Ep. 52 - Building Brands that Stick: Lessons from the Rise and Sale of Backcountry.com

Speaker A: Foreign

Speaker B: it's the SAS Brand Strategy show from drmg. I'm Mike Jurassi with my friend and partner Dustin Robertson. And today we are discussing Memory laning, dissecting the latest chapter in the backcountry.com saga. Not necessarily SaaS related, although backcountry does have a history of making its own software long ago, but more along the lines of culture, risk, revenue models. What am I missing in that, Dustin?

Speaker A: Your point of view, you know, and like basically what, what builds a brand. So I would say it does tie back to is you say you're for everyone, you're for no one. That applies universally.

Speaker B: So yes, growth models and what comes hand in hand with growth models and how you can lose the thread of uh, the narrative that's actually pushing the business forward. How's that?

Speaker A: That is good.

Speaker B: Yeah, I like that. So for those of you who didn't hear the news, uh, backundry.com was sold to a company called CS Generation. Never heard of it before. Dustin, do you have any insights or um, knowledge on CSE generation that's relevant here?

Speaker A: No, I had never heard of it. I love that they tacked on generation to the name to imply that they build lasting businesses I think is what they want us to believe. And then if you look at the businesses they own, you've actually heard of them. So I was like, oh, sur la ta, the cooking store at the mall. I actually like going in there. That's a nice experience. I'm way into cooking. So they do a good job. It's no William Sonoma, but it's, it's good. They got interesting stuff in there. And then they own like one's uh, King Lane which was um, came out when like guilt group and a bunch of kind of high end closeout fashion and homeware sites were out. And so one's Kings Lane was, was one of those venture backed sites that I think curated cool stuff for the house. They own that brand. They own Touch and Modern, which I think was essentially another like homeware kind of Internet first furniture site and then they owned a direct buy which actually don't know what that is. And now they own backcountry and motorsport and competitive cyclists and Steven Cheap.

Speaker B: And the short, I think the uh, word on the street is that they come in and um, purchase what they would call distressed assets and apply their model of E commerce to kind of bring the business back around to profitability. I've got the uh, boilerplate from the very short and succinct and empty press release that backcountry and CSC put out together. They were clearly caught off guard that the news was leaked somehow. Not sure. It was called the Pulse. Is that the.

Speaker A: Yeah. Uh, there's a research firm that tracks retail credit worthiness essentially and they, I don't know, they got an interview with the CEO or it looked like they did. I don't know, maybe they got the press release and made it look like they did an interview. But anyways they kind of had this news behind a uh, paywall.

Speaker B: Yeah, the press release definitely came out after the article, I think. I would imagine that the Pulse got wind of it and then threatened to publish unless they like you can go on the record or we're going to publish anyway and then you're going to be left holding the bag. But anyway, part of that press release. Here's how they describe their plate, their, their business in the boilerplate. That is the supposedly objective language that accompanies every formal press release to describe um, what the company does. CSC Generation Enterprise is an AI enabled multi brand platform that acquires and transforms retailers into profitable digital first consumer centric businesses. CSC's retail platform is purpose built around its core M and A strategy and drives alpha by encoding revenue growth, unit margin management and other expert level retail prices into automation and AI. CSC owns and operates more than 10 retail, e commerce and wholesale brands including Sur La Tabla is how I say it. Backcountry and one Kings Lane.

Speaker A: They only mentioned AI twice, so.

Speaker B: So yeah. Ah, yeah. Can you translate that for me? Somebody that might be more familiar with, with this, this realm, they basically go

Speaker A: cut costs out of the business and there was a platform and a process that will save money.

Speaker B: Thanks. And they're going to apply that model to backcountry. Assuming that. Okay, so for those that don't know, Dustin, do you want to um, give a little bit of background about why we maintain a probably over index and interest in Backcountry.com's futures and fortunes?

Speaker A: Yeah, it's why we're here, I guess. Maybe we don't talk about that often, but it's literally why we are having this podcast. It's where I met Mike. It was where I learned my craft from getting to work with people like Mike and then all the other amazing people that we worked with there. But it was my first job out of college.

Speaker B: Um, and you were employee number what?

Speaker A: I don't know, like three or so. I mean John had the idea when I was still in college and we were in room. We Worked in room service at Snowbird. The best night job. It started at like 5:30 so you could go like bell to bell. The only bummer was you didn't get out of there till like 12:30 at night. So first chair was sometimes hard to make anyway, room service in the Cliff Lodge. And he in 1994 said we should sell avalanche beacons on the Internet. And we had just gotten our avalanche beacons from the ski patrol because they would place an order with Ortovox in Austria and that was kind of the only way to get them back then. They weren't readily distributed. And we were sitting there playing with them and he's like, we should sell these on the Internet. And you know, obviously, um, how many people know what the Internet was in 94, but it was a thing. It was going on. I had it at school, I had an email address, I had a few things. And I thought that that comment was weird. I remember when he said it, I was like, oh, okay. I didn't really think much of it. And he, yeah, he did it. He sold an avalanche beacon in 96. It's only two years old.

Speaker B: The whole other story, which is, which is great. Part of the lore of going to another store and buying it and then slapping it in a box and putting a sticker on it and sending it off.

Speaker A: Yeah, he went, uh, at that point, I guess re had peeps avalanche, uh, beacons. And he went down and bought it at REI once he had sold one. So whatever, man. He was like fake door testing it, figuring out if he had a business. It was great. And the original website was basically just like a basic HTML page that was a grid that listed the products. And he had some janky shopping cart that apparently somebody was willing to put a credit card into. And that's how it started. So I kind of was with him from the start because then I took a real job out of college and I was just helping them on the side. Like we launched an affiliate program right away. We were commission junctions, like 76 customer. Which this is going back into the old, back in the day Internet stuff. I mean there was no Google back then. We were trying to get ranked in altavista and Lycos and Excite. I mean this was fun times.

Speaker B: So when you started, There was about 10 people in the warehouse space in Heber City.

Speaker A: No, there was no warehouse space. It was just the, uh. We just sat in the shop in Heber and the warehouse was all around us. Like we just had our desks in the boxes and we were answering phones.

Speaker B: And how much revenue were you guys doing?

Speaker A: Uh, we did a million dollars the first year that I worked there full time, which was, uh, 2000. So I don't. I don't remember what they were doing before that.

Speaker B: By the time you left, how much revenue was backcountry doing?

Speaker A: I mean, we need to talk in generalities, because I'm probably not allowed to say specifically. So I would say north. North of 400 million.

Speaker B: Yeah. So during that growth and how many employees do you think there were at that point?

Speaker A: When I left? That's a good question. There. Yeah. Was at least, probably 600. You know, a lot of, like, we did all our own logistics and all our own support. And so, you know, the warehouse was by far the biggest team. And then we built out this concept of gearheads, which has been nice to see lots of people mention that as the thing that still kind of is differentiated at the business and respected. So we had at least three or four hundred customer service agents that we called gearheads. And they were. They were skiers and bikers and fishers and climbers. If you called, you talked to somebody who did your sport.

Speaker B: That was the jam during the course of those years. And people and dollars. I mean, there is. You guys were inventing it from scratch, pretty much. You, as you said, you were like, google didn't even exist. You were trying to figure out how to rank for everything. You're like, when I was doing pr, if there wasn't, like, some sort of attribution to the value of what I provided, then I was in deep shit. So they're trying to figure out the E commerce game from day one, and you guys were kind of, uh, ahead of that. And the interesting part is, like, there were very unique people and customers that were willing to buy the ticket and take that ride. Like, there was no guarantees on that, but people were drawn to the idea, to the promise, and honestly, to the culture of what backcountry was establishing.

Speaker A: Yeah. And I don't think we knew that in 2000. We were just trying to build a business on the Internet, which was a new thing. And shortly after we started, the Internet exploded and then imploded. So we had competitors like Fog Dog come and spend $180 million in 18 months. In our category, Planet Outdoors, you know, was funded to the degree of like, 90 million or something. These things blew up around us. We took no money. Like, Jim funded the business with a lien on his house and his 401k. That's how we built the Business that, yeah, eventually apparently went on to do $1 billion. I don't. I wasn't there for that, but I've heard that number thrown around.

Speaker B: All right, so the crux of the, um. I think what I'm trying to get to is the crux of the growth was the deep immersion within the outdoor culture, the understanding of it, the framing of business around that. You know, you guys did some really innovative things with developing team and sponsorship, but you also, like, you had people that were dedicated to hanging out on the TGR forums to, like, become part of that community and be part of that conversation and Burton's forums and all those other things, like, deep immersion in a unique and niche culture.

Speaker A: We had a strategy of focusing on the most passionate, zealot participants in the sports that we played in. And we positioned ourselves as we were for athletes. We were not for recreational people that wanted to get started in these sports. We weren't the place for you. And we just straight up held that position. And a lot of people question that and were very uncomfortable with that. And it was ultimately why, you know, I left. And, um, you can kind of see where the brand went. Nobody thought we could continue to grow if we kept that focus on the core, as we used to call it. And it was funny because we had this focus, and our number one SKUs were Denali jackets, snow clogs, you know, things North Face Noopsay, which I guess is back in style now. But that was, like this down jacket that was wildly popular and, you know, nobody, none of the core was buying that stuff. So it worked. Having, uh, this chimney effect of focusing on the uber elite of the sport, but making sure we were inclusive to anybody who wanted to come and check it out. So it wasn't like we said you couldn't come, but we didn't have beginner skis. Like, if you, if you just wanted to start to learn ski and you want to buy your gear, you couldn't do it. We didn't sell that stuff, but you could get a jacket and you could come get the goggles, and you could see what Sage, who was on our team and getting clips on the Wild World of Sports with the goat on his helmet, like, all of that stuff happened and you could absolutely come in and participate in that. So we just made sure that it was inclusive but exclusive.

Speaker B: So looking back, if you're applying kind of lessons learned and thinking back on, um, the madness that was, but the threads that came out of it or the pillars that came out of it that you Guys used to guide the growth and keep everybody aligned. And on the same page, like, what are, like, the top three things that you really drilled into the team to make sure that you weren't wandering off course, that you were maintaining that function? And on top of that, like, what trying to think, how to phrase this, like, what gets lost when you go off those rails and you start chasing other things. I remember various conversations I was involved in with Jim and John and you. And we'd be talking about ideas and, uh, a lot of ideas would get thrown out. And ultimately Jim would come back and just say, like, that's not what we do. We don't do that. That's not what we do. Like, very pragmatic about some things. Like, we'd have some crazy shit ideas out there and Jim would just look at us and be like, that's not what we do. And, uh. And so, like, I'm always reminded of that, that, like, there was like that. That upstairs top office, you know, and John was always throwing crazy ideas out too, but Jim was always like this pragmatic. That's not what we do. Maintain that focus. So, like, what are the other things that kind of like, ensured that you guys, like, because ultimately the culture and the growth that you guys had and the thing you had going on was what was compelling to outside money to come in and purchase you?

Speaker A: Yeah, I mean, we got as close to the customers as we could, and these customers were passionate. And so once we had the attention of people who had passion and then we got them to associate our brand with that passion, it was like game over at that point. Like, nobody, nobody else could. Could come in. And that's why we integrated into every core community we could find. That's why we would. We would constantly come up with ideas that were not what we did. And we would. We did have tension in the business. It's not like we just got a checkbook to go run the stuff. We measured everything to the third decimal point. So if we built out an athlete program, which we did, we taught them all how to blog. This is before anybody had social media. We bought all their URLs, we made them online presence, like, taught them how to do it, and then had them drive sales to us via affiliate commissions. Like, that's how we got the athlete team started, because we had to tie it back to how do we make money. And it was a little ridiculous because only a few of them actually blogged, but a few of them, it really, like, propelled them. So, like Jeremy Jones, who started Pow. He was very, like, you could tell, very interested in learning and wanted to know everything we knew and did everything we said and killed it and totally, I think, changed the trajectory of his career by just paying attention to what we were showing him. And then. And again, this is before anybody was paying for social media posts or any of that stuff. And we were the only ones being like, no, we're. If you guys get, you know, pictures in the forums or we didn't care about a magazine cover, I mean, obviously that was cool, but we were much more interested in the digital content they would produce. And so it's just, yeah. Being close to the customer and then making sure that you're connecting everything you can that will differentiate you and that it does tie back to how you make money. So, you know, Jim saying, that's not what we do. Well, we knew we had to answer that. So we would come up with these crazy ideas to do what we knew was right. But. But it would also tie back to. That is what we do, Jim, if

Speaker B: you can tie it back to revenue.

Speaker A: Yeah. Which, I mean, the best. I still think our best idea was the shuttle pass driver and I. Uh, well, no, we were going to generate content. We were going to get reviews for the gear. I think that's how we got them to agree.

Speaker B: We were going to do sampling. We were going to, you know, do interviews, you know, as a sampling thing, as an interview thing for content. You know, we were going to have like guest bus drivers that would be the athletes that we could use for primary. But all those things, as you said, had Jim's like, great, that sounds really fun. Like, how do we tie it back to revenue? And so it forced us to think deeper and deeper into these. These ideas to make sure that there was like, that we were being held accountable. And that was also a precursor to what CMOs are seeing right now. It's like you have to own a number. You have to show me that you're driving these activities, you're driving people back to the business and they're actually clicking by eventually. So, like, that all these things were like super early and it really pushed us to. To think out of the box. I hate to use that term, but like beyond the box, beyond the normal frameworks and the conventions that most people ran with and, and to make sure that it tied back to revenue.

Speaker A: Yeah, it was great. I mean, again, I learned. I mean, I spent 13 years there learning how to do business, also learning how to be a leader. So anybody who had to work for me back Then I'm very sorry. I was learning. I'm, um, much better now. I do feel bad.

Speaker B: Well, you and everybody else was learning.

Speaker A: Yeah, we were all learning together. But, you know, the one thing is it was everybody there had a growth mindset. And so I think that's what made it work is we were all kind of learning together and just constantly trying to get better and nobody was walking around arrogant, thinking they had it figured out.

Speaker B: So, um, thinking about growth and thinking about the CSC generation news, um, you know, my thesis is that the outdoor industry is not necessarily the cash cow that a lot of outside investors see it as like OIA puts out. Um, they do a fantastic job doing research and lobbying and putting out, um, information. And sometimes I think it makes the industry look bigger than it actually is. Especially if you're talking about that core element. Outside money comes in. Whether it's PE or some vc, their game is to grow the business to the next phase so they can flip it to another PE or VC firm that specializes further down the road. And what happens in my thesis is that that just doesn't. That homey don't play that. To use a dated reference that keeps coming up. It's like there's something built in to the outdoor industry. Businesses that limit its ability to grow, whether it's organically or, you know, synthetically, without completely bastardizing the brand and sometimes by doing both. And so what's happened here, it appears is that the model that the PE that was owning backcountry was trying to apply via, uh, retail, via private label, via some other things just didn't pan out and they had to offload the asset. And so now they've got a new owner that specializes in, quote unquote, distressed assets. So tell me, tell me where my thesis is wrong on that.

Speaker A: I mean, everybody makes an investment to make money. So for the outdoor industry to be an industry, it needs to make money and it needs to be investable. And I think that's kind of the core crisis that's going on in the industry right now is it's, it's not investable.

Speaker B: So, so why do you think it's not investable?

Speaker A: I think a lot of it has to do with the growth it saw during COVID that took like 10 years of industry growth and compressed it into two years. And so normally if you invested, you would say, okay, the industry's going to grow at, you know, a compound, uh, annual growth rate over 10 years of 25%. And you can build a model around that to Be like, okay, if we do X, Y and Z and D, then this will be sellable for this at the end. And you can't do the, there's no, the compound growth rate right now is negative. And so that, there's no, there's no model you can build where you're like, if I put a hundred million into this, I'm going to get a billion out in 10 years or I'm even going to get 200 million out. And I think it, it's, it's that at the, at the financial level and then you start peeling back the onion and there's just, you know, there's the mega brands that have all diluted themselves and then there are. It's never been easier to start a company. So there's tons of startups that are solving specific problems. Kickstarter. I just got a Kickstarter for a car camping. They call them Chuck boxes in Australia. It's where you put your, uh, kitchen stuff. I have one. This thing's super cool. It's made out of metal. It like looks very, very sweet. Solves a very specific problem. They're $600, but it's like one guy's making these, right? He doesn't, you know, he, he can do that like the, the world has shrunk. And so I think that's, that is just a challenge for these big outdoor brands. And the big outdoor brand retailers is the world shrunk. And so I don't need to go to backcountry to buy my chuckbox. I'm going to go to this guy who spent 10,000 hours thinking about the chuck box and has started to make them. And yes, they're expensive, but it's the best thing and the only one I'll ever buy. And yeah, if I'm going to go to the get a chuckbox, I'm going to go to the chuckbox guy.

Speaker B: Yeah, same thing with Japanese cut saws. But that whole idea of world shrinking and the Internet kind of enabling that, like that was what the premise of backcountry was, was your, the market in Salt Lake City for, uh, avalanche transceivers was really small. The market for avalanche transceivers nationally was larger. And so by bringing that whole market together into one place, you actually have a viable, semi viable business. But as a, as a model for like starting small and focused and within a passion like that, you can attract your own audience and your own customer base. So we're just kind of microing that even again.

Speaker A: Yep. Fortunately or unfortunately, yeah. And so an aggregator is just a tough spot to be, especially if you're going to aggregate and stock that inventory. So you have to pay to store it and dust it and move it around and then you're going to tack on like expensive retail stores to display it and merchandise it. It just doesn't work. And so that's why they were trying to sell their own stuff. But if you ruin the brand, nobody wants to buy your own stuff. So I think their head was the problem with it.

Speaker B: It's like, oh wait, we doesn't stand for anything anymore.

Speaker A: Yeah, we do lose brand. We've over ordered. We've had to like discount all the house brand stuff. So why would anybody pay full price? You can get this stuff at 70

Speaker B: off and then you cannibalize your brand partners, um, products as well and you are more constrained on pricing with those.

Speaker A: Yeah. With all the brands selling direct though, I think the, the retailer brand relationships are just uh, they're different now. I bet people aren't super angry that they were making their own stuff because they're over selling their stuff themselves. Right.

Speaker B: Yep.

Speaker A: That was another thing we didn't have to deal with to give the current management team credit. Like it's a totally different world. All the brands sent us sales. I forget. I think it was like 15% of our sales came from the brand's websites. We created this thing called vendor links and it was a giant revenue source and it was because none of the brands could ship to consumers that just weren't set up for it.

Speaker B: You guys served as the back end, um, fulfillment.

Speaker A: Yep.

Speaker B: What's, what's on top of your mind on thinking about like the experience and now and now where it's headed or else like the future for, for what's happening here.

Speaker A: I mean I, I think it's just that uh, the rule that never changes is like you've, you just can't be for everyone. And so you know, Chuckbox guy, like his market's not very big so you know, that's the expectation there. So he'll have to figure something else out if he wants to grow. But you've got to have a point of view that aligns to something so that people talk about you. Because if you're just for everybody, nobody's going to talk about you. And this is playing out everywhere in consumer and it's also playing out in software. So it's actually not, not that hard. But no, nobody wants to do it. Everybody wants to say we drive revenue with AI, we cut your service Costs with AI. Like, okay, I don't know, you just figure out some other way to say that that is going to engage me and get me to talk about it. Because everybody can say that. And in fact, the fact that csc, uh, generations.

Speaker B: Yeah, good job.

Speaker A: Has AI twice in their boilerplate.

Speaker B: Yeah.

Speaker A: That's incredible.

Speaker B: They drive Alpha, though. I'm just like, that's fascinating.

Speaker A: Yeah, dude. They drive alpha because they're investors.

Speaker B: Yeah, totally. You know, I think about this whenever we're dealing with people, our clients in software that are like, we need to go to enterprise, we need enterprise. It's like, well, that's a whole different ball game. Right. Like, you're talking about a lot of resources that you're redirecting from where you are now to where you're going to go to. And like, and by doing that, you're diluting you're competing in two markets and you're going to be doing it with diluted amounts of resources. So you're not going to do it well. Or not going to do it with a really strong point of view.

Speaker A: Yes. Selling into the enterprise, that should just be your focus and that can be a differentiator. One of my friends is working for a, an AI company that saves you money doing something. But you know where they do. They only do it for the enterprise. And I've been like, going back and forth with them on it and it's like, oh, well, uh, because the enterprise has very special needs in AI. Like, they can't put their data into the Google cloud and they can't. Like, there's all sorts of things that prevent it from working normally. And so they need these private LLMs. And it's like, okay, well, it's nothing about the AI, dude. It's about this, this environment you guys give them. Like, that's what you're selling them. Um, they can get freaking AI Saves me money. Xyz, anywhere. You guys need to talk about this. This thing you have, that's for enterprise and like, that's different. Right?

Speaker B: And so, yeah, speaking of, I, I just saw, uh, some news that Klarna cut their contracts with Salesforce and Workday, I believe, is one of the project management software platforms, um, because they built more effective, efficient and affordable software using AI in house.

Speaker A: So that's the second time they've come out and said, we're massively saving money with AI. They were the ones that came out first and said, we've cut 2,000 customer service agents because we've automated the. The queries.

Speaker B: Yeah, they're all in.

Speaker A: So. So now they're. Now they're just building their own software. That's great.

Speaker B: Yeah, well, it's. It's again like it goes back to backcountry.com. it's like you guys started building software to do a variety of things because nothing like it existed in the M market.

Speaker A: Yeah. Here's the too long, didn't read lesson from backcountry is we should have been selling software. Selling outdoor gear sucked and made no money. We literally could have probably been billionaires if we would have sold the software we made because it was better than anything that was out there. We were afraid to have to support it and keep it up because we could barely keep it running for ourselves. But like, hindsight 20 20, what would I do differently? I would have like ripped the fricking warehouse management system out, sold that. I would have sold the reviews platform we built. I would have sold that. We had the AdWords integration tool. Would have sold that. And then, you know, the shopping cart was. Was good for a time. That thing, that thing aged pretty quick.

Speaker B: But yeah, that's what happens.

Speaker A: But the reviews platform, where you can remember questions and answers and upload photos. Like, we launched it before Amazon did. You remember the leaderboard? John created that leaderboard and people went nuts to like, be at the top of it.

Speaker B: He loved that thing.

Speaker A: Rest in peace, John Percy.

Speaker B: Well, yeah, yeah. And. And gamification. Right. That's always. The thing is like, you know, the interaction at it drove before even the ability to capture all that data about everything. But that's the idea of like, people engaging at a deeper level and wanting to be involved and showing ownership. And that was kind of what that was. That was what drove it, you know, and that was like the point of pride within the organization and without the loyalty part of the customer base as well.

Speaker A: So there's that lead with how you're different and then. And I think you do at some point have to like, say, are we going to grow at all costs? Are we going to. Are we going to stay core? You know, they're saying core is poor. I mean, uh, that hasn't been said in a long time. Maybe it's still true. I need to come back. We should have the Kona founders on. I think they got the company back.

Speaker B: They did. They bought the company back. I was going to use that example in the piece I wrote about PE not getting it, but I figured I don't know enough about it, so I just kind of left it out. But yes, PE didn't get it. They were doing buy one, get one deals on, um, bikes. The dealers love that. All right, anything else we need to talk about? I mean, it is kind of another milestone. I'm always surprised at myself with the reactions that I have when I see this type of news related to backcountry. Similarly, I'm always surprised that I'm not the only one that the, the outpouring that takes place online and has reactions and commentary. And I, uh, remember when's kind of flood online. It's like, yeah, I'm not the only one. That that thing had a, had a big impact on a lot of people in the industry.

Speaker A: Yeah, it, it's. Everybody should be proud. That had something to do with it because we left a mark. And that's one thing that's been nice about all the coverage on it. It is just highlighted, like when it was cool. It just happens to coincide with when we were there. So we'll take credit.

Speaker B: Team effort. Team effort.

Speaker A: There's a ton of. Yeah, there's hundreds of people. I mean, that LinkedIn post I put up is just literally an outpouring of people who work there who are like, this was one of the best times of my life. And same for me, it was. We peaked then. I didn't know it. That's kind of the sad part is that I don't think it'll ever be that good. So. Yeah.

Speaker B: All right, well, uh, if any of this applies to your business, we have wide experience staying focused and understanding and helping people get involved and immersed within cultures and passions and customer bases and how that applies to building a business and building a brand and maintaining that sharp point of view. To the point of, you know, I always talk about like, the essence of strategy is sacrifice. You can't be all things to all people. That's what we do. We take our experience and apply that to your business. So if you're interested. Hi, RMG co. Anything else? We're there. DrMG co. Thanks for listening. We will be back maybe. This is a semi weekly show. We'll be back maybe next week and thanks for listening. Cheers.