Building out a niche allowed Wayne Edy to build a shoe company – Inov-8, sell it, and rebuy it. The story of trail and off-road runners and adventure-seeking hikers.

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Dave Young:
Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom-and-pop to major brands.

Well, Stephen, you told me the topic for this episode of the podcast, and I have to admit, I don’t even know that I’ve seen this product, but it’s a shoe company called Inov-8. Is there a dash as well, or just a number?

Stephen Semple:
I-N-O-V, dash, the number eight, inov-8. Yeah, they’re a really interesting shoe company. They were started by a gentleman by the name of Wayne Edy, and probably part of the reason why you’ve not heard about them is they are a pretty specialized shoe. They make shoes for trail running, so for people who want to run and race in the woods. They make shoes for that, and they’re really funky-looking shoes. When you see them, they’re the most bizarre-looking shoes that you’ve ever seen, and you really need to check them out.

They were launched in 2003, and they’re a private company, so it’s hard to get sales numbers to know really how big are they. But they sell in 60 countries, and they have 60 employees, so they’re doing something right, especially when you consider they’ve grown to that size and you’re competing against Nike, Adidas, and Puma, and companies along that lines. When those are who you’re competing against, and you are managed to grow to that size, you’re doing something right.

Dave Young:
Okay, so trail running shoes.

Stephen Semple:
Trail running shoes. And this is what attracted me to the story about this business is how do you build a business in an industry dominated by these handfuls of big brands with massive budgets and international distribution, companies like Nike and Adidas. How do you compete with them? And let’s face it, that’s a huge challenge. That’s a massive challenge. And he did not start this business with all sorts of private equity. He started this business on a shoestring budget, with his own money.

Dave Young:
I see what you did there.

Stephen Semple:
I didn’t even really intend to do that, but there you go, shoestring … I meant that I meant that.

Wayne grew up in Zimbabwe, which was Rhodesia at the time, and he grew up loving the outdoors. Bought an early start with a company called Barter, with was a small company involved in footwear. And he apprenticed there, and what he had to do was spend three months at each division, so he learned all aspects of the business. And he also had a chance to get exposed to all the engineering; he also had a chance to learn about retailing.

Meets a woman, gets married and moves to the UK. And he worked for a while for an outdoor apparel company called Berghaus in the UK. And then he started a shoe consulting firm because he learned all these things, and so in 1999, he started this shoe consulting firm. But then, shortly after that, he realized what he wanted to do was launch his own brand. He really wanted to launch his own shoe brand, but he knew he needed to find a niche. He knew lots about clothing and shoes, but what he also knew was these players dominated. So he had to find a niche that he could really get into that was perhaps overlooked.

And he decided to create a mountain shoe for running in the hills. In Northern England, there’s this big thing called fell running, is what they call it. The hills in Wales are called the fells, and so there’s this thing called fell running. There’s tons of different terrain. Like in the winter, it’s boggy. In the summer, it’s dry. The rest of the world calls this trail running, but there they call it fell running.

So what he needed was a lightweight, weather-resistant, non-slip shoe that could really hold up to punishing and would have small, sharp cleats in it. That was basically what he realized that he needed. And he thought he could bring some innovation to this sport. And the thing he really liked about it was that not only are runners a niche, trail runners are an even smaller niche with very specific needs. But they all read the same magazines, they all go to the same races, they all know each other, and it’s a real community. A real community of runners. So he thought, “This is a good place to start. I’ll start there with this group, and then I can work out from there.”

He invested his own money at the start. He took basically all his savings, and he plowed it into this business. And the first major expense was making the mold. A mold costs 30 to $40,000. You haven’t even made a shoe yet. You just got a mold. The next thing you need to do is you need to buy a container of shoes because the only way you can get them at any reasonable price and get somebody to manufacture them is you have to make a container load. Now invested in the mold, you make a container of shoes.

Now, it turned out he was fortunate because of being in the shoe industry as long as he was, he had lots of great contacts to be able to make them. And oddly enough, the place to make the best quality shoes is China these days. China has developed that expertise because of Nike and Reebok, and everybody else making their shoes there. So he went to China, found the place that’s got the best machinery, bought the container load of shoes, bought the molds, bought a container load of shoes. He’s got three or four months for the shoes to show up.

And in that time, while he was waiting for the shoes, he built out the marketing. And he aimed at running shops. He made a database of all the running shops, and as soon as the shoes came in, he took one shoe, and he mailed it to them.

Dave Young:
One shoe?

Stephen Semple:
So he mailed out a shoe, and then he started calling. And his passion came through when he was speaking with the retailer.

The other thing he would do is he would pack up his car and would go to races. He took these shoes out for people to see the shoes and try out the shoes, and on the first weekend, there was this large mountain marathon, and he sold shoes there, and he told the story. And a few people came up the next day to him, going, “Hey, can I get pair of these shoes? I’ve seen some people running in those shoes. Can I wear them for the race?” And the feedback that he got was the shoes were amazing.

So they were a really, really good product, and he had a couple of big breaks. The next weekend there’s a race called the Snowdon Race, so Snowdon is one of the highest mountains in Wales. He sent a pair of shoes to a guy by the name of Tim Dayton. And Tim Dayton was a farmer in the area as well as a fell runner. And he had won lots of competitions, but he had never won his local competition. He’d come second a few times, third. So he wears the inov-8 shoes, Wayne Edy’s shoes, and wins the race. For the first time ever, he won the race and gave the product all sorts of endorsements. And it really created a buzz around the design. And Wayne Edy went on to have a couple of other success stories within the trail running community of people who wore the shoes and won the races.

As soon as you saw these shoes, they were so weird. You could tell they were his shoes. Took a real different design to the approach. He didn’t care how they looked. It was about how they performed. And he stayed very short of that, even with any innovations that happened. And that DNA exists today. The shoes they’re making today are not that much different from how they started. There have been small changes in the design, but nothing really significant.

And within a month, he sold out his shoes and put in a second order.

Dave Young:
Needed another container.

Stephen Semple:
I need another container because he knows by the time it arrives that it takes six months.

One of his big successes was also getting lots of great feedback for being able to improve the shoes. Because he was working with a very small, very passionate, very supportive community, and he had some early wins that really propelled the brand and gave him great press within that community. So a year after the launch, he decided what he wanted to do was expand into the US. And he had this ultra runner, so ultra runners are these guys who run these stupid long races, called Thomas Nicholson, who contacted him saying, “Hey, I want to buy the shoes.” And he said, “Well, I’m not selling in the US yet.” But he sent him a couple of pairs and told him, “I’m looking for a partner to sell in the US,” and they immediately decided that they wanted to become partners.

So remember how we said he started in an area and he wanted to expand out? Well, he started with fell running, which then became trail running in the United States, and then they wanted to branch out into the CrossFit community. So his next innovation was moving out to a CrossFit, and Thomas was pretty involved in CrossFit. And I love this story. I want to pitch you this. Wayne and Thomas go out for dinner, and it turns out they’re the same size feet, and Wayne’s wearing a prototype of the new CrossFit shoes. And Thomas is looking at them, saying, “Hey, those are pretty great.” Wayne takes off the shoes and gives them to Thomas. Thomas wears them home, and Wayne goes home in his socked feet.

Dave Young:
Do these guys all have the same shoe size?

Stephen Semple:
It turns out they had the same shoe size. That became their CrossFit shoe. For the first bunch of years, he was just plowing all the money, all the profits back into the business. He had no investors. He took it this far with no investors. He got to this stage where eventually, he was able to get a $250,000 loan from the bank. It was part of this government program that supports startups. And in 2005, he was two years in, and he started to turn a tiny profit. 2008 ended up becoming a potential breaking point for the business. He was on the road all the time, and he was traveling the world. Because of developing these niche markets, his personal life is falling apart, and guess what else happened in 2008, was the market crash.

Dave Young:
Oh yeah.

Stephen Semple:
That changed all of his terms. Suppliers were no longer willing the ship to him or give him terms, so he needed to get another bank loan. And at this point, he had to also put up personal guarantees. So at this point, he had been able to do it without personal guarantees. He remembers his banker basically saying, “You drop this ball; you’re losing everything.” So it’s 2008, times are tough, he’s signing a personal guarantee that basically says, yeah, this is it.

So he signs the guarantee, and he continues to grow the company. But 2012 comes, and he needs more money for expansion. Can’t carry it on his own any longer. But you think about how far he carried this company, just basically on his own, financing and rolling the money in. Because he reached this sort of stage where he said he needed to grow because he’s small, to really move to the next level, but he needed cash in order to do it. He went out to private equity. And he really learned private equity has a very different agenda than the owner. He sold 42% of the business, took some cash out for himself, and he steps back as CEO. He’s no longer CEO of the business. He scales back. He needed a break. He was on the road eight months of the year. He was burned out, too much travel.

But it’s kind of a really interesting fine line when you sign your business over, and you hand over key decisions because he didn’t agree with all of the decisions, but you have to go along with it because you’re no longer CEO. While you’re the large shareholder, you’re not the only shareholder.

In 2015, Descente, the Japanese clothing manufacturer, came along and bought 88% of the business.

Dave Young:
Oh wow, okay.

Stephen Semple:
Now, I was never able to find out how much Descente bought the business for, but private equity had invested $13,500,000, so call it $30,000,000 for 42% of the business, which will put the valuation at 70 million. So for them to be interested in the bail, I got to think that Descente bought the business for the 200, $250 million range. I got to think, is where it was. But they insisted that 20% of that he stays involved. They insisted that Wayne Edy stay involved in the business.

They went on to the States, big company, large group. Strategically it was a good fit because they understand it; technical clothing, because that’s what Descente does, is technical clothing. They didn’t have a lot in the way of shoes, so Descente was able to add shoes, inov-8 was able to add clothing. So in a lot of ways, it was a good marriage. There were also challenges because it’s this big company, and it’s a Japanese corporation, and Japanese corporations make decisions in a very different way.

Dave Young:
Mm-hmm (affirmative).

Stephen Semple:
And at this point, Wayne decides he needs to start walking away from the business. So what does he do? Finds another niche in shoe wear. And he started a business called Tactical-8, which made shoes for special forces. But what he didn’t do, is he didn’t sell it to the government to give it to their military people. He sold it directly to the military people. The shoe was so good that if you were involved in special forces, you would want to do it. And he teamed up with Garmont, an Italian company, to make these shoes. Between 2015 and 2019, he built that into a $12 million brand. He ended up becoming a major shareholder in Garmont, which he held until 2020.

Here’s where things get really interesting. 2019, there’s a major change in the Descente board. The president, who was really big on inov-8, left. A new guy came in, and he said, “We want to refocus on our core market of Northern Asia.” And Wayne suddenly went, “I don’t see where inov-8 fits into this guy’s long-term plans.” What does he do? Hops on a plane, flies to Japan, sits down with the new president, says, “I don’t see this fitting.” The new president says, “Yeah, I don’t either.” He says, “I’d like to buy the company back.”

Dave Young:
Oh wow.

Stephen Semple:
Sells his shares in Garmont and strikes a deal with the president to buy back inov-8. Shook hands. Now, remember 2019. What happened in 2019?

Dave Young:
Oh my God. Oh gosh, I don’t even want to think about it.

Stephen Semple:
So 2020 hits and COVID has just hit Asia and is spreading right at the time that he shakes hands with the president to buy the company. So, in January 2020, he pushed back the closing of the deal due to COVID in Asia. It’s not global yet, but guess what? By March, it’s global, and he can’t push the deal back any further. He either had to buy or step away. He decided to step through and buy the company. He still stepped up and bought the business. And according to all the things I’ve read, they’ve had a great year, and they’re continuing to expand, and things are going great.

But there’s a bunch of lessons here around inov-8. One of them is the advantage of starting with a niche. It’s not much different than what we’ve talked about with Fox 40.

Dave Young:
Oh sure, yeah.

Stephen Semple:
Yeah. He knew his niche of fell running was not big enough to build a shoe company on. He knew that. And often, what that creates, these entrepreneurs will look at and go, “Yeah, but you know, I can’t grow it to what I want to grow it to.” So they ignore it. And he goes, “No, you start there, and then you build out. Don’t worry about your starting point about whether the niche is big enough. What you worry about is, is it a community? Do they read the same things? Do they hang out together? If I get into one, can I dominate that? And then I can grow out from there.”

So he saw it as this tribe and as this community in that you can create that tipping point where all of a sudden everybody in that community knows who you are, and then you can move out from there. And it also allows you to really shepherd the product. It allows you to spend sweat rather than marketing dollars. It’s able to go to all the meets and all of the events. When all of a sudden it’s a group of people spread out all over the place, you have to spend tons of money to get known. So he was able to really shepherd the product. It’s kind of like the work that when we go back to Spanx, this whole idea of shepherding the product. You had to be there, tell people about it, talk about it, make sure it catches on, and move it out the door.

Dave Young:
Mm-hmm (affirmative) I love a story like that, of perseverance and doing something to just help your niche. I think that’s the other thing, the other value in focusing on a niche, especially one that you love. The passion’s baked in. You are one of your customers. You are one of the people that you’re trying to support. And that gives you a different level of commitment to it.

Stephen Semple:
Yeah, and he stayed true to himself. You think about, he started inov-8 with this whole idea of being in a niche, starts another shoe business in a different niche, the Tactical shoes, and then looks at it and sort of sees these changes going on, and says, “This doesn’t fit into their long term plans, and any longer, I’ll buy it back and let’s do it again.” So it’s like his third trick pony.

Dave Young:
Yeah.

Stephen Semple:
He has not lost sight of that’s the path to success when you are the small player. And it’ll be fun to watch what inov-8 does going forward. And go check out the shoes. They are wild-looking.

Dave Young:
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