Can You Actually Do Well by Doing Good? Cotopaxi CEO Shares His Story
Davis Smith is the CEO of Cotopaxi, a company that sells a premium line of outdoor gear. Before founding Cotopaxi, a B-corp that has been a subject of a Harvard Business School case study, Smith had founded two other companies: baby.com.br and pooltable.com.
We asked him how he went from selling baby products in Brazil and pool tables in the US to founding Cotopaxi, and what being a certified B-Corp means to him and his business.
It Doesn’t Matter What You Sell
Smith says that the common thread between all of his businesses is e-commerce, which he has been involved with for twenty years.
Having lived in the developing world as a child his heart has always been in the international world, so he did two minors as an undergraduate student: one in Latin American Studies and another in Business Management.
In an entrepreneurship lecture series featuring different speakers every week, one entrepreneur talked about an alarm system for homes. When a student asked if the entrepreneur was passionate about alarm sales, he said, ‘No, I’m not passionate about alarm systems, but I’m passionate about my own business. It doesn't matter what I sell, because it's mine, something I’ve created the idea for and built from the ground up.’
This was an important lesson for Smith, even though now he has a company he is very passionate about. “And I will say, there is a difference,” he says. “I feel very engaged with what I’m doing. But I was also passionate about my last two businesses, even though I wasn’t passionate about pool tables or baby diapers.”
Is Doing Good Good For Business?
Like Toms Shoes or Patagonia, Cotopaxi has a social mission to give away 1% of their revenue to causes that improve the human condition. Smith says that he has always known he wanted to help other people.
“One of my first memories as a child was seeing children my age who were completely naked on the sides of the street. Those kinds of experiences shape you,” he says. “I understood early on that I was very lucky. My family didn’t have a lot, but I had opportunities that these other people would never have, only because of where I was born. So, I’ve always felt a deep responsibility to help others.”
“Before I knew what I would sell, I knew that I was going to build a social enterprise,” Smith says. He is certain that If you build your business and culture around your philanthropist values authentically, people will support you.
“I would do this no matter what,” he says. “But I also believe that doing good is good for business.”
Cotopaxi has customers who chose their products over others and employees that choose to work for them because they believe in their mission. “Who doesn’t want to support a business that’s aligned with their values?” Smith asks.
“Capitalism needs to evolve,” Smith says. “And the way to do that is to give businesses incentives to do the right thing.”
Cotopaxi is the kind of brand that shows others this is possible.
The Llamas That Made a Cotopaxi a Harvard Business School Case Study
Image credit: npr.org
In the case study, Smith told Harvard Business School about how they launched Cotopaxi. Unlike most companies that launch online, Cotopaxi bought two llamas on Craigslist and took them to college campuses around Utah.
When people would come and ask about the lamas, the Cotopaxi team would tell them about a 24-hour adventure race festival they were organizing.
Thousands of people ended up attending the event. When they launched their website, they had thousands of people gathered around them, completing challenges. Every attendee of the event got backpacks and Cotopaxi immediately got 30,000 social media posts.
What Makes Launching Physical Locations Still Viable?
When Smith built pooltables.com in 2004, he started by selling online only and opened physical stores later on. They saw that whenever they opened a physical store, their e-commerce sales boomed because more people were exposed to the brand.
Smith admits that if you’re a vending machine that is selling a product that everyone’s selling, the competition will be too high. “But if you sell something unique in a small retail store, you have a higher chance for success,” he says.
Smith went to business school with the founders of Warby Parker. They invested in each other’s business. Both Cotopaxi and Warby Parker use online and offline retail stores now.
“Location, location, location.”
“Today, digital brands have a wealth of data,” Smith says. “Twenty years ago, a brand had to make their best guess to decide where to open a store.” Cotopaxi can look at their database and see where their best customers who evangelize their brand live, and open a store there.
Why Are Cotopaxi Products So Expensive and Who Buys Them?
Cotopaxi works with premium factories and production partners because they care about their carbon imprint, material, and labor rights of their makers.
Their sewers are told to never make two bags alike. So each bag is unique and sewers have artistic freedom.
“You have to position yourself somewhere,” Smith says. “Our customers are people who care about having a great product done in the right way.”
But according to Smith, it is possible to be a social impact company when making a product for the masses as well.
“Warby Parker glasses are only $95 for a pair,” he says. “They did this by disrupting the traditional supply chain.”
Cotopaxi has had over a million transactions since they launched six years ago. When they started, they only sold five types of backpacks. Now, they have different offerings that allow people to come back for new purchases.
Instagram and Facebook are the biggest platforms for Cotopaxi to acquire new customers. Email, traditional display ads, and a referral system are also fruitful ways to drive traffic for their website. But their most effective marketing tool is organic and comes from word of mouth.
The Main Challenges in Their Business
Like any small brand trying to break through, Cotopaxi’s main challenge has been finding ways to make their brand known.
They have a team that tells Cotopaxi stories. “Some go travel to factories and social impact partners to take pictures and write stories about the impact we’re making,” Smith explains. “But a lot of the content is user generated on social media.”
They also hire refugees to write thank you cards to every customer in their native language.
Smith, pictured with former presidents Bill Clinton and George W Bush, is a graduate of the presidential scholars program. Image credit: snewsnet.com
Smith's Long Term Vision: Mission Before Ego
When Cotopaxi launched, they chose venture capital as their main funding source. So, at some point, their investors will expect to get their money back.
“One way to do this would be to go public,” Smith says. “You can also remain private, take private equity money from people who believe in you.”
“This is my life’s work, my deepest passion, so no matter what happens, I will remain deeply involved. That’s why I'm not very interested in going public.”
Smith believes a lot of going public is about ego, about being the CEO of a public company. And he cares more about the mission.
He built his mission so deep into the Cotopaxi brand that even if someone tried to buy the brand and take the mission away to maximize the profit, they would ruin the brand, so they can’t.
“We’ve donated more money than we've ever made,” Smith says. But Cotopaxi investors knew what they were getting into from the beginning.
He explains how in the last board meeting, they talked about how many people they helped since the beginning of the pandemic. Investors were all smiling.
“Besides, there’s still room for investors to make money after they donate,” Smith says.
How Did They Come up With an Idea Worked So Well?
“For every success, you hear about,” Smith says, “a company had many more failures. Throughout my entrepreneurial journey, I tried many things that didn’t work.”
For example, they’ve had several unsuccessful Kickstarter campaigns before coming up with their big Llama plan.
Two CEO’s from the E-Commerce Age Davis Smith Admires the Most
Jeremy Andrus, CEO of Traeger and former CEO of Skullcandy
“Traeger does barbecue smoker grills. Jeremy’s a brilliant entrepreneur and an early investor in Cotopaxi. What I love about Jeremy is his humility. He built some very big businesses. But on the day he made a tremendous amount of money from one transaction, he took his family to volunteer in the soup kitchen. That’s the kind of person I admire.”
Neil Blumenthal and David Gilboa, Co-founders of Warby Parker
“They’re the two CEOs that showed me how you could build a brand that would focus on giving back. For every pair of glasses that they sell, they give someone in the under-developed world access to eyecare. They’re the ones who put B-Corps on my radar.”
“It is critical to identify the core values you stand for and build those into every aspect of your business, culture, and brand. Build rituals and traditions in your culture that reflect those values. Because ultimately your culture and brand are just the two sides of the same coin. You can’t build a great brand without great culture.”
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