UGG: Brian Smith. How an epiphany, surfers, and $500 launched an iconic sheepskin footwear company.

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2:47I could see it coming so clearly. In fact, the pre-season orders looked like the company was going to be destined for, you know, $18 million, maybe even $20 million. But I knew I would not be able to finance an extra $5, $6, $7 million in product. And most people would be so excited about that.

3:18I saw this as a kiss of death. Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.

3:38I'm Guy Raz, and on the show today, how Brian Smith brought Australian sheepskin boots to America that turned Uggs into a multi-billion dollar brand.

3:50In 1979, a 32-year-old Australian named Brian Smith decided to import boots from Australia and sell them in the U.S. At the time, Brian was living in Southern California, and the boots he was importing were made from wool and sheepskin. In Australia, everyone called them Uggs because they were ugly, not because it was a brand name. Lots of small factories made their own versions of these same Ugg boots.

4:24But when Brian tried to sell them in the U.S., he could barely move inventory. It would take more than a decade before he'd find any traction with consumers. He made mistake after mistake. He ran out of cash. He lost control of the company, then got it back, then nearly lost it again. And finally, in 1995, Brian managed to sell Ugg to the footwear brand Deckers for a modest price. Deckers would go on to turn Uggs into a global phenomenon, a brand that generated over $2.5 billion in sales last year.

4:59But long before celebrities wore them, long before Ugg became one of the most recognizable footwear brands in the world, it was just Brian Smith, a van full of boots, and a conviction that comfort could become culture. Brian was born in Canberra, Australia, right after World War II. Growing up, his family spent lots of time at the beach. Brian says he learned how to surf so young, he doesn't even remember it. He never thought about starting a business, so instead, he went into accounting for job security.

5:32But 10 years in, when he was starting to feel really stuck, he had an epiphany, literally, all thanks to an iconic Pink Floyd song. One afternoon, I was driving along the highway. This music came on the radio, and there was a song there that was called Time, and the words were, And then one day you find 10 years have got behind you. No one told you when to run. You missed the starting gun. And I just thought, oh, shit, he's talking to me.

6:04And as soon as I heard those words, my body just got covered in goosebumps. And I thought, oh, my God, all of my friends were tracking off to partnerships in the accounting world and other friends who'd started business out of high school. And I felt like I'd been running on the spot for 10 years. So it was literally, it was so powerful. It was only a matter of weeks before I arrived in Los Angeles. And I had my surfboard, so I just started going up to Malibu.

6:34I surfed that place for nearly a year. So it sounds like you were, I mean, were you a good surfer? Were you just a, like, how would you describe yourself as a surfer? I was a good surfer, but every surfer thinks they're a good surfer. Right. But I was, no, I was pretty good. So, all right. And now this is a different time. L.A. in 1978, much different than today, cheaper. So you probably had some savings, and I don't think it was that expensive to rent a place in 1978. No, $200 a month for this little house. Wow. But all my friends told me, it's such a bad area, Brian, don't go there.

7:09And I'm this dumb Australian, thinks, oh, they'll like me, I'm an Aussie, you know. But it turned out that all the houses in that area had bars on the windows. And, you know, the first night I was there, I bought a pizza and a bottle of wine and this big tall candle about, you know, 15 inches tall. And I stuck it on a shelf in the living room and lit it and then, you know, drank some wine, listened to music, went to bed. And the next morning I woke up in bed and everything went black.

7:41And I ducked underneath and, oh, my God, the house is on fire because the candle didn't have a dish under it. And I just let it burn through. Wait, it was like a real fire fire in this house? Oh, the house was like rumbling with noise, yeah, on fire. And I got up to the front door and I was fumbling with the lock and I couldn't get it open. And the weirdest thing happened, I remember slumping to the floor and I just said, oh, I'm going to die.

8:12And this voice, this is going to be hard to believe, but this voice that just said very calmly, you haven't done enough with your life yet, Brian. Wow. And I stood up and I worked my way all around the house, punching all the windows out with my fists and screaming out. And eventually a workman who'd been a couple of houses down came up with a crowbar and got the bars off my bedroom to get out. And then, you know, it was just one of those weird, unexplainable moments.

8:45For sure. All right. So you are in L.A. I'm assuming you moved to a new place. Yeah, I've got a great place in Santa Monica.

8:55I don't quite understand what that would. I mean, because you quit your job. So you had to find a career and a profession. You couldn't just surf because you had to pay your bills. Did you think that that was maybe where you would find the thing you would do? Well, the trends all came out of California. Levi jeans, waterbeds, you know, all the surf brands and skate brands. All the vibrancy was coming out of California. You wanted to be in the place where those things were coming out of. Yes. And I was, you know, every day I'd look at the Wall Street Journal and I'd look at billboards on the way to everywhere.

9:32And I'd look at, you know, shop windows and see what was. And I was really literally on a search for something to take back to Australia. I had no desire to stay and live in America. So wait, just to be clear, the idea was you would come to the U.S. And I'm assuming you had saved money, right, from your time. A little bit, yes. Okay. And you were going to live off that money and surf. But also just it was kind of like a reconnaissance trip. You're just looking for maybe a product or something that was cool there that you could then bring to Australia and sell.

10:05That's exactly right. Yeah. And it could have been anything. It could have been lollipops. It could have been, I don't know. So you don't have to be a chartered accountant, basically. Exactly. Yeah. Well, I was sitting around my house in Santa Monica with my buddy Doug and I was reading Surfer magazine. And there was a photograph of this guy and a girl in front of a fireplace with the, all you could see was their legs with these white boots on their legs. And the instant I saw it, I thought, oh, my God, you know, one in two Australians has some sort of sheepskin footwear and there's none in America.

10:46So I just thought this is like the ultimate no-brainer. And I looked at Doug and said, man, we've got to go into business. We've got to be instant millionaires just like that. Okay. Let's just kind of break this down for a minute. So these are, I don't know, mid-calf boots that the outer is a sheepskin leather and inside is the sheepskin wool. That's right. Okay. And this was a thing that everyone in Australia had? They just had a pair of these boots? Whether it was slippers or little booties or scuffs or whatever, you can imagine Australia being a sheepskin country.

11:22In every little town, there is someone with a sewing machine and they're making Ugg boots and every town would spell Ugg a different way. U-G, U-G-H, U-G-H-S, U-G, you know. So this is the, you used to call them Ugg boots. Where did that come from? Like ugly or Ugg or what? Could be all of that. Nobody really knows. They've always been called Ugg boots in Australia. It's a descriptive term, yeah. Like you would call like, you know, rubber boots Wellies, even though they're not, maybe Wellingtons is a brand.

11:54That's right. Or maybe it's named after like the Duke of Wellington. I don't know. But in the U.K. they call them Wellies. So these were just called Uggs. Like didn't, it wasn't a brand name. It's just the name of what they were. It was just a description of a. It was descriptive of that product, yes. So you see this and you think, you know, Eureka. Hey, you're in California. You got to say Eureka. It's the official motto of California. I have found gold and it is in sheepskin boots that are, you know, I'm going to just mint money doing this thing because, you know, everyone in Australia has this. And, okay, so because initially your idea was, let me bring a little bit of Southern California to Australia.

12:30Now you're thinking, wait, let me bring Australia to Southern California. Yes, yes, and Doug and I, we didn't have a lot of money, but we decided we got to get some samples. So we pulled 500 bucks together and called the guy who ran the advertisement and we talked him into being distributors for the U.S. And I think this guy was George Bercher. I think he was the guy who owned an Australian boot company called Country Leather. He would become your main supplier eventually, right?

13:01Exactly, yes. All right, so you call him and? Yeah, and so we ordered six pairs of samples and after they arrived, Doug was going to be the salesman because I was an accountant. I was terrified of sales, right? And he went on the road and visited every single shoe store in Southern California. He came back with about 150 business cards of all these retailers and not a single order and said, Brian, they tell us we're crazy trying to sell sheepskin in California.

13:34And that sounds logical, but Australia's climate is identical to California. So that wasn't the real answer. And so, you know, as an entrepreneur, you have to pivot when you hit a wall like that. And I thought, well, maybe the surf market's the way to go. We looked up, you know, the yellow pages. There are probably 60 to 80 surf shops. And so Doug and I changed gears. And now he insisted I went on the road. And I can remember walking into Con Surfboards, which was in Santa Monica, right near where I lived.

14:04And I was so embarrassed to open up this bag of samples. I pulled him open. He goes, oh, my God, Ugg boots. He says, they're great. All my friends have got them. What are you doing with those? And I said, well, you know, we're thinking of importing them into America. Oh, my God, you're going to make a fortune. And so this happened in all the surf shops that I went into and the same with Doug. And we thought we were going to be instant millionaires, no doubt about it. Yeah. So, all right. So you're getting all this feedback that seems pretty great. Yeah.

14:34And before we get into, like, actually launching this business, you need money to purchase orders. And you also need to purchase different sizes, right? That's right. Because people have different size feet. And so, first of all, you and Doug, I'm assuming, establish a business together. That's correct. We're going to be partners. And the interesting thing about that road trip we both did, neither of us realized that we hadn't asked for an order.

15:04Now we knew we needed inventory. And by a pure fluke, my roommate in Santa Monica overheard us talking and said, oh, there's some guys at my office looking for other new investments. And let me take it to them. And he did. And we were able to raise $20,000 from them as capital. And we didn't even have a business plan. It was just the enthusiasm of, you know, me talking about how big it was in Australia.

15:34And everything. But so we raised this $20,000. And we knew we would never, ever, ever need any more money than that for the rest of the business. Right. I see. I got you. Okay. Well, we'll get there. Okay. So you raised $20,000. But it sounds like you didn't have any orders. So you just ordered what you thought you could sell? Or is that right? You just made up, came up with a... It was pretty simple. We had short and tall. And we had brown or white.

16:05So... Short and tall. Like short would go to your ankle and tall... Short was ankle. Okay. Tall was up to the calf. Yeah. Okay. And then brown or white. And then how many pairs did you order? 500. And just different sizes? $15,000. Yes. And it takes, what, six weeks, two months to get these boots? It was very quick, actually. It was October. And we got the boots in by the end of November. Yeah. Just the beginning of December. So you get these boots in. And now you're going to go presumably back to these stores that had expressed interest.

16:40And you're like, hey, we're back. We got them. And I remember going back to Con Surfboards. And the owner goes, oh, well done, Brian. You are going to be so successful. But we couldn't sell them out of our store. We just sell surfboards and trunks and flip-flops. But you're going to do great in the shoe stores. Good luck, you know. And I walked out without an order, right? And this happened in about 60 surf shops all the way down the coast from Malibu down to San Diego.

17:14And the total sales for the first year was 28 pairs. Which was how much money? Exactly $1,000. But it was just a fluke. But it was exactly $1,000. And I'm not fast enough with the math. How much were you selling a pair? At retail, it was probably between $50,000 and $70,000, depending on the short and the tall. Got it. Okay. So in 1979, that was not super cheap. No, it was super expensive. And that was one of the worst facets of the entire UGG project for 20 years was the lack of margins I had

17:48because the pressure of the retail price kept us way, way down. So it was very hard to make money. So you make $1,000 in sales your first year. So it's not looking very good. And you are now, you've got hundreds of pairs of these things, what, just piled up in boxes? 470-something pairs, yeah, in the third bedroom. In this house that you're renting in Santa Monica? Yeah, the third bedroom was the warehouse, yes. Wow. You couldn't do that today. You couldn't rent a house in Santa Monica and be broke, right?

18:21I mean, it would be impossible. Yeah. All right. So you, it's 1980 now. We got a bunch of shoes. And what are you going to do? I mean, and what does Doug do? Like, you guys had started. Yeah. Doug decided to go into the video business, which was just starting at that time. We knew we couldn't make a living out of no sales. So, you know, I wanted to give up, but I couldn't because I got 400 pairs in the bedroom and all my investors' money is tied up. So I started doing swap meets and street fairs and basically anywhere I could get a crowd.

18:57And over the next, you know, January, February, March, I ended up selling about $6,000 worth of product. Pretty good. And most of it, believe it or not, was out of the back of my van in the parking lot at Malibu. Yeah. I used to go up for a surf in the morning and afterwards I'd grab a coffee in the newspaper and I had my van full of product and I would just sit there with the doors open. I made, you know, steady money. Just a point of clarification here. I know that, especially in California, because the water is really cold, most surfers wear

19:33wetsuits because it's hard to swim in that water. Freezing, yeah. Unless you're in a wetsuit. Were surfers in Australia wearing these wool boots because they wanted to warm up their feet after they surfed? Like, it just seems... Well, these questions you're asking were asked by every single surf shop owner and every consumer. What the hell? Well, why are they so good? And the answer is that, and all Australians know this, is that sheepskin breathes, so you can put them on with freezing feet and they will insulate.

20:06And if you've got wet feet, like after surfing, it wicks the moisture out towards the surface. And so within 10, 15 minutes, your feet are dry and warm. So there was a very, very practical side to wearing them after surfing. And so that's what I wanted to tap into. But you can't turn this into a business just selling them out of the back of your van. You've got to figure out how to get into retailers, right? Yeah. And so were there, I'm assuming, you know, there were trade shows back in the early 80s

20:38for shoes and apparel? Yeah. In fact, the market that's called the action sports market just started that very same year as I started. So action sports, surfing and skateboarding and... All of the above, yeah. Skiing, yeah. And so I did go participate, but nobody understood what I had. So the bottom line is, you know, in March, I just shut it down. And my first job in the summer was scraping boats at Marina del Rey.

21:11And then I switched over to a construction firm. A buddy of mine owned a contracting company in Bel Air. And I was working in Beverly Hills and Bel Air on construction projects. And that filled up the summer. So you're working, doing these jobs just to pay the bills. Yes. You're not giving up on the shoe thing yet. You're still committed to doing this. I had the most interesting motivator, which was that at least one in two Australians owned some sort of sheepskin footwear.

21:43So it's not the product's fault. It must be me. And I had that mantra for like 10, 15 years. Every time I would be, it's not working, it's not working. I would come back to that thought that, well, how come everyone in Australia owns a pair? Yeah. And so that, with that attitude, I was able to stay in the game a lot longer than somebody who'd never seen them in Australia. Fair enough. Okay. So you, so this is now the summer of, or end of the summer of 1980, you got to sell a bunch

22:14of shoes. Yes. And from what I gather, you started to run small ads in surf magazines. First of all, how did you do that? How did, wasn't that expensive to do? Um, relative to how much money I had, it was very expensive. Yes. But back at that time, the surf magazines didn't want money up front. So I was able to get 30 to 60 days to pay the advertising bill. So I was totally gambling that if I ran these ads, I would get enough sales to be able to

22:46pay for the ads. I got it. Okay. So you were running these small ads and it was just, were you calling them Ugg boots or Uggs? I'm assuming, yeah. I, I, I did the, probably the smartest thing I ever did in that business was, um, I did a search, a trademark search that it cost me $600 at the time, which today's probably four or 5,000 bucks, you know? Yeah. And I did a search of the, of the world, especially the U S to see if there'd been any prior use of the trade name Ugg and they had not.

23:19So that opened up the gate for me to do the registration of the trademark. So you, you trademarked that name. Yes. Uh, which was not a trademark. I mean, in, in Australia, it was just like. It was generic down there. Yeah. Right. It would be like trademarking the word cheeseburger, right? That's right. It was just the thing. And you were able to trademark that as a brand name in the United, which is. That's correct. Amazing that no one had thought to do that, but I guess this really wasn't a popular product in the U S. Oh, nobody had heard of it.

23:50Yeah. All right. So you, um, from what I've read, cause you, you've written about this in a book, um, you actually sold about $30,000 worth of these shoes for the year 1980. Pretty good. Yes. But you end up with a loss because the cost of the boots and the expenses of going to trade shows and taking out ads. So you actually, you're still running in the red. Yeah. Still, still using my own capital. Yes. And still living on summer, summer jobs to basically to stay, to stay, you know, and you

24:27were not a kid. I mean, you're now well into your thirties, right? And I imagine that maybe part of you or maybe your parents were thinking, what's he doing with his life? Yeah. What he's in California surfing. He's trying to sell these boots. I mean, did you get any, any of that feedback from your family at all? Yeah. My, my dad, who'd been a contractor, you know, absolutely did not want to be running my own business. And I think it's probably cause he had such a hard time of it.

24:59That's why I got into accounting. He wanted a safe, secure job, you know, work your way up to chief accountant. You know, I, I couldn't think of, that to me was like going to prison. All right. So you, uh, you're, so you're still committed to this and you're now a full year in and still kind of pounding the pavement, going to these trade shows, trying to get more and more interest. And I think you even in, in 1981, you even attend a snow or ski kind of, um, trade show

25:33in Las Vegas, right? Okay. And, and was there more interest at that snow show? The ski market was even harder than the surf market, um, because their attitude was, well, we have mud and we have slush and we need rubber. You know, we got to have Sorrells and they couldn't see sheepskin being strong enough or waterproof enough to work in their, their area. So yeah, the ski markets were very, very difficult to get into. Uh, you get a job that summer, uh, 1981, a very unusual job that would not exist today.

26:10You had a friend who gave you an in for this job that would pay well. What was it? It was at the time when all the big mainframe computers were being replaced by desktop computers. And what nobody knew is that these big refrigerator size mainframes, every connection where one wire touched another wire or a motherboard touched, you know, plugged into another board, it was gold connections. And so he arranged to buy up all of these old mainframes, which most accountants were

26:44paying to get rid of them, right? Not knowing they were full of gold. And so I was given a bunch of cash and a pair of snips and hammer. And I found out when I got home that, that I'd made $3,000, which was a fortune to go on the road for a month, you know? But I realized I'd shipped over $300,000 worth of gold back to San Diego, not really knowing that I was doing it. But still, like on this Ugg thing, like who was manning your phones to take orders?

27:19Well, nobody was calling. I mean, I was like a non-entity for the first three to four years. And every time I'd go into summer mode, I wouldn't think about Ugg boots for four or five months. And then it would be, you know, July, August, September, I'd start thinking, oh, shit, I better figure out who I'm going to sell to and how do I get more sales, you know? Because I learned early on that trying to walk into a surf shop with sheepskin boots on a hot day was like pointless.

27:50So I learned to wait for a really shitty day when, you know, the storm would hit, you know, then I'd go on the road and sales would, you know, I would open up, you know, half a dozen pairs in lots of different little surf shops. So like in the off season, I was fully into making money to stay alive. And then I would have to backtrack and get the Ugg boot business started up again. So like October, November was when you would run Ugg. Correct. I got you. Okay. So it was totally seasonal.

28:20Yes. So you would basically focus on this in October and November and try to get, you know, people to order these. You could get them in time for Christmas, presumably. Yeah. This is, I mean, the unpredictability of this is insane because you've got to figure out how much you should spend on ads with the hope that it would convert and then hopefully order the right amount of shoes that you wouldn't be left with a bunch of inventory. Yes. And okay, now just at the ads for a moment, what do they look like?

28:51Were they like, was it just text or were there photographs of people wearing them? No, I thought I was doing a brilliant job, you know, and I'm telling you about one of the biggest mistakes I ever made, right? Which was hiring these two models, really good looking. We posed them on the beach and I'd run those things. And the sales at that, you know, let's say 81, 82 was about 30,000. The sales went to 35,000. Like, it was like my ads were doing nothing.

29:22And then again, summer job and then come back to it. And I used good looking models again. Sales went to, I think it was 45,000 that year. And it was like just getting nowhere. And it was probably the fourth season of me being in business. I really wanted to give up. I was working on a golf course in the summertime, right? Doing what? I was a greenskeeper. I was changing the holes on all the greens and I was helping with construction and all that.

29:57By the way, I understand the necessity of doing all that, right? You needed to earn a living and now, I mean, you're in your, you know, late 30s and you had been a certified, you'd been a chartered accountant, which is a kind of a prestigious gig, right? Very much so, yeah. And here you are, you know, like doing manual labor. I mean, were you ever like, God, what am I doing? I actually loved that golf. That golf course job is probably the best job I've ever had in my life outside of UG, you know?

30:27Yeah. Um, but over the summer, I realized, you know, my product's so expensive, it needs a huge inventory because you never know if someone's going to walk in the door, they're size seven or a size 13. So it was a very hard product for a retailer to stock because of the cost. Americans still didn't understand sheepskin. They thought it was hot and sweaty and prickly. So I've got that against me and I, by a pure fluke, was having a beer with one of my good retailers in Ocean Beach in San Diego and at his store.

31:03And I was talking about how hard it was for me to get traction in the advertising. And he called out to the back and he called a half a dozen of these little kids, you know, the 12 to 13 year old Grommies who store their surfboards in the shop. And he says, hey, you guys, what do you think of Uggs? And they pretty much all just said, oh, there's Uggs, man. They're so fake. Have you seen those ads? Those models, they can't surf. And instantly I realized that not only was my ads not working, I was actually turning people away from Ugg boots because of the images that I portrayed them in.

31:45And so it was a huge learning thing. So presumably you started to use real surfers in your ads. Yeah, I had a buddy who was a former world surf champion, Pete Townend, who worked for Surfing Magazine. And he was running a scholastic surf team at the time. And I called him up and said, hey, do you have any young kids who are about to turn pro? And he gave me Mike Parsons and Ted Robinson as two people to check out. And so I hired them for, I paid them in boots, you know, and I just took my own little Canon SureShot and we went surfing at Black's Beach in La Jolla and Trestles up in San Onofre.

32:24Yeah. So when I ran those ads, the sales, which had been around, you know, $30,000 to $50,000 per year, the immediate jump was like $200,000. Wow. And it was because I finally connected the image that kids would want to be in the photographs, like they would be dying to walking to Black's Beach with Mike Parsons or to Trestles with Ted Robinson, you know. And that reality really taught me everything I learned about sales and marketing.

32:58The jump from 1982 to 83 was big. I think a couple of things happened that year, which one was you designed a logo for Uggs. Yes. Right. Like you designed a logo. It was like a ram's head, I think. Yes. Right. I don't think it's a logo today, is it? They took the ram's head out of it. Yeah. It was too difficult to reproduce. But that was the logo. Okay. So you had a logo, but you were basically able to just order, you know, from a manufacturer in Australia.

33:29Yeah. Country leather. And then they would be shipped to the U.S. Yes. And you could sell them. And then the other thing I think happened that year is you get a threatening letter, like a cease and desist letter from another company called Uggs. U-G-H-S. It's also – they also sell Ugg boots. They're, I guess, Australian couple, but based in Oregon. Yes. Who were doing the same thing you were doing.

33:59But they were actually making their boots in Oregon. In Oregon, yeah. And they sent you a letter saying, hey, you're using the name Uggs. We've, you know, we've got a trademark on it. We're going to sue you. Yes, that was – that was a horrible period. And I tried to find other names to use. But didn't you already have a trademark on the name Uggs? Yes, I'd registered a trademark, but they claimed that – like in Australia, the trademark law is if you're the first guy in with your $10 and you fill the form out, you own the trademark.

34:36Right. The rest of the world, you have to establish first use and continuous use. And I was able to do that with this woman. And she came in after me and I had advertisements. I had lots of public information that showed I was in business before she even came to America. So I knew I would always win a lawsuit. Right. But I didn't want to be in one because I didn't have any money. And this was going to be – well, just because we're going to come back to this. This was going to be a 10-year saga roughly. Yeah, yeah.

35:06It was going to last a long time. Yeah. But I'm sure in the meantime, it was – it's a competitor, right? I mean, somebody is trying to do the same thing that you're doing. One other thing that I know happened that year is that you met somebody who gave you a line of credit. And I'm assuming because you were doing well that year, right? And a guy named John Busser who I guess you had met when you were in the mainframe – Yeah, he was a computer guy, yeah. Decommissioning business. He gave you a line of credit, but he wanted half the business basically.

35:40That's correct, yeah. Yeah, and, you know, when I look back on my experience of ARG, the greatest weakness I had was my lack of financial knowledge, right? I was an accountant, sure. Yeah, yeah. But finance is not the same as accounting. Right. Accounting is what happened last year. Here's the balance sheet. Finance is forecasting what am I going to need over the next one, two, three, five years, you know, in a company that was growing pretty fast.

36:12So I was always in a position of the sales exceeding my ability to finance the production. And the more sales you get, the bigger your problems get in supply. Yeah. And I never really understood that. My accounting thinking was, we just sold a million dollars worth of product, we're broke. Right. What's the answer? Oh, we'll sell two million next year and think we'd have more money. But you don't. You're twice as broke. Right. It's interesting because you did have this deep experience as an accountant.

36:46But as we will see, you know, for a variety of reasons, you felt like you had to make decisions that would, over time, chip away at your control of the business. That's correct. And you made deals that weren't necessarily in your favor, like basically giving half of the business away for a line of credit. Yes. I was always trying to get financing from someone who had cash. It wasn't like a well-thought-out, you know, business plan or anything.

37:16And always in September, October, where I had these humongous orders to fill and no product. So I was in the worst negotiating position of all time. And this happened two or three times during those early years where the old investors didn't have the money to buy the new product. So I had to do a deal to get them out and bring in bigger investors. And that was a really horrible cycle. Okay. So you now have a partner, essentially, maybe a silent partner, this guy John, who's giving you a line of credit.

37:50Yes. Meantime, you still have this kind of like potential lawsuit hanging over you. And I guess you start to think, well, who wants to deal with this? Maybe I'll just change the name. And you thought about changing the name of Uggs. I did. I came up with the name Jackaroo, which is like a cowboy. It is an Australian cowboy. Australian cowboy, Jackaroo. I see. Jillaroo is the female version.

38:20And I had these young kids that I knew their parents. And they were riding for the Uggs surf team. They had Ugg logos on their surfboards. They're like all the surf, all the brands had surf teams. And so they wanted to be on the Uggs surf team. You sponsored a surf team? Yeah. But only with logos and product and stuff like that. I didn't really have any money. Right. And I went to them and I said, hey, listen, guys, I'm going to have to give up the Ugg name. And we're going to call them Jackaroos.

38:50So you'll be riding for Jackaroos. And I went, no way. That's a dumb name. We're never. And I realized how passionate they were about the Ugg brand. And just made me forget all about changing the name. And I said, damn it, I'm just going to go to court and fight this. Because that name is really powerful. When we come back in just a moment, how Brian's trademark fight is just the beginning of the struggles that put Ugg and his ownership of it at risk.

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42:35Hey, welcome back to How I Built This. I'm Guy Raz. So it's 1984, and Brian's business is growing, but he's tied to a seasonal sales cycle without reliable financing. He knows he has to grow beyond surf shops, but he can't get traction with any national retail chains. And he's feeling stuck until a trade show friend named Paul Bussman starts opening doors for Brian to another sport, skiing.

43:09He was one of the founders of the ski industry association, you know, what became this humongous trade show in Las Vegas. And he came on as a sales rep for me in the ski industry. I wasn't looking for a sales rep, but he came and convinced me that the ski market was a totally different market to the surf market. And he was right. And so he had a group that was already selling gloves and socks and everything to all the ski areas and all the ski shops. So he added Ugg boots to the line.

43:41Got it. Okay. 1984, record year, right? But not yet profitable. You had still a lot of losses. And you have this line of credit. Yes. Still kind of growing and – but challenging. And from what I understand, that year, you – and I should mention, you were – you had been recently married. You met Laura, who became your wife. Yep, yep. And you said to her, hey, I got to abandon this thing.

44:12This is not going to work. You realize or decide that you see no future in Uggs. Yeah. That partner investor that gave me the line of credit, he was used to finding an idea and doubling his money overnight. That's why he had the computer business that nobody else ever saw, you know, stripping out the gold. And he wanted to double his money. But, you know, he had no concept of advertising, cost of samples, cost of communicating with the salesforce. Right. And you're getting stressed out.

44:43And you're thinking, I don't need this. Yeah, yeah. And he just wanted his money out. And I do remember that there was a period when he was, look, putting intense pressure on me. And I remember I was at home one night with my wife, Laura, and we were watching TV. I was lying on my back on the floor and the show finished. I clicked the TV off. And I rolled over on my stomach and got up on my hands and knees and I started crawling towards the bedroom, you know.

45:15And Laura, who was a really quiet person, she just looked at me and said, you get up now and walk to bed like a man. And she sort of shocked me. And as I stood up, I just, I was like coming out of a fog. It was like, oh, my God, there's so much more to life than this crappy little sheepskin company. And that night I started, you know, how can I get out of this? You know, I literally wanted to just get out. Yeah, I mean, I can understand because you're feeling a bunch of pressure.

45:47And I mean, now you are almost 40, right? And probably still struggling, really struggling financially. Yeah, Laura was working for an architect and she was paying the bills at the time. Yeah. So, all right. So there's a lot of pressure and this guy wants his money back or he may want to get out of business. And you want to just throw your hands up and walk away.

46:13And but like will happen again and again in this story, some intervention, call it divine, whatever you want. You call up this guy, Paul Bussman, say, hey, I want to get out of this thing. He says, well, I know somebody who could potentially help you. His name is Neil Fearing. Fearing, I think that's his name. And he is a who is he like a wealthy investor. His business was Yamaha Motorcycles and he was a distributor for them.

46:45But he was also a opportunist. And if he saw good deals in the marketplace, especially in the ski industry, he would buy a whole bunch of closeouts and figure out a way to make money out of it. So so that was who Paul Bussman introduced me to. Right. And Neil came down and looked at our operation and and said, you know, I could do this. But, you know, then we had to sit down and try and figure out how we were going to do it. OK. And your operation at the time was you had a warehouse in San Diego because you had moved to San Diego a few years earlier.

47:20And it was you and how many people do you remember working with you? I had a warehouse girl and someone that came in part time did accounting. OK. And who was doing like logistics, like sending like shipping the orders? Me, me, me, me, me. You were the guy. All right. OK. So he comes down, this guy, Neil, and says, yep, I think I'd be interested in buying you out. Yep. But from what I understand, he says, you're going to lose.

47:50We're going to buy you out. You're not going to have any ownership, but you can regain 25 percent of your ownership. Once this little issue with that other company, the Uggs, UGHS company, once that that lawsuit or that situation gets resolved, then you can you get your 25 percent back. That's basically the deal they offered you. Yeah. That, from his perspective, is exactly how he saw it. OK. But me being a naive, you know, businessman, I was looking at, oh, he's so lucky I'm bringing in three new partners to my business.

48:27Him, it was this guy, Neil. Paul was this guy you'd worked with, so he'd be a partner. Yeah, Paul. And another guy, Joe, who was the closeout guy. OK. So the three of them were going to buy the company together? In their minds, yes. OK. And I was this sort of impediment that came along with it. But they needed you because you knew you had the connections, you know how to run the business. Exactly. OK. So you would stay on. And I'm not trying to second guess you or anything. I'm just trying to get in your head when you were, you know, at that time. Like when they said we're going to buy the company, did they give you a check that you could then cash that was your money?

49:02No, no, no. We set up a new corporation. And in my mind, we were all going to own the company 25% each. And what were they bringing to this, cash? They were bringing in cash, the ability to buy more product. We also moved the entire operation up to their warehouse in Anaheim. And I was not going to be involved in the day-to-day operations anymore. I was going to be the salesman. And by now, I loved sales. I was just an incredible Uggboot salesman.

49:38And so I was going on the road full-time and making – I was not on salary. I was going to make a commission on sales. OK. And they were going to do all of the operations. So their 75% was overheads and running the company. OK. So you saw this as – it's almost like if you were to raise capital from an outside investor, except not only did you raise capital, they were also going to operate the side of the business you didn't really want to do. You wanted to focus on selling. Exactly. It sounds like you were also looking for some kind of certainty or more financial stability. So as a sales rep, you would get commission.

50:16That's correct. But you were giving up the business, basically. Well, in my mind, I wasn't. In my mind, they were my new partners. Right. And nothing had changed. They're the ones that thought they just bought the business from me. And it came to a head. We spent a whole week organizing everything up in the Anaheim warehouse and getting the accounting working and everything. And I finally went on the road my first day as a full-time sales rep, right? And I drove down Beach Boulevard to Huntington Surf and Sport. And I walked in and the manager's name was Dave.

50:49And before I could say anything, he said, hey, Brian, I heard you sold the company. And I went, what? He said, yeah, I called an order in this morning and they said you don't own the company anymore. And like I couldn't wait to get out of the store and I went to the Shell gas station next door. To the phone booth because this is before cell phones, right? Yeah. And I called up Neil and I said, Neil, what the hell are you telling people? And he said, what do you mean? And I said, you're telling them I don't own the company. And he says, well, you don't. And I said, yes, I do.

51:20You're my three new partners. And he goes, no, you don't get your stock issued until you finish the trademark. And I just hung the phone up and I drove from Huntington Beach straight back to San Diego. And I pulled out my contract and I read it and I reread it. And I just went, oh, shit. I don't own the company anymore. Wow. OK. So you're frustrated, but you know that you could get 25% of your ownership back.

51:51Sounds like they actually did pretty well that year that they sort of came in. I mean, you guys did $650,000 in sales. So clearly on the up and up. Yeah. The weird thing was I actually loved being on the road selling. And, you know, after we got a – we made a deal that from then on they would not tell anybody that I'd sold the company. OK. Right. So that – we got that out of the way. I'd already committed that I don't own the company. I don't run this anymore. But I – my mantra was I'm going to try and get a pair of Ugg boots on every single person in America.

52:23And I went back on the road to all my Southern California guys and I got back to the office and Neil handed me a check for $5,000 and said, that's your commissions. Wow. And would you believe that? I think that was the fifth or sixth year. That was the first money I'd ever taken out of the company. And here's a question I have for you. I remember you said that early on. You would cringe. It was so hard for you to go into these shops and try and sell them. You were embarrassed. You were nervous. Now it sounds like you were really excited to do it.

52:54So what changed? There was a couple of things. By being out there with the customers, it was so much easier for me to get a rapport going and introduce the product by having them try the boots on. That turned out to be the biggest factor in closing our first orders was having the buyer try them on. But while I was in the stores, this girl walked into the shop one day, I think I was in Newport Beach somewhere, and she was touching the Ugg boots and she obviously loved the look of them and the feel of them.

53:30And she was asking the staff guy there, you know, what are these like? Well, I'm not really sure. You know, are they hot? I'm not really sure. You know, what happens if I get them dirty? And the guy was useless, right? Yeah. And I saw that interaction and I came up with what I called the six-pair stocking plan. And if a store would open up with six pairs, I'd give a free pair to the store manager. And now, I was in a different surf shop, you know, a month or two later, and a guy walked in and he says, you know, what are these boots like?

54:06And the sales guy says, oh, they're fantastic. I'm wearing them now. He says, aren't your feet hot? No, they breathe. You know, so, well, what happens if you get them wet or do it? Oh, you can wash, you know. I mean, it was just like night and day. And so, the guy bought a pair of Ugg boots because there was somebody to validate how good they were. And so, that cost me a pair of boots for each new store I opened. But that changed the trajectory of Ugg forever. It was probably the best marketing plan I ever executed on.

54:39Okay, so you are now full-time selling and making commission and driving all around Southern California. I think at a certain point, you even tried to build like a boot for the ski market, specifically for the ski market, called the Z-Lander. And I've seen it described as a ski boot, but I don't think it was a ski boot. What was it? No, it wasn't a technical ski boot. No, it was an after ski boot. Yeah. A boot that you could wear in the snow because the original Classic line had an EVA sole.

55:12It was a flat piece of ethyl vinyl, acetate, whatever. And it was super slippery on snow and ice. So, we created a rubber cup sole. Because it was rubber, it was much more sticky on snow and ice. But yeah, that was a big, big change. Made us much more credible in the snow industry. So, it's 1986 and you are selling. You're on the road. And the litigation or the threat of litigation or the lawsuit, it essentially gets settled, I guess.

55:45And neither side really comes out the winner or loser. I guess your trademark wasn't invalidated. Hers was not invalidated. UGHS, U-G-H-S, could continue to sell in the U.S., but say made in America. That's correct. And yours, the UGG, would also be allowed to sell in the U.S., but had to emphasize. Made in Australia, yes. So, this sounds like a great result. And now, you get your 25% back now, officially, in stock. Yep. Selling that lawsuit was a big step.

56:18And probably the best advice my lawyer ever gave me was, OK, Brian, now you can sell. Just beat her in the marketplace.

56:28But I didn't really push to get my stock right away. Because a weird thing had happened. You know, the second month I was out on the road after we made this change, Neil handed me a check for $10,000. And the next month, another $10,000. This is your commission. In commissions. Yeah. And I'm realizing, oh, my God, I don't have to do any ordering. I don't have to do any accounting. I don't have to do any warehousing and shipping. I don't have to. I just am doing the marketing. And I'm on the road selling.

56:59And it wasn't even selling anymore. It was hanging out with all my buddies who owned the surf shops and the ski shops. And, you know, we'd go fishing in Idaho. We'd go golfing in Nevada. You know, it was just a great, great lifestyle. And this was a classic case of nearly always your most disappointing disappointments will become your greatest blessings. Which is one of my favorite sayings. And here I was, like, destitute with didn't own the company anymore. But suddenly, I'm traveling the America and making more money than I could have ever imagined

57:33at that time. And that literally went on for the next three years. All right. But from what I gather, you did not recover your 25% ownership. I was very, very close because in that three-year period I was just talking about, Neil had bought Joe and Paul out. So he owned 100% of the company now. But you had settled that lawsuit. So surely... So he finally called me up and said, Hey, Brian, look, you've settled the trademark.

58:04Come in next week. I've got the attorneys ready to issue your stock. And that day he hired, we had a life insurance salesman come in from Transamerica. And we wrote out life insurance policies on each other. So we were full steam ahead. But that next weekend, Neil was at a motocross race. He was a big, you know, motorcycle rider. And he was not in good health. And he had a massive heart attack during a race. The next week after?

58:35Next, between the time he called me to get my stock, and that was the very next Sunday, he had a heart attack in this race and never recovered. Wow. And so now his widow, who'd never stepped foot inside the UGG business, now owned 100% of UGG. Wow. And I was like out in the cold again, you know. Because, wait, because you hadn't signed the deal? We hadn't signed the contract to bring me back in as an owner. Wow. So I called her up and, you know, commiserated and everything.

59:09And I said, look, I'll be up tomorrow. And I'll commit to working a year for the business to see if we can salvage it. And that became, you know, coming off the three best years of my life, this became the hardest year of my life for sure. So, okay, this is 1988. And so you're running the business. But apparently the accounting was a mess, a total, like, the books were just a mess. Checks hadn't been cashed.

59:40POs hadn't, you know, been paid. And then you guys had outstanding bills that you had to pay. What did you discover? It was, what you said, a mess. And I had to try and reconcile everything. And it ended up about $87,000 in the hole when I finally finished the accounting. Had no leads on financing for the following year. My supplier at Country Leather had just had three fabulous years working with Neil. And he got his money on time all the time.

1:00:12And when I called him up and told him the news about Neil, he started to clam up. And he was, I knew he was thinking back to when I was running the company before Neil. And he, you know, I always paid him, but he never knew when or, you know, the money was coming. And so he started to get very cautious. And I said, George, don't worry. I'm going to do a business plan. I'm going to go out and refinance the company. And I'll have plenty of money to start production, right? But it didn't work out that way.

1:00:42You know, I wrote a business plan, but I got nowhere with the bankers. Friends and family were way beyond that. So, you know, I really was desperate for three or four months on a who the hell can I approach? And, I mean, you were still running the business. Orders were coming in. Yep. In fact, it was the best of worlds and the worst of worlds. You know, the best was that I'd created a blackened charcoal, two new colors for the line, which all the sales reps had. And that was right before Neil died. So, they were out in the field and blackened charcoal were just kicking butt with all of their orders.

1:01:18And we were, you know, getting two or three thousand pairs of orders a week. And I was bundling them and sending them down to the manufacturer going, hey, George, get ready.