Businessweek Extra - Bombas CEO David Heath

pair to those in needs. It's a great mission. It's an interesting company, and Jason, they've done it all out of profit and with impressive growth. Here's founder David Heath. All right, so go back to the beginning. I love the origin story of this. You heard a stat, you read a stat and that sort of got you thinking. Yeah.

So I was scrolling through Facebook one day back in early two thousand eleven and I came across a quote on a post that the Salvation Army had made um and it said that socks were the number one most requested clothing item a homeless shelters, and I kind of just sat there for a second. I was like, Wow, that's pretty sad. Here's an item of clothing that I've never spent more than a few seconds a day thinking about.

And this item of clothing is perceived as a luxury item for a large group of people, almost six thousand people experiencing homelessness in the US on any given year. UM. And so I remember just kind of sharing the idea with friends and one of my co workers who ended up becoming one of my co founders, Randy Um. We worked together, so it's quite easy in proximity, and you know,

we were like, what can we do about this? And at first we just started carrying socks around in our bags, you know, to and from work and handing them out, and we started experiencing the kind of mission firsthand and seeing the elated faces of people who are like, how did you know that I needed a pair of socks? And thank you so much? This is the one thing I really need today, UM, And that I've got us thinking, obviously, like how can we help scale and solve this problem?

And you know, around the same time, you know, Tom's was in their fifth year of business and obviously the pioneer of one for one and Warbie had just launched UM and gotten a ton of fanfare and there to release articles and you know, we're like, wow, if this company is doing it for shoes and this company is doing it for eyewear, and maybe we could solve this sock problem by um, you know, imploying the same type

of mission. So we launched the company. I want to talk more about to launching the company and what you what you're doing today, But I want to go back to this whole idea of Bumble, because there's a there's a mission or mantra if you will, that you have about be better. This whole concept of bees and hives and working together. I mean, that's where it all comes from. That's a really big part of the culture of your

company totally. It's it's it's ingrained in kind of everything that we do and UM the name Bombas and the tagline and kind of the design for bees and utilization of bees and the hive kind of mentality and the hexagon pattern that's on our arch support was really kind of the UM the idea of our other co founder, Aaron walk was our chief creative officer UM and as soon as we heard it, as soon as we saw kind of the initial idea he presented to us. We were like, yes, this is it. We're going to go

all in on this. But David, you could have just made socks and handed it out or created a nonprofit and just got money in to do that. You did it a different way totally. Um. Why, Well, I mean I have always wanted to be an entrepreneur. I went to school for entrepreneurship. My dad's an entrepreneur. Um. I think I was an entrepreneur before I even knew what

an entrepreneur was. I was the weird kid in the in your neighborhood that was like knocking on your door and I wash your car or walk your dogs or do whatever. Um. And so I think, you know, I've always tried to solve problems through business, right, I've always tried to make the connection. Um. And Randy, who's my co founder, we worked Eigelberg. We worked together at a startup and so we were experiencing fast growth startup life together and we became really fast friends. And he had

a passion for entrepreneurship. His dad was an entrepreneur as well, and so we kind of just came together and we're like, let's, you know, utilize this idea as our company well, and one of the things I think, keep me honest here, that you guys also learned was that you wanted to run a company in the different way than the company where you were working. Yeah. I mean, look, there were some good things at the place we were working, Um,

there were some bad things. And I think, like any good entrepreneur, you you take the lessons that you've learned throughout your life and apply them into the world of business. And I think the one thing, I mean, the gratitude we have for what we experienced at a company that didn't have a ton of transparency, was heavily micro managed, not a lot of you know, personal empowerment, but had a great culture in terms of you know, friends being

friends with the people you work with. And so we kind of took that, but then also you know, took all the things that we didn't like experiencing as employees, um, and kind of flip that all around. And so you know, we're a hundred and thirty employees today. We've only had four people leave the company in six years. Um. You know, we were just named by Fortune is the number one best place to work in retail, uh in the US.

And so you know, company culture is is a huge part of what we do, and I think a lot of our mission actually plays back into that as well. And donate time together. We volunteered together, um, and when our employees can go out and experience the work that they're doing, you know, and see the end benefit to a person who's truly in need firsthand, all of a sudden, they come back to the office and have a ton

more humility. Right, They're not complaining when the cold brew coffee goes out of tap, right, if they have an argument with a friend, you know, Yeah, it provides a ton of perspective. So what I think is interesting too is that we're at a time coming off of the Business Roundtable this year, getting a lot of attention about it's not just about your shareholder, you know if you're a publicly health company, but there's a lot of stakeholders.

You guys from the get go have thought about the environment, your employees, you know, your workers, so many different stakeholders. How easy is that to do? And run a business and you've got to make money at the same time, and you're giving back. It's it's actually really easy to do when all of those things are built into the DNA from day one, right, I mean if you kind of put stakes in the around and say we're not going to compromise on all these different things. Um, you

kind of build the model around it, right. You set margin targets that you know, afford a donation, you you know, building op x that affords a great company culture. You know. Now we're in kind of the next life ctycle where we're big enough that we're going to start tackling sustainability in a real way. Um. And that's the thing that you know is a much bigger you know, not to

crack and it will happen slowly over time. But you know, we're we're committed to constantly doing the right thing and we feel like our customers are rewarding us for that. So talk to us about the nuts and bolts of the business. Because you weren't other than being a sockwarer. You weren't like a suck guy. You know, like you didn't have a manufacturing background. You didn't have an apparel background of any uh note, So how did you go about sort of learning how to make this product? Yeah?

I think you know the reason that company is like ours and Harry's and Warby all have seen so much success. Is because we're not in the industry. Um. You know, we come at it from a consumers standpoint. So we are disrupting these products because we ourselves were consumers of this product, right, and we saw that these were nascent categories, right, not much time and attention or energy. We're being put into raizors or you know, eye wear, our socks, you know,

some of these more commodity type products. Um. And I think that gave us a huge competitive advantage. Um. Luckily. I mean this is where like luck plays a huge part. My godfather was actually in the hosiery business for forty years. Um, and so when it came to actually figuring out who are the best manufacturers, you know, what are the best places to produce Um. He is a guy. Yeah, he actually was the presidency of gold Toe for a bunch

of years in the early nineties. So um, he knew had every factory relationship and kind of walked us in, you know, through the front door, and you know, vouched for us. We'll talk to us about that because I do think we all know about the horror stories and retail manufacturing. So as part of your mission, I'm assuming you're trying to make sure that you know, wages are fair and so to go forth. I mean, how easy is that to do this this in this day and age.

It's pretty easy. Um. You know, there's a ton of third party compliance um auditors that you know, independently certify these organizations and factories and you know you kind of just look at you know, what's your AP certification and you know, we we also work with an organization called Made in a Free World, which our factories have to sign a piece of paper, let's say, is that they'll open up their supply chains because I think one of the difficulties is often your factory might be good, but

the place where they get it, or the place where they get you know, their stuff gets the other stuff might not be. And that's actually one of the hard parts of consumer technology. Conversation with someone about retail supply chains, and they just talked about so many different people and layers in the middle, and unnecessary layers at some point that really contribute to that sort of opaque nature of

the chain. Yeah. And one of the things I'm learning, you know, as as we kind of dive into this and become more you know, focused on all of these efforts is you know, it's actually like hardware components, So you could have some trace element of some metal that's being mined somewhere, and you know, it goes through three people before it ends up in your laptop or your iPhone,

and you know, it is really challenging. But you know, I think with technology and I think with the age of information sharing that we're in, all of these things are starting to become more prevalent and start to rise

to the top. So when you think about sort of getting going and getting the product to customers and getting that getting it in front of them, not even just physically, but just the idea of it, you guys, I mean it's become almost like a meme, you know, in terms of like the amount that you're advertising on podcasts and and things like that. Was that always the strategy, just like we got to get to the people, We gotta

flood the zone. What what are the mechanisms to do that? Yeah, I mean we knew that we wanted to be a digitally first brand, right Serrany and I worked at a digital media company and so somewhat in our kind of you know, blood um and this was kind of the world that we grew up in the world that we knew UM Randy is an incredible storyteller, and so you know,

we really wanted to leverage the power of storytelling. Which actually the unlock with D two C is it allows commodity type products like a sock for instance, director consumer um. You know, you can spend three minutes on a video on your website and someone will watch it. Where you know, if you're walking through nord Strums, you're not going to stop and watch a three minute video on a sock company, right um. And so that was kind of a huge

unlock for us. But you know, from from day one, we were always just focused on UM positive r o I in terms of customer acquisition. You know, I think one of the things that really separates us from a lot of our peers is that, you know, in total to date, we've only raised four million of capital UM, while a lot of our peers have raised fifty fifty

million dollars with these crazy evaluations. But you peek behind the curtain and none of them are generating any money because they're chasing this lifetime value per cost pro acquisition ratio. We kind of went back to the fundamentals were like, consumer businesses have been around for you know, a most a hundred years now, and the way that consumer businesses work is buy a product for Y, you selive or x,

and you run the company off of the margin. And so we're like, why does director consumer have to be any different? So we really bucked a lot of the trend there, and we've been profitable every single year that we've been in business except for a year two, which is a big kind of growth capital year for us. But your growth rate been a hundred percent year over year some years, you know, close to two UM and you're like at a hundred or two hundred million sales, Yeah,

just about Yeah. And so talk to us about the customer. I mean, I'm a customer and and it's interesting because I've both bought socks and then you know they've been giveaways and or whatever. It is a great gift. Who is the typical customer? If you can generalize there, there isn't really just one. I mean, we are actually you know, what we've been super surprised about is that we have super broad demographics. And I think that's to the point, right,

socks are an item that every single person wears. Um. You know, whether you're two years old or ninety two years old, you're probably wearing socks at some point, you know, in your year, even if you live in warm weather climates. Um. And I think the idea that you know, we've produced something that stands out in the marketplace, it's super comfortable. Comfort is not unique to uh, you know, millennials or

Gen xers or boomers. Right, everybody wants to feel comfort. Um. And so yeah, we've got just as many customers who are you thirty five as we do customers who are sixty five to seventy five and older. Um. Same thing with demographics in terms of you know, spends we have of our customers are an under fifty dollars a year and over a d fifty dollars a year, and so we see it as somewhat of an affordable luxury. Right. One of the benchmarks that we've always used was Starbucks. Right.

We took a commodity type product, improved upon it, provided a really good customer experience in a great brand, and all of a sudden, you can see how a customer who used to spend twenty dollars a year on socks could spend sixty dollars a year on socks. It's not the forty delta is not the difference between them, you know, paying their mortgage or not, where you can't do that

with something like a car, right. And so I think because it's an affordable luxury, and because we have the mission, and because our product stands out so much in the marketplace, it attracts a large group of customers. Well. And I also do think about something we've talked a lot about that people are thinking about, let me let me do something, let me pay some you know, I'll pay up for quality, right,

and something that's going to last. But that also is giving back and doing good and not maybe impacting the environment as much. And we are slowly maybe seeing a lot more of that happening in retail. I think about Fashionopolis, right, and you know kind of the waste in the retail industry, so that people are starting to kind of filter through

and you're seeing that play out totally. Yeah. I mean again, we're living in a social media age, right where information is king and no longer can you hide bad company values, you know, behind a closed door. Right, all of this stuff, whether it's glass door with your employees are you know, social media where the customer is going to post whether they had a good experience or a bad experience on any one of your social posts or one of your ads. Like,

so you've got it. The benchmark and the standards by which you have to live are so high. But it's great because it makes everybody responsible, right because the lens and the and the voice has moved, you know, the power has shifted back to the consumer where yeah, it used to be, but there was always kind of a delay and you could kind of cover it up for you know, a while. But this day and age, like information is like flowing rampantly, so you can't hide behind

these things. I mean you look at some of these companies and look at the wee Works or even Away which just happened. Like, you can't prop up a company on you know, bad actions. It will eventually sus out.

So you've got to play by the rules. And so have you had any of those sort of I mean, this has been a really nice straight line up, it feels like, generally speaking, but surely you've had some sort of gut check moments either early on or maybe midway on where you thought okay, either this was a bad decision, or this wasn't working, or this isn't matching on the way we thought. Tell us about one of those times. Yeah, you know, I think we have been incredibly lucky. Our

growth has been pretty sustainable. Um, we have had very little turnover. You know, I think we've done a lot of things right. Um. I think some of those strategic decisions happen more internally around you know, what's the pathway for the company, right, you know, do we how long do we stay in just socks? Right? And then what's the category we moved to after that? Is that category determined by what our customers want from us? Or is it determined by what the second most requested clothing idemen

homeless alters? Is lucky for us, they happen to coincide um, which is underwear, and we're you know, working on that and we'll have that out shortly. Um. But you also have shirts and sweats like you have expanded, right, But even now we're starting to think, okay, do we just become a socks teason underwear brand and you know, is sweats and some of the other products we're working on. Is that dilutive at this point? So These are these hard conversations that you invest a lot of time and

energy into. But I think one of the things that a great leaders and the things that I'm learning about being a CEO is sometimes you have to stop and really got to check yourself and say, just because we've started to invest time and energy and resources into this thing, we still until it's out in the public, and even after it's out in the public, you still always maintain control about what to do, and you can pivot. And I think the best company has decide to pivot when

it's even when the decision is really hard. Do you stay directed consumer? So we're predominantly director consumer, mostly because that's where we're seeing all of our growth. Um. You know, so nent of our sales happen through bombas dot com um two percent of our sales happen in retail, mostly

because we've seen a lot of demand there. But also we know that if our goal is to build a billion dollar plus global, you know, apparel company, we have to be homni channel, and so we're kind of dipping our toe into retail and learning, you know, how do we show up to the customer, How does does the customer understand our mission when they just see a pair of socks on the shelf, right, And I think what we're seeing is that because we've got an incredibly large

marketing budget, you know, and we're telling our stories so much online and on podcasts and on radio and TV, that actually some of that's bleeding through. So we are actually the number one selling soccer brand in every store that we're in, and you know, we're like, ooh, that's amazing. We must have done something well and they're like, no, you your marketing budget is about a hundred times more

than the next people who we are. Um, so we feel really excited about that, and you know, we're once we kind of continue to build out product categories as well. We're excited about what a Bombas retail location could look like, and you know, really framing it around potentially making a community center where part of the time we open up the doors to the homeless community where they can come in and shop. Um, everything will be free, but they can shop the most needed items that we have available

for donations. And like Lululemon and Nike where they utilize their stores for run clubs or yoga, we could use them for volunteer events. Where we gathered groups of our customers then go out and serve. It's really exciting about what's to come. But again, I think the hard part about being a leader is, you know, is narrowing in on your lane and saying, look, that stuff will come right. It doesn't have to be tomorrow, it doesn't have to be in two years or three years. Like we want

to build a company for longevity. And I think again, I think this this notion of taking on a lot of fundraising early on. You have this immediate expectation that you've got to go from zero to five million in revenue in three years or else you're not a success. But the big manufacturer came to your big brand conglomerate because we're seeing a lot of like yeah, like, how do you say, Because there's certainly a lot of benefits to staying on your own and staying private and staying

you know, or being part of a big company. Yeah, I mean, we're again, we're profitable, so we have a lot of optionality. Um And I think that's been one of the best disciplines about us focusing on profitability is that we're not forced to make these types of decisions because we're running out of cash, which again I think a lot of our peers do. Some of the acquisitions are either raise more money or get acquired. Um. And in our experience when we've watched those played out, they

haven't played out very well. Um. So again I think we you know, we look at the brands that really inspire us, the Nikes, the Patagon News of the World. Right, they're independent, right, Lulu Lemon's right. Yeah, I mean they're public, but you know, they still get to drive the error and core values. And I think when they run by

their values, you see a long term success. Because those companies all established to be you know, hundred year old companies when they started, right, they didn't want to be a flash in the pan. They didn't the founders weren't like, let's just make as much money as possible and get the hell out and go to our next thing. And I think when we start to get inspiration about other leaders in our space, um, those are the people we look to. It's not the people who are kind of

adjacent to us. You know, we're not worried about, you know, whether we're on the front cover of ink or all these other things. We kind of just like put our head down, worry about us, focus on just delivering a really good product, a really good experience, really great you know, company culture, and the rest will play out over time.

That was Bombas founder David Heath, and I think what's interesting is that we've seen a slew of companies Jason with this all idea, if you buy something, then something gets donated. I think it's what consumers really like. And what I also like about David is that in this world where there's so much money chasing opportunities in the startup world, sounds like that they were very responsible in terms of expansion and how they spent their capital. I

totally agree. It was very methodical and interesting to hear, you know, in this year where there's been so much governance drama and fundraising drama, and in a week where we have the soft Bank story sort of coming to the four on the cover of the magazine, right, here's a company that has sort of like gone along, built, as you say, sort of responsibly all across the board.

You've been listening to Bloomberg Business Week Extra, be sure to tune into Bloomberg Business Week Radio Live Monday through Friday at two pm Wall Street Time, I'm Carol Masser and I'm Jason Kelly. This is Bloomberg