Cotopaxi is fresh off a new round of funding that infused the outdoor brand with $45 million in additional private equity. Now the company’s co-founder and CEO is looking to leverage that investment into much bigger things.

Bigger, as in a billion dollars.

That’s the annual revenue goal that Davis Smith, who co-founded the outdoor apparel and gear maker in 2014, has targeted for the brand, he told ���ϳԹ��� Business Journal in a wide-ranging interview this week.

Reaching the rarified air of $1 billion in sales would elevate Cotopaxi’s profile and place it alongside some of the industry’s most recognizable names—names that Smith has long used to benchmark the brand.

“From the time I started the business, my goal was to build the next iconic outdoor brand,” Smith said. “We look at the Patagonias and North Faces and Columbias of the outdoor industry and we say we can absolutely be that.”

Smith shared his lofty goal for Cotopaxi when OBJ checked in with him following the company’s latest capital raise, which was led by Bain Capital Double Impact, the impact investing strategy of Bain Capital.

Just how ambitious is that sales figure? Smith declined to disclose Cotopaxi’s current annual revenue, but the company’s public 2020 Impact Report from earlier this year said the brand posted revenue of�� “around $30 million.” If Cotopaxi were to double revenue each year—the brand’s current growth rate, Smith notes—it would hit $1 billion in less than six years. He says he expects to reach the billion-dollar mark in the next decade.

Smith acknowledged that doubling sales will become harder as the brand scales up, but that’s exactly what this latest investment will allow Cotopaxi to do. From a business perspective, Smith said the funding means the company can hire more talent (his top priority), add more retail partners, bump up its own brick-and-mortar presence, increase marketing, boost e-commerce, and grow distribution in places where he believes the brand sees white space, namely international markets.

Becoming a billion-dollar brand is reminiscent of the revenue goal that Hoka One One’s parent company, Deckers Outdoors Corp., outlined for that brand. Hoka, however, is much closer to $1 billion. It’s also owned by a public company while Cotopaxi is PE-backed, though Smith didn’t rule out an IPO at some point.

Underpinning the aggressive revenue goal—and underscored by Smith as the most important component—is a pair of objectives that go beyond the balance sheet.��

As it grows, Cotopaxi, a longtime Benefit Corporation, plans to continue investing heavily in sustainability and committing to fight poverty around the globe. Those ideals are ingrained in Cotopaxi’s DNA, and more money padding the top line means more money to support various environmental and social causes.

Smith said Cotopaxi pledges 1 percent of revenue to charitable giving but winds up donating closer to 3 percent. In its most recent impact report, the company reported $953,982 in total giving last year, which it says was 2.8 percent of 2020 revenue. About half of that dollar amount was the value of donated masks to fight COVID. It estimates the number of people helped in 2020 (through charitable giving and mask donations) at more than 822,000.

Smith, who grew up in Latin and South America and saw the effects of extreme poverty from an early age, made it his mission from the moment he created Cotopaxi to improve lives around the globe. (His upbringing abroad also inspired the brand’s name, llama logo, and colorful style.)��

He believes a brand that sells a billion dollars’ worth of apparel and gear each year has a better chance of spreading that mission to more places and impacting more people. At Cotopaxi, #gearforgood isn’t just a social hashtag. It’s the brand’s purpose.

To understand Cotopaxi’s plans following this latest capital raise, we spoke with Smith about the brand’s growth goals. Below is an edited version of our conversation.

What will this round of funding do for the brand in terms of making more product, getting into more doors, and reaching more consumers?

This investment allows us to expand our current product offerings. It also allows us to expand our reach with physical retail stores. We have five open stores with two leases signed that we’re in the process of opening, and we have several other leases that we’re working on. We look to expand our physical retail store presence aggressively over the next four to five years. International is another area of focus. We recently hired a director of international from another outdoor brand. We think there’s an opportunity to build a global brand. Over the long term, we think 50 percent or more of our revenue should be international, and right now, it’s low-single digits, so that’s an exciting opportunity for us.

How does this latest investment compare with previous funding rounds?

It’s bigger than all our other rounds combined. It was a great deal bigger than anything we’ve done before. I knew I wanted to build something that could scale rapidly. I believed it was a big opportunity. When you have the capital to accelerate the growth of a business rather than taking on debt, you can go build an amazing team very quickly from the onset. What I love about this round of funding is it shows that this model does work. We’re a profitable brand and business. We’ve committed to giving away a minimum of 1 percent of revenue, but in 2020 we gave away almost 3 percent. We’re not looking to give the minimum; we’re looking to give the most we can possibly give. This investment shows that doing good and doing well are not mutually exclusive. You can do both. This round validates that.

Does this investment affect the ownership structure of the brand?

It didn’t change the ownership structure significantly. Bain Capital is a minority investor. We still have a cap [capitalization] table that’s a mix of our management team and our executive team and several outside investors that believe in the brand and the business and have helped fuel our growth.

There are some detractors of private equity in the outdoor space; how do you think PE firms like Bain Capital Double Impact arm benefits not only Cotopaxi but the broader industry?

It’s a great point. Cotopaxi has always been private equity-backed. We’ve always had outside investors. Instead of raising money with debt, we said, “We want to share this pie with other people who believe in what we’re doing and can help us accelerate the business, whether through money and/or expertise.” Our earliest investor has deep expertise in building consumer brands. It was less about the money and more about having her expertise around the table. That’s the real difference—not just the capital, but having people surround you that understand how to scale and build brands and make better decisions. Having those great people around us has been a big part of our success.

How will the funding help support Cotopaxi’s sustainable products strategy?

Ninety-four percent of our product last year was made of remnant-recycled or responsibly made material. This investment will allow us to continue to invest in great design and designers and a product team. That’s a big part of our brand, our mission, and our purpose. But it also helps our efforts to fight poverty. When we started the business, I felt strongly that our mission should not be exclusively environmental. I didn’t feel like that was a defensible competitive advantage. Everyone should be doing it; it’s just table stakes. We wanted to go a step further, which was focusing on humanitarian work. This is why we chose this investor [Bain Capital Double Impact]. They have a social impact team that’s been working with our social impact team on exploring how we can further accelerate our impact and how we can do a better job of tying impact to our brand.

So how will the company use this money to address poverty and support community development?

It comes down to two things. No. 1, improving what we’re already doing. And No. 2, simply using the funds that we’ve been given in this round to expand our business. That’s how we build a sustainable and scalable impact—by building a business that continues to do good, and that can scale quickly. If we can build a billion-dollar business, we can have a much bigger impact. And if we can get to a billion dollars faster because of an investment from Bain, then we can have a larger impact. A business without purpose is very shallow, and they invested in a brand like ours that’s at the forefront of having an impact with our business.

Are you saying the goal is to become a billion-dollar brand?

Yes. From the time I started the business, my goal was to build the next iconic outdoor brand. We look at the Patagonias and the North Faces and the Columbias of the outdoor industry and we say we can absolutely be that. We believe that the DNA and the values of this brand resonate deeply, especially with millennials and Gen Z. They care deeply about the things that we’re passionate about, so that’s where we hope to be.

What would the growth rate have to look like for the brand to achieve that goal? Are we talking about doubling sales every year?

We’ve grown, on average, close to 100 percent a year since our inception. That percentage over time will continue to shrink a little bit, but we’re seeing very strong growth in the business—even this year. I haven’t done the math on how many years it’ll take us to get there, but if we just continue the trajectory that we’re on with growth, even at a diminishing rate, it feels like in the next decade we could be there.

Some of the iconic brands you mentioned like the North Face and Columbia are publicly traded. Could there be an IPO in Cotopaxi’s future?

Nothing is off the table. That’s something that we’ve considered and looked at, but I think going public can be very challenging for a business. There are some great benefits, and if you do it right it can make sense, so that’s something we’ll explore. All I know is I want to be part of this business for a long time. I can’t imagine doing anything else more important in my life. This is my life’s dream and my life’s passion.

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Before the COVID-19 pandemic, Cotopaxi CEO Davis Smith was skeptical about remote work. But after a year of huge growth despite lockdowns and shipping challenges, he began to change his tune.

“We are a very flat company structurally, so it was not at all uncommon for an entry-level employee and a member of our C-suite team to sit down informally and have lunch together,” he explained. Before the pandemic, Smith thought that organic mingling of employees was too important to lose. “But we learned that working from home really fits us well,” he said.

In March of 2021, Cotopaxi put out an all-hands survey. A whopping 88 percent said both their productivity and work satisfaction were as good, if not better, than pre-pandemic. And 95 percent said they had good to great relationships with their teammates—all despite a year without face-to-face time.

“Like anything, there was a little bit of an adjustment period,” said Cotopaxi digital marketing specialist Annika Erickson, who had to learn new ways to hold herself accountable and stay productive. But once she did, she quickly realized how invaluable it was to have the flexibility to get her work done, exercise, and get outside on her own schedule. Ultimately, she says she’s more productive now than she ever was in an office.

Shortly after sending out the survey, Smith announced that Cotopaxi would move forward with a remote-first strategy. The brand will keep its Salt Lake City headquarters, but coming into the office will be optional for employee teams that don’t have to physically touch or ship product on a day-to-day basis.

Cotopaxi isn’t the only outdoor brand learning to embrace a more flexible work model. Nike recently announced that it would require employees to come back to work at its Beaverton, Oregon, headquarters, but only three days a week. Ditto for climbing brand Edelrid in Redmond, Oregon. And last year REI announced that it was selling its Seattle headquarters, in part to enable the co-op to shift to a more distributed workplace model.

While a cultural shift of this scale may be unprecedented, it’s important to remember that telework has existed since the early 1970s, says Laurel Farrer, CEO of Distribute Consulting, an international consulting service that specializes in flexible and remote workplaces.

“A quarter-century ago, people were able to stay connected and aligned using just email. This is a poignant reminder that it’s not the tools that connect us, it’s how we use the tools,” she said.

For its part, Cotopaxi has worked to stay ahead of the common downsides of remote work—burnout, isolation, and reduced employee bonding—by actively nurturing the company’s workplace culture and sense of community support.

“We did our holiday party on Zoom, we run Innovation Tournaments on Zoom,” Smith said, referring to biannual contests in which employees team up to brainstorm new product ideas. “And with Slack we’ve seen a huge increase in the use of ‘fun’ channels like our ‘bar-kitchen-club channel,’ where we do trivia contests, tell tall tales, and just generally get folks together.” Going forward, the company plans to create regular opportunities for employees to gather both virtually and in person, like a monthly BBQ, regular virtual lunches where Smith sits down with a rotating handful of team members, and monthly service and adventure activities.

Smith says he’s open to hiring out of state and will consider the cost of living in prospective employees’ hometowns when it comes to making salary offers. But there are other details, like handling multistate taxes and health insurance, that Cotopaxi is still researching. Bret Farrer, Distribute’s business development director, recommends using a third-party service like Oyster or Remote.com, which stays on top of the rapidly changing laws in different states and countries. Those services cost $350 to $700 per month per employee.��

But that cost is “absolutely” worth having a limitless talent pool to pull from, as well as the increased productivity and employee satisfaction that remote work brings, Bret Farrer said. Indeed, Erickson says her loyalty and pride in her employer have only gone up since the pandemic.

Plus, for an adventure travel brand, the policy just makes sense.

“We are in business to move people to do good and inspire adventure,” Smith said. “And that starts with giving them the flexibility to just get out.”

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Successfully producing outdoor gear used to be such a simple endeavor: make great product, then sell it through retail partners, or directly through a catalog or your own store. These days, the formula has become a lot more complicated. With the option to distribute through a suite of channels—specialty retailers, big-box retailers, directly to consumers via ecommerce and/or your own storefronts, through Amazon’s Vendor Central or Amazon resellers—brands must pull off a delicate balancing act and juggle a network of relationships to get their gear into customers’ hands. The good news? This swirl of channels also presents an opportunity to reach consumers wherever they are, telling a vibrant brand story while enhancing the shopping experience like never before. Over the next few weeks, OBJ will take a closer look at best practices for vendors in an increasingly omni-channel world.

The Challenge: Appreciate the Power of Retail

At first glance, it sounds like a great strategy: cut back on wholesale to focus on selling directly to your customers, thereby controlling your brand message, gathering instant feedback, and maximizing your margins.

But is it?

Building a DTC business can be a profitable endeavor—as long as it doesn’t mean abandoning years of customer goodwill and relationships with retail partners, stresses Mike Massey, founder of Locally and owner of Massey’s Outfitters. “Wholesale business has developed the reason customers go to a [brand’s] website in the first place,” he said. “It’s very difficult to stand up a brand purely online without any access to in-store marketing.”

One major reason: many customers are first introduced to a brand through their local gear shop. And winning the approval of a trusted specialty retailer and its employees helps customers feel more comfortable about spending money, especially on big-ticket items like ultralight tents, skis, and kayaks. “The retailer can serve as a powerful third-party endorsement,” said Kristin Carpenter-Ogden, founder of Verde Brand Communications and host of its Channel Mastery podcast. “It brings authenticity to a major purchase.”

Local gear shops are masters of word-of-mouth marketing, Massey added—when a retailer loves a particular brand or product, it spreads through the outdoor community. More ominously, when a vendor abruptly disappears from the shop’s shelves, customers will hear about that, too.

The emotional connection shoppers feel to their community retailers is backed up with data, Carpenter-Ogden pointed out. “There’s qualitative research that shows that when a brand decreases their presence in a region, their direct sales drop off their website,” she said, citing data gathered by the omni-channel software company, ShipEarly. Those shoppers aren’t simply declining to buy from that one brand, either: “That customer is going to find a solution in another brand they can touch and feel.”

So vendors that turn their backs on the wholesale channel risk severing critical connections with their consumers and losing sales to competitors. What’s worse, argues Rich Hill, president of Grassroots Outdoor Alliance, is that the perceived benefits of selling direct aren’t even as good as they seem. “There’s this fallacy out there about the additional margin in the DTC model,” he said. “The truth is, the costs associated with that model are dramatically higher,” due to the difficulty of attracting and maintaining a loyal customer base.

In fact, Hill said, “When you look at [some] DTC-only businesses, the only reason they’re growing is they’re roasting investor dollars” rather than maintaining a sustainable, standalone business. Other brands with both DTC and wholesale channels resort to aggressive discounting to attract shoppers to their websites, undercutting their own retailers. “They’re trading full-price business for off-price business, and that’s going to come back and bite them in the ass,” predicted Hill.

The Fix

Build a strategy that recognizes the importance of the brick-and-mortar shopping experience to consumers, plus the marketing and customer acquisition benefits of specialty retailer partners. This requires a shift to long-term, business-building thinking versus a shorter-term, purely margins-based approach.

The Strategy

Direct ecommerce and wholesale can work together to build overall business when vendors resist the temptation to do it alone.

>> Crunch the numbers.��It’s crucial to consider all the costs associated with DTC business, not just sales margins, when making plans. “In order to be competitive in that [direct] space, it gets super-expensive, and cost per click is super-high. You have to throw a lot of money at it,” said Hill.

>> Consider your customers.��Where do most shoppers choose to spend their money? Probably in stores (only 10 percent of overall retail sales are through ecommerce, according to ). Massey cites one footwear brand that realized 90 percent of its sales were through retailers, but 90 percent of its marketing budget was trying to push people to its website. “Now they’re evolving and making the company responsive to the customer’s journey,” he said.

>> Try strategic stocking.�� (see below) offers only carefully selected SKUs through wholesale—products they think most easily communicate the brand’s story to new customers. “With one of our bags, the , you immediately see every bag is different,” said . “Customers learn the bags are designed by the sewers using remnant materials. The product itself creates a story for the consumer.”

Case Study: Cotopaxi Branches Out

Cotopaxi launched in 2014 as a digitally native brand, and founders Davis Smith (also CEO) and Stephan Jacob (also president and COO) intended to keep it that way. “But we recognized as the brand grew that retailers can truly be amazing partners,” Jacob said. “There’s value and place for physical retail. If you look at the percent of transactions and purchase behavior, people still want to experience a brand in a real-life environment.” So Cotopaxi made the leap into wholesale, starting with an REI partnership at the end of 2017. The brand is now expanding into carefully vetted specialty retailers.

Customer acquisition is an important factor in the shift, Smith and Jacob acknowledged. “One of the challenges for a digital brand is reach—how do you get in front of the customers?” Smith said. “You’re driving traffic to your site, hopefully in an organic way, but certainly through paid efforts.” And when it comes to growing the business in particular markets, “It’s not going to be cost-effective to get yourself in front of every person in that market online. That’s where we’re able to leverage retail partners.”

And while jumping into wholesale means losing some control over brand messaging, Cotopaxi plans to help retail employees communicate their socially conscious ethos through training sessions. “That’s key, having your partners excited and able to tell your brand’s story,” Davis said.

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A couple of years ago, Cotopaxi was a small brand with five backpacks. Now, the company makes more than 150 SKUs, and the stories behind some of its products have gone viral. Cotopaxi is a colorful company in ways that go way beyond its signature neon hues: it runs a highly successful adventure race called Questival, tells its brand story in a way that resonates with customers, and focuses on turning profits into empowerment for people around the world. Last year, the brand started working with refugees who settled in Salt Lake City to help get them job-ready by teaching them important tech skills. We asked founder and CEO Davis Smith where the company is headed, and how it’s come so far so quickly.

Cotopaxi has grown pretty quickly into a company that’s well known beyond just the core outdoor industry. Why are you using Kickstarter to fund new products?

Crowdfunding is amazing. It’s a channel we just started using in the last 12 months. We think of it as an opportunity to tell our brand story to a new audience that wants to learn about the value behind the brand. We launched a few products last year via Kickstarter, including the Inti, a new tent, and then we launched the Libre Sweater, made from llama wool. This year, we did the Allpa ���ϳԹ��� Travel Pack. What we see is that this is a really great channel for us to acquire new customers. People are discovering our brand on these crowdfunding platforms. Then once they discover us, they’re loyal to the brand. Crowdfunding isn’t just for people making a product from their garage. It’s also for young brands trying to tell their story.

What is the company culture like at Cotopaxi? How important is work/life balance for you?

As important as this business is to me, my family is more important. I want everyone in my company to know that. Yeah, there are times when it’s necessary to work longer hours, like for Questival, or when a trade show is happening. There are sacrifices you have to make for your job, but I also want people to make sacrifices in their jobs for their families. We offer a lot of ways for employees to make more time for their personal lives. They can spend 10 percent of their workweek in the wild. So they can come in late or leave early to accommodate a camping trip, for example. We also give unlimited vacation. We don’t track people’s days off, and we encourage people to take time to travel. When staff members have been with us for 18 months, we’ve paid for them to go on trips from their bucket list. Living by example is important. I want to make sure people understand, “Hey, I’m going to take the time off to do these things, too.” Living a balanced life is something we believe in strongly.

What’s your vision for Cotopaxi? Where do you think the brand will be in ten years? ��

We’re really, truly looking to build the next big outdoor brand. We’re a digitally native brand, a brand that was born online. These types of brands can grow much faster than traditional ones. For brands like The North Face and Columbia, it took them decades to get where we’ve gone in just three years. A lot of it is because of social media. It can really accelerate growth. We were feeling very ambitious about our goals for growing this brand, but we’ve achieved more than we thought possible.

Tell us more about Questival, your adventure race event series. That’s grown a lot, too. Why do you think it’s working?

Questival is a 24-hour adventure race that allows people to experience the outdoors and their city in a new way. I had never heard of a brand hosting an event like this before we hosted Questival, but now it seems like more and more brands are holding these kinds of activations. It helps people experience your brand, live your brand. Your brand is more than just making great gear. A lot of brands make great gear, but this gives people an opportunity to build relationships and trust. When you connect with customers on a deep level like that, they end up becoming brand evangelists.

Why have you chosen to make Cotopaxi’s mission so people-focused?

We made a conscious decision on the very first day we met as a team to focus our mission on people. As lovers of the outdoors, we obviously care deeply about the environment, but our passion really lies in helping people. My dad’s job took us all over the developing world when I was growing up, and I returned there as an adult, spending nearly half my life living abroad. I saw poverty that most in the developed world don’t even understand exists and felt I had a responsibility to find a way to help. I was no smarter, better, or more deserving than them. I was lucky. Our mission is to not only do good as a brand, but to inspire others to join us along the way. We try to inject our mission of helping people into every aspect of our business. We include a handwritten thank-you card in every customer order, written by a resettled refugee here in Salt Lake City.

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