Q&A with Hap Klopp

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After graduation with a Stanford MBA, Hap Klopp founded The North Face, where he served as President and CEO for 20 years and built the largest and most successful retailer in its industry, not to mention one of the largest privately held companies in the San Francisco East Bay. After selling his company, Klopp launched an international management consulting firm, HK Consulting, with offices in Berkeley, California, and Tokyo, Japan. As an investor, advisor and director, he serves numerous entrepreneurial companies that utilize disruptive technologies to revolutionize established industries. In this Ivey Interview, he discusses lessons learned and insights gained over his impressive career, not to mention his latest book, Almost, which is all about learning from failure.

IBJ: Hap, you are often described as a businessman, adventurer and executive. In other words, you are a busy guy. And when you started working on your new book, Almost, with co-author Brian Tracy, you had already been there and done that with Conquering the North Face and The Adventure of Leadership: An Unorthodox Business Guide. So what moved you to write the latest book?

HK: Well, Almost is different. Part of what I was trying to do with this book is give people a real view on what happens in Silicon Valley in real time.

IBJ: Why is that important?

HK: There are so many stories about people coming out to Silicon Valley to start a business and ending up a billionaire pretty much overnight. That’s wonderful when it happens, but it seldom does. For every Instagram story out there, there are hundreds of other ventures that did not instantly create wealth and hundreds that didn’t create any wealth at all. So anyone coming out here looking to start a business in order to get rich quick really needs to understand the desire for instant wealth is not easy to satisfy and certainly not a good reason to start a business. Success typically takes time and hard work and passion. And that is especially true in Silicon Valley, where failure happens all the time. My previous books are about success and leadership. This one is an epic tale of failure.

IBJ: So what is the story?

HK: It is about a San Francisco start-up called Ardica, which emerged from the mechanical engineering department at Stanford University. It was formed to provide heat and power to apparel via miniaturization and energy-density technologies and it almost became the next big Silicon Valley success story known for offering the Holy Grail of artificial heat. But it was mismanaged by people, including me, who were brought in to arrange financing, manage product development, build the brand and do what it takes to take a company to market. I spent 12 electric months working with brilliant marketing people and brilliant engineers, while the company was operating on the verge of becoming a household name. But everyone was not operating on the same page, so we failed. Learning from failure is just as important as learning from success, maybe even more important. I think people should wear failure as a badge of honour. So that explains the book.

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IBJ: Was pitching a book about failure an easy sell?

HK: No. In fact, when I first approached publishers, I was repeatedly told nobody wants to hear about failure, especially the failure of a relatively unknown company that never made it big. One publisher even told me to hit some bookstores and look for sections on business failure, which don’t exist. I jokingly responded that maybe one of the reasons the book-publishing industry is struggling is that they aren’t serving the business market as well as they think.

IBJ: So what does the book teach us?

HK: Well, for one thing, it clearly and colourfully demonstrates why every venture must define what exactly everyone is working toward. Doing that won’t guarantee anything, but you will start out with something important, meaning having all concerned on the same page, which is key to developing great products and having the right market timing, not to mention landing the right financing. And if you don’t do that, it’s pretty much impossible to succeed. It sounds simple, but not getting the team together is a basic failure that happens all the time. And if it can’t be done, everyone needs to step back and figure out why or do themselves a favour and go elsewhere.

IBJ: Great book. Now let’s talk about your success. In 1968, when you started building The North Face, you had a Stanford MBA and plenty of drive. You also had a clear vision, meaning the determination to manufacture and sell the best-quality equipment. What did you lack?

HK: I was just coming out of school, so I lacked experience. In fact, I had NCAA, which stands for No Clue At All. As a young and hungry Stanford grad, I was fearless, but I didn’t really know much about the ways that the real world works. And I didn’t have a solid grasp on the challenges that I was going to face. I certainly didn’t understand much about financing and rounds of financing that were out there and what the impacts of those rounds were on growth. I also really only understood one business model, which was the prevailing model at the time. Subsequently, when I looked around, there were a lot of better business models than the one we pursued, including some that employed a lot less cash than we used to build. Nike, for example, basically used vendor financing to enable growth. By not buying any product that they didn’t have orders for booked, they were able to grow without additional capital. The rest of us at the time were basically putting a product on the shelf, paying for it, and then selling it off as orders came in. That wasn’t as good as the Nike model.

IBJ: But you had some experience running your dad’s company while still in school, right?

HK: That’s correct. It sold wood products, windows frames, doors, etc. The headquarters and manufacturing were based in Spokane, but we had operations in Chicago, Boston and New York and a joint manufacturing venture in Missoula, Montana. I took over after my father passed away. I really didn’t know what I was doing, but somebody had to step in.

IBJ: What did this experience teach you?

HK: It taught me the importance of having a real plan for the business. We had a nice company that was very good at manufacturing, but didn’t do anything unique in terms of its branding. People could buy alternate products, including some that were great, from more established brands like Andersen and Pella. So it was a very competitive environment. And when I took over, the company was operating as it had for many years. Nobody had sat down to analyze the competition or where the market was going to go, all of those things. I knew we were a relatively small player in a large market playing against large competitors, so we were not going to be able to dictate to the market. Nevertheless, it soon became clear to me that we would soon face significant problems without at least trying to understand the marketplace and developing some form of rudimentary plan to provide direction. The second thing I realized is that even with a game plan, no business will necessarily go on forever. And that eventually led me to sell.

IBJ: So you were not totally clueless when launching The North Face, right?

HK: Well, it is certainly true that running my dad’s company led me to set out to create a monopoly through creating a great brand that stood out from everybody else. But I was still somewhat clueless about how to do it, or at least how to do it right.

IBJ: Where did your passion for branding come from?

HK: There was always a natural attraction and I learned a lot from simply studying companies I admired. But while some of my knowledge was intuitive, I also learned a lot about the importance of brands from a real gentleman by the name of Richard Salomon, who was one of the initial investors when we started The North Face, not to mention Chairman of the Board for a while. Dick was the founder and the head of Lanvin-Charles of the Ritz, a major cosmetics and perfume concern, which owned the Yves Saint Laurent brand at the time. He didn’t know anything about backpacking or the outdoor world, but he was an expert at marketing and branding and I was lucky enough to go to school with his offspring. He was constantly identifying the benefits of brand, which helped me refine my intuitive thinking.

IBJ: How did The North Face come about?

HK: After selling my father’s company, I bought the concept from a skier named Doug Tompkins and his wife Susie, who went on to found a company called Plain Jane, which later morphed into Esprit, a great success in women’s fashion. They operated two stores generating about US$300,000 in revenue, and a third store was added by an investor group that came in for about six months before running into financial problems. The third store probably made more money from the newspaper rack out front than inside sales. So when I arrived, the name had been established but the company had no product line of its own. My plan was to build a brand of our own manufactured products for the backpacking world. The target market expanded to the ski world and then beyond to the outerwear world.

IBJ: From wood products to outdoor gear is a jump. What made you jump in this direction?

HK: I liked the taste of leadership that I got running the family company. So after I graduated from business school, I started looking for something to lead. I felt that I had the ability to do it, and I had idiosyncratic ideas that didn’t necessarily mesh with working for someone else. I didn’t like the idea of hierarchy and committees. I wanted to make a great product, so I narrowed down my search to a couple of areas that I thought were going to grow pretty rapidly. Then I refined my choices to a few areas, including one that involved equipment for the outdoor world, which was essentially the only option I really knew anything about. If you grow up in Spokane, which sits west of the Rocky Mountain foothills, you grow up camping and hiking. We didn’t call it backpacking at the time, but I grew up as a user of outdoor gear, and as a consumer of outdoor products I felt I really knew what made the difference between a great outdoor product and a good outdoor product.

IBJ: So your dad through some management failings of his own taught you the need for strategic planning?

HK: Absolutely. That’s why right out of business school I had confidence in my ability to quickly build out The North Face brand. A lot of business grads who want to launch something of their own first work for a large company for a period of time before taking the plunge. That is a double-edged sword. While gaining experience is valuable, sometimes potential entrepreneurs do well enough working for others that they never attempt to do something of their own. Thanks to the experience I had with my father’s company, and the lessons I learned, I’d had enough capital and exposure to leadership to have the confidence I needed to launch something of my own early on, although I may have been too confident since there was so much that I had yet to learn.

IBJ: What did you do really right at The North Face?

HK: We made it disruptive. Not everybody sees The North Face as a disruptive technology story, but that is what it is, just not the kind of tech people talk about today. We took materials developed for the Vietnam War and applied them to the camping industry, changing the nature of the product by lightening the load by 50 per cent. Instead of going 200 feet into the wilderness, we enabled people to hike for miles. When Gore-Tex came around, we were the first partner. We had design genius Bucky Fuller, a friend, take time out from changing the world to mentor a team put together to design state-of-the-art tents.

IBJ: Did you anticipate where The North Face was going to end up?

HK: I often get asked if I expected it to grow into a US$2.5-billion operation. And the answer is absolutely not. For one thing, I didn’t think in monetary terms. Crossing the billion-dollar sales mark wasn’t a driving goal for me. In fact, I probably had more modest goals than any of my Stanford MBA peers. I essentially wanted to build a great long-standing industry leader. But when it came to revenue, I simply presumed ten million in revenue with a million-dollar bottom line was what we’d need to be absolutely happy because that is what I thought I needed to have a solid company that would endure. Now that was just at the outset. Our sights obviously changed with success.

IBJ: Did you always want to be in business? For example, was a business career on your radar when a ten-year-old Hap Klopp hunted gophers to sell the tails?

HK: I wasn’t thinking long term when I sold gopher tails, but I remember liking the commercial aspect of it. And I guess you could say that led to other ventures that were business-oriented. In the seventh or eighth grade, I was sort of disruptive in school. That helped a friend and me convince the principal to let us put our energy into launching and running a school store. He took us shopping and we opened up shop, selling supplies, notebooks, pencils, ping-pong balls for our table-tennis courts, and whatever else we could think of to sell. We spent time developing the business and spent a couple of hours every day running it, buying and selling and preparing the goods we offered. We didn’t get to keep the profits, despite always trying to figure out ways that we could. In fact, the principal put that store directly in front of his office to keep an eye on us, which was probably good thinking on his part. But the money didn’t matter. Running a store felt good. I really liked it.

IBJ: What was your first salary job and what did it teach you?

HK: I am not sure salary is the word for what I was paid, but my first real job was during high school when I worked for the family business doing pretty much everything that you can do in a woodworking and mill factory. I learned an awful lot of people don’t come across as particularly articulate, but still understand their jobs in tremendously impressive ways. And if you just let them do what they know, rather than tell them how you would do it, you can learn a lot about how things should actually be done.

IBJ: What’s the most valuable lesson or thing you took away from your time at Stanford?

HP: You don’t have to be the smartest person in the room to lead if you can articulate a vision well enough to convince others to use their intelligence to accomplish it.

IBJ: At The North Face, you set out to build the market and create demand by doing things like working with Yosemite Park to put in ski trails. Do you think too many retailers today simply wish for demand, instead of moving to create it?

HK: Yeah, I do. There are so many retail stores out there. And many don’t really need to exist. So just opening your door and hoping people come in is not good retail. That’s sort of a weak mall strategy. If you go to a mall, it is often challenging to know what store you’re in because all the stores are often so similar. To stand out and thrive in retail, you need to figure out what it is that you stand for, and then ratify that in the eyes of the market. And if you have to build demand for what you stand for, whether that means setting up cross-country skiing in Yosemite, or finding a niche for a product higher priced than anything else on the market, you do it because repetition of what everybody else is doing is a good strategy to achieve failure.

IBJ: You’re a big, big believer in influencing influencers. Why do you think so many strategists don’t do this?

HK: It’s a delayed ROI thing. That’s where working with many VCs can really get you in trouble. They come in and ask, “What’s the addressable market?” So many ventures simply define and go after the largest possible addressable market, making it as big as possible to get everybody really excited about it. And then lots of money is spent bottom fishing that market. The problem, of course, is that if you’re not clearly differentiated, you are just another bottom player, so the only tool you can use to beat competition is pricing. In other words, right out of the gate you’re sowing the seeds of destruction. Establishing the brand and moving up the ladder by working through influencers to influence the market is a slower process, but it is the more valid process and it establishes premium price to match your brand. The return is worth it, but you don’t get it instantly. I can point to a lot of European companies in the apparel and sports fields that have come to the United States and make the mistake of trying to market to everybody because they see 330 million people with a common language. But when you do that, the marketing and sales costs are huge and the impact is small. I just think it is better trying to dominate a region like the northwest first by influencing the regional influencers and let them spread the word for you. Influence the influencers and general consumers will follow their lead on products.

IBJ: What was your first big mistake at The North Face?

HK: I made many big mistakes. In fact, a series of linked recovery measures is what we elegantly described as a plan later on. The first mistake was trying to do too many things. Early on, we had this lifetime warranty concept that led us astray. We offered it because we didn’t believe in planned obsolescence, and we thought selling things that lasted with a lifetime warranty was a great marketing tool. But when you’re making things like sleeping bags or tents, very happy customers typically are not repeat customers, so it is pretty difficult to scale the business and grow. So we decided we needed to make additional products like packs and clothing. The manufacturing process, however, varies a lot when it comes to making backpacks and sleeping bags and clothing. As a result, we had a lot of money we invested going a lot of different and, sometimes, conflicting ways. And our training time for employees was much greater than competitors. That was a challenge to manage for a young company.

IBJ: You always talk about motivating employees and giving them a reason to care, so are you a good boss?

HK: If you ask people who have worked for me, 50 per cent will probably say yes and 50 per cent will say no. I take great pride in the relationships I have established over the years with people who really relate to how and why I do things the way I do. Eleven of the people who worked with me at The North Face ultimately went on to run businesses of their own in the outdoor world. Most of them had no business training when they came in, but we shared an understanding about the tools required when they learned everything from budgeting and expense management to forecasting and strategic planning, things most small companies don’t teach you. And I like to think the people who were really into learning how to launch a business were drawn to my management style or at least accepted it. Other people who just wanted a job, however, probably thought I was too demanding for what they were being paid.

IBJ: On that note, didn’t you once say firing people is the most important act you can take to protect your corporate culture and ensure your company is stocked with engaged employees?

 HK: Yes, that’s true. At The North Face, we updated the strategic plan every two years, bringing a wide range of people from inside and outside the company to talk about the best path forward and what it required everyone to do. At the end of that meeting, I would generally say something like: “This is the direction we are going for the next two years, when we’re only going to go one direction. So I hope the plan is clear enough to motivate some of you to quit.”

IBJ: So you think any job performance review should include how aligned individuals are with the direction the business is going, right?

HK: Yes. Well said, very well said.

IBJ: You wrote The Adventure of Leadership partly because you were concerned about a looming leadership crisis. What are your thoughts today following the Global Financial Crisis?

HK: Well, I hate to say that I was able to predict the future. But things certainly got a lot worse. The amount of money that people can make acting as what I like to call a non-leader has led to a lot of exploitation of markets. Simply put, greed ultimately undermines a company. The related challenges in the business world existed long before we were ramping up The North Face, but they exist to a much greater degree today thanks to compensation trends. Running a company to just make management rich is not leadership. Great leaders, at least in areas other than the financial services world, are not motivated by money.

IBJ: What is your opinion of Steve Jobs?

HK: I have to admit I was impressed by the man, despite the fact that he was a somewhat uncomfortable person to deal with. His vision and his ability, despite his personality, to pull people together around new ideas was second to none.

IBJ: You once said leaders should spend as much time explaining strategy and motivating employees as they do conducting business on the phone or paying the bills. Why do you think so many leaders see articulating strategy across the company as a waste of time?

HK: They don’t see the big picture, so they can’t see the return to be gained on time invested in planning. Developing and articulating strategy requires meetings, and meetings are really hard for busy people to accept when they don’t buy into why they are being held. This is especially true when everyone is so busy. Some people just can’t help wondering what’s so important about brand development and strategic planning that everyone has to take time away from immediate issues related to product development or engineering or fundraising. Somebody with years of training in a specific discipline has a tendency to be very practical when looking at what they’re doing. To them, the business world is black and white. They often don’t see or care about the nuances that exist in business. Meanwhile, their experience and knowledge has a tendency to narrow the focus of the way they look at problem solving. As a result, they don’t embrace the brand and strategy-planning process. They wonder why one person can’t simply devise the strategy and write it up or some consulting company skilled in strategy can’t be hired to get the job done. But when that happens, the strategy developed typically does not encompass the entire company. What you end up with is sort of a skin graft strategy taken from another organization, a skin graft that doesn’t take. And that’s not how you build a great lasting brand.

IBJ: So what’s the best way to get engineers and marketing people on the same page?

HK: Well, as I hope my book makes clear, it is always a big challenge. But I think it is easier if you start a company and you tell everybody from the beginning what page everybody has to be on. That way, when training and duties take people in different directions, they are still working together rather than against each other. At Ardica, we started trying to write our page late because I came into things in the middle. In fact, Almost is all about what happens when conflicting party lines are allowed to be drawn. That makes it hard for people in each camp to listen to any other way of doing something. And when a start-up is working toward a variety of objectives and milestones, and everyone attaches different priorities to them, it tends to pull the team apart, especially if compensation is tied to individual work, because nobody agrees on what is most important to the company at any given time. It is much better to have a common vision and pay scheme with bonuses, or options, or whatever, tied to the overall success of the enterprise. That is easier said than done. But it is always best to have salespeople and marketing people and product people understand that overall company success depends on each and every one of them working together in synchronicity.

IBJ: What’s your biggest weakness as a leader?

HK: I think everybody’s strengths are also their weaknesses. I can connect dots very quickly, faster than most people. So I am actually able to see some product trends or social things that are happening, or at least I delude myself into believing that. But when you have or think you have a vision, you sometimes lose pragmatic people who hear platitudes when they want specifics. I often don’t realize that until there is some pushback. I can get so wrapped up in talking about what’s going to happen three years from now that I lose people concerned about what’s going to happen in the next three weeks. The tendency to be looking at things from a long-distance, 10,000-foot level sometimes doesn’t satisfy either the existing need or what the people want.

IBJ: Anything else?

HK: I do genuinely like people and I am an optimist who tends to believe people will accomplish things. As a result, I probably take too long before pulling the trigger when I know an employee isn’t going to get the job done. So while I always like to say the most important thing you can do is a timely fire, I’m not necessarily the best example to follow.

IBJ: What should business students learn today that they’re not learning?

HK: Emotional IQ. There is such a great emphasis on technical expertise today that we fail to teach people how to really connect with others, which is what it takes to accomplish the great things in the world. Being interconnected requires countering dogma with empathy. I teach at a number of universities, and I worry about student focus on grades. We live in a world that says if you don’t get good grades in high school, you can’t get into a good college. And if you don’t get good grades in college, you can’t get into a good graduate school. And if you don’t get good grades in graduate school, you don’t get the great job. I think this leads some to game the system more than learn from it how to work well with others.

IBJ: You’ve frequently rolled the dice working with young, eager people. Does that mean you think experience is overrated?

HK: I am not sure if experience is overrated, but I know it is just one part of the success equation. It also has its drawbacks. Many experienced people become set in their ways with age. As a result, they look for conservative answers to complex problems. In other words, they don’t typically take on anything radically different or uncertain. Younger people, on the other hand, often try to problem-solve by doing something really great. Sometimes that’s due to naïve optimism, but sometimes naïve optimism leads you to change the world. Whatever the case, working with young people gives me a renewed optimism about the world. It is also a lot of fun. That’s another reason I try to stay around young, hungry people as a teacher or mentor or whatever.

IBJ: So you use young people to counter the heavy hand of realism that often comes with experience?

HK: Yes, exactly. Experience clearly has an important role to play. But the young can be intimidated by older people, especially executives. So what I do in many of my endeavours is enable thinking about a wide range of possibilities with a rule that outlaws saying “no” to any idea put forward during the first half of any meeting. That keeps the people with big titles in check long enough to let the optimists, admittedly sometimes naïve optimists, at least voice fresh ideas. Some fresh ideas are hair-brained, but you can find a kernel of something that really electrifies your company within some hair-brained ideas.

IBJ: What’s the most unrecognized market trend you see emerging?

HK: I see a few emerging trends that are really changing the world. One is the shift of power to consumers. Manufacturers once controlled how and when you got things and at what price. In that world, a Henry Ford could say, “You can have the car any way you want, but it’s going to be black.” The power then shifted to retailers, who started dictating everything. And now, thanks to electronic commerce and communications, consumers have the power to get what they want, when they want it, where they want it. This facilitates a global market with a much greater amount of variety than manufacturers would like. And it will dictate a return of domestic manufacturing to a much greater degree than most realize. Most organizations are still set up for a system controlled by either the manufacturers or intermediaries.

IBJ: What else?

HK: As far as I can see, nobody yet has really done a great job of figuring out omni-channel marketing, which is the combination of retail stores, catalogues and Internet. When that’s figured out, somebody’s going to have a big impact and be highly successful.

IBJ: So bricks and mortar retail has a future?

HK: There was a point in time when people said department stores would eliminate every little store in the market. Then department stores were threatened by shopping malls. Then catalogues became a big deal, and everybody said, “Oh, the catalogues are going to eliminate everything.” Then the Internet came along and bricks and mortar was supposedly doomed. What really happened in most cases is that the good survived. It’s always an evolution. And with consumers now in charge, the trick is dividing up your channel offerings to meet the needs of your market. And that means some of your target customers might like to drive to a store on a Saturday afternoon while others prefer to do things online at night in their pajamas.

IBJ: So retail channels now have to be run like a financial market strategy with a diversified mix of assets that change as market conditions change and new technologies come on-stream.

HK: Absolutely. And that’s difficult to do. It’s inefficient when you spend a lot of time continually rejigging. Unfortunately, the market’s changing, so you now have to deal with that inefficiency. Being sub-optimal is now optimal.

IBJ: Favourite business book not written by you?

HK: There’s a few that stand out in my mind. I really like a book called World Famous by David Tyreman. It describes really well what I know how to do, offering a methodology for developing a brand. I don’t write that way. I write stories and parables. But the methodology for developing brands is pretty darn important and Tyreman’s book is very enjoyable. I also like Malcolm Gladwell’s books, especially Blink, which offers a justification for making quick decisions and made me more comfortable with some of my early decisions. I think it’s important for people to recognize that there is no longer time for perfectly informed decision making, because if you wait around for perfect information, competition will beat you. I have also read most of the popular deep business tomes that tell you how to do everything, but I’ve read enough of them that I now get bored with them. I don’t like boring books. In fact, when I first read my first book, Conquering the North Face, I had to rewrite it using stories and parables because I found it descriptive and pragmatic and didactic, so really boring. I like books that are fun to read while offering easily remembered lessons that can be applied intuitively to other situations. That’s better than trying to memorize the four P’s of marketing or seven most effective habits of highly effective people, or whatever.

IBJ: So what’s next for Hap Klopp?

HK: I’ll keep busy lecturing and teaching at universities. And I’ll keep my hand in business. I am currently working with numerous ventures, including a number with disruptive technology. I’m involved with two nanotech companies. One is a Czech company called Elmarco, which develops technology and equipment for the industrial-scale production of nanofiber solutions. The other is Colorado-based Cocona which provides innovative technologies that improve things like fabric moisture management and odor capture, adding value to and improving the performance of products in the apparel, glove and footwear markets. I am also working with a digital marketing company called Obscura Digital, which does projections on buildings and multi-touch walls and collaborative computing rooms in which all the walls are screens. It’s all very interesting and keeps me young. I work every day and remain as enthused as I was 50 years ago. I don’t do it for money. I do it because I see this charade in which everybody says capitalism is working well and I see an inefficient and demeaning business world. I believe there’s better ways to get things done. And if lucky people like me don’t try to change things for the better, then who will?

IBJ: So what does retirement look like for Hap Klopp?

HK: A coffin, I guess. I feel an obligation to give back as a result of my success and life experiences. And remaining active in business by serving on boards, mentoring and teaching gives me tremendous pleasure. So why do anything else?

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