Find episode transcript below.
ANNOUNCER:
00:00:01:00 Welcome to PwC Pulse, a podcast to provide insights to help you solve today's business challenges.
ALAN JONES:
00:00:09:19 My name is Alan Jones and I'm the Office Managing Partner for PwC San Francisco, and I'll be your host for this episode of PwC Pulse. I recently spoke with Joey Zwillinger, Co-Founder, Co-Chief Executive Officer, President and Board Member at Allbirds, a company that's special to us in San Francisco, and it was founded here, scaled here and ultimately into the capital markets last year.
00:00:35:02 As both a unicorn and a hyperscaler Allbirds is taking its sustainability initiatives to a higher level. Joey shared his insights on how Allbirds is driving long term value results with an equal focus on fiduciary responsibility and environmental conservation.
00:00:48:02 Here's my discussion with Joey. So, Joey, thank you so much for taking the time today. I know you're a busy man. We really appreciate you joining us here in our wonderful San Francisco offices.
00:00:56:11 And it's just great to host a company that was born and bred within this beautiful city. Before we kick into it, we'll take a little bit of time, do a few quick hits here, just get warmed up and get to know a little bit more about you. So maybe with that, what is your favorite book?
JOEY ZWILLINGER:
00:01:10:06 Favorite book well, well you're not starting light for me, Man’s search for Meaning. Existentialism and self-determination, it's like my mantra for life is personal agency and this thing, I've read it probably six times.
ALAN JONES:
00:01:25:00 What's the last TV show you binge watched?
JOEY ZWILLINGER:
00:01:27:09 Succession.
ALAN JONES:
00:01:28:13 It's a great show, and the lead actor happens to be Scottish, which is so nice. You know, nice fact there. And then what about your favorite vacation place?
JOEY ZWILLINGER:
00:01:36:06 I love going to different places all the time. I'll say Montana. We love going to Montana. We love skiing and we love chilling in the lake.
ALAN JONES:
00:01:45:00 And this last was a little controversial. It's all like asking you which of your children is your favorite, but what is your favorite Allbirds shoe?
JOEY ZWILLINGER:
00:01:50:22 It changes. So, like, I still love to go back to the OG wool runner. And in times of rain, we have a waterproof version. So, I guess there's always going to be a soft spot in my heart for it.
00:02:04:22 But today I'm wearing our newest shoe, which is called the Pacer, and it's from an innovation that we invested in about three years ago, which is an alternative to bovine leather made exclusively from plant oils.
00:02:15:08 It's about a 90% carbon reduction from bovine leather in terms of impact on the environment works just the same as bovine leather. It's a beautiful product and kind of gives it a little dressed up occasion.
ALAN JONES:
00:02:26:05 Yeah, you're put in my wool runners to shame right now, but they're so comfortable. I think what's really essential to the mantra of Allbirds is really ESG. And for those of you who don't know ESG, it's environmental, it's social, it's governance.
00:02:39:22 It's going beyond normal corporate governance in terms of who you are as a corporation and having responsibility for the environment, for social issues, for governance issues as well.
00:02:48:16 And it's quite clear that Allbirds, which has ESG at the center of the organization, I mean, your mission statement is amazing, and I'll just go ahead and read your missing statement. Allbirds is on a mission to prove that comfort, good design and sustainability don't have to be mutually exclusive.
00:03:04:22 So how did you get to that? How does it relate to the business as well and the passion you have?
JOEY ZWILLINGER:
00:03:07:15 And maybe I would say that that even sits under an umbrella mission for us, which is to make better things in a better way. From the beginning, we've always believed that consumers want great products, they don't want sustainable ones.
00:03:21:15 And over the course of the last six years since we launched to customers back in March of 2016, I think what we've learned from customers is that they really believe that truly great products do also have to be sustainable.
00:03:32:13 And so this is the evolution of the consumer. This is a secular change in the way that consumers are thinking. And so, while we always have to make amazing products and they just have to be amazing for all of the features and benefits and price value and all that stuff, durability that customers demand of a consumer product and shoes, in our case.
00:03:53:22 But it also has to be increasingly positive for the environment. And I really mean positive. We have a huge number of initiatives aligned against making sure that we get differentiated and better products by unlocking nature's bounty and doing it in a way that's less harmful for the environment and eventually positive.
ALAN JONES:
00:04:12:17 So you chose a pretty crazy time to go public. Last year, in November 2021, still had the overhang of COVID and the capital markets, we had SPACs and still some of the investor euphoria.
00:04:25:17 And the 2022 has been equally as disruptive. There's been a lot of macro events that have impacted the business. So, I'm sure you and the team have had to adjust right as you go.
00:04:33:05 You guys expand into new markets, you've opened up new centers of creativity, you're looking at international markets as well. But how do you grow and scale but maintain that mission statement, maintain that tethering back to ESG, how do you manage that through all of this craziness?
JOEY ZWILLINGER:
00:04:51:13 I would say we've just doubled down on it, to be honest. And it's not that we need to keep doing more things and adding more complexity into our business. It's actually the opposite. In a time of great volatility, like you noted, we have been in with incredible macro disruption.
00:05:07:13 Consumer behavior cycles seem to be changing wildly in three month cycles and in our industry, we make a shoe from paper sketch to on the shelf and probably no less than 15 months.
00:05:18:04 So when you're planning with consumer cycles of three months and your lead time to innovate and make something new is maybe five times as long as the consumer cycle, it's very difficult to plan.
00:05:30:13 And so what we found is that the best recipe to be successful in that is just to focus. So, pare back on some of the things we're doing and really regain focus on the things that we know consumers love us for. A big part of that is our brand promise.
00:05:43:23 And you know we talked about better things in a better way, doubling down on our environmental mission. That is why we exist. That is why the world needs Allbirds and why the shoe industry needs another shoe. This industry needs a leader on environmental sustainability and particularly around climate change.
00:06:00:06 And we believe that, that's a void that is deafening and we can step into it, play a real important role. And the fact that shoes might only contribute 2% to climate change in terms of its emissions impact relative to something like the power transportation industries.
00:06:18:06 But the expressiveness of shoes in a wardrobe and what a consumer can say to the world, what a person can say to the world by electing to wear a pair of Allbirds is that hey, they like the style.
00:06:29:22 Sure, they like the comfort. Yes, they have to like that. But they also want to express that they stand for something a little bit bigger and that they're identifying that there's a problem in the world and that they want to get behind the company whose values they share. That is what we've gone back to.
00:06:45:06 And so I would say we have in the process of doubling down on that brand promise, we've done things like truly institutionalizing our commitments and then resourcing them. Just like we have a path to really world class gross margins that we're marching towards in terms of our cost structure and what we can do from a manufacturing and supply chain perspective.
00:07:03:14 We equally have a plan. We call it the flight plan, which gets us to 50% below our carbon impact today by 2025, I should say, relative to 2020, and then all the way down to 95 to 100% reduction from 2020 by the year 2030.
00:07:20:06 And so we have to not only just say that the time for platitudes are well, well behind us, we've budgeted these, we've resourced them, we have initiatives tagged to how we do that.
00:07:30:07 And every time I sit in the design review or sit in anything, we're looking at two years out for what we want the line to be, what we imagine the consumer to be out in that far off distant time. And we're also saying of a product that we envision that can meet that moment, what's the carbon impact going to be?
00:07:45:17 And that needs to be constantly declining, aligned with our goals for meeting that stakeholder for the environment, and that's living our brand promise. And we believe that that will unlock great growth for us, and it will also, of course, be aligned with our cost structure and whatnot.
00:07:59:06 So this is about aligning our incentives and ensuring that we're focused on doing what we said we were going to do and doing it really well for our consumer, for our financial stakeholders, our shareholders, and also for the environment.
ALAN JONES:
00:08:10:05 I love that concept of signaling, right? It definitely is a signal at Allbirds and it does carry that social message as well. Your smell over time with your Form S-1, and it was the SPO, which is a sustainable public offering. You're a certified B corps, which is fantastic as well. And it was the first S-1 report that had actually seen where you had a sustainability report actually embedded within the Form S-1.
00:08:33:11 So again, that's you living true to your mantra. But take me a little bit behind the Form S-1 process, the equity story process, thinking about how to sell this to investors in position. How did this all evolve? How did you think about embedding it within the actual offering itself and moving from IPO to SPO?
JOEY ZWILLINGER:
00:08:50:06 So I think it starts with something we've always believed, which is to make sure we tell our shareholders what they're getting into. So, from day one, when we did our seed financing through our capital that we raised in private markets prior to the IPO, we said this is what we stand for, here's how we're structured. We're a public benefit corporation, which means we have equal to our fiduciary responsibility.
00:09:11:17 We have a responsibility to environmental conservation, which is the public benefit. We've chosen to declare in our charter documents and so part of the thinking is just let's invite the shareholders that are good with that. And we also need to let them understand that that's not the only thing where we still have a fiduciary responsibility, and we want to create incredible shareholder value.
00:09:33:14 And we believe that if we structure our business correctly every time we sell a share, it can be better for the environment and better for our shareholders. That's not an easy feat. So that was step number one in deciding to augment the traditional prospectus with something that is so rich in ESG criteria.
00:09:33:14 But then we went through the exercise of say, okay, we're a public benefit corporation by charter, it’s a legal framework under the Delaware C Corp, Chapter C, and where B Corp, which is a status where we've gone through rigorous assessments, it's really difficult to achieve that for a global brand, still easier for a local grocery store perhaps.
00:10:10:15 So then we look at the public markets and the ESG landscape, and what we find is that the two leading ratings agencies for ESG performance from public companies are structured in such a way where they can create ETFs and they're incentivized to drive capital towards what they would declare as positive ESG companies.
00:10:35:15 But when you look at the top tearing from each of those top two ratings agencies, capture about 50% of the Fortune 500 companies. And if you think about where we are in the world and what really those companies are doing, it's much more about a shareholder only type approach.
00:10:51:07 It's companies that are meeting reporting requirements as set out by these rating agencies in order to achieve these designations to get capital into their company rather than to actually authentically drive towards outcomes for stakeholders that are non-financial.
00:11:06:02 And so we wanted to set a high watermark and we wanted that high watermark to invite enough other companies who could meet these sets of criteria and requirements.
00:11:16:14 And if you did it, there's no way you could greenwash your way into being a truly authentic leader in sustainability and ESG criteria. And so, we set out and we formed a group of the best thinkers in the world around ESG, including some of these rating agencies.
00:11:31:06 And this group got together hosted by the BSR. It's a group that's focused on non-financial stakeholders. They partnered with us through the IPO process, and we set out and found 19 criteria that we said was a high watermark for companies to clear a hurdle that would say they were true, authentic leaders.
00:11:51:14 And we established those. We made our own commitments to them, and we're well on track to achieve this. And so that's a commitment that we want to declare right up front. So, people knew what they were getting. And frankly, I think it served a very positive aspect of our IPO and we got access to pools of capital that I don't think we otherwise would have.
ALAN JONES:
00:12:08:02 I love the way you put it in terms of, we do see fatigue within the marketplace with ESG. We do see greenwashing, and that's obviously not aimed at all boards. But if you look at some of these funds, some of the criticism of these ESG funds is that you can drive a bus through them, right? It seems like you guys really look at three different things.
00:12:25:01 You look at regenerative agriculture, you look at renewable materials and you look at responsible energy, maybe with a little bit of a reporting lens you know in each of those.
00:12:36:14 How do you actually capture that? How do you express that? What are some of the key metrics that you take to both run the business and then also to the buy side, look to the funds and explain the fact that we are the real deal.
JOEY ZWILLINGER:
00:12:46:23 For stepping back. Those initiatives that we have that you mentioned are really under our flight plan. They're really targeted at carbon reduction. So, our commitment to be net zero without any offset by 2030, those are all three of the critical planks for us to achieve that goal. And that really comes down to one simple metric, which is frankly, what's the carbon output in that company?
00:13:07:11 And we measure that from a product level. We add corporate operations, and this is from farm to foot and then end to end of life for the end of the life of the product within the consumers use occasion. That's one aspect.
00:13:20:11 I think the critical first step for any company, which is the materiality assessment. And we've understood of these 30 topics that you might attenuate in ESG outside of financial stakeholders, you got to figure out what's really important for your consumer, for your stakeholders and where you make the most impact.
00:13:39:00 And part of the cycle is also your internal employees and understand what's the most important of these 30 to your business. Internally, we refer to those as kind of the swords.
00:13:50:11 And then there's the other ones, which are really important, but we just need to be good. We don't need to be bleeding edge the leader and call those the shields. So, this is more for risk mitigation and things like that.
00:14:00:05 And some of these things are just much less important for an industry like ours versus something, you know, if somebody was a manufacturer of machine screws, like you'd need to think about different things and different impact on your business and your stakeholders. So, we focused on those.
00:14:13:19 And for us, there's a number of them that we would consider swords. Those are all embodied in the framework that we talked about in our IPO. But it's also climate is number one. And so, we really focus everything around our ability to help contribute to reversing climate change. And we think we can do that in a whole number of ways.
00:14:32:10 And those three planks around regenerative agriculture, renewable power and material consumption, that is how we drive it down to zero. So, we've about 27 initiatives underneath that we track every year we make progress against.
ALAN JONES:
00:14:45:11 And how do you empower the organization and leaders to really drive that through the OR? I read somewhere that some of your competitors, their carbon footprint, may actually weigh more than the actual shoe that they produce themselves. But how do you push your leaders, hold them accountable, and drive the organization towards this goal of being carbon neutral by 2030?
JOEY ZWILLINGER:
00:15:04:01 It's pretty multifaceted, but I think it just starts from the brand promise, and every time we sit down to do anything during the day, it's a consideration, just like cost would be. I think sometimes people think of it as an extraneous input to your business, but if you just think about it the same way you do any other line item in your P&L, I think it simplifies things quite a bit.
00:15:23:06 So we then match that with compensation. So, everyone that has variable cash compensation in the company, a significant portion of the variable compensation is tied to achieving these metrics.
00:15:37:06 And we set out and we've actually put in regulatory filings that we're going to achieve a whole bunch of these commitments and so we better do it. Otherwise, we're going to incur liability.
00:15:45:11 So I think we've really tried to make ourselves accountable to all of the key stakeholders in that arena. And then probably the most important one is our consumer, our customer.
00:15:56:11 And so what we've done there is we actually label every single product that we make with the carbon footprint of that product end to end. We have a number on every single shoe, every single piece of apparel, whether it's on the packaging or the actual product.
00:16:08:09 And we say, what is the emissions? So, think about it as like calories on a food label. You don't exactly know what they mean, but you know, if there's a bunch more you might have to work out if you want to keep the waistline the same. So, this is the same kind of mantra that we tried to educate consumers around in terms of carbon impact.
00:16:24:10 And that will empower a consumer to make a smarter choice, just like they might on style or price or quality or whatever they're looking for in any kind of consumer product. So that is kind of a holistic approach to making sure we drive accountability, and we keep a flashlight brightly held on ourselves to make sure that we're doing what we say we're going to do.
ALAN JONES:
00:16:42:17 I think it's been a year that you've been a public company. Your IPO was a year ago today, and congratulations, you've survived your first year as a public company.
00:16:51:11 But for those people listening could be fellow CEOs, CFOs, other management teams thinking about going public, and it could be related to ESG. So, any lessons learned from that going public process? Any lessons learned from that first year as a public company?
JOEY ZWILLINGER:
00:17:05:05 Yeah. Wow. So many. I think the last two or three years have been unlike any in my lifetime extraordinary amount of turbulence and not just capital markets, but just the world overall, ranging from the pandemic to the economy. And so, I guess the biggest lesson that I've taken from that is we're likely going to be in a period of turbulence for a long time.
00:17:27:23 And I think in that kind of environment, there's not that much you can do. Predictability generally goes down and capital markets really reward predictability. So, it increases the level of difficulty for a company, particularly a company that's fairly small, which we are being such a young brand, only six years old, so predictability becomes a lot more challenging.
00:17:50:04 So to the extent that you can add predictability or business, I think that's always been true for capital markets, but particularly true now. But then you think about bolstering your business. Of course, it's nice to have a nice cash cushion, but that is expensive.
00:18:04:04 Cost of capital now is much higher than it was even 12 months ago. So, I think that's something that's sort of difficult to do as a business leader now because you're basically asking your shareholders to take a lower return on their capital as you buffer your business too much. So, forget about that.
00:18:21:03 My biggest lesson, I think, is really about making sure that your management team is focused on the most important activities that are going to move the needle for your business in the long term.
00:18:30:03 Well of course, making sure your one foot in front of the other and you're hitting your corners, obviously a very tricky thing to do in this turbulent environment, but increasingly important and I would say related to that is position yourself to be as agile as possible.
00:18:43:10 And if you're only focused on a few things, you have a lot better of a chance at being agile and focused around speed because that's the best thing you can do to control a business in such turbulence. So that's what we're focused on now.
00:18:58:03 And I would say that from my experience at the analyst community and investors, there's a lot of noise in the investor community, but the ones that are really sticking with us for the long term, those are the people that we have just tried to be very diligent in terms of saying the story over and over again, focused on those very specific areas and making sure that they understand that we're tracking along the way.
00:19:20:09 And while there might be noise in the stock price from a whole bunch of macro factors, it's that story that's going to drive to the long term value of the brand. And that's what we're focused on.
ALAN JONES:
00:19:28:22 There's this natural tension, obviously, between investors that expect profitable growth. You have this mission statement towards ESG.
00:19:38:22 Have you had a lot of pressure there in terms of investors coming back, analysts with views, thinking about that, you should be changing your business matter. You shouldn't be as focused on ESG or is it just straight down the middle? This is our business. This is who we are. We're not going to move from our core tenets.
JOEY ZWILLINGER:
00:19:51:21 I think there's a tendency in an inflationary environment like we're in where costs are pressured. People are asking the question like, hey, how much are you paying for sustainability? And do you really need to do that if it costs you a sustainable financial model?
00:20:07:21 And I would say that's an extremely fair question. And I would just say that our objective, as it always has been, to maintain sustainable financials for a long-term brand growth and that requires great gross margins.
00:20:19:09 But we also need to maintain our stewardship of the non-financial stakeholders because that's a big part of our brand. And if we start to lose the brand promise, we kind of lose everything with consumers.
00:20:31:21 And so I think understanding how delicate that link is between our brand and our customer and what they love about our company, we need to adhere to that very strongly.
00:20:39:04 And we can't just try to placate some investors for a quarter by dropping costs, by shaving in some synthetics into our product that really is misaligned with our ethos. So, fair question.
00:20:51:21 But I think as long as you structure the business well, like I think we've done a beautiful job of which means every shoe that we sell is great for our shareholders and great for the environment, that's something we can stand behind really proudly.
ALAN JONES:
00:21:02:00 There is Joey, the Co-Founder, there is Joey, the Co-Chief Executive. There is Joey the President, Board Member of Allbirds, but who is Joey the person? How do you balance all of this with your personal life? Any tips or advice to people that are in your position? Like how do you balance everything with having a personal life?
JOEY ZWILLINGER:
00:21:19:12 One of the things first of all, I have a co-founder in the business that is a gem of a human being and we co-manage the business and his name is Tim Brown, and him and I have worked hand-in-glove together for the last seven years on this thing and the partnership continues to get stronger.
00:21:36:07 It changes from time to time and responsibilities and what we lean on each other to do. But the partnership itself is what has really helped drive the culture and will drive the future of our company.
00:10:42:07 So that's a critical aspect of like maintaining sanity in my professional life, which of course bleeds into my personal life. But my wife, I will say, is the bedrock for me and has been foundational in a lot of the thinking that I have around all bets.
ALAN JONES:
00:21:58:21 There you go, Joey, thank you so much for taking the time today. It's so clear that you have such passion for this. It just comes through when we're talking together. And again, it's just great to be associated with a company that is doing good within the world and has that sort of ESG forward mantra. Thank you for listening to this episode of PwC Pulse.
00:22:16:05 As we heard from Joey, putting a commitment to sustainability at the center of every conversation and event can yield impressive and long term volume results. For more information on this topic, visit PwC.com.
ANNOUNCER:
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ANNOUNCER:
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