How I Built This with Guy Raz - Xero Shoes: Steven Sashen and Lena Phoenix

Episode Date: March 13, 2023

In 2007, Steven Sashen went on a 5K run in his bare feet, an experience that felt so surprisingly natural that it led him to launch one of the best-known minimalist shoe brands in the world. After reading the best-seller Born to Run by Christopher McDougall and fashioning his own, thin-soled sandals that helped him fully feel the ground, Steven noticed he was running faster and having fewer injuries. His friends began asking him to make sandals for them, and soon enough, he convinced his wife Lena to help him launch a do-it-yourself sandal kit business. As their minimalist shoe line slowly expanded to ready-to-wear sandals and closed-toe shoes, Steven and Lena faced every imaginable obstacle for a small business: manufacturing meltdowns, a mountain of debt, anxious investors, a trade war with China, and an appearance on Shark Tank that resulted in an insulting offer. But more than a decade after launch, Xero Shoes are sold around the world, with nearly $50 million in sales and a near-evangelical following. 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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It had tall windows, beautiful old details, and plenty of space for all of us. And being in that home on Airbnb, right in the middle of Vienna, walking distance from so much of the city, made it feel less like a visit and more like we were actually living there. Plus, taking a trip is the perfect time to host your space on Airbnb. Your place with all of its personal touches and its amazing location could make someone else's vacation even better. Your home might be worth more than you think. Find out how much at Airbnb.ca.com slash host. We started shipping our first brand new out souls and I got an email from a very sweet woman. So she had put her kit together and gone out for a run.

and the laces had torn through that little hole on the side. And we discovered that a good chunk of the production run, they hadn't packed enough rubber into that part of the mold. And they were too thin, and they just ripped. And I literally sank onto the floor. Like, I thought I was going to throw up. I was like, we're going bankrupt. Welcome to How I Built This, a show about innovative,

entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz, and on the show today, how a five-kilometer run in bare feet led Stephen Sashon and Lena Phoenix to build zero shoes, a minimalist shoe brand that's grown into a multi-million dollar business. I used to hate running. It always hurt my knees. And then sometime in my early 30s, I tried running in minimalist shoes, specifically those five-fingered toe shoes that kind of make you look like a character from Avatar. But the effect on me was incredible. And from that moment on, I became an avid runner.

And I never went back to running shoes with cushioning. Now, before I go on, let me add some caveats here, because there is a lot of noise around whether barefoot running is better for you or worse for you. And I have neither the scientific nor physiological background to weigh in on any of this with authority. But for some people, running with just a thin layer of rubber between your feet and the ground just works. Now, before I go on, a bit of clarity around terminology, you will hear me describe these shoes as barefoot and minimalist. And for simplicity, I use them interchangeably. But what I'm talking about are shoes with little or no cushioning and just a thin layer of rubber

between your foot and the ground. Now, to be clear, barefoot or minimalist shoes make up a small fraction of the nearly $110 billion global athletic footwear market. Barefoot shoes account for less than one-half of one percent of that market. Still, minimalist running shoes are growing in popularity every year. And even though many of the big brands like Nike, On, and New Balance do make minimalist shoes. There are only a handful of brands dedicated entirely to them, and one of the best known is Zero. The brand was actually started in 2009. The founders, husband and wife team Stephen

Sassion and Lena Phoenix, scaled it up very slowly. But by 2022, Zero sold nearly $50 million worth of shoes. Anyway, before they founded Zero, Stephen and Lena started a bunch of different small businesses. They did internet marketing, Stephen created software for screenwriters, they had mortgage businesses, and by the time they reached middle age, they had the resources to live a modest, no frills life in Boulder, Colorado. And neither Stephen nor Lena had any ambitions to get rich. They just didn't want to work in an office or have a boss. Anyway, around age 45, Stephen started to get back into sprinting, which is something he hadn't done since high school. And after reading the book Born to Run, he was inspired to make his own rubber running sandals, the kind of sandals worn by indigenous tribes in the mountains of Mexico.

Soon enough, Stephen's running buddies started asking him to make them shoes, and within a few months, a business was born. Now, along the way, Stephen and Lena encountered every imaginable rite of passage for a business. manufacturing meltdowns, difficulty managing inventory, the trade war with China which drove up tariffs on their shoes, debt, anxious investors, even an appearance on Shark Tank, which ended with an insulting offer, which we will get to a little bit later on. For the first part of this interview, you'll hear from Stephen. Lina will come in a bit later. Stephen Sashen grew up in the 60s and 70s in Bethesda, Maryland. He was a top gymnast in high school and did Troy. track and field, and he also had a pretty solid business performing magic shows at birthday parties. But by the time he went to college at Duke, he realized he was pretty good at something else, stand-up comedy.

They had a comedy competition, and they brought three comics down from New York, and we did our little competition, and then the three comics did their show, and I won the competition, and the three comics came up to me and said, you could be doing this for real. And so... You could be a stand-up comic. Yeah. And right around the show... that time, that was when the comedy boom had just started. So this was 1983, 84. And a club opened in Raleigh, North Carolina, and I went down there and auditioned, and they made me the house MC. So I opened for hundreds of acts. And then by the time I graduated, the guy who booked

that club said to me, call me when you're ready to graduate, because then I'll give you 10 weeks on the road. Wow. And that 10 weeks turned into 10 months. This is why you were a student at Duke. You were you were emceeing this thing. Yeah, yeah. So student by day, MC at night. Yeah. Basically, December of 84, 83, 84, I moved to New York and started working the scene there. And so you basically moved to New York as a stand-up comic. Yeah. And that was what you did for, and was that your plan for the time being?

Oh, yeah. Yeah, yeah. Once I started doing stand-up, it was just way too much fun because, you know, you hang out the funniest people in the world for a few hours. You get on stage for 30 to 45 minutes and have a blast except for when you're it doesn't go very well, which is very entertaining too. By the way, when you were performing as a comic, did you ever perform with people who became famous who really made it big? Oh, one of the reasons that I adore my wife is she puts up with the fact that when we're watching TV on any given evening, I'm going, hey, I worked with that guy. Hey, that was my roommate. Hey, we hung out.

So I opened for Jay Leno a couple times. I opened for Cherry Seinfeld, Brian Regan. I could literally go down the list. If there's a comic who's been doing it for more than 35 years, we, work together. And what happened? I mean, what happened to your career? Clearly, you had promise, but, but you're, you know, that didn't happen with you. Well, oh boy. So the comedy boom started busting in 92-ish. Yeah. And you were still, you were still doing stand-up pretty much weekly or every couple times a week. Oh, oh, like six nights a week. In fact, when I started doing stand-up,

for the first couple years, I worked seven nights a week, multiple shows per night often. And finally, I kind of burned out and someone said, you need to take a break. But I mean, from what I understand, you weren't really taking a break because I think around this time, you were also attending Columbia in New York and getting a master's degree in screenwriting. Yeah. And I guess what, that sort of gave you an idea for a business, which was like making software for writing screenplays. Is that right? Right. So I realized that there was an interesting way of thinking about a.

screenplay in terms of the different elements, a scene heading, the action that you see on the screen, a character's name, what the character says, various things. And if you think about typing on a typewriter, there's cues that your motions are giving you, the tab and enterkey, that if the elements were smart and knew what they were and how they related to other elements and how they related to the page, then you could do all the formatting, all the pagination, all this really complex stuff. It was very arcane, automatically on the fly in a way that no one had ever done it. And this software that you created was called scriptware. How did you do it? I mean, how did it come about? Well, I met a programmer who worked at PC Magazine at a comedy show one night,

and we got together and I talked about my idea. And he had just gotten a new piece of software for creating programs that could do what I was talking about. And so we partnered up and started developing this program, which took about three years. Wow. So the two of you built this program called scriptware. Yeah. And you were based out of New York? Well, once I realized I was going to be in the software business, not the stand-up business, I said, hmm, I don't need to still be in New York.

And two months later, I was in Boulder, Colorado. So you moved to Boulder, and that's where you based scriptware of it. And how, I mean, how did you finance it? I had about 17 credit cards with 0% balanced transfer fees, and that also gave you either frequent flyer points or some other bonus, even for a balanced transfer. So about for six years, I was just shuffling balances from one card to another, racking up frequent flyer points and not paying any interest. Wow.

And so, I mean, give me a sense of this. I mean, this was, again, like, I can't imagine this is a massive market because it's a limited number of people who are screenwriters. But, I mean, was this a successful business from a financial standpoint? Was it profitable or were you fairly kind of treading water? No, no. we were, well, we were doing okay. I think at our peak, we were, not a big business. It was a million dollar business. But unfortunately, I discovered something about business that I didn't know, which is when you threaten other people's livelihoods, they don't go, congratulations, you have

the better mousetrap and walk away. They will most likely went back into a corner to try to screw with you before they try to improve what they're doing. And so after about 10 years, one of my competitors did something devilishly brilliant to kind of lock me out of the market. which was to make a better product? No. Talk to the biggest dealer at that time and say, how much margin do we need to give you to not sell scriptware? And they had an answer. But frankly, in the last two or three years before my competitor pulled the rug out from underneath me, I was just kind of bored. And so I was looking for the next thing. And I had gotten into internet marketing at that time. This is again 92, 93 is when that all began. And so I was spending more time on doing internet marketing, which was much more interesting to me than running a software company.

What was your, what was your objective, Stephen? Were you, I mean, from what I understand, like, you were, you know, Boulder is a great place to live, obviously. But it sounds like you were doing a bunch of different things to, I don't know, to build something bigger, to make a bunch of money and retire. What was your strategy? Yeah, you're giving me way too much credit. So I would say that because I was too old to have gotten riddle in, I just kept doing things that I found interesting, which had me bouncing around from one thing to another pretty often.

But when I was in high school, I think it was in high school, there was a book that came out called Your Money or Your Life, written by Joe Dominguez and Vicky Robin, the premise being that you want to track your expenses and track your income, reduce your expenses as much as you can, take the difference between what you're making and what you're spending, and invest that at that time in T-bills. And once you're making enough money from your investments to cover your expenses,

then you have financial freedom. You can retire and live off the interest or whatever. Yeah. And that basically was my goal from the time I was about, I don't know, 16, 17. I used to say to my dad, I'd like to be retired by the time I'm 35. All right. And so I guess you are around this time. You're doing a bunch of different things.

In Boulder. And you were also doing a TV show, right, like on a very obscure cable channel called Knowledge TV. And the show, I guess, was called Disc Talkers, where you were like, what, it's like car talk for computers? Yeah, that's exactly what it was. And while it was, Knowledge TV was from the Jones Entertainment Network, which had a bunch of different channels. A lot of people didn't really know it. It was on basic cable. Very niche thing, but very entertaining. This was a show you did with somebody else co-host and you would just get calls in. I watched some of it and most of the calls at the time were like, I've got this virus and how do I deal with this and that virus? Well, we will get to this. But if it weren't for that show and I've got this virus, I would not be married to my wife. Okay, which I guess is the perfect segue into bringing your wife, Lena, into the conversation who's been sitting here quietly. And, Lane, I guess, long before you met Stephen, in your 20s, you actually had started and then sold a small business, which was like a mortgage brokerage in Eugene, Oregon. And eventually you end up in Boulder to study dance at Naropa University, which I think is a Tibetan Buddhist affiliated university.

And I guess this was like, what, like 95, 96? Right. And I guess this is when you first met Stephen, and I guess the two of you met in Boulder, like through friends. How did the two of you meet? Yeah. So actually, a woman that I had met, I ended up becoming housemates with because she was also a student at Niroba. And she was friends with Stephen. So she had organized a brunch for some mutual friends we had. And Stephen came with his fiancée. and that was the first time we met and I could tell he was interested in me but his fiancé was there and so that was a do not pass go

kind of moment and she, his fiancee also turned out to be a student at Noropa and I had two classes with her so they broke up shortly thereafter and she was spending a lot of time processing the relationship and saying all kinds of horrible things about him. So I really didn't have a very good impression of him. And I guess at some point, Lena, you start to ask Stephen for a computer help because he was the disc doctor. So I hadn't

had television in 10 years. And my roommate and I were living in a mobile home park that required all of the residents to get satellite. And so I was flipping through the channels of the TV with sort of this anthropological fascination because while I watched a ton of TV as a kid, it had been a really long time. And all of a sudden, I'm looking at this show and I said, Alex, is that Stephen? And she said, oh yeah, he's got this show about computers. And a few weeks or months later, I'm not sure. I did get a computer virus and I didn't know what to do. And I called Stephen and I felt pretty guilty about it because I was definitely, I knew I had been keeping him at a distance.

Yeah. And I moved down to New Mexico. I really loved New Mexico. So I moved to Albuquerque. And I was waiting tables and writing. And during that time, Stephen, well, well, after the computer virus, I was like, okay, he helped me. And so now we can be friends.

And so for a couple of years, we were friends. And so he started coming down and visiting me and then. In Albuquerque. In Albuquerque, yeah. So clearly, you guys were at this point a couple, an idol. No. No, no, no, no, no. You were just going down there to visit.

Oh, God, you were so cute. But clearly you were pursuing her. I mean. Yeah, clearly would be an understatement. So, but Lena was on the other side of that equation. So the first time I came down, she says, you know, you can crash on the floor on the futon, but, you know, keep your hands away from me. Well, I just did, yeah, I felt like I needed to protect myself and protect you and the friendship from, from what I thought was a bad idea. And so I think part of the reason why it took four years before we got together is that I needed to become emotionally stronger and more self-confident. And Stephen needed to become a little more humble. And, and Lena, what did you, I mean, this is a very personal question here, but I mean, you know, and this is like couple serapia a little bit. What did you like about Stephen? I mean, yeah, there's lots of like. And, you know, Stephen is, he's a lot. He's a big personality. He is. Was that part of what you liked? No. I, he's really funny. And he's really smart. So yeah, but there's a cultural difference. I am from Midwestern, generally soft-spoken people.

The first time we went back to D.C. to meet his parents. I was like, why are you guys yelling at each other all the time? He's like, what are you talking about? We're not yelling. This is how we talk. And I was just so freaked out. They're Jews from the Northeast. You could just stop at their Jews.

But yes, the Northeast, definitely. And basically for the next nine months, every time we talked, if it occurred to me to ask her to marry me, I would ask her, which means every time we talked. And eventually, Lena decided to move back to Boulder and move in with me. And one night I said, so seriously, will you marry me? And she goes, no, you're serious. I went, yeah. She goes, oh, well, then yes. I wasn't 100% sure.

But I finally said yes, because I knew until I said yes, he wasn't going to shut up. So we did actually get officially engaged fairly quickly. The next time I saw him, he gave me a heart-shaped, tie-died plastic ring he bought for a quarter from a gumball machine. No, no, it was 50 cents. 50 cents. Nice. And I wore it, which apparently told all his friends that I was, in fact, the right one for him. But we were engaged for over three years.

I'm curious, Stephen. From what I understand, you were, you considered yourself, quote, unquote, retired when you were 38. Correct. What did that mean? Were you worth millions and millions of dollars? No, again, you know, my whole goal was always, how can I just get enough cash to live comfortably? What can I do without a whole lot of effort? So soon after we got together is when we went to this workshop and learned about ways of generating passive income. One was real estate based and, For the sake of getting specific, we were buying VA repo notes. Yeah. What happened is when the VA repossessed a home, they would sell it at auction and they would allow the... The VA, why do they, I don't know about this. They repossess homes. So, you know, you could get mortgages that were, I don't know if they were issued or just backed by the Veterans Administration.

So military personnel could do this. And if someone defaulted on the mortgage, and the VA took the home back, they would sell those houses at auction, and they would allow the purchaser to assume the existing VA mortgage, which generally had pretty favorable terms. And so... And you learned about this from a workshop? From a workshop, yeah. Correct.

And there was a guy who had set up an investment company to do this, and so we became limited partners, and he would buy these properties, and then he would... And you have to keep in mind, this is in the mid-2000s. So it's before anybody who could fog a mirror could get a mortgage, it was when, you know, a lot of people were really shut out of the housing market. And so he would sell these properties to people who couldn't qualify for a conventional mortgage with a low down payment, allow them to make payments for a couple of years, get their credit in shape, and then refinance him out.

That would be the, you know, the goal. So how did that work? I mean, how did, if you guys were not wealthy at the time, how did you, how were you able to hand over the money to finance these purchases? They weren't that expensive for one. I mean, you could basically assume one of these mortgages for $4,000 to $6,000. Wow. Oh, wow. Okay.

Yeah. So you, you would basically assume the mortgage as a partner. And then he would, he would buy you out. No, then he would find a buyer. So then they have a mortgage with us. And the idea was that it was going to be. cash flow for the rest of our life. And the interest rates we were giving people were actually really good. So, you know, nothing they would have been able to get on their own and very competitive.

So we weren't fleecing anybody. In fact, people were, you know, people were getting, we're thanking us for giving the opportunity to buy a house. But it's risky because these are people who would not have qualified for loans otherwise. Yes. That's also correct. Got it. Okay. But so how many, at sort of the peak of doing this, how many homes did you guys? 20? I think about 20, yeah. Yeah.

But what we didn't realize at the time was that if required, we would need to make the mortgage payments to the VA mortgage if that ever became necessary. It's one of those things you gloss over like. Oh, so essentially, if the person that you're renting it to is defaulting, it doesn't matter. You still have to pay the VA the money. They were renting. They actually bought the price. Yeah, they were owners. They were buying, right, by the buyer, the buyer.

Yeah. And if they default, like, it's hard because you're not a bank. You're just two people in Boulder, Colorado. And if they trash the place, we're responsible for fixing it up. And what he realized was that the prices of these houses had gone up so much that the best investment play was to, rather than continue to do this, was to when he repossessed a house to fix it up and sell it. It made more sense of flip it. Yeah. And so what happened?

Like he started to, he, the, your partner basically said, you guys have to start paying these mortgages because I'm going to be flipping these houses. But in the meantime, you've got to pay the monthly mortgage. Yeah. Yep. And you didn't have the cash. Yeah. So it wasn't as bad as it sounded. I mean, you remember those credit cards that Stephen mentioned about how he financed his first company.

So it was still pretty easy. But you had 20 properties you were involved with. Yeah. But these were not. But not all of them were being right. Some of them were fine. And to be clear, during that time, we no longer had the steady monthly income, but we would occasionally get bursts of, you know, large, large deposits from what was left over from a sale, $20,000 or something. So our income was still revenue stream based, but it was choppy and unpredictable.

So you weren't wiped out from the real estate collapse. This did not wipe you out. You guys managed to evade it, but you didn't walk away from it. Correct. With a whole lot of money. Yeah, that's exactly right. Our partner had the foresight to change the model in a way that was uncomfortable for us, but also ultimately probably protected us in the long run. Because if you kept that model, all those loans, all those sellers or those buyers were defaulted. Yeah. Probably correct. And the values of the properties. You know, he sold most of them while the market was still running up. Still hot. Yeah.

So it was a profitable venture for us. So really, I mean, and I say this because I know what you eventually built, which is what we're going to talk about now. But basically at age 45, Stephen, and you were getting closer to 40, Lena. I mean, you guys were not, you get to kind of start again. It was scary for me. Yeah. I mean, I've spent a lot of my life feeling financially insecure. And so I didn't like it.

You know, I really did not like it. Yeah. And contrary to Lena's experience, mine was always that. no matter what I was doing, something would show up at the last minute. So, like, one of the reasons that I adore my wife is early on in our relationship, she would ask me these hypotheticals about things that she was worried about in our future and our relationship. And I would say, I don't know.

I mean, I'll figure it out when I get there. I mean, I was, I used to joke about this, but it was only a half joke at this time. It's like, I was ready to go apply for a job at Quiznos. I mean, I was going to do whatever we needed to do to be able to pay the rent. but I was hoping that we would find something else that would be interesting rather than just making sandwiches. When we come back in just a moment, Stephen discovers a new business opportunity after going for a 5K run in his bare feet. Stay with us. I'm Guy Raz, and you're listening to How I Built This. Hey, welcome back to How I Built This. I'm Guy Raz.

So it's around 2007, and after getting out of the mortgage business, Stephen and Lena are living in Boulder trying to get another business. off the ground. And this one, in search engine optimization. Meanwhile, Steven decides to return to a passion from his high school track and field days, sprinting. A friend of mine came to brunch. He was a runner. Yeah. And he says, do you know there's like an entire master's track and field circuit where they do all the events, including the sprints? I was like, oh, blah, blah, what? So I had no idea. Wait. A master's? Sorry. Well, the, so USA Track and Field in the Masters division, they do all of the track and

field events. So marathons, half marathons, 1,500 meters, 800 meters. I mean, you name it. So it just how happens. They also happily do the sprints. But that got me back into it. And, you know, the problem with getting back into something in your mid-40s is your brain still thinks you're in your mid-20s. And so it literally took me years to learn things like when my brain says, let's just do one more. That's the time to walk away. And I spent the next two years, pretty much going from injury to injury to injury. And you were just running in regular running shoes? Yeah. In fact, I didn't know what to run in. So I asked the coach and the other runners,

you know, what do I train in? What do I compete in? And they said, well, train in this shoe, big, thick, stiff, motion controlled padded shoe, normal shoe. And then we're these spring spikes. And by the way, buy them a size and a half too small. So it's sort of like Chinese foot binding, but that's what you need to hold it on your foot well. And I didn't know any better and did what they said. And you kept getting injuries. Yeah. Literally anything from my navel down at some point was injured. All right. So you're struggling with these injuries. And I guess what? I mean, this is around the time anyone who is in a running will remember this around the time when Christopher McDougal's book, Born to Run, comes out and came out in 2007. And it was a huge bestseller. I don't think initially,

but eventually. No. It took a couple years until it kicked in, actually. But somebody handed you that book, right? Did they say, hey, you know, you might want to look into this if you're getting a lot of injuries. Like, what do you remember? So my friend Simon hands me born to run and says maybe there's something in here. Maybe you should try running barefoot just to see what you learn. And so to be clear, I'm not going to suggest that people run barefoot, even though it changed my life. But the gist of it is everything we're going to talk about when it has to do with our business. It's not about footwear. It's about natural form.

It's letting your body do what bodies are made to do naturally without getting in the way. And so this idea of running barefoot, it's like, all right, well, that seemed interesting. and it just how happened coincidentally. There was a guy in town who was doing a barefoot running workshop that next weekend. And so I thought, all right, well, I'll give it a shot. So we go out for this barefoot run and we're running on grass and we're running on trails and we're running on roads and we're running over wooden bridges. And I was just so enthralled, so entranced with the experience of feeling my feet on the ground

and experimenting to see what would happen if I ran faster but still had the same cadence, the state number steps per minute. Or if I landed on that part of my foot or the other part of my foot, I was just really, really fascinated by the whole thing. Yeah, I want to just interject for a sec because in the event that someone listening does not know about

Born to Run, I'm just going to briefly summarize it, which is it's a book written by Christopher McDougal, Massa bestseller, basically looked at this tribe in Mexico that runs like 70-mile distances. You know,

regularly, these just to back and forth, and they run barefoot, or they use these very thin rubber-souled sandals. And so the argument in this book is that actually humans are made to run without cushioning, that cushioning, which was started in the 60s and 70s, that actually is not a natural way to run. But just to say that this is, this book came out and it really had a massive influence on the way certain type of people run, that essentially lots of people migrated this idea of running with just a thin piece of rubber under their foot. Yes. So if you're running in bare feet or something truly minimalist, doing it wrong hurts, doing it right,

feels great. I mean, what we have to do is get people into a state of cognitive dissonance where their own experience undermines something they believe, just enough to make them curious and ask questions like, why am I putting my foot in a shoe that squeezes my toes together and could cause bunions. Why am I putting all that foam underneath my foot so I can't feel anything? Why am I elevating my heel, which messes with my posture? You know, if we took a baby when it's learning how to walk, you would never put something on his foot where it couldn't feel, couldn't move, and change its posture. So if you wouldn't do that to a baby, why are you doing it to you? Yeah.

So you basically start to run barefoot just to just to kind of see what it's like. Yeah. So I did that first run and I was at the end of the run. And I turned. to someone who had a GPS watch on. I said, how far was that? And she looks at her watch and says, that was a little over 5K. This is on a track. No, no, no, just running around Boulder. No shoes.

Yeah. But on a surface, presumably you're not running over like crushed glass. But we're running on all sorts of surfaces. And you ran five kilometers, which for you was a very long run because you're not a It may as well have been an ultra marathon. Yeah. Right. Because you're not a distance runner.

No. But it was fascinating. and effortless and fun. And so over the next few weeks, my injuries went away, I became faster, and I was hooked on this whole idea of not even so much barefoot, but just what was going on with the shoes that I was wearing, and was that part of the problem. You had to figure out, so you couldn't presumably compete barefoot. So what did you do? What was your solution? Because you knew that the barefoot running, worked with your body.

Right. Well, there's nothing preventing you from running barefoot. There are a couple of barefoot sprinters around the world. Got it. Okay. But it's not optimal because a modern track surface is very abrasive. And on that track surface, it would have just ripped the hell out of my feet. Yeah.

So I was spending as much time barefoot or in the sandals that I started making, inspired by the Taramara, who you mentioned from Born to Run. Oh, so you started making your own rubber sandals? Right away, right away. You didn't try. Because what happened with the, there were, I mean, there are Vbrams. That was what the five finger shoes. And those did not work for you. Right. Yeah. They just didn't fit the shape of my foot. And I kept going like every six months to try them, sort of like when you go to the fridge late at night and you don't find what you want and you come back a few minutes later as if it's a replicator. So I kept doing that and they never fit. And so had they, you know, this wouldn't have happened. Had those things fit my feet, we would have never started zero shoes. Well, and he was happy to be barefoot all the time. We had whiteish carpet and I was not happy to have him barefoot all the time. Right. And so he started looking around for materials he could use to make sandals inspired by what the Taro Mata were wearing. And he found some outsole material that was actually designed for shoe repair made by Vibram and bought some cord from Home Depot, bright neon colors.

And he could, because this material was only sold to shoe repair shops, he had. had to buy a fairly sizable quantity of it. So you would go to a shoe repair shop and buy the rubber soles that Vibrum, the company that made the five-finger shoes, and also they make the soles of many other shoe brands. Correct. They, they, they, they, you would buy this rubber material and you would stitch your own or like make your own sandals. Yeah.

So it's just a sandals, a rubber sold sandal with like a cord for your toes and it wrapped around your ankle. That's about it. I mean, if you look at the oldest footwear ever found in archaeological digs, I was making something that looked like those. It's basically something to protect your foot and something to hold it on your foot. That's really all you need. And so the other barefoot runners in town asked me to make shoes for them. And so people would stand on this piece of rubber.

I'd trace their foot. I'd cut it out with a pair of tin snips. I'd punch a couple holes. I'd lace them up with some tying style that I put together. And away we went. And that was just a favor you would do for them. It was a goofy little hobby. Yeah, I was charging just enough money to pay for the material and buy some more to make some more.

Like he had to buy more material than he needed for just himself. And so he got some people to go in with them. And then after other people saw that the shoes were kind of cool, then there was another round and another round. And they weren't shoes. They were sandals. Yeah. It was literally a piece of rubber. And then your foot would, you had the, you know, the cord between their big toe and your side next toe.

and then it wrapped around the back of your foot. Very, very simple. It would stay on your foot while you ran. Yeah, but it was, that strap around the back is actually really important because flip-flops actually take a lot of effort to keep on your feet. Keep them, yeah. But when you just have that strap around the back, then your toes can relax and your foot can move as intended. Got it. I mean, that was it.

That was done. End the story. Yeah. But it wasn't the end of the story, obviously. No. What, how? What, I mean, did you have any thought in your mind to turn this into a business or did somebody else suggest it or what happened?

How did it, how did you decide to devote a lot of your time to actually seeing if you can make this into a product? So the local barefoot running coach, a guy named Michael Sandler, said to me, hey, I've got a contract to write a book about Bear for Running called Bear for Running. And if you treated this sandal-making hobby of yours like a business and had a website, I could put you in the book. So I've built hundreds and hundreds of websites at that point. So I rush home to pitch this unbelievable opportunity to Lena, who had a slightly different response to mine. Yeah, I had noticed over the years that my husband was easily distracted.

Yeah. And we were trying to get this SEO business off the ground. And I was like, absolutely not. It's like we need to focus. We got to focus. So no, we can't do this. Yeah. And so I agreed with her.

I said I wouldn't do it. And then Lena goes to bed before I do. So once she went to bed, I built a website. And the idea was, I'll build a website and, yeah, let's do this. And Lena, you're not interested in pursuing this because you've got to focus on this other business that is going to be your source of income. Yeah. And so I got up in the morning and he shows me this website all proud of himself. And what did you call it, by the way?

Well, I needed a name. And I just two in the morning. And I thought, hmm, and somehow invisible shoes popped into my head. But invisible shoes plural.com was taken. So I just grabbed invisible shoe.com. Got it. And you saw the website the next day, Layna? Yes.

And I was annoyed. And this is in November of 2009. Yeah. Okay. And he said, hey, look, I know, you know, we need to focus on the SEO thing, but we can use this as a case study. And I grumbled and I was like, okay, well. And at that point in time, Google was prioritizing video content for SEO.

And so Stephen made a bunch of videos showing people how they could make their own sandals. And he wasn't necessarily pushing the material. that we were selling, but it was like, oh, by the way, you know, if you want material, we have it for sale. And so he was able to get those videos to rank very quickly because there really wasn't any competition for barefoot terms at that time. And so within a very short period of time, we started seeing quite a bit of traffic and that they're, you know, we made our, one of our first sales was in November. to a guy in Minnesota for a sandal kit.

And I'm like, well, that's interesting. Because this came up on when he did a search for barefoot running. Correct. And did you like it incorporate? Did you like form an LLC right away? So we had a structure already in place for our previous businesses. And so we just kind of threw it into that. Into that.

But after in our first year, we made $100,000. $114,000. Wow. And we're like, okay, this is, this is way more profitable than. Before we get to how you made $114,000, let me try to understand what you did. So you put a couple videos out there showing people how they could make their own barefoot running sandals, first of all. Even better. I basically showed them how to rip off our entire business model. So it's like, you know, here's where I got material. Here's how you do this. I mean, I just gave away the entire farm. And did you, And you were not selling, like, ready to wear shoes.

These were kits, right? It was a piece of rubber and cord, and it was like you would send it to somebody, and then they would cut out based on their shoe, their foot shape. Based on their foot. Yeah, we would teach them how to trace their foot and then cut out their own shoes. And you have to understand, you know, so we're not thinking it's 2009. It's the middle of the Great Recession. this is a terrible time to start a business.

We're like, this is just happening. But when people read McDougal's book and they're like, well, I can spend $100 on a pair of five fingers or I can spend $20 on a kit I have to make myself. Yeah. You know, we were a pretty good bet. And so it was actually really empowering for people. first they'd be intimidated, but then they'd be like, oh my gosh, I just made my own shoes. And so it was really fun.

So we did have a service where you could send us a tracing of your foot and we would custom make the shoes for you. But we liked the do it yourselfers. They were a lot more fun to deal with. And so because of the search engine optimization that you would always. you know, being the top 40, whatever, people who are reading that book would find out about you. You, you, I mean, I'm estimating based on $100,000 of revenue in that first year, you're selling like over 7,000, 7,500 kits in that first year. Yeah. Sounds about right.

While Lane is doing the math, I'll say the other piece of the puzzle is, so Chris McDougall is going out and doing book signings for his book. Yeah. And whenever he did a book signing, we would see a lift in sales. and we joked that he was our unofficial marketing department. But then I did a really fun bit of guerrilla marketing. I would, I printed up a few thousand business cards, and I would go to bookstores and find his book and then insert our business card in the book.

And then eventually I made like 50,000 of those and sent those to customers and asked them to do the same thing. Did you ever connect with him at that time? We met a few times at various events and had a fine time chatting. And to cut to the end of the story, we're now working together with, Chris and his running coach and co-author Eric Orton. Wow.

All right. So you are set, you sell about more than 7,000 these kids and, yeah, 114,000. So we sold just under 6,000 kits in our first full year. 6,000 kits. And how did you do that? Was it the two of you putting them, packaging them up, putting them in envelopes? You know. Going to the post office, going to the UPS?

Yeah. So we, well, the other thing we were doing. doing us wrestling the laces away from our two cats. That was challenging. Yeah, that was really, they were hazardous conditions. Yeah. We had, so we started out in the, on the floor of a corner of a spare bedroom, and we literally had a not short discussion about whether we should spend $35 to get a table to get things off the floor.

It was $60. It was $60 table. Yeah. Wow. And then we had, and then we, an even bigger discussion about buying a second table. Yeah. But within not very long, we had our customer, we hired someone to do customer service who was living at our dining room table. We hired someone to do all the shipping and fulfillment who was living in our living room.

Phone line coming into your house. That was a customer service line. Yes. Yes. Yes. Back when there were phone lines. And so, and I mean, we should also say at this point, this is a tiny market. I mean, Bearfoot running was not to what you think.

So the first thing that we would see is whomever was the barefoot runner and the family would buy one of our kits. And then within a week we'd see an order for like five more, clearly for other people in the family who just thought these were really cool shoes. And so the barefoot running world, definitely small. The world for, you know, a very simple piece of footwear that's lightweight, that's flexible, that lets your foot do it's natural, that you can pack, you can stick in your pocket. That was a whole different game. And we started to realize that pretty quickly. We're walking on the Pearl Street Mall, which is an outdoor shopping thing in Boulder, and a pack of teenage girls run up to us and pointed our sandals and go, oh, those are sick. What do you get those? And we talked for a few minutes. And when they left, I turned to lane and I went, we're billionaires. And, you know, oh, we just have to capture this. So it's people often like to think of what we're doing is very nichey. But of course, the joke is if you look at footwear since the dawn of human history, the first 99.96% of human history, it looked like those sandals. Yeah. The modern athletics, she was about 50 years old.

How were you financing the business in that first year in 2010? You remember those credit cards? I still had them. Yeah. Did you get any loans? Not at first. So our first year, we did $114,000 in revenue. And that was our first 12 months.

So late 2009. To late 2010. 2010. And at that point, we thought, Okay, this is going to be its own thing. It has potential to be a real business. So we incorporated Feel the World in late 2010. Feel the world is sort of the parent company or the holding company.

Correct. Yeah. And so our second year in business, and we're not getting paid. You know, everything is going back into the business, going to buying inventory. So we went from $114,000 to $247,000 to $500,000 to $500,000. and only selling rubber sandals. DIY kits. Yeah, do DIY kits.

Yeah, exactly. And somewhere, yeah, like in the second year, I said to Lena, wouldn't it be nice to have a little internet-based business, took a couple hours of day to run, made a couple hundred grand a year? And she looked at me kind of confused and said, that's what we have. I went, yeah, but we can't stay that way. Yeah. I mean, early on, even after I built a website,

Lena was still a little reluctant, reticent, you know, not quite sure about this. and we met with some guys, or we were introduced to some of the guys who'd been in the footwear biz for 35 years at that time. You met them in Boulder. Yeah, they were actually in town to try to sell a license to a product they developed to another footwear brand. And so they said, you know, we met with them and they said, we believe in you and we believe in what you guys are doing. Natural movement is the most important thing and no one's doing it. But we've been to footwear so long that we're not dumb enough to try to start a shoe company.

And Layna and I both said, yeah, we're hyper-optimistic and naive, but that's how things get done. So after that meeting, Lena walks into the kitchen and with the appropriate hand gesture says, I'm all in. And, you know, she's a brilliant finance operations person and I'm a product market person. And so it's been, if it weren't for us being together, and it's the luckiest thing ever, this couldn't have happened. How did you, I mean, so as you got more and more sales, right? And it's, you know, you've got more and more people ordering these things. Were you still just buying this Vbram rubber from local suppliers? I mean, where were you getting your material from?

Yeah. Yeah, so we were basically, so Vbram had a bunch of regional distributors. So we'd buy out all of the material in the mountain region. And then, you know, I'd be making calls to distributors on the East Coast. And so we came to the conclusion. that we were going to have to create our own supply. And so these gentlemen, Stephen referred to, put us in touch with a manufacturing agent in Korea.

These guys helped us with the initial design for what was actually the first out-soul specifically designed for barefoot style running. And then we naively dove into the exciting world of international. Sourcing and manufacturing. So these consultants help you connect to a factory in Korea, which would start to make the rubber sheets for you and then presumably already cut and ready to go and ready to ship out to the customer. So they made sheets. They made, we designed a mold for a foot shaped sole. So it's already pre-made to handle most foot shapes.

And all you would have to do is trim it a little bit. Got it. Little did we know that the problem with outshole manufacturers, in a regular shoe, there's a lot of layers and they all get glued together. And it really doesn't matter how accurate you are with quality control and quality assurance. So you can hide a lot of mistakes with glue. And the other thing is that the product, having this outsole, it was our entire product. Right. The outsole is the product, the whole thing.

Is the whole thing? It had to be perfect. That we would have liked that, yes. So when we got the first batch in, the inconsistency was really high. So there was times where larger souls weighed less than smaller ones, so they hadn't packed the mold properly, where the left and the right didn't match in the same weight or flexibility. Just a lot of problems. And we had someone who'd been in the footwear biz for a long time say to us, you know, this happens to everybody, but we're really sorry to hear that it happened to you on your first tryout. I'm trying to understand why is it so complicated to make a consistent little piece of rubber.

One of the things people don't realize is, you know, shoes take a lot of force. They have to absorb a lot of force. And the more complicated the shoe, the more places there are to hide your sins effectively. So because our shoe was so simple, a slight deviation from the specifications that we had set, could have, you know, a significant impact. So we had put about $100,000 on those credit cards to pay for the cost of the molds. And we had to pay in advance of selling the material. So we had a lot invested in this. And so when I got, you know, we started shipping our first brand new outsels. And I got an email from a very sweet woman who was like, hey, so one of the things that we had done is we had put

little side flaps with pre-punched holes. So she had put her kit together and gone out for a run and the laces had torn through that little hole on the side. And we discovered that a good chunk of the production run, they hadn't packed enough rubber into that part of the mold. So the holes were really flimsy. They were too thin. Yeah, they were too thin.

And they just ripped when you were. Yeah. Just ripped. And I literally sank onto the floor. Like, I thought I was going to throw up. I was like, we're going bankrupt. When we come back in just a moment, how Lena and Stephen pivot to a new manufacturer and a new brand name.

And how they wind up on Shark Tank after having to ask, what's Shark Tank? Stay with us. I'm Guy Raz, and you're listening to How I Built This. Hey, welcome back to How I Built This. this. So it's around 2011, and Stephen and Lena are facing a major meltdown with their Korean manufacturer. It's shipped out thousands of rubber outsels, but many of them are too flimsy and way too easy to rip. Was that entire shipment useless, or was it okay in the end? I think... We salvaged a bunch. Yeah, I mean, I don't know the exact percentages, but we were

able to do some QC to pull out the ones that were definitely going to break. And then when other ones did break, we came up with a protocol for fixing the problem. And we learned, you know, I mean, it's very difficult to become a new manufacturing client because the factory is losing money on you. They're really, they're taking a bet. You're a pain. You're a tiny, tiny customer for them. They're making out souls for big shoe companies. Oh, it's worse. We're tiny and we didn't know that we were tiny and didn't know that they didn't really care about us. And you're being a pain in the ass. You're saying, hey, we need you to change your processes. And they're like, correct. They're like, you're a tiny clock. Again, we were hyper

optimistic and naive. Yeah. And so we got fired by our first. They kicked you out of the factory. kicked us out of the factory. Oh, even better. They kicked us out of Korea. So when we, I swear. So we started reaching out to other other outsell factories in Korea and they'd say, oh, no, we heard about you already. And you're a pain. We don't want to deal with you. Right. Yeah. Yeah. And so where did you go? Where did you find a new manufacturer? We lucked out. There was a footwear industry magazine that we got. And the cover was a story about a group out of New York that were manufacturing agents. And so, Lena reached out to them and they said, we're happy to talk. I flew out to New York and met with them. And for reasons that to this day, I barely understand they decided to work with. And they

decided to work with us. In fact, even more, what I found out years later is that they vetted us. They called around and asked about us and a whole bunch of people like vouched for us. And I could not be more grateful. But I mean, we were this tiny little goofy sandal kit company. And people were saying, oh, no, these guys are good. You got to work with them. And they did. They connected you to a Chinese manufacturer. Yes. Their whole job is to work with you to find various factories to make whatever you're making. And meanwhile, I think this is now around 2011. You guys get your first loan. It's a significant loan, like $200,000. And you got it from a private lender, not from a bank. I think it's a

private family office. Also, I think around this time, like 2012 or 13, you change the name of the brand from invisible shoes to zero shoes with an X, right? X-E-R-O, which I think is a great name, hero shoes. But tell me why you changed the name. Well, I was introduced to someone who had been the VP of marketing for a multi-billion dollar fitness company. And we got together for lunch. And the first thing he said, he looks at my feet and he goes, I can see them. I said, yeah, but it feels like there's nothing on your foot. So it's kind of invisible. He goes, I can see them. It's like, all right. And he goes, besides, invisible is not something you can protect very easily. So we had been referred to a small marketing agency. They'd all left a big agency and started their own thing.

And they came up with a bunch of names that were, let's say, unspellable and unsayable. But they had one that started with an X. Here I'll give you it to us. X-O-I-C-S. Any clues? Zikes? I don't know. So I said, yeah, that's not going to work. They said, well, you can own it. I said, we don't have that kind of money. We're an internet-based company. We need to be nimble and we need people to be able to spell our domain name. So the next day, it's ready to track practice and I'm sitting in my car and I'm thinking, I like the thing starting with X. Where could I go with that? And then Zero popped into my head. And then I came back and presented that and said, that's what we're going to do. And that was it. And that was it.

Hmm. You, there was something, I think, a pretty pivotal moment, which was in 2012, you guys applied to go on Shark Tank. And, you know, that's obviously a huge opportunity because it's a huge publicity opportunity. Tell me about that decision. I mean, I'm assuming you did that because it was a marketing opportunity to get this in front of more eyeballs.

Well, the first part was that people kept saying you guys should be on Shark Tank and we kept saying, what's Shark Tank? So that's how it began. And we actually applied originally at the end of 2011. I sent in an email as an application and then I made a video and I sent that as well. And we got a call from the show.

They had 36,000 email applications. And again, crazy amount of luck. The person who saw ours, her boyfriend had read Board to Run and was a huge fan of that idea. And she says, yeah, we definitely want you to apply. And there's an application that you have to send in that, for reasons that I don't really understand, has to be handwritten. And you can't read either Lena's or my handwriting. So we typed out our answers and then, paid someone from Craigslist to handwrite the answers.

And we sent that in. And then they sent us a contract, which is incredibly onerous. You can't change anything about it. You either sign it or you don't. And they said, you know, this is not a guarantee of anything. It's just the next step. And the moment they received the contract via FedEx, they called and said, all right, we want you on the show. Wow.

Okay. You get on the show and then I've seen it and anybody can wash it. and you get out there. By this point, by the time you taped it, which is July 2012, you had sold in two and a half years over $650,000 worth of these sandal kits. Yeah. And you go on there with a valuation of, I think, $5 million. That's what you value the company at. Right.

And suffice it to say the sharks are not particularly generous. And, you know, not really super interested in this brand. You did get one offer from Kevin O'Leary for – he asked for half of the company, 50% of the company for $400,000. And obviously you turn that down. I'm just curious. What was it – I mean, did you walk out of there disappointed or did you walk out of there thinking, oh, well, well, that's fun. At least we'll get some publicity out of this. That's an interesting question.

Because it's really a performance. It's not right. It's a, yeah, it's a, and I think Robert said this in his book. People think that it's a business conversation that happens to be on television, but it's actually a television show that happens to be about business. So you asked how we felt coming out of there. And I think the answer is sort of in shock because it's such a surreal experience. And honestly, the most nervous, I was during the entire process was we had a shark tank viewing party and we were listed as the first segment, but they actually aired us last. So when we finally, they finally aired our segment,

it was like, oh, thank goodness. But you're also wondering, how are they going to make us look? Are we going to, you know, because you haven't seen that edit. You don't know what's going to happen. And so we get through it. We feel like, okay, they gave us a nice edit. You know, we looked like delusional entrepreneurs, but that's accurate. So, okay. But the phone didn't ring right away.

No, no, no. On the phones, nothing happened. But immediately what was happening with our internet traffic is it blew up. The internet traffic. Yeah, we had 270,000 visitors at one time. for about 12 minutes. Wow. Yeah. And then about 45 minutes after the airing, then the phone started blowing up as well. And the orders just started pouring in. And we did 10% of our lifetime sales volume in that week. In that week, wow. And so in that time after Shark Tank, what did you

start working on sort of ready to wear sandals? I mean, you were still doing. I mean, you were still doing kits at the time, but did you start to think about, okay, now we've got to go to the next thing? Yeah. So through a coincidence, we met Dennis Driscoll, who had been the former head of global design and development for Crocs. And it was a kind of a handshake agreement. So, you know, we paid him more than anybody else at the time, but still, you know, a tenth of what he'd been making. Yeah. So what he, so it started out, Stephen had plenty of ideas. Dennis really brought the knowledge of how to translate those ideas into actual shoes. So we wanted to do ready to wear. And Dennis was able to. Ready to wear sandals. Right. And same factory in China could make those?

Well, when we came out with the Z trail, which had a multi-part soul and. That's the, that's the, that's the, that. That's the sports handle. A trail running sandal, yep. Yeah. We did need to move at that point in time to a more competent factory. And we had some interesting lessons. We learned that our first factory had actually patented our sandal design in China. So that was something we had to deal with.

Oh, they patented it in China, which you had, they took your design. Yes. Wow. Yes. Yeah. It cost us some. money, but luckily we had already shown it publicly in advance of them doing that, so that allowed us to get the patent back. Yeah.

So anyway, adventures in manufacturing. So these are things that, you know, when you're naively thinking, how hard could this be, you never imagine the kind of stuff that you're going to run into and the amount of money that's going to cost to deal with some of this stuff? Yeah. You definitely don't imagine how much money you're going to spend illegal bills. Right. All right. So you are still focused on sandals at this point, 2014, but you're starting to, obviously, at this point, and I guess was it maybe it was Dennis Driscoll's influence or his experience, you decide that you are going to make a closed toe running shoe, a zero drop. And that means that the heel and the toes are the same level running shoes. So basically a closed shoe with a zero drop. And that means that the heel and the toes are the same level running shoe. So basically a closed shoe with a. a rubber soul and that's it. No cushioning, nothing. Why did you decide? I mean, was that just, I mean, it seems obvious, but was that, was that the direction you were headed in any way? Or was

there somebody or some reason why you decided to pursue that? We have a very interactive relationship with our customers online. And they are just constantly telling us what they want next. And again, we will think of ideas on our own, but a lot of what has driven the growth of our product line and it's now, what do we have, 34 different styles, something. Something like that. You know, they would just tell us, again, after we're making sandals, what are we going to do when it's winter? What am I going to do at the office?

What am I going to do if I'm road running or trail running or fill in the blank? What can I wear with a dress? Yeah. And so you started to design clothes-toe shoes. And how did you, I mean, how did you design them? Did you, who designed them? Well, let's start with our sandals where we were doing the custom-made sandals and people were sending a tracing of their foot. So we had about 5,000 foot tracings and we mapped those out to come up with the right shape for a shoe.

So most shoes have pointy toe boxes that squeeze your toes together. And we were seeing what human feet actually looked like. So we were literally like taking these tracings, putting them on a piece of foam core, tracing around them, marking dots where people's toes, were and just doing the closest thing to a big data play, just to figure out the shape, to make something that actually works with a human foot. Dennis was designing the shoe. And so Dennis and I would just go back and forth between either ideas of his or ideas of mine until we ended up with something that we liked. And we had to educate the factories and the development offices about how our customers wanted shoes to be because there is a standard way of doing

things and we'd say we want this and then they would be like oh well they would just put in a stiff heel counter for example because that's what's traditionally done but that would be abrasive and uncomfortable and so we had to go back and say no no no you need to take this out and they're like but that's not how it's done so so there was a just a very a lot of heavy lifting. And so that that was a big, it took a lot of time. You were still a pretty small business when those shoes came out. I think that year you did about three million revenue, obviously impressive growth, but still a small shoe brand. How are you getting the word out about these new closed-toe shoes? I mean, obviously,

you had a customer base who bought the sandals, but, you know, there are other, at this point, there are other brands that are making, quote-unquote minimalist shoes. some of the big players were doing versions of it. So how did you get the word out? The biggest thing was simply word of mouth. And whenever I can find any opportunity to create some sort of content or to engage with some audience or to find someone who has leverage over their own audience, that's what I'm going to do. And as the business has grown, our ability to do that has grown.

So our email list is just shy of a million people. And we have a list that we call our inner circle list for people who raise their hand and say they really want to help. And it's like 70,000 people. We reach out and ask them to do something like vote on a new color or go to some website and comment on a post. Like tens of thousands will go and do it. So people just, they want to be helpful.

And really, you know, you were, this is entirely direct to consumer. I mean, this is a purely up until, you know, a few years ago. But, you know, into 2016, 17, 18. This was a, you were not in a brick and mortar stores. Right. We were in a few small independent running shops, but yeah, we wanted to be wholesale. That was the model. But Stephen had the internet marketing background.

It was so valuable because it allowed us to have the conversation with our customers. And we expected that, you know, the goal was always. ways that we would transition to wholesale. However, not entirely. Just add that to the mix. Add that to the mix. But that would be how the business would really take off. Yeah. One of the things that I think is, I'm curious about it is as you, you know, got more and more attention, did you find that some of the big competitors were making life hard for you or trying to compete with you? I mean, especially as you were getting into retail shop.

Well, there are a couple things that we've seen. We go to trade shows and I walk around and see the big companies go, hey, that's an idea that I came up with three years ago. So there's a lot of that that goes on in the footwear world in general. I took it as a good sign when I started seeing big companies take ideas, design ideas that we came up with. When we were first trying to get into retail, we had a significant order that was supposed to get placed one day by a major, major retailer. And at the end of the day, the order didn't come through. And we called said, what happened? And from investigating what we were told is that one of our multi-billion dollar company coincidentally had reached out and said, we don't want that product in your store because they had been tracking sort of a iconic store in Boulder that they used to see, you know, what's happening, where we started outselling them. And that was a very interesting thing. And again, we were what, like a two, three million dollar company at that point. I'm thinking if they're afraid of us now, that's a really good side. And I guess you guys become profitable, not hugely profitable, but profitable in 2015.

And a few years after that, you're going to take on your first outside investment from a company called an investment group called TZP. Yeah. But before we get to that, I want to ask you about the periods of leading up to it because, you know, not only were you going to have to deal with a pandemic, but there was also like a trade war happening with China, which means. essentially means that the tariffs on imports are going to go way up, right? Yeah. Yeah. So we actually, the trade war was a really big challenge for us. Because it started, there were no supplemental tariffs applied to footwear at first.

But by the time they announced them in September of 2019, we had already placed a multi-million dollar order. And suddenly we were going to have to face massive tariffs, like, have to. half a million dollars in unexpected. Wow. And so because they were, you know, first it was one amount announced and then another amount threatened. And so we're scrambling to work with our factories. Can you accelerate this order to get it in before this second round of tariffs come in? And just just should interject to this point because you were really on the line here, right? Because you also owed a lot of money to different lenders, like people and banks who'd been loaning you money over the years. And they were, I think some of them were starting to get antsy, right? Right. By 2020, we had personally guaranteed

$5 million in debt financing, a combination of SBA loans, this family office, as well as short-term lines of credit. And so, you know, my investors at the end of, they're all upset about how much inventory I have on my books at the end of 2019. And then 2020 rolls around China factories start shutting down. And all the- You're in a great position. All of a sudden- Because you've got all this inventory. Exactly. I'm a genius, you know. And so we, you know, Stephen has an amazing ability to turn inventory into cash. So I am never afraid of having too much inventory, but I am terrified of not having enough because if you don't have inventory, you have nothing to sell and you have no income. So, you know, we survived the trade war. We were in good

position for the pandemic. But I, you know, $5 million in debt, it's a lot. That's scary. That's hard, right? You lose sleep over that. Well, you become numb to it. I mean, I mean, after half a million dollars, it's like, well, whatever. Yeah. Yeah. What are they going to do to me now? Yeah, exactly. We didn't own a house.

We, we, right. But I, you know, at that point, we had 30 or 40 employees. And you feel incredibly responsible for these people's lives and their families and their health and well-being. And I just felt like we got lucky twice. Both of these things could have put us out of business. but I just can't risk that happening again. You needed, you were looking for some kind of stability and presumably right between the demand that from consumer demand and then also just the debt, right? It made sense to bring in an outside investor.

Yeah. I mean, when we got the offer from TZP, I am so glad we took it because then the supply chain crisis hit. And so all of our bestsellers were out of stock. And we needed a million dollars to spend on air freight so we would have something to sell. And we would not have done that if we had not taken that investment. If you didn't bring in. And so essentially, I mean, it's one of these paradoxes, right? Because the business is doing great.

You're doing gangbusters. But at the same time, like if you don't have the line of credit and you can't finance the inventory. And it can even with great sales, it can collapse. Even more. I mean, the greater it is, the higher the probability of collapse because you're always going to end up over leveraged in some way or subject to some weird change. I mean, I think of companies that have one major wholesale account. If that one account, if anything changed for that account, they're dead in the water. Yeah.

So it's, you know, there's so many things that can impact a business especially when it's growing quickly. Yeah. So now, so now with an outside investor, um, involved. Does that enable you, I mean, has that enabled you now in the, you know, now we're two and a half years, three, almost three years since you took that investment, has that enabled you to do things that you couldn't have done before, like in terms of, obviously, you've expanded your line and, you know, you're growing. I think you're going to hit 40, almost $50 million in sales, right? You're on target for that this year? Well, we did 48 million in net.

revenue, well, net sales in 2022. And so the answer is absolutely yes. So the first thing is it allowed us to buy more inventory. We actually didn't know how much we needed because we kept selling out. So you can't figure out how popular a product is if you sell out before, you know, the demand starts to peter down. And so first it allowed us. to just really stock up and start to figure out what the demand was.

And so we now, you know, for a long time, it was just Dennis designing shoes. Now we have three designers and three developers. And we were able to bring in much more skilled financial help. It's, I wonder to myself, how did we even survive? The whole thing was held together with spit and swizzle sticks, and it was incredibly difficult and stressful. And so having the private equity investor has allowed us to really create a solid infrastructure underneath what we're doing. And so we have a platform for even more growth. The global athletic footwear market is enormous, over $160 billion by the end of this decade.

But barefoot shoes is a fraction. of that market. And, you know, a lot of times when you're starting a business, people say, well, that's a tiny market, you know, it's only going to be worth three, 400 million dollars. There's going to be tons of people trying to eat at that, you know, at that, you know, trying to take a slice of that pie. So what's your response to when people say, you know, this is still a tiny market? And are you essentially trying to position yourself to be the dominant player in that market?

Yes. We're very close to actually being the dominant player in this space. And we don't want to pigeonhole ourselves in this whole idea of the barefoot market. Because again, the customers that we have, the number who know nothing about this idea of barefoot or minimalist or whatever, they just experience the comfort and benefits of our product. And we hear about people who are wearing our shoes for 20 different reasons. And so we have a number of professional athletes who are living in our shoes. We have a number of music celebrities who are wearing our shoes

when they are not being seen on stage because they're being paid by a big shoe company to wear those shoes. We have parents of kids with ADD and ADHD who swear by what we're doing. Yeah. You know, you can call us delusional entrepreneurs because we genuinely believe

that this footwear is better for you. And while we may be pushing the boulder uphill a little bit, a little bit, we don't think we're going to be doing that forever. We're doing, you know, there are so many easier ways to make a living than being in the footwear industry. Like if you're thinking about starting a shoe company, I would just say run as fast as you can in the other direction. Which is what everybody told you when you started it.

Right, exactly. And it's good advice. But we're still here because we believe so passionately in what we're doing, our customers are so evangelical about, you know, they are, you know, our frontline marketing army, the number of... I've seen it. Look, I don't think it's any secret. I'm a wearer of your shoes and started wearing them three years ago and I have several pairs. And every time I go on a trail run or something, I see somebody there wearing them. It's like, it's like you're in a secret society. Or often people say wear those shoes. And I have talked, people have asked me about them. And you're not even paying.

me. No. Look, your goal was, Stephen, your goal was to retire at, you know, 35 and that passive income. Things have changed. You know, to your hobbies. I mean, you could, you could, you know, sell the rest of the business and truly actually be retired and totally financially set and indulge your, you know, various, you know, interests and you could do that now. I'll tell you, I'm sort of wrestling with this, to be honest. I'm 60 years old and on the one hand, I want to be part of turning this into a multi-billion dollar company. As long as we have all the people in place so that I'm only doing the parts that I like doing and that I enjoy doing, that I do well. On the other hand, I'm 60 years old and I don't want to work for the rest of my life. And frankly, I had a, pardon me, it's the first time this has happened.

He had a health scare. Yeah. The last, Jesus, it's the first time this has happened. I'm not sad. It's just hitting me. So, yeah, I had a health scare. And I could not be more grateful for it because it really brought into focus, A, how precious,

life is and I just find myself just overwhelmed with how beautiful and wonderful and lucky and grateful and every positive word you can think of. That's been my experience for the last six weeks. But it also made it very clear why would I spend a whole lot of time making my life difficult instead of enjoying it with my wife and my dog and being helpful. And ironically, I might be more helpful for this movement when I'm not the CEO of a company where people think I have a conflict of interest. Maybe like the brand ambassador. Something. You know, there's got to be a way of doing it where, where Lane and I can participate in a way that's maximally using what we're good at without taking over our entire lives, which is what it's done for the last 13 years. And

that would be nice. Yeah. Well, and I think the, I think, I think, silver lining of this health scare is that Stephen had to not open his computer for a week, which during the entire 23 years that we've been together has never happened. Yeah. And so... It was awesome, by the way. Yeah. I mean, it's such an important perspective, you know, and remarkable that in, I mean, we're

here we are in 2023, and you've got this brand that has really made a huge impact in the world of fitness and running and, you know, even lifestyle. Yeah. Yeah. Do you, first to you, Elena, how much of what's happened with this brand do you attribute to the hard work and the skill and effort that you put in? How much do you think has to do with luck? that is an excellent question so i would say uh i can't really break it down that way because it's sort of a hundred percent luck and a hundred percent hard work but it's really a hundred percent luck yeah there's so many things you know if chris mcdougal had never written that book um if stephen

wasn't an internet marketer if he and i didn't have complementary skill sets I would never have been able to create this business without him. He would never have been able to create this business without me. So without luck, there are just so many ways this could never have happened or had a premature demise. Yeah. What do you think, Stephen? First of all, when I listen to your show, this is my favorite part because this is something that I think people

overvalval well look we know from psychological research people overvalue their own role and things that go well and undervalue it and things that go badly. When I was in film school one of our teachers was the now late director Milosh Foreman and someone said to him one day how do you make a good movie

and pardon my bad check accent Milus Miller said well making good movies he's 90% casting and the other 10% is also casting And so that's how I think of business. It's 90% luck and the other 10% is also luck.

And then just like Lena said, there's a whole separate 100% where it's 90% working your butt off and the other 10% hopefully being smart enough or finding someone smart enough to know how to put out the fires that started overnight despite the fact that nothing changed since yesterday. Yeah. So, you know, hopefully with a little gratitude, humility and not trying to reinvent a wheel that put itself together in ways that I can't imagine, it's going to be interesting to see what happens next. That's Stephen Session and Lena Phoenix, co-founders of Zero Shoes. By the way, we have a happy update for you on Stephen's health. Since we spoke, Stephen heard back from his doctors and we're happy to report that after minimal treatment, it looks like Stephen is now in the clear. 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.wondery.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 Raz. This episode was produced by Kira Joaquin, with music composed by Ramtin Arablui. 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 Howell. I built this.