It’s been around for less than three years, but Allbirds, a startup from Silicon Valley with a very un-techy product – shoes – has made a huge impact. It’s not the only shoe startup on the rise.
The San Francisco-based unicorn is different because it makes the upper material of its trainers from wool and eucalyptus bark. Allbirds’ main market is in the US, but the company recently arrived in the UK, opening a store in October last year. Soon the startup will open its first store in China, in Shanghai, with another one in Chengdu in the works. The company, though, is still focused on its original online sales model, so the shoes will soon be available on Alibaba’s e-commerce platform Tmall. It’s also expanded to Canada, Australia and New Zealand.
Shoes have become a surprising hit with investors in recent years, and Allbirds is riding that trend. During the past two years alone, VCs have invested $170 million in shoe startups and designer footwear, according to Crunchbase. Given the maturity of the market, global demand for footwear is growing at a surprisingly good clip, up 4.6 per cent in 2017 to $246 billion. It’s not just a great market for startups. Shares of the world’s most valuable footwear company, Nike, have soared to a record market cap of nearly $130bn.
To stand out in the growing but crowded market, newcomers are trying to show off their innovation and sustainability. Allbirds flaunts its green credentials, given that the threads of its shoes’ uppers are sourced from either merino wool or eucalyptus groves which are Forest Stewardship Council (FSC) certified. Rival Rothy’s is taking a similar approach, selling shoes made from recycled plastic bottles, while industry giant Adidas has a line of shoes that is made from plastic recovered from waste in the oceans.
But how could a startup like Allbirds, which presented its first shoe a mere three years ago, achieve global reach in such a short time?
From the outset, founders Tim Brown (the former vice captain of New Zealand’s football team) and Joey Zwillinger (a biotech engineer specialising in renewables) pushed the sustainability aspect of their shoes, claiming they were the “most comfortable shoes” in the world. The shoes quickly became popular with the Silicon Valley tech crowd, followed by entrepreneurs, celebrities and politicians. Former US President Barack Obama has been seen wearing them, as were Google co-founder Larry Page, celebrities Oprah Winfrey and Matthew McConaughey, and venture capitalists Ben Horowitz and Mary Meeker. Actor Leonardo DiCaprio even became an investor.
Brown dreamed up Allbirds just as he was finishing up his professional football career. Tired of trainers made from synthetic materials with plenty of logos, he wanted shoes that were simple and felt natural, but were not as stiff as leather shoes. He decided to make use soft merino wool, which he knew well from his family’s homemade socks and sweaters. It probably helped that New Zealand is the world’s second-largest exporter of wool.
Brown secured a $200,000 development grant from a New Zealand wool industry research group and received additional funding from the country’s government. Once he had patented his wooly shoes, he launched a Kickstarter campaign, which in just four days raised nearly $120,000 from more than 950 investors. Still, he sold only 1,064 pairs and knew that he needed a partner to scale.
Zwillinger had been one of the investors in Brown’s Kickstarter, but as it happened their wives had been friends and roommates at Dartmouth University – so the two decided to combine their expertise and scale the budding venture. In 2015, they launched Allbirds, a nod to New Zealand’s first settlers, who saw mainly birds on the islands and called them a land of ‘all birds’.
From the start, the co-founders knew it was crucial to operate as a direct-to-consumer business. One advantage of this approach, says Zwillinger, was instant consumer feedback – on both the product and the shopping experience. “The Wool Runner has received over 27 updates since we first launched the style in 2016,” he says.
The business model also gives the entrepreneurs direct control over price. Allbirds doesn’t offer discounts, so buyers are not disappointed because prices won’t drop suddenly a few weeks after their purchase. “They always know they’re getting the best we have to offer,” says Zwillinger. Following the success of its Kickstarter, Zwillinger and Brown managed to raise an additional $2.25m in funding from venture capital firms.
And so the company set about making shoes that could sell well on their green credentials – but with a global supply chain. The fine merino wool comes from New Zealand, but the fabric is milled and woven in Italy. The eucalyptus for the Tree Runner line of shoes is sourced from FSC-certified plantations in South Africa, which means the trees from which the yarn for the uppers is made are replanted upon cutting, use no irrigation, little fertilizer and, says Zwillinger, do a good job of “taking carbon dioxide out of the atmosphere and locking it in”.
For the shoes’ soles, Allbirds turned to Brazil; they are made from plastic foam that comes from a renewable source – what the company calls “green ethylene”, which is made from yeast and a waste product of the country’s sugar cane production. The shoes are then assembled in Asia; Wool Runners are made in South Korea, while the Tree Runners are manufactured in China. Globalisation on a start-up scale.
While online sales are booming, retailers have been struggling with the decline of the high street. Studies have found retail workers in the UK are more likely to face unemployment than other jobs. Online firms aren’t immune to problems though. Slipper brand Mahabis, which sold almost one million pairs in four years, entered administration at the end of 2018. No reason was given for the company’s financial troubles although Mahabis’ was later rescued by the sleep startup Simba.
Allbirds isn’t the only shoe firm that’s got a boost from Kickstarter, though. On Running, a Swiss firm that started out with about a dozen staff nine years ago, has also flourished. Today, its running shoes are sold in more than 50 countries, which is quite an achievement in an industry that’s dominated by global corporations like Nike, Adidas, Asics and Brooks. “We were of course aware that we enter a market where no one was waiting for us,” says one of the founders, David Allemann. “Lots of industry experts told us that this was a crazy idea.”
Still, Allemann and friends Olivier Bernhard and Caspar Coppetti had an idea for a new type of sole for running shoes, as technology designed for triathletes – promising them that extra little bounce which pays off when you’re doing an Ironman competition. It helped that Bernhard was a six-time Ironman winner.
We were “re-thinking how a running shoe works,” says Allemann. On’s patented CloudTec technology relies on hollow rubber pods that cushion the wearer’s landing but become firm for a more explosive push-off. “You get the best of two worlds: the comfort of a soft training shoe and the agility of a fast competition shoe.” It works for casual runners just as well as for professional sportspeople, says Allemann. On’s also used tech to build its global supply chain covering 18 countries.
Once professional athletes wearing On shoes began winning major races, what was once a Kickstarter campaign quickly gained extra funding. Today the company has a staff of 400 people in seven offices in Zurich, Portland (Oregon), Tokyo, Shanghai, Ho Chi Minh City, Melbourne and Sao Paulo, and can counts on the business of more than five million customers.
What makes On fairly different from most companies is that it doesn’t have a CEO – just the founders who lead it. Allemann gives jobs to the team, providing independence and decision-making power – but expects accountability in return.
As for the marketing strategy, On is hoping its fans make the shoes known. “It’s word of mouth and the power of digital amplification,” says Allemann. Unlike Allbirds, On is not betting on sustainability to win the market, but says that its advanced materials do not pollute the environment, while it recycles materials right in the production process. The focus, though, is on the engineering, with a new “superfoam” called Helion that is said to improve cushioning and the bounce for the next step. Right now, the new shoes are going through testing in the Swiss alps and the volcano-fields of Hawaii.
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