How Adidas Ventures is Driving Innovation to the Sportswear Industry
Anastasia Green, Partner at Koalition, interviewed Milos Ribic, Director at Adidas Ventures. Being on the frontline of innovation, Adidas launching shoes into space, introducing recyclable materials, and so much more. We asked Milos about the trends and challenges of the sportswear industry, opportunities for the startups, and where Adidas will be in 30 years. Listen to the full conversation in our podcast series. Adidas is a large company with several innovation departments. Could you please help us understand how startups can best approach Adidas? It depends on the startup's model or the service they're creating. The number of businesses under the Adidas group is extensive: ranges from manufacturing to the digital experience. Each entity has its priorities and the horizontal venture system. We're looking for ways that can help us scale and exponentially grow specific priorities for the brand. Today that boils down to two buckets. One is around materials innovation. Since the brand's strategic priority and belief is sustainability for the world, we are driven by the success of using recycled plastics for product creation. We're looking for new materials that don't use natural resources or have very minimal contact with them. We want to maximize sustainability impact and therefore use venture as a tool that helps to scale the volume. The second focus is around engaging younger consumers and, more broadly, the sports ecosystem. Today, the attention of any consumer is a luxury. Finding the right method that mobilizes consumers or creates an engaged community around sports is very much needed for all brands, including Adidas. If the startup is doing product innovation, where should they go? Where do they send their Pitch deck? If you're looking at the product as a material, then the process first starts with understanding the product properties and sending the sample to our team to test. When it comes to sustainability, there are creative startups with resourceful data that are reaching out to the Venture team or the R&D team directly. If it's material for the footwear or apparel, it's better when the connection is established directly with the R&D team because they have the set up to test the properties of the material to determine whether it's sufficient and can do what it promises. Also, to check whether we can create products out of it in the desired volumes, that is in line with the sustainability priority of the brand. Many steps come after that, but the Venture team is not part of discussions in the beginning. It's engaged once mapping and the cost analysis is being done, and the early-stage feasibility study has been completed. What about digital solutions? Where do I go If I've built the most engaging app for Generation Z? First of all, if it's the most engaging app, then Adidas will know about it already! But if it's an app that is doing something related to sports or fashion, or engaging new audiences, founders can approach the Ventures team or Fashion team. Some teams are focused on fashion alone. They'd like to do a pilot to see if this app is going to engage Adidas consumers or a specific demographic as strong as it claims. Same for the sports side. The Ventures team helps to create a potential pilot and test if we can make a better outcome for a specific fan group within a particular sport. What are you looking for in startups? The preference for the startup in the material space is to be running a technical process from the start, being able to go first with the properties of new material, and then potential use cases. Through that pitch, the successful way to go forward is to stand out with the technical background of the team. It can help more than just focus on sustainability. When it comes to fan engagement, it's the ability to start with metrics. For example, when it comes to a new area, like Generation Z, we can determine a rational WHY particular "Gen Z" population likes the specific product and engages with it. Metrics will convince us that the team has thought through the product and how to determine its demographics best, and they have likely done several pilots. Also, we see that second and third-time entrepreneurs are much faster in the ability to create a product and create a fast engagement with it. We look at both metrics and speed. It sounds like tough criteria for the startup. What's in it for them? The harder the beginning is, the greater the pay-out. After going through those initial stages, you can unlock strong revenue potential for a startup. Our job on the Venture side is to reach revenue point, not only for the brand but also for the startup. Creating that very known output that startups can expect. Most of the start-ups are afraid to collaborate or get funding from the corporate venture. Can you elaborate on what they can be afraid of, and what can be reasonable? Every corporation has a different model, and I can't comment on all of them. In a space like pharmaceutical, biotech, even material science, there is a lot of IP that startup can't scale without a bigger partner. In some instances, the growth of AI applied in replacing processes enables creative ways for startups to grow and not to work with the corporation. They can be good enough on their own. I can understand why they can be resistant to it. In consumer goods, I haven't seen that case yet. In most consumer goods, having a touchpoint with more than just a vendor is powerful, and can be extremely beneficial for a startup. In many ways, it depends on a relationship that is being built. It certainly creates a better opportunity for startups to raise additional funding, to hire other teams, and to use it as a strong case to recruit more customers, and minimize the sales cycle down the line. Since consumer goods usually is a high cash flow industry, the speed at which startup can crack into that cash flow and be a part of it even in the tiny time scale creates a massive advantage today. Does that mean startups get a chance to bring the product to the consumer faster with the help of big partners like Adidas? What are the potential challenges? We've done many cases successfully, but in many cases, after rounds of pilots and limited releases, we decided not to pursue the deal. Big brands do spend quite a bit of money on numerous segments that touch consumers, because they can, and because it's essential. And sometimes, it's too high a requirement for a small. If the startup can't bring additional resources when we're not yet open to be a part of a funding round, the challenge may arise. Sometimes it's a technical challenge when the solution didn't meet our minimum requirement or scaling of the product didn't work. Can you describe the nature of your work as a Corporate VC? What are the success criteria, and what are the biggest challenges? I would say the success criteria is that both startup and, in our case, the brand can create a new revenue as a result of the partnership. That's an absolute win for everybody. But that also creates a challenge for the startup. The sales cycle can be extensive, and working in a bigger entity internally requires following our process. When, on the other hand, traditional VC can write a check faster. Not that we can't do it, but since the brand has been around for seventy years and especially the past ten plus, we had a chance to create a vast portfolio of all kinds of consumer engagements. Some have worked, some haven't. So many learnings came to place. We like to test things and see the effect of the product on our consumers. If we'd go forward with that solution, then we understand how or where else we want to deploy it. After that, we'd come and invest. This process takes time, and that can become a challenge. This approach doesn't line up with the speed at which traditional VCs can write checks; there're different incentives in line. Can you talk about the industry? What are the technologies looking like the most promising ones? The common thread is that if you look at Generation Z and younger, attention span is being smaller. Attention turns into a luxury, something that everybody strives to win, especially on a consumer goods side. Another trend is that they're questioning how and where the cloth comes from, that can be footwear that can be fashion. "Gen Z" uses fashion as a way of expression and a way of expressing their own beliefs and what they stand for. In retrospect, it's a very positive trend. When it comes to the technologies and materials side, this trend is driving us to test more, to look for more materials that don't utilize natural resources. We don't want to victimize the use of natural resources and we want to be as fast and efficient as we can. On the sports side, we see the whole term of "sports" has now expanded to include even esports. That took an important notice from the traditional news sports entities, and everybody is trying to see what they want to do with it and how. Some are more aggressive than others. That's a trend that I think will be growing and it's a pretty exciting one because it's truly global. Do you see any development of digital goods for sports brands? Quite a bit! I think it's a big matter within fashion, luxury fashion, and sports. There's a trend for people only to own the digital version of a good that they either can't afford or can't have access to, but with digital goods now, they can. It's interesting because that creates more ownership. For the brands, it creates an opportunity to see and understand how consumers interact with such products. There's much learning on both sides and much exciting progress! I think that is a rising trend, and it's something that I think will even further connect Generation Z and create even greater social inclusion. What is the most radical innovation you've stumbled upon recently in your industry that you think will work? The most recent that I hope will work is enabling professional and "amateur" athletes who are playing in college-level, to be able to monetize themselves as brands. I think that offers exponential growth that hasn't happened before. College athletes, equally, men and women, are powerful revenue drivers for respective schools and sports programs they represent and play for. Now they may have an ability to take part in that new revenue creation or even be able to drive it themselves. I believe it's beautiful and step in the right future. On a professional side, athletes being able to so-called tokenize their contracts and allow anybody to invest and engage with them. I think that's the choice that athletes should have, they should be able to create ownership in what they do. In 2013, Adidas changed its slogan from award-winning "Impossible is Nothing" to "Adidas is All In." If you would give, let's say 20-30-year shot, what do you think the company will stand for? I think to make the world as environmentally cleaner as much as possible, minimizing the waste that comes from fashion, using more recycled materials beyond plastic — completely getting off of any virgin or natural resources — showing consumers how it's possible. Introducing a new way of running the business that I hope will spread across other industries beyond just fashion. There's a lot to be said around gender equality and social inclusion as a whole. Use sports as a connecting thread beyond borders, across many cultures all over the world. And be able to show that, with as an example of equal pay, female athletes can also be equally paid across continents, across the sports. To get introduced to Milos Ribic from Adidas Ventures, please send your blurb and Pitch deck here.