Executive Cases: Interviews with Senior Executives of Early-Stage Companies:
Tough Mudder – USA
Prepared by Jason Luther and George Foster
Founded in 2010 by Will Dean and Guy Livingstone, Tough Mudder is an adventure challenge series that tests a person’s strength, stamina, mental grit and camaraderie. Each event is untimed and consists of a 10-12 mile-long obstacle course created to play off of common fears, such as fire, water and heights. Designed by the British Special Forces, these courses have a military-style feel and are purposefully constructed to encourage teamwork to successfully complete each challenge. On average, only 78% of entrants finish a course.
Tough Mudder, however, is not designed to attract the hardcore, highly-trained enthusiast. In fact, the most successful “Mudders” are those who do not take themselves too seriously and who value fun over stress. This mentality is prevalent at each event, with teams often dressing in costumes and staff providing beer to participants at the finish line. Ultimately, Tough Mudder intends to provide a venue to help participants unlock a true sense of accomplishment, have a great time and build connections with those around them.
Will Dean created the idea for Tough Mudder while attending Harvard Business School. Dean was frustrated with unimaginative, repetitive adventure runs and was inspired to create an unconventional challenge to fill the gap. Armed with an US$ 8,000 marketing budget, Tough Mudder used Facebook and word-of-mouth to advertise the first Tough Mudder in May 2010. This event drew nearly 5,000 entrants, with Tough Mudder reaching 50,000 participants after the first year. In 2012, Tough Mudder hosted 35 events, up from three held in 2010. To date, Tough Mudder has hosted over 750,000 worldwide participants who have raised more than US$ 5.8 million for the Wounded Warrior Project. The company currently holds events in Australia, Canada, Germany, Scotland, the United Kingdom and the United States.
*2013 numbers are projections.
*2013 numbers are projections.
Q1: What was the source of the initial idea, and how did that idea evolve into a viable growing company? How did it change over time?
*2013 numbers are projections.
*2013 numbers are projections.
“Amazingly, the evolution of the Tough Mudder concept was relatively linear. We had a very clear idea of what the event would look like and have since supplemented this vision with tens of thousands of ideas about its delivery. For example, we knew a running event with obstacles would be successful, but modified it by removing the timing element. This move was crucial in reshaping the overall experience from a race to an event.
“Our minimal viable product was a one-page website with a rudimentary video that we purchased for about US$ 500. We started experimenting on Facebook and were achieving pre-registration sign-ups from our website. These signs of interest showed us our idea worked without our having to spend much on advertising or proof of concept.
“Using Facebook, we sold out our first event to 4,500 people. This proved to be a game changer for us in how we viewed growing the business. We felt we could host three events in the first year, which we did. In the second year, we thought to ourselves, ‘We are putting cash in the bank and people are paying us in advance. We should develop our own internal team and use our cash-flow to fund a more aggressive expansion strategy.’
“We were also good at responding very quickly to customer feedback. We would send out post-event surveys to all of our participants and absorb what people had to say. For example, our initial event was seven miles long and we pushed it up to 10 to 12 miles based on the feedback we received. By diligently listening to what customers wanted and felt was important, we were able to iterate our idea and provide a better product.”
Q2: What were the major growth accelerators for your company in the early years of high growth?
Livingstone: “At the time, there was a big push towards fitness. During the recession, there was huge growth in the number of marathons, 10Ks and triathlons. We felt this trend would remain strong as people focused attention on staying fit and getting healthier to help cope with financial stress. This shift was an important driver for us.
“We also benefited from the growing popularity of mass-participation events. Our society has moved towards sharing common experiences as a form of social currency. Whether it is going to a music festival, ice climbing or watching a sports event, people enjoy participating in activities with their friends. This phenomenon was amplified by the rise of social media. Facebook and other photo-sharing sites allowed users to use pictures or videos to show the world what they had done and this helped us. In 2010, we were able to purchase Facebook advertising for cheap since it was still in its infancy. Now, the same keywords we purchased just two years ago have quintupled in price.
“This wave has assisted us simply by people posting photos of themselves at our events. The visibility this gives Tough Mudder has been a huge catalyst for our growth. The variety of obstacles we design and the stories associated with them also provide something for people to talk about around the water cooler or with their friends at a bar.
“We are creating a very impassioned and engaged online community of people who, from Monday to Friday, long for an escape from a sterile environment and want to get muddy. As life becomes more competitive, participating in an untimed event that is not about winning but about pushing yourself and others becomes more attractive. Tough Mudder is a lifestyle, something that people wear as a badge of honour. It is a brand that says you want to do something interesting and be team-oriented, but not at the expense of everything else you have going on in life.
“We also benefited from operating in a relatively immature industry. In general, there were very few business-savvy people in the events industry. Triathlons and other races are often run by race directors, who were perhaps the best in their field in 1985, but do not have the skills to turn an event into a viable business. We viewed this as a huge opportunity to leverage our skill sets and provide one of the very few professional products in the events industry.
“Brand is everything to us and this focus has helped accelerate our company. For example, Tough Mudder partnered with the Wounded Warrior Project, an organization that helps assist civilian service-people from Iraq and Afghanistan. Through this partnership, we give a US$ 25 discount to participants who raise US$ 150 for the Project. This relationship helps Tough Mudder reach people by word-of-mouth through the promotion of a worthy cause.
“We are also able to attract top talent. Many people are disillusioned with the corporate environment and want to join a rapidly growing company that is doing something fun, interesting and positive for the world. The common viewpoint is that most entrepreneurs want to enter the tech space and create the next Google. Lucky for us, this leaves Tough Mudder as a viable alternative for those not looking to enter that industry.
“Hiring great people is so, so important. As with any start-up, it was tough attracting talent at first. We did a good job of messaging the ancillary benefits of working for the company and were fortunate to attract a few incredibly smart people without having to give out big salaries. Now, we have several ex-corporate lawyers, multiple accountants and a few ex-investment bankers.
“Lastly, not taking external financing gave us a high-degree of freedom in how we operate. Neither Will nor I were interested in making a lot of money, so we were able to focus on what helped the company grow in the long rather than short term. Not having a venture capital or angel investor made us significantly more nimble and allowed us to develop a brand that was much edgier than we would have been able to otherwise.”
Q3: What role did key aspects of the entrepreneurial ecosystem surrounding your company play in the growth of your company?
Dean: “Early on it was crucial that we develop a business model that, in its DNA, contained a force for good. Accordingly, the Wounded Warrior Project is very important to us. We talk about our participants raising nearly US$ 6 million for the project and that is great. But, far more important to us is that we get people to our events who themselves are injured veterans. To empower these people to come in and participate is an important part of what Tough Mudder is. With this, we have been able to leverage a groundswell of public support for what we are trying to accomplish. Many of our volunteers give their time because they believe in what we are doing. We are helping people get healthy and are providing a venue for others to build memories and spend time with their friends.
“Originally, we were worried about obtaining insurance and regulatory approval. This is where I was fortunate to have a partner like Guy. He is extremely good with people and was able to work well with local authorities. At first there were hurdles, but now we use our relationships as a competitive advantage. We have built this expertise in working with local governments and figuring out how to make sure we are all speaking the same language. Moreover, Tough Mudder brings a tremendous amount of business to cities where we hold events and communities often understand this. Thus, if we can get buy-in within the community and if everyone is aligned in the central government, getting permitting authority from police and fire marshals is not too hard.”
Q4: What key aspects of the entrepreneurial ecosystem surrounding your company that were absent (or existed only in a weak form) created the greatest challenges for growing your company? Please describe and discuss how you met/were impacted by these gaps in the ecosystem and their resultant challenges.
Dean: “Our business model was not to go out and hire people from the event industry. We have obstacles where participants jump through flames and the first thing an outside event person would do in that situation is pull out a fire extinguisher and put the fire out. Removing people in specific professions from their way of thinking is difficult. Many event planners would say, ‘People pay per mile. You can charge more for a marathon than a half marathon.’ This pre-established thinking made it clear that we needed to be careful when hiring.
“At first, it was difficult dealing with people whose incentives were not aligned with ours. The local chief of police would often prefer our event not come to his city because we would choke up roads. When we were beginning to grow, people would ask, ‘What is this thing? What kind of person does this? Are they going to get drunk or do drugs?’ Obviously this is not what our event is about, but I understand why people want answers to these questions. There have also been some very scary last-minute calls when we thought permits would get pulled or communities would push back on our event. Sometimes this came in the form of limiting parking availability.
“With hindsight, I would have done many operational things differently. For example, we were behind the curve on ERP [Enterprise Resource Planning] implementation. We relied on ad hoc mechanisms, management systems and other control systems that prevented us from institutionalizing some of our knowledge as we grew. This is where taking venture capital funding and instilling some of the discipline that comes with having outside investors may have been useful.”
Livingstone: “In the UK there do not seem to be many institutions that promote entrepreneurship. Teachers often do not support people who wish to establish their own companies, which results in hurdles for aspiring entrepreneurs, such as Will and I, to overcome. England has always been much more of a trading economy where establishing careers in finance, law and accounting are the keys to success. This is substantially different than in America, where it is the big dream to build something from nothing. It seems as if entrepreneurship is more deeply engrained in the culture than it is where Will and I were raised.”
Q5: At what stage did you invest significant resources seeking to grow your company internationally/beyond your domestic country or region? What factors were pivotal in deciding when to seek growth internationally and where to seek that growth?
Dean: “I believed very strongly from the start that Tough Mudder had the potential to resonate in several different cultures. We get people to have fun, goof around, drink a few beers and challenge themselves both mentally and physically. People have been doing these things since the dawn of time; they are not activities that are specific to American or even Anglo-Saxon cultures.
“I also knew that there was a strong first-mover advantage in our space. If you look at what Ironman has done, it is really without peer. Why? Because if someone intends to train to do an Ironman event, they will pay a premium to do ‘the real thing’. Similarly, we sought to build a strong community because we understood the power of network effects. These network effects make it difficult for firms from different cultures to replicate our business model.
“We knew that we should not hesitate to expand to Britain and Australia. At Harvard, we called it the ‘commonwealth strategy’. The idea was to enter countries that are similar to America and produce our events remotely. We flew teams in to these countries and once we established that there was demand, we built permanent offices. We now have offices in London and Melbourne, with the intention to later establish beachheads for further expansion. In particular, our London office acts as the headquarters for our whole European operation.
“We went to Germany because we knew it would force the company to push its own boundaries. We could not sit back and say, ‘Hey, let’s use our English-speaking, North American marketing department for expansion.’ We would need to develop new capabilities. This evolution would make it easier for us to enter Japan and other less-familiar markets. In these countries, there will be more variables and we will need to build capabilities in our organization.”
Q6: What were the biggest challenges in building growth internationally? How did you meet or adapt to those challenges?
Dean: “I think there were several challenges. First, we had to decide when to adapt or not to adapt our product. When we first came to the United States everyone said, ‘This feels very English,’ and when we went to England everyone said,’ This feels very American.’ A good example of this was playing the national anthem. There are very few countries in the world that are as patriotic as the United States. Many people said, ‘I don’t know how well playing the national anthem at a British event will go over.’
“Another good example is charging for car parking. One of our biggest capacity constraints is the availability of parking, so we often incentivize people to carpool. This is not a huge revenue stream for us, but it does allow us to host more people at events. Often times, we will have people tell us that we can or cannot charge.
“When expanding to other countries, we also needed to be cognizant of the effects of our military partnerships. In the United States, and to a slightly lesser extent in the UK, people tend to be pro armed forces and are supportive of veterans’ causes. Germany has a slightly different relationship with its military and we have chosen not to partner with a veteran’s charity in Germany for that reason.
“South Africa also poses many challenges for us. We are about to enter that market and, for very logical and sensible reasons, there are strict rules on how to do so. Ultimately, we will need a partner to help us enter, which, from a capital perspective, we do not need. Moreover, it is difficult having to surrender some of our flexibility to have access to the domestic knowledge that we want to tap into.
“On a more minor level, we have an equipment warehouse in Canada because it is far easier than having to go through the headaches and hang-ups of bringing supplies back and forth across the border.”
Q7: What major role, if any, did key aspects of the ecosystem in the country(countries) you first sought international growth either promote or impede your ability to grow in those international markets?
Dean: “One important thing to understand about our event is that most of our awareness comes through word-of-mouth. In fact, more than 90% of our brand awareness is derived through this medium. When we talk about word-of-mouth at Tough Mudder, we mean people uploading photographs to Facebook, posting statuses about events, linking YouTube videos, etc. Since our product is so visual, Facebook proves to be a very important advertising and word-of-mouth channel. This means that we are somewhat reliant upon how and where Facebook is adopted.
“In Germany, for example, Facebook penetration is lower. Therefore, Facebook is less effective there not only as an advertising channel, but also as a word-of-mouth channel. Conversely, you see this trend in highly urbanized regions of the United States. People who live in big cities are, to some extent, more likely to interact with a large number of people every day. Consequently, our ability to drive word-of-mouth in these areas is very high. If you go to parts of the United States that are densely populated but perhaps a little more rural, getting traction is harder.
“You also see regional preferences and differences. Tough Mudder was a home run from day 1 in Australia. I remember arriving at the Melbourne airport and the immigration staff gleaming with excitement to meet me because they were all doing Tough Mudder. In the UK, people were less inclined to be early adopters. We just about broke even at our first event, but after that there was a tipping point. The English tended to be a bit more conservative and were waiting to see if we could execute on our promises and provide a safe experience. They also wanted to make certain other people were having fun before signing up.”
Q8: Large companies can play an important role in the scaling up of early-stage companies with high growth aspirations. These roles can include being customers, suppliers, marketing partners, joint venture partners, and so on.
(a) Describe the key areas where interaction with larger companies helped promote your growth path.
Dean: “At the onset, I focused on having partners who were willing to help from a marketing activation and logistics perspective. In particular, we had a partner very early on that helped us straighten out our first event. They came in at the stage when we were really just two guys working across from each other at my kitchen table and they helped us a great deal in terms of gaining legitimacy and building productive partnerships. In the beginning, we were also able to find one or two key contractors and construction partners who helped us rapidly scale. With the size of our infrastructure at that time, it would have been very difficult to accomplish the same tasks without them.”
(b) Describe the challenges and potential problems that larger companies may have played in limiting the growth path of your company.
Dean: “Larger organizations tend to not make decisions at the speed that smaller organizations require to effectively operate. In particular, I can think of several instances when items were delivered late or not at all. At one of our early events, we were waiting for a shipment of apparel to be delivered. The day before the event a gentleman shows up with a package for ‘Mr T. Mudder.’
“After several minutes of conversation, I found myself in a situation where the delivery-person would not drop off the t-shirts because there was no ‘Mr T. Mudder’ to sign for the packages. I remember having this ridiculous dialogue where I was trying to explain that this is clearly a mistake. If we were dealing with a smaller organization, then the person most likely would have had the autonomy to say, ‘Yes, that’s obviously what has happened here. I have been presented with more than enough evidence that Mr T. Mudder is an entity, not a person, and I can deliver these packages.’ With larger organizations, however, representatives are often not authorized to make real-time decisions. This can really inhibit the speed with which partner firms can conduct their business.
“Early on trying to get people to understand, from an insurance perspective, the actuarial list around our event was challenging. Organizations would try to categorize us by asking questions such as, ‘Are you like a marathon?’ I would respond with, ‘Well, there are elements of our event that are like a marathon. We are more like a marathon than we are a McDonald’s, but that does not mean we are a marathon.”
Livingstone: “As with any new business, the major challenge in the first 6 to 12 months was to avoid thinking that the whole world was against us. In the beginning, many established players refused to give us the time of day. Professional services firms charged us, our registration partner was incredibly non-responsive, and many of our other partners, whom we relied upon, were not particularly forthcoming. Unfortunately, we had very little leverage over our partners at that stage and it made operating the company much more difficult.”
Q9: Seeking international growth often has both high moments and dark (low) moments. Briefly describe one high moment and one dark (low) moment in seeking international growth.
Dean: “As an entrepreneur – and this transcends geography – it is amazing to see something that was once an idea in your head become a reality. To see this real thing, which thousands of people in front of you are engaging in, has been a special part of the business for me. When Tough Mudder went international, it added another dimension to it. Having our first event in England and having my family and friends from college on the starting line made it incredibly special. This feeling is only matched by witnessing the first event in a non-English language. Seeing people talk about your product in ways that you can, without understanding the words, identify with is breathtaking.
“On the harder side, we have had to spend time navigating tough cultural issues. In particular, from a marketing perspective, we made our lives harder than we perhaps needed to at the beginning. I recall having a rather heated discussion with our chief marketing officer about the importance of not using American English when expanding to the UK or Australia. Americans can sometimes struggle to understand why American English may be offensive in these countries, but recognizing nuances such as these plays a crucial role in connecting with an international audience.
“At the end of the day, our product is about mud, obstacles, a starting line, a finish line and a free beer. And although the product does not change much, there are other things to consider in terms of how you articulate the value propositions. Ultimately, we were slow to move up the curve in terms of identifying the right local partners to help us do some things and relay our message. This was certainly true in Germany. One of the things I joke about from my experience there is: if you are not careful, you can translate ‘bad-ass’ as ‘evil donkey.’”