How I Built This with Guy Raz - Osprey Packs: Mike Pfotenhauer

Episode Date: February 20, 2023

With a passion for design and a skill for sewing, Mike Pfotenhauer grew a bespoke backpack business into one of the world’s most popular outdoor brands. He got his start in the 1970’s, when it was hard to find a pack that wasn’t clunky and uncomfortable. Operating out of a little shop in Santa Cruz, California, Mike started making better-fitting packs for hikers, and—with no advertising except for a sign out front—began to get noticed. As demand for the packs grew, Mike was forced to shift production twice: first to a tiny town in Colorado, where Navajo craftsmen helped with the sewing; then, to a sprawling city in South East Asia, where Mike moved his family so he could stay close to the design process. It took more than 25 years, but Osprey eventually grew into a massive global brand, which was sold in 2021 for over 400 million dollars.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz, and on the show today, how much. Mike Fotenauer's love of art, design, and the outdoors led him to launch a bespoke backpack brand, Osprey, which grew into one of the most popular backpacks in the world. We live at a time when people feel a sense of urgency to succeed quickly. Just look at my inbox. Every single day, I'm inundated with ads for get-rich-quick schemes and pitches for young entrepreneurs who became rich just a year into launching their business. And to you, I say, congratulations. Except that story, that narrative, the Get Rich Quick with Little Effort Trope, it's extremely rare,

and it's usually not that interesting or instructive. What is interesting is a Get Rich Slow story, which is the one you're about to hear today, because Mike Fotonauer's company took about 20 years just to hit a million dollars in annual sales. And for a business with several employees, that's not a lot of business. revenue. Mike founded Osprey, and if you're a camper or a hiker or you drive a Subaru crossover vehicle, you can mute my voice for a moment. For the rest of you, Osprey are backpacks, widely considered to be among the best. Mike founded Osprey in 1974 in Santa Cruz, California, which is also partly where he grew up. Now, not surprisingly, Mike came from a family of hikers,

And in the 70s, if you were really into hiking and camping, the off-the-shelf options for gear weren't that great. In fact, lots of brands you know of today, Patagonia, North Face, Columbia, these companies were started by people who simply wanted better gear for their own adventures. And that's why Mike started making backpacks to solve his problem of not being able to buy one that he liked. And eventually, other people wanted him to make their backpacks. And so for much of Osprey's first 25 years in business, it was a very, very small company. Mike Fotenauer never had ambitions to build a massive global brand. But something happened in the early 2000s that would change the trajectory of Osprey. The price of making the packs in the United States became unsustainable.

So reluctantly, like his competitors, Mike moved manufacturing to Asia. That shift, as you might imagine, transformed Osprey into an efficient and eventually huge backpack brand. In 2021, the company was acquired by Helen of Troy, a big consumer products company that also owns things like Hydroflask and OXO Kitchen Tools. The price paid for Osprey over $400 million. And after 50 years running the business, Mike finally stepped away from the company. Mike Fotenauer was born in Portland, Oregon in the 1950s and 60s in a large family. Seven kids, in fact. His dad was a Lutheran minister, and Mike can remember going to church every week with the whole family.

And not really connecting with the message. I think it was something I never quite understood. And I would sit in church and I would look around me and go, do these people believe what they're hearing? Actually, that's probably the place where I gravitated towards designing things in my head just to keep awake and... Past the time. Past the time. I mean, I'd probably heard several thousand sermons of my fathers.

They were fascinating on one level, but on another level, probably too much for a child. Yeah. So, I mean, having seven kids in the family, I mean, how did your parents manage? I mean, it's hard to imagine today, right, raising a family of seven, you know, on a minister's income. I mean, people did it. People managed. But what do you remember? I mean, were you, you know, was money tight growing up? Money was very tight. We didn't really understand how tight it was. I think we probably went out to dinner maybe once a year. My father was born in Canada, grew up in Canada, and so every summer we would go up to Canada on vacation. You would drive up there?

Yeah, we had an old Ford Ranch wagon, and we would fit, somehow we would fit nine of us. I recall I had the wheel well from the back of the car as my own space. I read that from your early childhood, you were going on hikes with your family. And we do we hike every weekend on my kids. But for the first couple of years, it was a forced march. Like, my kids really hated it. And now they'll grudgingly admit that they like it and they'll go. But if I think if we left them to their own devices, they'd probably just want to play video games.

But we do hike every weekend. Do you remember being a kid and not liking it? Oh, yeah. Actually, I think I was usually the guy in the back trailing everyone else. kind of enjoying what I was looking at and wondering why everybody was hustling so fast, but continuously being behind and also wondering why was I doing this, what was the point of all this? Hmm. But as I grew older, I definitely fell in love with backpacking and being in the outdoors. And pitching tents and, you know, all of you would do it. All the kids would be on these trips? Yeah, they would. We would drive long distances.

stop late at the evening and pitched tents in the dark, horrible old smelly canvas tents that my father must have had since the war. He was a Marine in World War II, so he had a lot of gear from that old backpacks and things that he continued to use for his whole life. Yeah. I heard a story about something that happened when you were a teenager, that you actually like went off on your own in the Sierra's and got lost. What's the story? What happened? That's, I forgot all about that.

That's true. We were camping in the Sierra's, the whole family, up at a lake at about 7,000 feet high. And we were camping and we were going to return back to Tahoe. And the drive to get to that lake was horrendous. It was perhaps a five-hour drive along windy dirt roads. And I refused to go in the car. I wanted to have an adventure. So I announced that I was going to hike there.

And meet them back where? In Tahoe City. In Tahoe City. They were going to drive back. You did not want to drive back. You were going to hike back on your own. Yes. And did your parents, were they cool with that?

They argued a bit about it, but my father prevailed and said, go off, do it. and I had a ridiculous map I think about perhaps the state of California map. And somewhere along the trail without paying attention, I lost the trail. It just sort of petered out and I was lost. And it was growing dark and I scrambled through Manzanita brush. and for several hours came out exhausted into a clearing, threw my sleeping bag down and fell asleep and woke up and found that I was on the trail.

Weren't you scared? I was a little bit scared, but at the same time I kind of appreciated the challenge of trying to navigate the terrain. I did see some Basque shepherds up in those mountains and knew that I could probably get help if I needed it. Yeah. Yeah, this is the other thing that's, I just learned about this, that that whole part of Nevada, that's the border area of Nevada, California, around Lake Tahoe, there's a massive community of Basques who grew, who were shepherds, who raised sheep. Yes. Yeah, they were, I could see them in the distance.

And I guess when you were around like middle school age, your family ended up moving to California to actually Santa Cruz. and then for college you stayed there. You went to UC Santa Cruz and I guess majoring in art, photography, basically. Yeah, a lot of photography and some etching, drawing, and printmaking, which was something I was always quite interested in. And I had my own dark room anyway, and it allowed me to learn more about that art. To this day, I've always loved to do art. I still do it.

Yeah. Tell me about, so while you're in college, right, I guess you were also kind of got into sewing your own backpacks. Like this is a time, because this is the early 70s, this is a time when, you know, obviously, we think of outdoor gear today. Just didn't. It wasn't really a huge industry, right? Like a lot of people made their own stuff. They did. There were kits you could buy that would send you all the cut parts with instructions. instructions, or you could learn how to do it yourself. My mother taught me how to sew, and I have always built my own gear. It's, I don't know, it's a, I guess it's a feeling that if I'm out in the wilderness, I know what I'm using, I can rely on it, and I know what's right and what's wrong with it, and I love making things. Even built my own bicycles, braising and putting those together.

So it's just something I'm always done when I feel more comfortable when I am surrounded in my environment by things I've made. And what were you, I mean, I'm assuming like early 70s, this is like the technology obviously has changed a lot, which we'll talk about. But you were making what? You're making backpacks out of like canvas or cotton material or maybe polyester? No, nylon fabrics. They were available back then. Nylon, okay. So you would make this stuff originally for yourself, right?

You were making this for yourself. But I guess at some point, what happened? Did somebody ask you to make some stuff for them? Yeah. To make money, I would occasionally build things for other people, which led eventually to it dawning on me that I could start a business that way. I was working in a restaurant at the university. and I had done some work in restaurants to make money as a young person.

And I quickly decided that I really didn't want to work for anyone else. I wanted to start my own company. And I gravitated towards what I knew how to do. But this was not like when you say you wanted to build your own company. You did not have ambitions to build a massive company, I'm assuming. You wanted to just have sort of a storefront where you'd make backpacks for people. That's right. Yeah.

I opened a retail shop in downtown Santa Cruz and started out by repairing product for people and custom making gear for them for whatever trip they were going on or activity. So this is 1974, I think, when you opened the shop, and it was originally called Santa Cruz Recreational Packs. And you dropped out, I think you dropped out of schools. You figured that this is just kind of pointless. I'm not, this is not what I want to do. I want to just get on with my life. Well, I realized that making art was going to be a tough proposition to make a living doing.

And I think I also felt like I needed to contribute by making something functional, let's say, rather than simply artistic, something more practical. Yeah. I'm just curious, was it hard? I mean, today you think, wow, it opened. a store, you've got to get a three to 10-year lease and you've got to put like all these deposits down. And was it complicated like that when you did it? It was actually very simple.

I started the company with my girlfriend, Lori White, and we decided to find a location. We looked in the paper. There was an ad from a, I think it was a lumber company in downtown Santa Cruz that said they had a house for rent. I wrote them a letter. got a reply very quickly. The rent was $150 a month for a retail house and shop. Things were much easier back in those days. It was affordable to start a business. How did people know about it? Was it in a busy part of town? Was it on a street that people

passed by? Did you put a sign up in the window? How did anyone even know that you existed? It was on the main street, a thoroughfare from the highway into downtown. I put a sign up. I never spent any money on advertising until perhaps 20 years later. And I had an industrial sewing machine. I borrowed $1,000 from my parents. And people would come in and either they would bring their gear that needed repair or they would explain to me what they were doing

and I would draw out a design and build that product for them, probably like a five-week wait list. Wow. And just backpacks? Well, backpacks, but I did other strange custom things. For example, I recall once making a harness case for a climber who was rescuing Peregrine falcon eggs. Wow. Off of one of the walls in Yosemite. And I would do climbing gear for climbers.

They kind of liked the fact that I throw in a lot of extra stichael. where they had concerns. So really, you were an artisan. I mean, you were like a 19th century European artisan, like, you know, a cobbler or, right? I mean, you were a maker. That's what you were doing. Yeah, that's right. Shoes, you'd be making shoes.

You were making bags. I was. I was pretty far from being a businessman. I never paid much attention to the sides of a business that you should finance and sales and marketing. I've never really been very much interested in that, and I've surrounded myself with people that did that much better than I ever could. But you were really not running a scalable business. It was you and your girlfriend and the two of you were making one bag at a time,

and presumably would take a while to make a bag. It would take a while. I could sew an internal frame pack and maybe five hours of work. And back in those days, that was a $75 product. now it's about 300. Yeah. So given that it was hard to scale that, it was just the two of you working in that shop. How, I mean, the amount of money you could make was fairly limited.

It was enough to survive on. I suppose that's all I really cared about at that time. Being 20, 21 years old, I didn't have any huge ambitions. I was able to put enough gas in the car to go up to the Cierras. And it was, I could work at my own hours. I would get up just before 10 o'clock. clock when the shop would open. And I would work, do a lot of my work at late in the evening.

Yeah. It was a great life. I feel bad for people now that want to do something like that. And I just think it's not quite possible anymore. Yeah, just because the cost of doing business is so much higher. Yeah. And did you, and so imagine, you know, in your mid-20s, you're thinking, this is great. I mean, this is what I do.

I've got the store. And I'm happy doing it. And this is what my life is going to be. That's true. I did that sort of work for well over 10 years. I'd say from 1974 to I got married in 1984 to Diane, my wife. Right. She joined the business.

She came over to work with myself and my girlfriend at the time. before I had a girlfriend from earlier. And we grew the business, and at some point she said, I think we need to move to the next level. And that involved borrowing money, which has always been a difficult thing for me to do. But I agreed. This was around 1986. So we've jumped 10 years, but I want to kind of just understand that 10-year period for a moment,

because you start this in 74. and it really is a custom backpack and repair shop in Santa Cruz. And at some point, you change the name to Osprey. And it's a bird. I know that. Tell me the name, how you came up with that name. I chose that name for one reason. A lot of backpack companies out there were named after the founder or the owner of the company.

If you look at how my name's spelled, it's pretty much unpronounceable, and no one could spell it. Yeah. But on the other hand, I really didn't want to name a company after myself. I felt like it's, I just didn't want that burden of seeing my name out there on product. I had seen Osprey in the wild backpacking with my father and my brothers. I believe it was in the little Grand Canyon of Wyoming, and it was during an electrical storm. And our hair was standing on in and these three or four Osprey came zooming up over the edge of the canyon and it was just such a memorable thing and I just chose to use that name.

All right. So you've got this business going and at some point Diane joins you as your third employee? Well, actually, around that time when we decided to expand, there was a fourth person, a woman named Gabriela Salinas and the four of us decided to go into wholesaling. How did that happen? I mean, because for 10 years, You were really a repair shop and a custom store. And, but presumably you were getting more work, right? You had to hire one person than another person. Yes.

So what happened to get you to sort of say, let's go and expand even further? If, you know, it seemed like things were moving along just fine. Well, we had four mouths to feed. We didn't really have enough business on the level that we were... The four of you, the four people working there. The four partners, yes. Yeah.

We were not making enough money. I think at that time, 1986, we were, we figured we were probably making about $3 an hour. Right. And it was not enough to live on. And we realized that we needed to grow the company. We needed to move into the wholesale realm or we could pick up a much greater customer base. And we were extremely naive about what we were doing, moving forward. from retail to wholesale involves a pretty radical change in your ability to manufacture product

in a way that's profitable. But we didn't know. We just decided to do it. We went to trade shows and we, I learned also from repair what works and what doesn't work and what's going to last out in the field and what will fail. So you put all those things together and start talking to when we hired sales reps, you learn from them on what the market needs. So it's just a learning process.

So you, like roughly around 1984, I guess, you decide to get into wholesale and what do that mean? I mean, were there wholesalers in Santa Cruz that you could, you know, make a bunch of backpacks for and have them sell them? Where were you going to go find outlets to work with? Well, the first thing that it entailed was getting a loan. Yeah. I think at the time, this is actually 1986. We borrowed $35,000 from a local community credit union. And then we had to find a location to start a larger scale production.

Yeah, and this was all done by hand. This is all going to be done by hand. Yes. And people making this by hand, okay? Yeah, with industrial machinery. And then to tap into the wholesale market. I hit the road with my wife. We would drive from one retail mountaineering shop to another and show our product line.

And there were some shops that took a chance on us. I think our first order came in Santa Barbara. We thought it was a big order. It was only $800. And it took us like three or four night and days of sewing to put that order together, but we delivered it on time. And the retail, I mean, the retail price for each of those bags was about $75. So, but I'm assuming you weren't delivering 10 bags.

You were probably delivering many more than that because you were going to, you couldn't sell it to the retailer for $75. You would to sell it to them at a wholesale price. Right. I would say by that time, 1986, a backpack was more like maybe 150, which meant we would sell it to them for roughly around $70, $75. And it was just the four of you guys. sewing these bags? Initially. And then we picked up a small crew of sewers and some people who would assemble the packs.

And you had a little, you had sort of a factory space in Santa Cruz, right? Like 10,000 square feet or 5,000 square feet? Actually, I think it was 2,500 square feet. 2,500. So it was very small. I mean, you had a $35,000 loan. Were you, I mean, once you transitioned to working with. wholesalers, did your business start to boom or did it actually become harder to make money?

Well, initially it was harder. We just simply could not deliver enough product on time simply because there were not enough skilled sewers. We've found it very difficult to find people to do that kind of work in Santa Cruz. It's pretty much a retirement or university town and You just never knew when your employees were going to show up. You know, if the Grateful Dead came through town, they would be there, not at Osprey. Yeah, right. Or if the surf was up or the wind for windsurfing or whatever, you just didn't know. When we come back in just a moment, how Mike moves Osprey to a place where the Grateful Dead has probably never played.

Stay with us. I'm Guy Raz, and you're listening to how I built this. Welcome back to how I built this. So it's around 1990 and Osprey is having trouble meeting growing demand. And that's a good problem to have, but it means Mike has to find more workers and a larger factory. And he eventually finds them both in rural Colorado. I had always wanted to check out Tell Your Ride and I got a call from economic development in Cortez, Colorado, in the Four Corners area. and I liked the town of Dolores, which is 10 miles above Cortez. And there was an old building in town.

I kind of was looking for a place that we could afford to rent that was large enough. This building was, I think, 7,500 square feet. The economic development guy had no idea what was going on in that building. We knocked down the door, and lo and behold, inside was a contract, group that was building for Gortex, they were kind of doing top secret work on, I think, NASA spacesuits. And they told us that that was their last day in operation. And that the building would be available and that there were 35 skilled sewers that needed work. Wow. In addition to that, there were several hundred Navajo sewers down in Cortez, 10 miles to the south, that also were out of work.

So we decided this is the place to move Osprey. This is a place in, it's quite remote. I mean, it's in the southwestern corner of Colorado. And it's very far from major cities like Albuquerque, Denver or Salt Lake City or Las Vegas. It's far. I mean, it's not like a 20-minute drive. It's like four hours. And then here's big city.

That's right. Albuquerque is the closest four and a half hours. So, I mean, was any part of you? a little concerned about building your business in such a remote place without access to key markets and distribution networks and, you know, without a whole lot of infrastructure. Because I look at the map, I mean, Dolores, even now, it's tiny. It's a tiny place. What's a population? Like 1,000 or 2,000? It's 1,000, 900 or 1,000 people. It hasn't grown since those days. Was any part of you concerned about that? Well, I would have to say that's where the benefits of naivety come in.

I didn't really know what I was getting into. I knew that it was possible to ship out of Dolores using UPS or FedEx. Right. But you have to remember that back in 1990, it was modern technology, data systems, etc., communication systems were still quite primitive. Yeah. And in fact, we would go to the library. to do our faxing.

And the simple fact that there were so many skilled, unemployed sewers was really what was the most important thing to us. And they were primarily Navajo. Many of them had been sewing for many years. Right. So at that point, and you had the money to do it, you had a little bit of money, and it wasn't going to cost you a lot.

So you decide to settle down in Dolores, Colorado, and start making backpacks there. And who were your customers? I mean, again, the small retailers around the country? Small retailers that I would pick up at trade shows. And that word, we didn't advertise, the word of mouth that go around that we had unique designs. Nevertheless, it was still difficult to meet demand. It was, the demand was growing and we couldn't ramp up very quickly.

So it was super challenging. And we didn't have a lot of money. I recall it when we moved from California, we had $5,000 in receivables. That was all your orders or all the money that was owed to you at that time. Yeah. That's not a lot. Yeah. Yeah, I had Lori and Gabriela had stayed in California, so I paid them off what I could.

And it was Diane and I and my son Rory who moved to Colorado. How old was your son at the time? See, he was about three years old. Wow. Right. Okay. So you're still very small. I mean, this is a tiny, tiny business.

And you mentioned that they had unique designs. What was unique about them? I mean, I think of an Osprey backpack today, and I think of that, like, that top, very sort of, you know, it's very recognizable. But what was unique about it in 1991 or 90 when you move? to Colorado. Well, I think I focused on anatomic design. Having been an artist, I understood a bit about how the body worked, and I certainly spent a lot of time drawing naked people. I learned that in college, so I understood the shape and form of the body, and I spent a lot of design time trying to focus on how to make these packs fit comfortably and how to transmit the load from the pack

to your body comfortably. For example, how you wear a hip belt and how that pack sits on your body without causing you a lot of discomfort and also a lot on function. I think you were talking about the lid, the top pocket of a pack. The lid, right. We figured out how to turn that into a fanny pack. You know, if you're at a base camp,

you could take your top lid off and go on a day hike with a fanny pack. features like that that made us unique. All right. So you're now in Dolores, Colorado, tiny town, starting from scratch there. And it's you and your wife running this thing. And you've got some employees. How many people were you able to hire? Well, I think initially I hired five. You know, we just picked it up from day to day we would hire more and more.

and they were primarily Navajo. And in the meantime, I was covering all the other parts of the business, the designing, patterning, payroll, HR. Yeah. Purchasing, quality control, and overseeing the production. And going to trade shows to presume, because that was probably the best channel you had to find new customers. Yeah, I was doing so many jobs.

The design was just a small part. part of it, and that always frustrated me because that's what I love to do. I would find myself driving to a trade show and pretty much writing up the price sheet on the steering wheel in my car as I'm driving just to complete all the details that you have to have ready to present at a trade show. Of course, nowadays, it's far more professional. Mike, I'm wondering how did you know that your designs were the right ones? I mean, were you doing any surveys? Were you doing any surveys? Were you getting feedback from customers, or was it just your intuition and instinct, like what you liked? It's a combination of all of that. We would hire sales reps. They would give you feedback on what

worked and what did and what the retailers needed. We certainly paid attention to that. I also would go out backpacking, and we would bring people in, like all of our sales reps, and do our sales meetings out in the canyons and test the backpacks. So, And then, of course, you look at the competition and see what they're doing. But I never was happy with what I was making. I knew I could do it better. And so it was just a... Actually, I got criticized often for changing designs.

Retailers don't like that. I didn't really spend enough time understanding where they were coming from, and I would inflict them with new designs maybe every year, and that would obsolete their inventories. But to me, it was absolutely important that I move forward and build a bread or product constantly. Yeah. You know, Mike, I keep thinking about you doing all of this in this tiny little town in Colorado with this community of Navajo sowers making your backpacks.

I mean, do you remember any stories from that time that just made you realize, like, what an extraordinary, like, out-of-the-way place that you chose? to start this business. Yeah. I mean, I'm not even sure I can. Like, doing peyote ceremonies with the Navajo is one example. Oh, tell me that story. Really?

Okay. This happened here in Cortez during the period where we were working with the Navajo in production. And one day, one of the guys, Otis Williams, who was sort of in charge of our quality control and our assembly and was also a Navajo medicine man came into my office and said, Mike, we need you to do a ceremony. And I kind of facetiously said to him, well, I'll do it as long as I get some peyote. And I was really only joking. And he had a serious look on his face and said, well, of course. And the story unfolded that someone had put a curse on our factory. An ex-employee had gone and worked with somebody in the black magic community of the Navajos

and had planted a kachina doll, which was, according to Otis and the people he was with, was active in our factory and was disrupted communication and was an extreme danger. and we needed to do a ceremony to cleanse and to eliminate that risk. And I thought, well, a hard thing for me to grasp, but I can tell that these people totally believe this. So my sister who worked with me at that time, and another guy, we went down to the reservation and to this guy's place. And we did a ceremony there with about,

maybe 20 Navajo. They had brought in a medicine man, a special medicine man, who started bringing out all these relics and arrowheads and started grinding up something. It was dark in there. I couldn't really exactly see what he was doing, but he stood up and put a large mouthful of this paste in my mouth. And then proceeded for the whole night. We're under the influence of peyote and the medicine man did chanting and a very powerful night. They were trying to expel this force that had entered our factory and my sister and Eric, the guy that was with me, were having visions and I was trying to maintain because I was kind of the face of the company and having a difficult time. It went on all night.

And the funny thing is that in the morning, when we got up to leave, we were charged with the task of going to locate this Kachina doll, which we eventually did. I gave it to Otis, our medicine man, and he took it up into the mountains and did a ceremony and cleansed it and proclaimed that our factory was now back in running order. And we've had a number of experience. like that that I could go on and on. But one thing I've learned is working with other cultures. You really gain a lot of understanding the more time you spend with them. And they add so much to how you see things.

It's been a very key part of our company. Yeah, I mean, it is amazing. And you would actually go through another pretty significant cultural shift, like a few years later in the early 2000s. When you decide to move the company, you added Cortez to Asia, eventually to Vietnam, which I think you were reluctant to do it first, right? Yeah. I was pretty resistant to that idea. Yeah. Because I wanted to keep all the people we had employed.

We had about 100 people, I think, at that time working in Cortez. And I felt very responsible for them, of course. and it just, I could not fathom picking up and moving the whole operation. So what convinced you that you had to do that? Well, I think most, if not all, of our competition had moved offshore, and our competition would get better and better at it. I mean, the fact that they could buy their product made at half the price and not suffer any loss of quality,

in fact perhaps get a better product, made the decision not that difficult when you looked it straight in the face. Yeah. And the ability to find more skilled workers was becoming more difficult. I think you could say that our skilled sewing population was starting to age out. Young kids were not picking up that skill. and our workforce was growing old and maybe tired. And we would have to turn down some great partners

because we couldn't meet demand. For example, REI was approaching us every year to pick up our product. And we always had to say, no, we can't meet that demand. And they were baffled. They were almost angry about that because there was a demand growing for Osprey within their retail chain.

and I'd go up and talk to them, but I'd just say we cannot fulfill orders. Yeah. You know, after you do that enough times, you realize this can't go on. We've got to do what everyone else is doing and go offshore. And I took a trip to Korea. A friend of mine took me over there who knew the industry and introduced me to sewing factories over there. And they made countersamples, and I was blown away by the quality of their workmanship. and the price was astounding.

It was pretty much the equivalent of what we were paying for materials alone. Wow. And you have to understand that the raw materials supply chain was drying up in the U.S. It was moving offshore so that the raw materials that you needed to make this were becoming less and less available because all the other competitors had already moved offshore and were having everything made over there. And it was like so obvious that this was a wave of potential that we couldn't deny and that no one else was either. Yeah.

And when you made that decision, I mean, it sounds like you kind of agonized over it. And obviously because of the workers that you had, you know, supported in Colorado since at that point, since you'd moved there in 1990s, had been 11 years or 10 years since you'd been there. did you feel, I don't know, maybe guilt isn't the right word, but just, or maybe that is a right word. No, that's, that's the right word. I felt guilty about doing that. It just was an inevitable economic move. Yeah. We moved production to a career, several, three different Korean manufacturers. It was either that or a shut down, I think.

When we come back in just a moment, why Mike decides to move his factory and his family, family from a town of 800 people to a city of 8 million. Stay with us, you're listening to How I Built This. Hey, welcome back to How I Built This. I'm Guy Raz. So it's the early 2000s, and Mike is still running Osprey out of Cortez, Colorado. But he's moved the production of the backpacks to Korea. And then he decides to move again.

This time, to Vietnam. So I took a trip down to Ho Chi Men. Really enjoyed being in Vietnam more than Korea. It just seemed like a warmer, friendlier place. And Vietnam prices, F-O-B prices were lower. And that once the U.S. had normalized trade, which I believe they did in 2001, that's when we decided to move up production to Vietnam. So what do that mean for sort of the homefront in Colorado? Were you doing all the designs in Colorado and faxies?

them to a factory in Vietnam. I mean, how is that working? Yeah, I was doing design work in Colorado. We were keeping our sales and marketing. Those people continued to work in Cortez. Once we started production in Asia, we were quickly able to grow. We were able to pick up REI. The orders started pouring in, and we were running out of places to store our product. We were filling up all the empty buildings in town. We even took over the old Walmart building and filled that to the brim. And we're paying a fortune to ship that out. You know, at some point we got wise and moved all of our fulfillment to Utah where there

was a train service, which saved us a lot of money. What, I mean, but what happens like, so you've got the production happening in Vietnam. These are contract factories. Did you have somebody on the ground there at all times? Or, I mean, because how would you communicate what you wanted or what you didn't want? I was traveling there probably four times a year, spending about at least a month each time. So after doing that for a couple of years and not having a very happy spouse because I was gone so much. Yeah. And also realizing that my kids were growing up in a tiny town and they were perhaps becoming susceptible to the dangers of drinking and other things that can happen when you're bored and there's nothing to do.

And how many kids did you have by that point? Two kids. Two kids. Yeah. So yeah, we decided. I talked to my wife and I said, well, you don't want me traveling there. Why don't we just move there? And I was shocked when she said, okay.

So you moved to Vietnam, I think, to Ho Chi Minh City in 2003. And you're going from a place, a town of under 1,000 people to what, 10 million? I don't know how many people live in Hocheonan City, but a lot of people. We went from a town of 800 to a town of 8 million. Wow. What was that like? I loved it. I loved the culture shock, the complete change in not only the climate,

but in the people, the language, the food was outstanding. And it freed me up to focus much more on design because so many headaches disappeared when I was able to move my production over there. It's kind of remarkable because this is roughly almost 30 years at that point since when you started this business, right, which began in Santa Cruz backpacks. and you move every one to Vietnam. But that move really, it sounds like it really allowed Osprey to scale in a big way. Because now you could manufacture at scale and you could fulfill massive orders for big retailers.

It was a miracle. And it allowed me to go back to pure design work without all the trouble and headaches of running production. and dealing with HR issues. Where did the design happen? Well, the design happened still with myself and one or two people that we had back in Colorado. The thing that happened when production moved to offshore with a lot of companies is that they also forfeited their design

to those companies, to those manufacturers. I called it the Vietnam melting pot of design. It's this forfeiture of brands, unique designs over to the factories. And consequently, I decided really early on to continue to do our own prototyping and design sample making within our own facility and not allow the factories to do that so that we could maintain our identity and our signature product. What were you trying to – I mean, there are obvious – They're obvious competitors, right, Patagonia, North Face, REI makes backpacks, a bunch of different backpack brands. What, I mean, were you looking at your competitors to figure out what they were doing, what you could do differently?

Or, like, how are you thinking about your products and why somebody would choose them over a competitor? Well, I think for one thing, I didn't look at our competition much. if I did it was simply to make sure I wasn't accidentally doing something that they were doing that they had already done already. I had so many ideas on product and how to evolve it that I never was at a loss to move on to the next idea and concept. I didn't really borrow any concepts. I mean, occasionally you'd run into some idea that somebody else had done that was

undeniably the only way to do it properly and everybody followed. But in general, it was, it was, it was, we were trying to do our own thing in our own little space. What, you, you stayed in Vietnam, I think about a little over three and a half years, close to four years maybe. Four years, yeah. And I come back to the U.S. in 2007. Was there a reason why? Was it just, you sort of had your, you felt like the operation there was in good shape and it didn't need you? you to be there anymore? Actually, I think the strongest reason I came back was that, well, I had promised my wife that we would be there for two years and it had extended to four. She kind of just said, it's time to head back. And I said, okay, it's, you get to pick where we live now and we move back to the Bay Area. So you had the operation still in Cortez, Colorado. And then you move to the Bay Area to open up a new, like a design office here, I guess.

Right. In Mill Valley. Right. I was able to focus on the design in California. It was easier for me to continue traveling back and forth to Vietnam based out of San Francisco. Right. Let me ask you about IP, about intellectual property, right? Because it's, obviously you can design something and patent it.

in your industry, but it's pretty easy to copy it, too, and to get away with it. And there's, I mean, there are plenty of products probably that if I went on Amazon today that really are trying to look like Osprey. And that's probably been going on for a long time. Did you ever worry about rip-offs and knock-offs? I never worried too much about it. From the beginning, I had a negative attitude about intellectual property and patenting. I always felt like, What really matters the most is making it better and not being frozen and stuck with a patent. So for many, many years, I refused to patent anything. Sometimes I regret that because a lot of those ideas and concepts were quickly copied in the industry and became a standard.

But as the company grew, I certainly ran into interference within the company on that theory. And we have patented a few things that we felt were important and necessary. What are some things that you didn't patent that ended up being copied? Well, one thing that comes to mind is if you look at a shoulder strap, Normally you would sew a tube up and turn it inside out and insert foam inside of it. It's a fairly rigorous process to build a shoulder strap. And I came up with a way of laminating fabrics to foams and punching them with a die-cut press and then binding the edges with tape.

And it probably took half the time to build a harness. And once I showed that at a trade show, it caught on. There are, you know, a few cases like that where I probably could have made royalties or whatever on a patent. But I was too focused elsewhere to worry about that. I mean, the other question I wondered about Spray was you really focus on mainly on bags, backpacks and travel bags and duffel bags. You never got into, I mean, there obviously are other outdoor brands that got into gear and jackets and sleeping bags and other things. I mean, presumably there were people who, even in your own company, you might have said, hey, we've got to expand our product line.

It's true. That would come up on occasion. And I always, my answer to that was we're not experts in those other realms. And look how long it's taken to get to where we are. And you want to start back again at the beginning and pretend like you're an expert and that you're competitive in that field. I always relished when I saw my competitors pick up, outlying products, tents, sleeping bags, etc. Because to me it meant they were going to lose focus and expertise on what they already were doing and kind of water themselves down. You know, Mike, it's interesting because you started the company, but you really, very rarely were you the CEO and really only at the beginning. What was it about that role that you didn't not want to do? that you really, I mean, I think already in the, by the late 90s, you had somebody doing that job. Why didn't you want to be doing that? Well, I think I relished the design work so much and really did not enjoy dealing with finance and marketing and money.

and I never really had any desire to be the CEO of the company. In fact, when I look back on all the years that I've done this, I think the reason I maintain ownership of my company for so long was simply that no one else could tell me what to do and I could focus on what I wanted to do and I have a great time doing it. I'm curious given that you were the, owner, and you never took any investors on, right?

No, we did in 2016. We picked up a minority ownership of a private equity partner. But really, I mean, until then, but until the very end, you didn't have any outside investors. You were the primary owner. Right. We didn't even, we really didn't even borrow money unless it was to, for example, do an addition on our factory down in Cortown.

So it was financed entirely from cash flow. Totally. I have to imagine that at many points, certainly, maybe in the last 10 years, you had people maybe approaching you to see if you would sell. And eventually you did. You were sold, I think, in 2021 to a company called Helen of Troy. They acquired Osprey for a little over $400 million. Was that, I mean, it's a great outcome. I mean, you started this little storefront in Santa Cruz.

Was that decision because you didn't, I don't know, maybe none of your kids were interested in continuing it or you just, you were kind of done? I mean, tell me about the thinking behind that. It's true that my kids were not interested in taking over the company. My daughter would sometimes think that she could, but I would tell her, you have no idea what you'd be getting into and you're not prepared. So unless you start going to business school or figuring out how you want to run this, forget it. But also, I wanted to find an owner that would have similar thinking to what I have

where I felt that people were the key of the business. And we talked to, I think, maybe 35 different companies. It was a very difficult time because COVID was going on. In fact, at the most intense part of negotiation, our factories were shut down because of COVID. In Vietnam. In Vietnam. How did that affect the, I mean, does that mean there was no products coming into the U.S.? Right.

There was nothing coming out of the factories. They were all closed down. Wow. So that certainly influenced some potential buyers. You know, they have had no idea what was going to go on with COVID. Neither did we. And I appreciated the ones that hung in there. It meant they were serious and they really wanted the company and they believed in what we were doing.

Now that you're sort of retired from the company, I mean, do you plan to spend the rest of your life in Cortez in Colorado? That's a good question. I sort of am coming out of the woods here. I've done this for 50 years and I'm almost 70. and there are other things I want to do. I'm still in good health, and my plan is to go back to art. I'm converting my backpack design studio

over to art and printmaking. I do consider backpack design to be a form of art, and it's sort of coming full circle to me, starting with pure art and moving back into that. And I love to travel. One of the things I look forward to being able to sit back and see just how big we are and how successful we've been. And I do get big hits of that when I go out traveling, maybe to remote parts of Asia or anywhere,

and I see our packs out in the field, and I see people enjoying the use of them. And I don't usually say anything to them. But it's a great kick to see that. When you think about this unlikely story, right, and everything that's happened and, you know, I mean, $400 million, it's a massive company that you sold and what an incredible outcome from, you know, something that began as a storefront in 1974. How much of that do you think has to do with just how hard you worked and how much do you attribute that to luck, to lucky? breaks. Oh boy, that's a tough question. My feeling about luck is that luck happens when you're prepared to recognize it. You know, sometimes opportunities fly by you and if you aren't aware that they're present at that moment, you don't catch them. I've certainly worked hard, but I've enjoyed

it. So to me, it hasn't been work. It's been, it's just been a life. It's been a wonderful life. That's Mike Fotonauer, founder of Osprey. By the way, a cool bit of trivia. Back in 2001, the company got the kind of free publicity that a brand can only dream of. When Time Magazine put Eric Weinmayer on the cover, Eric was the first blind person to climb Mount Everest. And there, on the cover photo, he poses triumphantly on the side of the mountain wearing a bright yellow Osprey backpack. Hey, thanks so much for listening to the show this week. If you want to contact the team, our email address is hibt at ID.Wondry.com.

If you want to follow us on Twitter, our account is at How I Built This and mine is at Guy Raz. And on Instagram, we're at How I Built This and I'm at Guy. Dot Ross. And don't forget to follow this show wherever you listen to podcast so you don't miss a new episode. This episode was produced by Kira Joaquin with music composed by Rumtin-Ear-Lui. It was edited by Neva Grant with research. help from Catherine Seifer. Our production staff also includes Elaine Coates, John Isabella, Casey Herman, Carrie Thompson, Alex Chung, Chris Messini, Carla Estevez, and Sam Paulson.

I'm Guy Raz, and you've been listening to How I Built This.