet or a $600 wakeboard that never wears out or an $800 golf driver, that's a discerning purchase. And the margins on equipment tend to be lower. But the Titleist golf ball is a consumable, for me anyway, and running shoes. You've made that joke before. A frequent runner will put 20 to 30 miles a week. They'll go through 2.6 pairs of shoes a year. So there's the stickiness, right? If you can earn a frequent

runner that the shoe is really important, it's a piece of equipment for them, you don't have to resell them every time. You've got some stickiness there and you start to build customer loyalty. And your average selling price for a pair of shoes today is $150? $130. $130 times 2.6 per year. And a loyal Brooks customer stays with you for... We had to earn them. There's no guarantee. They're curious. There's lots of new innovation. And they'll try some different things. But when you're training for a marathon, one of my favorite stats for our brand is shoe count at marathons

because it's a piece of equipment. And you don't want to be injured. You want to have a good experience. So we sponsor. Boston just happened. Incredible race. We're always the number one or two on shoe on course. And do you have people at the big marathons counting?

It's so good. They have high-speed cameras. No, high-speed cameras, AI. They link it to the bib. They know exactly what shoe 20,000 people are running on. The model. It's so cool. So Houston Marathon, 6,000 marathoners, 12,000 halves.

Number one shoe in the half, Brooks. Number two shoe in the full, there was a little brand down in Portland, Oregon. They were number one. Oh, no, no. We are on their heels. But that shoe count is a true test because that's the frequent runner, and it's a piece of gear in that. So that's the leading edge for us is to earn that customer and have their confidence.

All right. David's doing the thing that I normally do and jump ahead and try and like unpack the business as it is today. Let's go back to the story. So it's 2002 through six. Let's talk about this era. You've made this bet where you're going to shed every other product that you sell. And you're kind of going to piss off a lot of your channel. Because, you know, what sells really well at these big box stores, those are your barbecue shoes. So can you take us to like one or two of the key moments of the hard part of the decision to drop product lines that weren't about frequent runners? Yeah, I think that the key to Brooks is that we knew we are going to have to build the brand at the runner level, literally a pair of feet at a time. And the retailers, so many retailers told

me, Jim, we are not going to build your brand. We'll try it. We'll test it. We were tested at Dick's Sporting Goods, and I'm not kidding, for 10 years. 20 stores, 80 stores, 20 stores, 80 stores. So you have to build the flywheel in these franchise products. That's how running works. The best-selling running shoes continue to be the best-selling running shoes year after year for as long as they sustain it all around the world. We have two of the best-selling shoes now in the United States, the Ghost and the Adrenaline. They're the two top shoes in the performance running category. So when we go to retail, biggest customers, Big Five, it's a fine, you know, sort of mid-priced sporting goods retailer on the West Coast.

We were doing $10 million of $60 million of revenue with them at $30 shoes. My first meeting with them is, we love Brooks. We see a great future for you. So one-sixth of all your revenue is coming from their stores. Yeah, but they saw our opportunity at $19.99. I was losing money at $30. I couldn't run fast enough from that meeting because we left and we generated 5 million in cash by getting the inventory out of it. So those were easy decisions to leave those

retailers. And then we had to build it in the specialty run community, pre-internet, pre-e-commerce, huge part of our business now. And then with sporting goods. They didn't want to sell your $100 shoes. They wanted to sell $20 to $30. They didn't have that customer. They didn't have the runner. I see. They had family athletic footwear. At this moment in time, where was this in the running as a sport, like marathons, were they what they are today? Were they on that journey? They were on that journey. And this was what we did at Brooks. I think we were the first one to identify that the real business was in trainers. It wasn't in racing shoes.

It wasn't in spikes. It wasn't in marathon racing shoes. The business is in the trainers. We don't sponsor college programs. They're kind of owned and wrapped up. A lot of the college athletes that race in the big brands train in Brooks every day. The business is trainers. So when we came in, you know, I think Brooks had, you know, we were humble and we were getting the business that we could. And we had shoes that were really more back of the pack people. They

weren't the fast people. They were support shoes and motion control shoes. People that needed functional footwear. And we've moved ourselves to the middle and the front. We're trying to serve every runner. The insight was this, the sport is the soul of running, right? Track and field, cross country, road racing, the Olympics, now trail and ultra. But the business is people that are investing in themselves, fitness and health and wellness.

There's no other sport that has that dynamic where it goes from a sport to a pursuit of investing in yourself. And we've always positioned right in the middle of that. We're basically about you and your run. We're not about the podium. We're not about the tape. In our sport, unlike basketball, everybody knows, all the kids especially know what Steph Curry plays in. Most people don't remember who won the Olympic marathon and even moreover what shoe they were wearing. And the truth of the matter is, you know, everybody's unique. The shoe really matters and you all know if it's comfortable, if it's working or it's not. And frequent runners really do. So that's the insight.

I think we're the only brand that is consistently executed against that. Every product we make starts with your biomechanics and your habitual joint motion and what your needs are. And we're all essentially different. We're the only brand that begins there. And we've done that for 20 years now. I mean, you mentioned that other company in Oregon.

I try not to say competitors' names, right? It just ends badly if you say a competitor's name. Which is an amazing company down there. It's a great company. But literally their name is the Greek word for victory. And what you're talking about here is incredibly counter-positioned to that in a way that victory really can't mean just investing in yourself regardless of where you finish. One person breaks the tape. Yeah. 40,000 people run New York Marathon. We'll take the 39,999 that want to have their best day. They're, you know, they're investing in themselves. They are celebrating every one of those people.

First 5K, run around the block. Man, that's your run, right? That's what we do. It was really clarifying reading your book and understanding that Brooks' brand is about performance, but it is not serious. And I think that was an interesting clarification for me because I run and I take my performance seriously

and I've selected a very specific motion control Brook's shoe to do that. But I don't need it to be a very serious sort of like victory-oriented brand? Because I've never once thought, oh, maybe I will win the Seattle Rock and Roll Marathon. Like that has never occurred to me. There's still hope, Ben.

There's still hope. You know, I think really what it relates to, and this is I think what Brooks got before any other brand, is we are are sweating product. I think we invest more in R&D in a focused running metrics manner than any other company. And we don't have as much money as many of them still, but it's so focused in the clinical work we do and the materials work we do. We engineer materials just for the motion of running and all the engineering that it has to do and respond in between gates and all of that.

So that's the key. But I think our brand positioning, I didn't create it. It was sort of there when I came in. But it's brilliant for this reason. It's approachable. You know, the unseriousness is basically trying to take the pretension and the, you know, the I'm not worthy, I'm not a runner out of our sport. And so many of our retail running shops have done a fantastic job of that.

First of all, I'm old enough to remember Title IX in the 70s equalized college sport funding for men and women. If you weren't addressing women in the last 40 years in sporting goods, you're gone. I mean, we doubled the business. And women have driven this sport since the mid-90s. So approachability, I think, was super key. And Brooks is a very inclusive brand. It's you and your run, and all are worthy. But the product? Here's the other thing that's so interesting about our sport is, you know, maybe in some sports, the pinnacle equipment absolutely needs to be available to the pinnacle athlete. You know, maybe that's in golf and certainly for a two-hour marathon, everything has to be clicking. But what's interesting at our sport, the person that really needs the best footwear and the best run bra and

all of that are the people that are just beginning because the injury potential for those people is really high. And that's where the right shoe. So there's, that's another element of our category that's pretty unique. So I would, I would say that the unseriousness of our, of our brand is, is all about in welcoming and including everyone, no matter if you're just starting or your 20th marathon. All right, listeners, our next sponsor is a new friend of the show, Huntress. Huntress is one of the fastest growing and most loved cybersecurity companies today. It's purpose built for small to midsize businesses and provides enterprise grade security with the

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significantly lower. Footlocker, we were doing $60 SMUs. They'd order $80,000, they'd change the product twice, they'd get it down to $60,000, and then they'd cancel it, and we'd end $20,000 inventory. That was a quick decision, too. We just quit doing all that make-up business that was retailer-driven. So, revenue's going like this, intentionally. You're the fourth CEO. So, at this point, is the team... How do you get the team on board these crazy decisions you're making when they're like, three other people came in here and tried to turn this thing around and didn't?

You know, I think from a leadership standpoint, the real puzzle in that first year was gaining trust from everybody that mattered. B of A was our bank, kind of a lost cause. We had to replace them. They just weren't going to buy it. But Whitney invested. That was key.

And we kept them with us all the way through. The leadership team took time. And you had to deliver sort of on outcomes. But here's what we did. Six weeks in, we redid the plan, took profits down. The plan was millions of dollars. They didn't have a prayer to hit that. We took profit down, but it was a profit plan. They didn't have a prayer to hit that. We took profit

down, but it was a profit plan. They hadn't made a bonus in four years. And we went after cash flow, and that was shrinking the mix. We hit our plan that year, and people got a bonus. And we hit the plan that we'd sent nine months earlier. I spent really eight weeks intensively looking at it, but I think we knew what we were seeing. And we generated 10 million of cash that first nine months. That's how much we shrunk the balance sheet with focus. And here was the key, though. You have to do horizon one, horizon two, horizon three, right? You've got to solve it all. So I had 10 things to do. The board said, oh, my God, you're crazy. Pick four. No, you don't understand. We had to get the adrenaline right because that shoe was critical for us.

And we had to refine that shoe in 2001 for 2002. And we got it right. The fourth adrenaline was an incredibly balanced shoe, had a multi-density stability technology in it, super balanced. And ASIC started to not deliver. And we ran, man. We air freighted one color, 18-month cycles, saved the company. But we had to finish that shoe in 01 to deliver on 02, which, yeah. You guys are like a semiconductor company. I think, you know, some of these, Brooks, everything's complicated, everything's competitive, but it's like moving a wall of bricks forward. And you got to get, you know, I think as you know, some of these, Brooks, everything's complicated, everything's competitive, but it's like moving a wall of bricks forward. And you got to get, you know, as a, I think as a CEO, you got to move it all forward. So when some things are falling behind, you got to get those

up and you have to deliver the whole business model. And you have to do it sequentially over seasons in our business, because if you come to market with, with a ho-hum product line, you're going to shrink that year. And so you've got to, the lead times in footwear, it's not the car business, but it's more like the car business than the T-shirt business. There's tooling on everything, 12 sizes men's, 12 sizes women's, widths, colors.

It's scaling these things in the fact there's a lot of tooling. There's a lot of,. There's a lot of... It takes a half a million to a million bucks to bring one style to market. It's a lot of tooling and inventory. It's a lot different than the software business. Don't ask me about my tech stack on my website. My board does that every now and then,

and it doesn't go well. The website is actually pretty great. We're competing with digital engagement in our industry and we're doing really well with it. We've taught ourselves that and runner focused, but I think we're executing

on the digital side with runners as well as anybody else. You're also in a pretty good town to be able to recruit digital talent. There's a lot of talent here and they have a lot of opportunities now too. Okay. So fast forward a couple of years. So you nail it with the adrenaline for you're starting, you're profitable now.

The business is looking better. You get the liquidity event that you're looking for, and you're sold to Russell Athletic. What was it like communicating to the team, we're joining Russell? So you guys are in this business, and I've been bought and sold a few times, bought things too. We knew we were going to have to sell, so we were prepared. And we thought for sure it was going to be another private equity firm, we were going to have to sell, so we were prepared. And we thought for sure it was going to be another private equity firm. We're going to get another kick at the can. And that's what I was absolutely mentally prepared for.

So the bankers come in. We do the management presentation. We're going to practice on a strategic. There weren't many there. We're going to practice on Russell Athletic. Oh, everyone does a warm-up fundraising pitch. Oh, my God. And they completely fell in love with it.

So there we are. If only you had the YC's growth program that you could then go practice. And they ended up, we negotiated our independence. I pitched us, we're the crazy uncle out in Seattle. We're really different. Just leave us alone, which they did. But yeah, you know, so for them, we had negotiated our independence because we knew where we were going. We saw the opportunity. We had a flywheel going. We really did. And at that point, we were continuing to pursue growth. So they would have been crazy not to just let us keep going. And I would do that then with the next owner as well. So two more years pass. Business continues to grow, Russell gets bought by Fruit of the Loom, and Fruit was already owned by Berkshire, right? Correct. That's right. So what's it like now being a subsidiary of a subsidiary of Berkshire Hathaway, but two levels down? Yeah. I mean, it was really interesting.

In one sense, you know, I'd gone to school on Warren through his letters, and I had an internship in the 80s that he had put a business out of its misery in a competitive battle. In a two-newspaper town, it went to one. Buffalo Evening News. Yeah, the Buffalo Evening News. And there was a black hole in Kohl's Media's balance sheet. And I, what happened there? And Warren, oh my gosh, plays to win, signals he will never, ever, ever, ever quit. $5 million of losses, investing in the newsroom, investing in quality, goes to the morning,

fight to the death. Don't do that with Warren Buffett because he never quits. So they made a rational decision. They closed it down. His profits went from negative five to 10 million every year since. And I was just, wow, who is this guy? Right. And that was, uh, that was before Solomon brothers, right? That was like the prelude to Solomon. Yeah. That was in his early days. And he was just the way he talked about brands and, uh talked about brands and the moat around a brand, I hadn't seen that before. Competitive strategy, right? I loved it. So I'd gone to school on him.

So once we got part of Fruit, I thought, okay, this is good because Charlie and Warren are going to understand what we're doing at Brooks. We're small. And so we started to get some letters and your numbers are good. And we got notes from the board. But Fruit of the Loom and Brooks, we're just completely different companies. Six packs of men's briefs at Walmart. Yeah. That's not the performance running. A little bit different than a local running store distribution strategy. Innovation was Mighty Morphin Power Rangers or something.

They may have had those. Anyway, but they're a longtime company. They bought it for Russell Athletic Apparel. They bought it for the Walmart business, and they're good at that. So again, they left us alone. We had to negotiate that. It wasn't given.

They actually, on paper, they were going to move us to Bowling Green, and it would have killed Brooks. And I was pinging, because we were possibly going to get sold. So I actually, you know, talked to some super smart people, some in this town, and, you know, Warren basically said, I'm not going to get involved. It's up to Fruit. And I thought there was a good chance they'd sell it because I would have loved to have led an independent play there. But we waited it out. We took them, you know, sort of right to the edge of saying,

you've got to commit to Brooks. We've got to commit. You've got to commit. And they did. And then two years later, Warren plucked us out. But we had to negotiate our independence from them. And I, again, you know, I could have left. I had opportunities to leave.

I didn't want to leave. We saw great opportunities. 08, 09, just as that was going on, obviously a great recession, we tripled the business from 2009 to 2014. And I knew we had some good things going. But that was a really critical moment because they might have moved it to Bowling Green, which they did to everything else, and many of those brands wilted.

And I would have lost a lot of talent, and I wouldn't have run it in their business model. It wouldn't have worked. You get to retain your independence there, but you're not really independent. You're still within Russell, within Fruit. At some point, you get the phone call from Warren. Can you talk us through that? Yeah, so we had put in, you know, we had good incentive programs,

and we tried to keep people there and put some stickiness in with some long-term programs to just get people focused on building that triple. So Fruit was, you know, sort of consolidating all their stuff. And they had bought Russell for about a billion dollars with internal capital. And they were about to go and restructure that. So, you know, Warren had, we had started to sell shoes at the annual meeting, Omaha. This is like Charlie and Warren, you know, 50 years ago. I love this event.

Now, their arena was full, but that'll be the case for you guys in another year. They've had 50 years to compound. It's going to be huge. It's going to be huge. But, you know, we were selling shoes there, and I sent Warren a note, and great, next year we'll sell more. Good job, you know, hearing great things. You guys are doing well. And by the way, if you're ever in Omaha, come by. We'll go have Good job. You know, hearing great things. You guys are doing well.

And by the way, if you're ever in Omaha, come by, we'll go have a steak. Well, son of a gun. You don't say no to that. I just happened to be in Omaha about three weeks later. Imagine that. And I knew he would love what we're building. It's unique.

It's distinctive. We're not trying to be that brand, that brand. You know, we're really developing something with focus. He couldn't figure out why the big guys weren't squashing us. And we spent three hours, not one phone call, door was closed. We had a meal. But you just get his undivided attention. His brain is just so focused. He loves business. And I did most of the talking because I thought, he's going to fall in love with this business. And six months later, he, so here's the start of the story is it was the December when Mark Zuckerberg was preparing to take Facebook public. And there was a Wall Street Journal article for the new, I don't know

if he was 22 or 23, a young CEO of a public company. And one of the lines in there, he was going to trade in his Adidas slides for a pair of Brooks Adrenalines. I don't know why it was in there, but Warren saw it, circled it, and said, Jim, this is great. We just need a couple million more. So two weeks later. Did you send Zuck a pair? Oh, yes. And he was in Brooks for a while.

But two weeks later, I'm with my family down in the desert. And, you know, I think I was out of Blackberry, but two weeks later, I'm with my family down in the desert, and, you know, I think I was out of Blackberry, but it's 2011. I didn't have my voicemails coming into my phone, so I was checking email every day, but I wasn't, I didn't check voicemail. Yeah. So I get back at my office January 2nd. I'm in early. I like to start the new year especially early. It's 7 a.m. and the red light on the phone is blinking. Pick it up. Answer it. Jim, this is Warren. I got an idea. Give me a call. It was five

days ago. Oh my gosh. This is like, you know the story of Warren during the financial crisis about Lehman that he missed the voicemail. He missed the voicemail completely. He found it like a year or two later. So anyway, pick up the phone, dial the number. Hello.

He answers his own phone. It's incredible. This is Jim. Sorry, Warren. I was at blah, blah, blah, blah, blah. He said, well, here's the idea. You know, you guys are doing well. You're focused on shoes.

Your premium fruit really has to focus on apparel. I'm thinking about spinning you out and setting you up as a standalone subsidiary. And, you know, you guys will just keep doing what you're doing. And I just think that makes sense. And I said, you know, Warren, I think that's a good idea. I think we ought to do that. And I gave him an update on our previous year. We had a great year.

And he said, that's great because from here on out, I'm going to take all the credit for your success. But it's a, you know, as a platform to do what we want to do and build our brand, you know, they so know that revenue growth and profitability, you know, selling at margin, double-digit growth, is all about building brand. And that's really what we've been doing and really wanted to do. So we just have a sink on the opportunity that we have with this brand. And now it's been 12 years. That's the true reason I'm still there.

Because we're competing in a really, really big competitive category. And the margins, I think, on success are not fat. They're thin. And so executing against that with confidence and support, being able to work through a lot of the uncontrolled business category, it's a huge advantage for us. So I'm going to keep us going through the story. And like I've done on many previous episodes, I like earmarking sort of a number along the way to track. So I think around this point,

you're doing 160, 170 million in revenue. Business has grown nicely. You're profitable. There's a fun story from 2012 that I'd like you to tell. You've always been somewhat of a scrappy company, doing more with less than anyone else. Can you share the story of when you personally got kicked out of the U.S. track and field Olympic trials? So I think in real life, digital is digital, but in real life marketing, we activate, right? A lot of the running shops do runs out of their stores and they're involved with the 5Ks. And, you know, we're bringing energy and positivity to that,

really trying to make it fun for the people, many that are running for the first time. And then there's the sport, which is so fun to be at, whether it's the Olympic trials for the people, many that are running for the first time. And then there's the sport, which is so fun to be at, whether it's the Olympic trials for the marathon or the Olympic trials, which is often at Hayward Field down in Eugene. And the challenge there for all the brands is we rent a house,

we bring in all of our partners and VIPs, we run group runs out of the house every morning, we bring in a chef and we watch these incredibly athletes compete for Team USA. It always happens in June. Olympics are, you know, July, August. And it's just a fabulous event. And then the backdrop is the largest brand in our space, Nike,

signs a 27-year marketing agreement with the governing body of our sport, USA Track and Field. Who does a 27-year deal? I mean, come on. It's a 27-year deal. And then, of course, University of Oregon is a Nike university in more ways than one. And so they wrap it up, right? The whole thing has got swoosh wrap around everything. I think the yellow lines on the highway are swooshes. So we wanted to celebrate the athletes. We have athletes in there. We invest in the sport and, you know, we don't invest like they do, but we invest in athletes and they're inspiring and so on and so forth. All the brands do. So, you know, what can you do? You can't do a lot. But we decided, we checked with the FAA, the air rights are open. Nobody said you can't fly a plane. And we put a run happy banner on an airplane and we

just flew it around that stadium all day on Friday. They got mad and we did it again on Saturday and they started to tell us, you got to take that plane down. Why? Well, because you can't do guerrilla marketing. Yeah, but we checked. It's all, you know, the FAA is fine. It's all good. It's the sky. And we're cheering on the athletes. You can't. You got to take that thing down. Get that thing out of the sky. And so overnight, coming into Sunday, the final day, we checked with some of the track and field officials, and they basically said, screw them. You should just fly it. And we checked again with the FAA. And so we flew it, and they came up. We bought tickets for all of our guests. We had about 80 people there. We didn't get them free and comped. We

had some of those, but we bought all these. And they said, all right, you guys all have to leave. And we, what? No, you all have to leave. So we left our guests and three of us went down to talk about it. And they, why are you asking us to leave? You didn't do the, you know, you didn't take it down. We asked you to take it down and Nike was all sitting right behind him. So, well, there's nothing against doing that. We checked with everyone. Well, read the back of your ticket. This ticket is a license that can be revoked at any time.

So you're just kicking us out. Yeah, we're just kicking you out. Get out. And it was a huge mistake for them because this story has lived on in the industry forever. And we had some of the best running shop people in the country there with us. They were our guests. And so everybody knew about it. They kicked me out, our head of marketing and our head of sports marketing. It was interesting.

Anyway. That's awesome. We were at the bar, we had beers, and we watched it on TV. Well, if David and I were on Zoom with you, we would be getting ready to enter like hour number two and try and talk about every year all the way through. Tonight, I want to focus on how you came through the pandemic and some of the unique ways that you early realized running actually was going to be something that people started focusing more time on, and you were able to kind of lean into this

new behavior. Talk to us about March 2020 and how you paid attention to what was changing. Yeah, a couple of big advantages. First was literally an obsession on runners. Participation, you know, links to unit sales and volume, right? So no other brand has that clarity because most of the products in the athletic footwear industry don't ever go for a run or play basketball or really even go to the gym. It's casual family lifestyle footwear. There's nothing wrong with that. Some of those businesses are great,

but we had an advantage because 90% of our products went through a retailer. That's a problem. Europe retail shut down in one week, and then all of retail rolled through North America, and by the end of March, not a store was really open. And that's a problem. Cash cycle froze. Oh my God, nobody knew what was happening, right? We didn't know how lethal this virus was, how transmissible,

and so on and so forth. And so it was white knuckle time, and we were there with everybody else. Everybody could write a book on that. But here's what we did is we saw phases, because we'd seen during the recession, running is a bit recession resistant. We saw that in the Great Recession. I was thinking about that. It's kind of like... Because it's cheap and it's convenient. All you need is a pair of shoes. It's like the healthy alcohol during recessions. In the Great Recession. Thank you. But we were not an essential business, and marijuana and alcohol were, so figure that out. But during the Great Recession, 50% unemployment in Italy and Spain under the age of 30,

running took off, double-digit growth, after the Great Recession. So we'd seen that before, and it turned out to be COVID-friendly, right? You now know the story. It was social distancing-friendly, outdoors,, hiking, running, all made the cut. But nobody knew that. We had a hypothesis. We created this frame on how we thought running would recover. And so here's what we did.

First of all, Strava data magic, right? Every day after the quarantine shutdowns, Strava activity was growing. And they were sharing that. Then, you know, what we did, we have 40 in the U.S. alone, 45 field marketing people. We put them in parks, high traffic running parks at 4 p.m. every afternoon, and they counted runners. And guess what? It was growing every day. And then we watched digital sales, and we have visibility on 85% of our retail sell-through. And so digital went from 30% of all of our products going through a website of somebody's, ours or another partner's.

It went to 80% by the end of April. And in May, we sold more in May 2020, almost all through digital than we did in May 19. In all channels. Running made the cut. We grew 27% in 2020, in that COVID year. But we saw it. This was the key because of our customer obsession and our ability to work multi-channel was a big advantage in that time because we could move inventory around and make it happen. Inventory, if it isn't there, you can't sell it. But multi-channel was a big advantage. The other was our focus on the

runner. We turned our supply chain on at least six to 12 weeks before anybody else did. Because if you were a broad-based retailer, there was no clarity on when the customer was coming back. And for a lifestyle product, nobody went outside for a year. Oh, so it was the fact that you exclusively made performance running gear that gave you the confidence to flip it back on. Because if you're making all kinds of stuff in your factory and you're pushing all kinds of stuff through retail channels, most of it is not going to sell, so you can't actually open. That's right. And apparel and footwear, inventory is life and death. You've got to manage inventory well, because if you have too much,

you ruin the next cycle of inline product. So inventory is really critical. But we managed and played that cycle really well. We grew 27% in 2020. We grew 31% in 21. Yep. And we would have been up 40 if not for supply chain. Wow. So what'd you do in revenue last year? Sorry? What'd you end up doing in revenue last year?

1.13 billion. Wow. 1 billion, 130. Wow. Great year. We cracked a billion. Our industry, the billion dollar club is actually a rarefied club. There's probably maybe two dozen global Chinese brands are there now.

But it's a great club to be in. And what makes us unique is it's all premium, full price, full margin product. Most of the other brands have good, better, best. And those are retail-driven merchandising strategies. They're not really consumer-driven strategies. So normally we talk about seven powers as we drift into analysis here. You're a Berkshire business, so we're going to talk about moats. Okay.

What is Brooks' moat, and how do you think about defending the castle now that you have what you've built? You know, we think a lot about it, and I think there's also something I'd add to that. Part of the moat can be business model, right? Business models can be really powerful, and one of the things you can do as a company to create defensive, you know, moat structures is business model execution at scale. So we now are executing retail partnerships with the best retailers for running gear to runners at Super Jack and Jill in Seattle, Fleet Feet Running down in, I think, Menlo Park. Obviously, you know, some of the better sporting goods players in outdoor from REI to Dick's Sporting Goods. We're their number one brand. We've earned that over 20 years, and we have

deep, broad partnership programs with them. Digital marketing, consumer journey, you know, runners are digitally savvy. They're obviously all over the web. They start their shopping experience there. We reach them in active evaluation mode. Once you start looking at shoes, if you don't see our ad, you know, I don't know how we missed you. We're spending a lot of money at runners now, and maybe more money at people who run in active evaluation for running shoes than any other brand. Very focused. That's not easy to do in our industry at scale. But I would say this is our moat. I think runability, fit, feel, and ride, there's a lot of good shoes out there. It's actually not easy to make a great shoe. And Anthony Fauci made a joke about shoes. Vaccines are tough. They're complicated. It's not like making shoes.

We get a lot of that. But, you know, the refinement that goes into mile and making mile 26, you know, acceptable, you know, is really big. So, you know, I think great product is not as common as you might think. And the people on the inside, the frequent owners, know. So I think product, you've always got to lead with product. That's the first brand experience is product experience. So I think we do some hard things. We build great product consistently year in, year out. It fits and it rides well. And then what we do on the retail side and partnering and activating in real life, running and selling shoes in real life,

events and all the like, we do that better than anybody else. Service them, deliver on time, complete. And then the digital piece, we're excited about it. I mean, we're still just getting started there, but we're really focused on it. Yeah, I'm curious. I mean, you mentioned, I hadn't even thought about Strava

and the amount of data that you're able to see from that. What does the digital side of running in the future look like for Brooks and for the industry? I think it's interesting because quantified self and those tools have been ubiquitous, and they're out there. And the Apple Watch is a damn great product right so you know what's interesting about that is both under armor and asics have spent hundreds of

millions of dollars on digital apps yep um and i i think they've really struggled to monetize um run keeper and met my run and run keeper exactly so i wanted to buy every one of those, and Warren wanted me to do the multiple on EBITDA, and there was no EBITDA. So let's just say it's hard to do acquisitions. At least one of them was a completely free product, I think, right? Oh, man, they don't make money. Yeah. And Under Armour is trying to sort through that now, right? They're starting to shrink. So is Adidas. So those tools are really powerful for data, but how do you monetize it? And so we haven't gone there yet,

but we're building a Brooks Run Club. Finally, we've launched. It's not a loyalty program, but it's a zealot. We want to engage our zealots. We want to engage our true believers. And the data piece of that is going to be key. We want to come up the kinetic chain and find a sensor system and a data capture system that can get to your biomechanics as you're running. Because what happens is, if you run a

marathon, your gait in the last five to 10 miles really degrades. And that's where injuries happen. So we're doing a lot. We have a lot of partnerships. And we're really trying to figure out how we get good runner data in real life, not just in the lab. In the lab, we can test everything, but we want to get out in the wild. Do you think you need to do what the other folks in Oregon have done and build, you know, the whole consumer experience yourself? Or is it a partnership? We're going to build it and we're going to partner too so we're you know look Nike Plus is a fantastic ecosystem it just is I'd love to have

an ecosystem like that but we're still you know we're still selling more runners than they are we became the number one running shoe brand in the United States in the last 12 months last month 21.5% share in performance runners so

so we know we know where the battles are. And I think one of those powers is we make money on that. So the digital space, there's a lot of carcasses there. But we'd love to have it and we're going to work on it. We want to thank our longtime friend of the show, Vanta, the leading trust management platform. Vanta, of course, automates your security reviews and compliance efforts. So frameworks like SOC 2, ISO 27001, GDPR, and HIPAA compliance and monitoring,

Vanta takes care of these otherwise incredibly time and resource draining efforts for your organization and makes them fast and simple. Yeah, Vanta is the perfect example of the quote that we talk about all the time here on Acquired, Jeff Bezos, his idea that a company should only focus on what actually makes your beer taste better, i.e. spend your time and resources only on what's actually going to move the needle for your product and your customers and outsource everything else that doesn't. Every company needs compliance and trust with their vendors and customers.

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slash acquired. I have two more areas I want to ask you about. The first is grading and then the last is a personal topic. So can you paint for me what the A-plus case looks like for Brooke five years from now? And I'm sure you do lots of three-year, five-year planning, so think about this. And then I want to know, rather than just saying, what's the failure case? I think a more interesting question is, what is the riskiest part of your business right now, where if that thing goes wrong, everything else can crumble? Two questions. So the first one, the A case, we just created a North Star 10-year vision for Brooks. It's global for sure. People are running all around the world. As the middle

class grows, people invest in their fitness. And running is always making the cut there. So it's booming in Asia. We're growing now really rapidly in Europe. So we want to build a global brand. And that's work to do in the next 10 years. So we see an opportunity for 60 million customers, 60 million uniques up from maybe 15 million today, four bagger, and four billion in revenue. That's the big opportunity we see right now.

And it's still a premium brand, positioned to the enthusiast, really uniquely positioned against all the big platforms. The A-plus case in five years is 20% to 30% growth annually, and that's what we've been doing the last two, three years. And a lot of that's going to have to come internationally, but if we get a B and grow 15%, we're actually fine with that too, because we're not rushing for the exit. So we're excited. We think we see it. We're going to have to compete for it, but we have a complete playbook right now in our view. So what keeps us from being successful? I've experienced it. Single points of failure,

right? We launched a DC, which we had to do to get in the middle of the country. Distribution center. Distribution center. And, you know, despite all the experts. Sorry? 2016. 2019.

2019. And it didn't work. And so we just disappointed customers for three to six months. It was awful. And we never have done that. We execute well. And now in Vietnam, the whole industry on performance is really focused there principally. I think the big guy has 60% of their footwear coming out of Vietnam. The South was shut down last Q3, July, August, September. 45% of my factories didn't make a shoe for three months. So we grew 31% last year.

We are at 43% coming into that product issue. And now we're experiencing it now. Now we believe we're getting back on the curve. But what we've learned is, what does resilience and agility look like in supply chain? You've got to diversify risk. Now we're seeing at our size that we're at operationally, there's real risk there.

So we're thinking long and hard about that. We're working hard at it. But those are the things that are disrupting us right now. COVID's still alive. Yep. All right. One closing topic. You battled and survived and beat cancer while building this

incredible business. How has that changed your perspective on leading, on the way you spend your days, and on life broadly? Let's close it on a light with some cancer. Let's talk about cancer. That's the takeaway for these wonderful people. So, you know, I didn't expect it. Came out of nowhere. Unlucky. No, you know, how did this happen? Esophageal cancer. I just felt awful. And my worst running experiences I've ever had. And I got the diagnosis. Chemo radiation surgery, complications in the surgery, another surgery. But the good news is I'm cancer-free. I think it's gone. I think it's out of my body. The bad news is I'm even slower, and I'm kind of a Frankenstein in my systems, but it works. Everything works.

So I think what I learned from that, though, is that, you know, you go to the web. Every time I have a friend or a family member who gets cancer, I go to the web. And you look at it and understand it and what the treatments are, and they always give you a five-year survival rate. My five-year survival rate was 20%, one in five. And my five years is this November, so I'm going to kick its butt. But I think what I quickly figured out, and I talked

it through, you know, with my family and obviously with Warren, frankly, is that, you know, I decided that I was doing exactly what I wanted to be doing. I love what I'm doing. I've got family. I've got active lifestyle. I've got this fabulous brand and company that I'm a part of and a team. I just love it. I don't know what else I do, which is a problem. So I decided I didn't want to live in fear. I didn't want to live every day thinking about what I had to lose. I had a lot to lose. And I didn't want to be bitter about why me, you know, I just decided I want to soak in everything I can on any given day. I want to be a CEO. I want to be a dad. I want to be a husband. I want to, you know, I want to be a papa. I've got four grandkids. So that was it.

And I think for me, that was really powerful because I don't want to be that cancer guy and they brought it up. They brought it up. But it's just not my thing. I want to, I want to, I want to, I'm glad to talk about it. I don't hide it. And I, and I've learned a lot, but, you know, I want to, I want to enjoy the things in life I really enjoy. So that's what I learned. But I think it's, you know, everybody's different. And you do find out, companies, when you hit challenges, you learn what you're really all about. And I think it's the same for people, of course.

And so I feel really lucky because I'm doing what I want to do. And cancer's in the rearview mirror. So, well, it's good. So great. Well, I know Jim did not want us to end on that note, but I think that's where we're going to leave it for tonight. I think that's the perfect spot to end. Let's go for a run.

Thank you so much. This has been so wonderful. Thank you for making this whole day a great experience and special for us. It's great to be a part of it. Thanks for all of you who came on the run this morning. That was super fun. Yeah. All right, Jim.

Thank you so much. Thanks, guys. Appreciate it. Thank you. Thank you. Can't forget the choir bag. Oh! Thank you.

Well, listeners, that was our arena show. We're so pumped to get to share it with you for all those of you who can't travel to Seattle. And that was on reasonably short notice. I think it was a month or so. But boy, did the folks at PitchBook and everyone else who helped us make this happen. Brooke's running with the run the morning before the show. Packy, Mario, Anu, Shu, Y Combinator.

I just, there was so much love. So many of our past guests just came in to come to the show. It was so, so cool. Yeah, that was great. Hanging with Chen Yi and John Bathgate. So listeners, hopefully we'll be able to do something like this in the future and have you there. I think we got to do the Chase Center next. You got to bring this to San Francisco. That's really the only option. Where do we go from here, right? That's the only logical place. It felt like Berkshire weekend for acquired podcast nerds. And we would never,

you know, profess that we were at the same scale, but it definitely felt like it had an energy of, to quote crypto, of we're all going to make it. I don't know. I got all the warm and fuzzies from profess that we were at the same scale, but it definitely felt like it had an energy of, to quote Crypto, of we're all going to make it. I don't know. I got all the warm and fuzzies from getting to hang out with everyone. You all are just the best. I also think, David, of the like thousand people in that arena, I think you and I personally got to talk with about 500. Like we were on a mission to make sure to meet as many people as possible. Before the show, after the show, at the after party. That was so cool. Oh, man, it was so much fun. And everybody who came is getting an NFT,

a custom acquired proof of attendance NFT, thanks to Acquired's head of special projects, Sandy Kim and the Solana Foundation. So for those of you who came, show it off when you get your cool animating. Well, I won't give away too much, but yes, your proof of attendance NFT. Yes. So fun. Well, with that, we would love if you want to come and chat with us, acquired.fm slash slack.

You can find your next job at acquired.fm slash jobs. I think that's all we have to say. Listeners, we'll see you next time. We'll see you next time.