The Downfall of Allbirds

Remember when Allbirds became the "cool" shoe that offered comfort and plenty of virtue signaling about sustainability.  People such as Larry Page and Barack Obama wore the sneakers.  The company went public in 2021, reaching a valuation at one point of more than $4 billion. Now, the Wall Street Journal reports that the company sold its intellectual property and other assets and liabilities to American Exchange Group for $39 million.   What happened to this once-popular brand, and what can we learn from its downfall?

1.  Allbirds expanded too aggressively and did not define their target market clearly as they grew.  After its initial success, the company moved into a variety of other product categories.  They developed other types of sneakers, as well as leggings, jackets, underwear, and golf shoes.  The company seemed to be trying to both offer performance shoes and comfort shoes, without the technological capabilities and advantages required to sell to more serious athletes.  Moreover, it invested heavily in retail stores, building out brick-and-mortar locations around the country.  Through it all, it became unclear who Allbirds' target market was.  Were they selling to athletes, "tech bros", or wealthy people who cared deeply about the planet?  Were they selling to millennials, or a much broader audience?  Trying to be all things to all people turned out to be a key factor in their downfall.  

2.  Allbirds' value proposition did not have sufficient breadth and depth.  The company positioned its distinctive wool sneakers as highly sustainable footwear.  The question becomes: Is sustainability sufficient enough to drive very high willingness to pay on the part of consumers?  In most successful cases, companies pair a sustainability dimension of their value proposition with other key features. For example, On running shoes offer high performance for athletes and comfort for walkers, not just eco-friendly materials and the opportunity to recycle used sneakers.  Tesla offers speed, luxury, and status, not just the opportunity to drive a car that does not use fossil fuels.  Patagonia offers very high quality, durable, and stylish outdoor wear alongside its eco-friendly credentials.  Allbirds trumpeted the shoes as comfortable, but many companies were innovating to offer incredible comfort.  I bought a pair of Allbirds; while I liked the shoes, they were not durable, and other shoes offered superior comfort.  In short, Allbirds failed to optimize other aspects of its value proposition, relying too heavily on sustainability alone to drive willingness to pay. The Wall Street Journal's Suzanne Kapner writes,

The premise that consumers would pay a premium for sustainably made products turned out to be flawed. “Sustainability comes way down the batting order behind factors like style, price and comfort,” said Neil Saunders, a managing director of research firm GlobalData. “Allbirds could have leaned in to any of these things alongside its green credentials but largely chose not to do so.”

3. Quality and durability concerns undermined the company's brand image.  The shoes didn't last long enough for many customers, or they became damaged too easily.   In the end, people were not willing to sacrifice quality for the sake of sustainability.  

4.  Finally, competitors offered a more compelling value proposition.  Let's take On, for example.  They began by offering a distinctive, high performance running shoe.  They layered on eco-friendly components to their value proposition. Then, they expanded their target market by attracting customers who found the shoes very comfortable for walking.  Elderly individuals loved them too for this reason.  They almost didn't need to market to this broader audience.  Word-of-mouth spread, and the distinctive look of the shoe attracted attention.   Yet, On didn't lose sight of the athlete.  They continue to innovate with the serious runner in mind.  In many ways, starting with the athlete and then selling to the masses is an easier transition than the one that Allbirds tried to execute (i.e., going from a casual shoe to trying to compete with performance sneakers).  

Deepen Your Value Proposition Before Diversifying

Elizabeth Segran has a very good article at Fast Company this week titled, "How to Build a Business That Matters."   She interviews several very successful entrepreneurs.  One piece of advice really stuck out for me.   She writes, "The value proposition has to be deep."   She cites the example of Birchbox, a company founded by Katia Beauchamp and Hayley Barna.  The two women founded a company that offers a subscription service that delivers a set of samples of beauty products to its customers each month.   The startup soon realized that its service was a major hit.  That's a great story, right?  They came up with an innovative idea that clearly met customer needs (people want to try beauty products before they make major purchases).  

What's the problem?  Well, many competitors arose, and others launched similar services in other markets.  How could Birchbox build and defend its competitive advantage?  Beauchamp said, "We understood that the value proposition had to be deep for us to become a staple in consumers’ lives.  It couldn’t just be fun, because fun wears off. It couldn’t just be pretty, because eventually you have enough pretty things."   Thus, the company developed its analytics capabilities so that customers could receive a very personalized set of product samples.   Those analytics capabilities also could provide critical information to beauty product manufacturers, so that they could create new products that customer needs.  Then they worked to get exciting new products to their customers before the competition, and to make it as easy as possible for customers to purchase products from their online store, if they liked the samples.  

In sum, they didn't just rest on their laurels when the initial idea proved a hit.  They deepened the relationship with customers in ways that were much harder to imitate than the initial business concept.  That's what all entrepreneurs must do.  Unfortunately, many entrepreneurs start diversifying into new products and services in search of additional growth before they have fully established a sustainable position in their initial market.  They don't work hard enough at times to make their initial concept hard to imitate.  They don't deepen their relationship with existing customers enough before moving on to new customers and product markets.