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Contents September 2016
A WHOLE NEW APPLE The naysayers could be right: Apple might never again release a product as world-changing as the iPhone. But that doesn’t mean the planet’s most valuable company isn’t in a stronger position than ever to shape our future. By Rick Tetzeli Page 66
Facing the music Apple Music’s Bozoma Saint John was a breakout star at the company’s spring conference. “To me, Apple Music fits into the puzzle of everything that is Apple.” (page 66) On the cover and this page: Photographs by João Canziani
September 2016 FastCompany.com 7
FEATURES 76 Heart and Soul How sweat, music, and fun have made SoulCycle into the obsessive passion of enviable customers from coast to coast. By Jonathan Ringen
82 Plant Power Hampton Creek’s foods are ushering in a radical shift in how we eat—and stealing shelf space from giants like Unilever and Kraft along the way. By Jonathan Ringen
88 American Revival After scandals, picket lines, and bankruptcy, American Apparel needs a turnaround that is more than skin-deep. By Anjali Mullany
8 FastCompany.com September 2016
Soul sister CEO Melanie Whelan says SoulCycle’s high-energy classes are as much about building community as they are about exercise. (page 76)
Photograph by Emiliano Granado
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DEPARTMENTS 15 From the Editor 18 Most Innovative
The latest from Pinterest, Intel, AngelList, and more.
22 The Survey We asked more than 100 company directors and managers to name their favorite employee perks. Here’s what they had to say.
24 Most Creative People On a mission SheaMoisture CEO Richelieu Dennis is persuading retailers to move his products off of the “ethnic” beauty shelves. (page 36)
Chris Licht is rethinking behindthe-scenes operations at The Late Show.
26 The Recommender From grass-fed beef fat to tools for an outsourced life, what we’re loving right now.
100 The List Ten great business movies, picked by Fast Company staff.
10 FastCompany.com September 2016
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NEXT 31 Tesla’s Fast Lane The electric carmaker’s directto-consumer sales strategy is changing the way cars are sold.
36 Rattling the Shelves The leaders of SheaMoisture are positioning multicultural beauty products for mass-market appeal.
40 Cyber Immunity A promising new cybersecurity approach is modeled after the human immune system.
44 Comeback Kate Ten years after selling her eponymous line, Kate Spade is back with a new brand—and a new name.
46 Goal Oriented Retired soccer star Abby Wambach has a new gig at ESPN and a plan to take on wage inequality.
52 Culture Creator
Stylist: June Nakamoto at Shotview; assistant: Keiko Hoshi; white linen suit, black vest: Francesco Smalto; T-shirt: Gap; bracelet: Cartier; hair and makeup: Corinne Fouet
Netflix’s former chief talent officer helps businesses build influence.
54 Facebook’s Mind Machine The social network is teaching computers common sense, and it could one day change the way we communicate.
56 Food for Scale A distribution center in Portland, Oregon, helps small-time farmers sell to big-time buyers.
58 Microsoft’s New Recruits What the company’s commitment to hiring people with autism means for the future of work.
64 Beautiful Sole Cole Haan’s redesigned wingtip oxford mimics a running shoe.
Second half Abby Wambach says retirement has meant going back to the drawing board. (page 46) 12 FastCompany.com September 2016
Photograph by Sophie Delaporte
INNOVATION FESTIVA L NOVEMBER 1-4 NEW YORK CITY F O R M O R E I N F O R M A T I O N , V I S I T: i n n o v a t i o n f e s t i v a l . f a s t c o m p a n y. c o m Confirmed Participants Include: About.com | barre3 | Birchbox | Black Girls CODE | Charity: Water | Crisis Text Line | Design the Life You Love Deutsch | DonorsChoose | Droga5 | EarthEcho | Eataly | Eileen Fisher, Inc. | Food52 | Global Citizen | Glossier Google Lunar XPRIZE | Huge Inc. | IBM Design Lab | Intersection | Lâ€™Oreal | Material ConneXion | Muji | NBBJ NYC & Company | Paddle8 | Perkins + Will | R/GA | Scenic | SeatGeek | SoulCycle | Squarespace | Sub Rosa The Lowline Lab | theBoardlist | UNICEF | Union Square Hospitality Group | Wealthfront | WNYC | Work & Co.
From the Editor
ARE YOU READY TO JOIN THE FLOCK?
Celine Grouard (Safian); David Paul Morris/Bloomberg via Getty Images
I got my hair cut yesterday at a barbershop in Brooklyn that’s been in business for nearly 60 years. Angelo, who runs the place, has created a distinctive culture: music from the 1950s and 1960s, posters of Bogart and Sinatra, an impromptu bar in the back during the Christmas season. Two of the barbers, Vito and John, are brothers who know Angelo from their childhood days in Italy. John (who retired a year ago) once playfully identiﬁed the thinning hair on the crown of my head as a “Saint Anthony” condition—Saint Anthony being the patron saint of lost causes. Angelo’s has survived for six decades as much because of its personality as its haircuts. In that way, it is indicative of a wave of today’s most highproﬁle businesses, fueled by cultlike followers. Most cell phones today can make calls, take pictures, surf the web, access apps. So why do so many people carry an iPhone? You can get exercise at any gym. So why are so many people enamored with SoulCycle? Understanding the alchemy of these success stories provides a powerful window into what deﬁnes competitive advantage in the modern era. Editor-at-large Rick Tetzeli arguably knows more about Apple than any other journalist working today. He oversaw Apple coverage for years at Fortune and Fast Company, and then cowrote The New York Times No. 1 best-seller Becoming Steve Jobs. This summer, he persuaded Apple executives, including CEO Tim Cook, to sit down for an unprecedented series of interviews—Apple has historically been reluctant to cooperate with a magazine feature unconnected to the release of a speciﬁc product. What
Ripe fruit Apple’s annual Worldwide Developers Conference brings its community together each June in San Francisco.
Tetzeli explores in “Believe” (beginning on page 66) is a business that many of us instinctively connect with founder Steve Jobs but that actually has become a far different place. In recent months, many Apple watchers have contended that the differences from the Apple of days past are primarily negatives, underscored by a dramatic drop in Apple’s stock price. Tetzeli points out how much those naysayers are missing. Apple’s cult of believers—internally and among its billion-strong customers around the globe—provide unique advantages that give the company a strong chance of maintaining its prominence (and valuation) for years to come. SoulCycle is a much younger, smaller business than Apple. But as Jonathan Ringen writes in “You Got Soul” (beginning on page 76), the passion it engenders among users from Michelle Obama to Ariana Grande has turned it into a formidable prestige brand. Both alt-food purveyor Hampton Creek and clothing brand American Apparel have grappled with lawsuits and controversy (see “The Great Scramble” on page 82 and “Can American Apparel Mend the Seams?” on page 88), yet their perseverance owes everything to their communities of devotees. Fast Company, too, is something of a cult brand—if you’re reading this, you are likely part of a distinctive psychographic in business: optimistic, future-focused, open to risk and change. Our coverage, in print and digitally, is gauged to serve as inspiration as well as information, a badge that gives you permission and encouragement to question the status quo and strive for creating a better world. This community will come to life—and come together—this November at the Fast Company Innovation Festival in N.Y.C., and we hope many of you will join us there. Tickets are on sale now and the agenda is amazing, including speakers from Silicon Valley and Saudi Arabia. If you have extra time, you can even pop over to Angelo’s for a trim. He’ll take good care of you, even if you don’t tell him I sent you.
Robert Safian email@example.com
September 2016 FastCompany.com 15
Most Innovative Companies Updates from the MIC alumni
ANKI Milestones The startup AI company, best known for its toy racing cars, successfully raised $52.5 million in a Series D funding round led by Andreessen Horowitz, JP Morgan, and others. At the same time, Anki revealed Cozmo, its first toy robot, to critical acclaim. Challenges Cozmo is expected to go on sale in October, where it will face an uphill battle as toy robots have traditionally failed to gain widespread commercial appeal. Buzz
INTEL Milestones In late May, Intel acquired Itseez, a startup specializing in software and algorithms that help to develop autonomous cars. The move is a crucial part of Intel’s plan to remake itself as an Internet of Things company.
PINTEREST For the ﬁrst time since Pinterest launched in 2010, a majority of its more than 100 million users are based outside of the United States. That shift in audience is the catalyst for a wave of innovations from the social network, which its head of product Jack Chou says are crucial as it breaks out internationally. In April, Pinterest released a new iOS app, billed as its “fastest and cleanest” yet. The minimalist design makes the app universally readable in 31 languages, 18 FastCompany.com September 2016
a word that translates more easily across cultures. “We asked ourselves, What makes the most sense internationally?” Chou says. “How can we build technology that is really great and makes people understand what Pinterest is and why it’s useful?” —Claire Dodson
Milestones In June, Pinterest expanded its Buyable Pins technology, which allows users to make purchases, from its apps to its site. The service includes more than 10 million products from 20,000 merchants.
Milestones The popular Indian matchmaking website is getting attention for its yearlong “Shaadi Cares” campaign, which includes commercials aimed at curing the “ills of marriage,” such as domestic abuse and the illegal collection of dowry.
Challenges Despite international growth, Pinterest still earns most of its advertising money from the U.S. The social network needs to continue to target advertising from its high-user-growth countries like Germany and Japan.
Challenges The site faces serious competition in India: Since launching last year, Tinder has become the country’s most downloaded dating app, with 14 million swipes per day.
Buzz Illustration by Matt Chase
Illustration source image: Horizon International Images Limited/Alamy
THE WORLD ON A PIN
regardless of screen size. Plus, the feed now loads up to three times more rapidly, even on older-model phones—especially vital in developing countries, where only 37% of people have smartphones and many lack computers. Along with the app, Pinterest has introduced “featured collections,” regional ideas and trending pins curated by local tastemakers and Pinterest editors. “The Pinterest catalog of ideas is supposed to be educating and personal for you, the pinner,” says Chou. “If you’re searching in the U.K. you’ll see things from Jamie Oliver or Burberry. If you’re in France, it’s from a French food blogger. It’s not just about localizing the user interface, but making it relevant.” Pinterest also recently changed its iconic “Pin It” feature to “Save,”
Challenges With mobile and cloud computing becoming the norm, Intel will lay off 11% of its global workforce (12,000 employees) in an effort to shrink its PC division and save $750 million in costs this year.
3 industry reports all recognize Hewlett Packard Enterprise as a leader in wireless networking: IDC: MarketScape Worldwide Enterprise WLAN, 2015–2016 FORRESTER: Forrester Wave Wireless Local Area Network Solutions, Q3 2014 GARTNER: Magic Quadrant for the Wired and Wireless LAN Access Infrastructure, 9/2015
hpe.com/productivity © 2016 HPED LP. Sources: IDC #US40653915. Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements e\\WYj$=Whjd[hZ_iYbW_ciWbbmWhhWdj_[i"[nfh[ii[Zeh_cfb_[Z"m_j^h[if[Yjjej^_ih[i[WhY^"_dYbkZ_d]WdomWhhWdj_[ie\c[hY^WdjWX_b_joehÆjd[ii\ehWfWhj_YkbWhfkhfei[$
Most Innovative Companies
AMGEN Milestones The pharmaceutical company’s 2012 acquisition of deCode Genetics—which specializes in gene discovery—is paying off after the latter announced that it identified a genetic variant that lowers the risk of heart disease. Amgen hopes to use this insight to begin testing a new drug within two years. Challenges Amgen’s cholesterol-lowering drug Repatha is a sales dud after doctors and insurers balked at its $14,000-a-year price tag—90 times higher than standard treatments. Buzz
JAUNT VR Milestones The virtualreality production and hardware company is partnering with Shanghai Media Group and China Media Capital to produce and distribute VR content aimed at global audiences. Challenges Despite success as an early entrant in the VR market, Jaunt is still struggling to go mainstream. In May, cofounder Jens Christensen stepped aside as CEO; the company is looking for a new leader who can focus on growth. Buzz
PUBLIC RADIO EXCHANGE Milestones With mobile listening now accounting for more than 64% of all podcast consumption, the nonprofit PRX launched
the for-profit spin-off RadioPublic, which is developing a premium mobile app that “makes listening to podcasts as simple as radio.”
Launching pad AngelList CEO Ravikant helps startups get off the ground.
Challenges Faced with growing competition, PRX will need to distinguish its podcasts: Earlier this year, Apple reported that there are now more than 325,000 programs available on its popular Podcasts platform. Buzz
JAMES CORNER FIELD OPERATIONS Milestones The architecture firm behind New York City’s High Line is about to begin landscaping a 14-acre stretch of land atop San Francisco’s newly covered Doyle Drive. Challenges A year and a half after the firm won a competition to build the 10-mile Underline urban trail and park in Miami, the project remains woefully underfunded, with only $10 million committed to the $100 million plan. Buzz
AEROJET ROCKETDYNE Milestones In late April, NASA awarded the California-based rocketengine company a $67 million, 36-month contract to build a more efficient solar electric propulsion engine, which would be used to power future deep-space exploration. Challenges Aerojet Rocketdyne is competing against Jeff Bezos’s Blue Origin to prove to the United Launch Alliance (a partnership between Lockheed Martin and Boeing) that it can create an affordable engine for the alliance’s next-gen Vulcan and Atlas V rockets by 2019. Buzz
20 FastCompany.com September 2016
A SEED-FUNDING MATCHMAKER TURNS INTO A RAINMAKER ANGELLIST In its mission to make tech funding accessible to more people, the six-year-old AngelList, which specializes in connecting early-stage startups with angel investors, has helped raise $330 million for some 920 companies. But in the past year, founder and CEO Naval Ravikant’s attention has shifted from individual investors to professional funds with deeper pockets. “In 2015, we weren’t focused on quantity or volume [of investments],” he says. “We were focused on the quality.” The clearest sign of this evolution was the announcement last October that venture ﬁrm CSC Upshot (a new branch of China’s CSC Group) had raised $400 million to invest in AngelList startups, at an average of $100,000 to $200,000 per company. With Ravikant reporting a slowdown in seed-stage funding, the commitment from
CSC and similar ones from other large funds promise to be a boon for the site’s startups—and AngelList, which receives 5% carry of any proﬁts. Ravikant plans to recruit two other seed-stage funds by the end of the year. Yet the arrival of what Ravikant calls “big-money funds” hasn’t curtailed the more populist side of his democratizing mission. AngelList will soon partner with Republic, a new equity crowdfunding site founded by two former employees. Operating under Title III of the JOBS Act, the site allows nonaccredited investors to fund startups and small businesses. Though Republic’s current offerings are limited, Ravikant envisions a future in which companies could raise money on both sites. “Ideally, the crowd will be able to invest in the same ﬁnancings at the same terms as the top angels and VCs on AngelList,” he says. —Nikita Richardson Milestones In June, AngelList announced a new fund for startups with social missions. Challenges The current $1 million cap on crowdfunding rounds and onerous reporting rules may deter startups from using Republic. Buzz
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OFFICE PERKS VC–funded startups have long been known for their cushy amenities, such as foosball tables and free lunch, but a poll of more than 100 directors and managers in Fast Company’s Most Creative People and Most Innovative Companies communities sheds light on the way businesses—both new and old—are rethinking the art of keeping their employees happy. More than 70% of respondents, from companies as varied as GE to Genius, say that their employees value experiences over things, or at least a combination of the two. Some stick with the tried-and-true—regular happy hours, generous parental leave— and others are getting creative, offering volunteer days and roundtrip plane tickets to anywhere in the world. Here are a few standouts:
“We have quirky celebrations when we meet our goals. These have included releasing doves, smashing Greek plates, and, of course, lots of parties.” Melanie Perkins Cofounder and CEO, Canva
“Everyone [has] access to free private sessions from a professional therapist or coach on a weekly basis.” Lisa Kennelly Director of marketing, Clue
“We have a series where anyone can volunteer to lead a workshop on a subject they have some expertise in. Topics have [ranged from] linocut printmaking to funeral directing to sushi making. [At] our annual retreat, David Byrne was a guest speaker and joined us for lunch.” Stephanie Pereira Director of community education, Kickstarter
22 FastCompany.com September 2016
“We offer full-body pro“After two years, pick fessional massages every [an affiliated] country, Friday to all employees.” and the trip is on us. Dan Harden After three years, take President and CEO, Whipsaw Inc. a month off to do what makes you happy— “One thing that feels your paycheck will unique to our culture is keep coming.” the Facebook Analog Erin Lewellen Research Lab and the COO, Global Citizen Year Woodshop. These are on-site facilities where “A sandbox. Offices any employee or intern with soundproof, padded walls for the can learn how to do rough days. Book club. silk-screen, take a handDaily meditation.” lettering or drawing Heather Gordon class, or learn the basics Brand manager, Acorns of woodworking.” Margaret Gould Stewart “We [offer] an employeeVP of product design, Facebook challenge grant where REI gives an employee “We incentivize $300 in products for employees to give back any outdoor activity, as through initiatives like long as it’s a challenge— #TranslateBIG, where we backpacking in the High took over a local food Sierras, summiting bank to prepare and Mount Everest, running serve meals to the Beda marathon in Thailand, Stuy community where et cetera.” Biggie Smalls was born.” Steve Stoute Founder and CEO, Translation
Chris Gardner Director of Total Rewards, REI
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LATE ARRIVAL Chris Licht EXECUTIVE PRODUCER, THE LATE SHOW
After launching MSNBC’s Morning Joe and reinventing CBS This Morning, producer Chris Licht is steering his career in a darker direction— literally. As the new executive in charge of The Late Show With Stephen Colbert, Licht has ditched the crack-of-dawn time slot of past gigs for a program that airs when most people are heading off to bed. Since starting in April, Licht has begun retooling how the show operates and has made some tweaks to the format (such as a tighter opening sequence). “My approach is the same whether it’s this show or CBS This Morning or Morning Joe,” he says. “My sole job is to look at where there are roadblocks to people succeeding and do everything I can to remove them so people ﬂourish, are creative, and have the power to take risks and chances. That ultimately helps the product on television.” It’s too soon to know how the changes might affect the ratings (The Late Show and Jimmy Kimmel Live both trail time-slot leader The Tonight Show Starring Jimmy Fallon), but Licht is eager to have an impact. “I’m very competitive,” he says. “I’m trying to beat the other guys—not only in the ratings, but to just be better.” A key part of this, he believes, is to foster collaboration, both with the staff and the show’s host. “One of the most enjoyable parts is learning from Stephen. There is a science to comedy. Like, what’s the setup to the joke, where are the ways it can go, what technique are you going to use to get there? I also talk to him about organizational stuff. His brain works in every part of the organization. He’s a problem solver. He’s very curious. He’s interested.” —Sarah Lawson 24 FastCompany.com September 2016
B E S T R E C E N T T E C H D E V E L O P M E N T “The Uber-fication that allows the elimination of corrupt middlemen. It’s just thrown the establishment on its ear. I don’t think you can overstate how that’s going to affect things. It affects how we deliver content. It’s much more than being able to get a ride.” K E E P I N G E V E R Y T H I N G I N P E R S P E C T I V E I “I had a brain hemorrhage six years ago. That taught me what’s important.” S O U R C E O F I N S P I R A T I O N “I love watching people as I walk to work in New York City. Being in the moment and thinking about things—that’s part of my process. I don’t listen to anything. I just walk.”
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RUN THE ROAD
Tesla isn’t just making groundbreaking electric vehicles. It’s upending the way cars are sold across the country. And it’s making a few enemies along the way. By J.J. McCorvey Illustrations by Yukai Du
I am in a car that is driving itself on the Brooklyn–Queens Expressway—one of the busiest highways in the country—and I am freaking the hell out. “Hold the steering wheel, but still let it do its own thing,” Michael, a product specialist for the electric-vehicle maker Tesla Motors, gently cautions me, trying to snap me out of the wide-eyed stupor brought on by watching the wheel of my Model S steer around a curve as if guided by invisible hands. As we pass through Brooklyn’s Carroll Gardens neighborhood and the waterfront complex of Industry City, my anxiety eases enough to start asking Michael about how the autopilot feature works (the car’s sensors analyze trafﬁc patterns September 2016 FastCompany.com 31
and read lane markers), how frequently Tesla beams software upgrades to its vehicles (as often as once a month), and the car’s top speed (155 mph, 0 to 60 in 2.8 seconds). “Just by taking a good look at you, I feel like you’re already comfortable with driving a Model S,” he remarks halfway through our 35-minute ride. Yes, that’s what every car salesman is supposed to say, but he’s right. If I could afford the black, all-electric Model S P90D—which drives like butter, but costs $108,000—I could see myself following Michael into the company’s Red Hook, Brooklyn, showroom to buy it, even though until today I’d never been in an electric vehicle, much less one that could drive itself. Tesla is betting that if it can get millions of other people like me comfortable with its cars, they’ll want to buy one, too. In fact, Tesla is going to have to connect with people like me: Its current $33 billion valuation hinges on the ambitious assumption that the carmaker can not only make superior long-range electric vehicles, but also convince lots of newbies to buy them. This task has been complicated by lingering fears over the safety of autonomous vehicles as the National Highway Trafﬁc Safety Administration investigates a fatal Tesla crash that took place in May. (That’s not to mention the SEC investigation into how Tesla disclosed the accident.) Much of Tesla’s success depends on the 2017 launch of its $35,000 Model 3—the ﬁrst of its futuristic, all-electric luxury vehicles created for the masses. And the Model 3’s widespread adoption hinges, in turn, on Tesla’s direct-to-consumer sales model. Tesla has chosen to eschew the traditional dealership method—in which automakers sell their cars to independent dealers, who are granted exclusive territories—in favor of company-owned showrooms staffed with product specialists like Michael, who can talk people through both the technology and their safety concerns. It’s an approach that Ganesh Srivats, Tesla’s vice president of North American sales, says is essential. “We knew we couldn’t rely on dealerships to promote our mission, to operate the business the way we wanted to, to provide this great customer experience,” he explains. “So we’ve really had to chart our own course.” For all the talk of Tesla’s product innovations, it is leading another battle: this one centered on how vehicles are sold, as much as how they’re made. The company has been embroiled in a series of brutal legislative skirmishes in more than a dozen states, including Connecticut, Texas, and Michigan— home to the Big Three automakers—where long-standing franchising laws handicap (or completely quash) Tesla’s ability to engage customers without an intermediary. On the opposing side is an alignment of auto manufacturers and dealerships, along with the lawmakers who support them. Whatever the outcome, it could fundamentally change the way cars are sold in the U.S. Car dealerships have been the backbone of the automotive industry since the 1950s, when the Big Three—General Motors, Ford, and Chrysler—were pumping out around three-quarters of the world’s cars from their mammoth Michigan plants. While they focused on designing and mass-producing vehicles, their franchised sales operations reached customers across the country. At the same time, dealer associations pushed state legislatures to enact franchise laws designed to protect dealerships from coercive and arbitrary practices by manufacturers—with the added beneﬁt that customers’ interests would be served by increased competition among franchisees. But, over time, automakers have become disconnected from the sales experience, hindering both dealerships and the brands they represent. Today, consumers increasingly want to research and even buy their cars online: A 2015 survey by Accenture revealed that 75% of respondents would consider conducting the entire car-buying transaction online if they could. “When you go to a dealership, there’s all this sort of doubt about the process,” says Srivats, who was senior VP at British fashion house Burberry before joining Tesla last summer. “The haggling, all the nastiness around it. Did I pay the same amount as the next customer? Did I get tricked?” Tesla fashioned its retail model in response. Its 40,000-square-foot, 32 FastCompany.com September 2016
S TAT E BY S TAT E One of Tesla’s appeals is its direct-to-consumer sales approach. The problem? That model violates many U.S. states’ laws. Below, some of Tesla’s biggest battlegrounds.
Detroit’s state is simply not having Tesla’s distribution model. In 2014, Governor Rick Snyder signed legislation that bans carmakers from selling their own vehicles. Tesla has been vocal about its intentions to get the law overturned and, further drawing attention to the issue, has applied for a car-dealership license in the state.
Since the Lone Star State’s laws restrict direct sales, potential Tesla buyers can’t purchase from company galleries and have to make appointments for test drives in advance. Tesla, however, has been wooing the state legislature in hopes of getting a bill supporting its efforts approved.
A state law mandates that automakers can only open a franchise if no other dealers are in the community. Tesla struck a deal with Virginia in 2013 to operate a single sales location. The company’s recent application for a second license, however, was met by a lawsuit from the Virginia Automotive Dealership Association.
Tesla has petitioned the Connecticut legislature for a direct-sales exemption, but has been shut down after lobbying from dealers and GM. Customers who visit the single Tesla gallery, in Greenwich, must order their vehicles online, receive them through New York or Massachusetts, and then reregister them.
New York threatened to force Tesla to either franchise or close down Manhattan locations several years ago, but Tesla managed to negotiate a five-store cap for the state.
Window-shopping Tesla’s Pasadena, California, showroom allows customers to buy directly from the company.
T HE NE T W ORK EFFECT How Tesla reaches buyers through a panoply of outlets 1
Showrooms Tesla’s dozens of U.S. showrooms let consumers browse, take cars on test drives, and customize and buy their dream vehicle. Many also function as service and repair shops.
redbrick store in Brooklyn’s gentrifying Red Hook neighborhood features only two vehicles on the sales ﬂoor—a cherry red Model S and a white Model X with falcon-wing doors. Though Tesla’s cars are currently luxury products, the industrial space doesn’t exactly scream high-end. What it offers instead is a disarmingly transparent sales process. There’s a Model S chassis illustrating the layout of the vehicle’s unique, battery-powered engine. A large touch-screen display lets visitors view Tesla’s expanding network of high-speed charging stations and enables them to customize their own cars—from basic features (60-kilowatt battery versus 90) to offerings like “Bioweapon Defense Mode,” a cabin-air-ﬁltration system. When you’re ready to purchase, you can do it on-site or at home on Tesla’s website. “We like the idea of owning the entire process,” says Srivats. “It creates an information loop from our customers straight into manufacturing and vehicle design.” Not all of Tesla’s stores look like the one in Red Hook. Tesla can’t sell cars directly in Arizona or Texas, for example, so it opened “galleries”—showrooms minus any mention of price or sales. Cars ordered online in Texas arrive with California tags and must be reregistered. Some states allow Tesla to negotiate a set number of stores under a trial period; New York gave it ﬁve (including Red Hook). But that didn’t stop the company from adding a pop-up shop—via a tricked-out shipping container—in Long Island’s South Hampton. (Tesla later opened a permanent gallery in East Hampton.) “They have gone on and said, ‘No, the law doesn’t apply for us,’ ” says Don Hall, president of the Virginia Dealership Association, which ﬁled suit against Tesla in May when it applied for a DMV license to open a second showroom in the state. Hall and others in the dealership community accuse Tesla of ﬂouting regulations put in place to protect car salespeople—and consumers: They claim that, without having to operate under franchise law, Tesla is free to obscure details about data regarding recalls and processing fees, for example. (“We operate within the law in every state we’re in,” says Srivats.) It’s not just dealers who are aligning against Tesla. Ford worked fervently to get Tesla showrooms banned in Texas. General Motors—which will release its ﬁrst long-range electric car, the Chevy Bolt, this year—stands to beneﬁt even more if laws crimp Tesla’s growth. As GM CEO Mary Barra pointedly told attendees at this year’s Consumer Electronics Show: “Unlike some EV customers, Bolt EV customers never have to worry about driving to another state to buy, service, or support their vehicles.” What she didn’t tell attendees about was GM’s active role supporting anti-Tesla legislation in Indiana. The fact is, in many regards, the U.S. automakers have been hamstrung by their own dealership model, which is unique in the global marketplace. 34 FastCompany.com September 2016
Galleries Tesla galleries feel like showrooms—except you can’t buy a car there. “Product specialists” offer test drives, but as soon as a customer asks about price, they’re directed either to the Tesla website or a phone-sales representative. 3
Pop-up shops Tesla has set up mobileshipping-container “stores”—which travel to wealthy areas like Santa Barbara and the Hamptons— to help introduce customers to the company’s vehicles. 4
Website The heart of Tesla’s directto-consumer model is teslamotors.com, which allows users to schedule test drives at showrooms and make purchases. 5
Department stores In June, Tesla opened its first “stop and shop” outpost inside a Nordstrom at Los Angeles’s Grove shopping center; it’s currently applying for a sales license for the location.
The European Union abolished restrictive dealership models more than a decade ago, while Japanese manufacturers, lacking the space for car lots, grew the country’s auto economy by sending salespeople door-to-door. Domestically, GM is starting to convert some of its Cadillac dealerships to virtual-reality showrooms with no inventory. Sound familiar? “[Tesla] is telling the consumer that the dealership is an unnecessary extra step, and we at the factory can take care of you just ﬁne with our service centers,” says John O’Dell, an auto-industry analyst and former senior editor at Edmunds.com (a car review and pricing hub) who served on the National Research Council’s alternative-vehicle committee. The clock is ticking for Tesla. Demand is already high for the Model 3, which CEO Elon Musk is saying will be delivered in late 2017; nearly 400,000 people have put down $1,000 to reserve a vehicle. If even half of those sales come through (and Tesla will have to crank on its production facilities to make it happen), the company will have sold more EVs than BMW, Ford, GM, Toyota, or Volkswagen have in the past ﬁve years. But to realize those sales, Tesla must ﬁnd a way to boost its physical sales infrastructure. Musk made the electric-vehicle version of the sexy iPhone; now he needs more Apple Stores. Some believe that Tesla will have to embrace the dealership model in some form. Musk has publicly ﬂirted with the idea, presumably unable to ignore the reach of the roughly 17,000-strong U.S. dealership network. He may also seek partners outside the car industry: In June, Tesla opened a gallery in Nordstrom at the Grove multiplex in L.A. Or he may choose a more radical path. Srivats says that Tesla will soon drastically redesign its retail concept, but offers few details: “We’re throwing preconceived notions of auto sales out the window and starting from the ground up.” Whatever the plan, it’s sure to leave automakers charged up.
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OFF THE SHELF
SheaMoisture CEO Richelieu Dennis is challenging the beauty industry to rethink its approach to multicultural customers. By Elizabeth Segran Photograph by Arturo Olmos
Empire builder Dennis’s 25-yearold natural beauty company spans three brands and hundreds of products.
36 FastCompany.com September 2016
There are few places in American life where putting up a sign separating ethnicities is considered even remotely acceptable. So why should the beauty aisle at your local drugstore be an exception? There, you’re likely to ﬁnd that shampoos and moisturizers for African-American women are not located in the main beauty section, but are on separate shelves marked “ethnic.” In April of this year, SheaMoisture, the natural beauty brand of choice for millions of black consumers, decided to rattle those shelves. SheaMoisture’s #BreakTheWalls campaign, created with Droga5, included an online call to action and its ﬁrst national TV commercial. The 60-second spot took viewers through a store from the perspective of women of color, depicting how unpleasant the simple act of buying beauty products can be.“Is ‘ethnic’ not beautiful?” the narrator asks. “Am I not beautiful?” The video went viral, garnering 1 million views within the ﬁrst 24 hours and more than 4 million views over the next three weeks, while the accompanying hashtag earned SheaMoisture 300 million impressions on social media. The campaign’s architect was Richelieu Dennis, the founder and CEO of Sundial Brands, which includes SheaMoisture, Nubian Heritage, and the recently launched Madam C.J. Walker Beauty Culture,
a premium hair-care line exclusively available at Sephora. Sundial pulled in an estimated $200 million in revenue in 2015, an increase of 31% year-over-year. Such growth caught the attention of Bain Capital, which in September 2015 acquired a minority stake in the familyowned company for an undisclosed amount, valuing it at an estimated $700 million. Bain—and Dennis—are betting on the same thing: that Sundial’s multicultural products will have mass appeal when placed outside the ethnic aisle. And with SheaMoisture recently surpassing Burt’s Bees as the top-selling natural brand in the bath and beauty category in the U.S., their faith seems well-placed. With the investment from Bain, Dennis expects Sundial’s distribution footprint to grow from its current 25,000 stores, which include CVS, Walmart, and Target, to a total of 45,000 by next year. “People want ingredients they can pronounce, that have a history and a story to them,” says Dennis. The brand has come a long way from 25 years ago, when Dennis was living in New York City and hawking shea-butter shampoos by the pound on the streets of Harlem. At the time, Dennis was displaced in the United States as civil war broke out in his native Liberia. “Our home was destroyed,” he says. “We had to ask ourselves what to do to survive until we could return.” Dennis, his mother, and a close friend from college turned to the family business: In Africa, his grandmother had supported her children by crafting soaps and lotions from local plants. Using her recipes, Dennis’s family began making natural beauty products in their tiny Queens apartment. Dennis recalls struggling to convince potential buyers that they weren’t just selling snake oil. “There weren’t any natural beauty companies serving multicultural consumers,” he says. Natural is now becoming the norm. Over the past six years, the natural beauty market has seen 38 FastCompany.com September 2016
double-digit growth; it’s currently worth $33 billion globally, making up 13% of the overall beauty market. Sundial has beneﬁted from this trend and the explosive rise of multicultural beauty: A third of the U.S. population, after all, is not white, and this group has historically spent more on beauty products. As he grew Sundial from its cramped Queens digs to its current Amityville, New York, headquarters, Dennis anticipated these changes, adding brands and pushing out everything from lipsticks to baby shampoos. (In 2015, he also certiﬁed it as a B Corporation, conﬁrming the company’s commitment to giving back to the communities where it sources ingredients; see “It Takes a Village,” right.) Just as important, he positioned his products not simply as multicultural but cross-cultural: Rather than explicitly targeting black women, the company sells items that can treat a broad range of conditions—from acne to eczema to frizzy hair—that transcend race. “We want women to have options and not be forced into somebody else’s idea of what their beauty needs ought to be,” says Dennis. It’s an approach with signiﬁcant potential, especially when it comes to hair care. “Certain products and certain natural ingredients, as well as clinical ingredients, are beneﬁcial for many different hair types,” says Karen Grant, an analyst at market research ﬁrm NPD Group. “We need to move away from thinking that this is some little niche market. It’s an untapped opportunity in the hair-care market.” #BreakTheWalls was the ﬁrst step. Today, Sundial is working with retail partners such as Target to move its products off specialty shelves, and encouraging them to rethink such aisles altogether. If it all goes according to plan, SheaMoisture will no longer be the dominant brand in the multicultural space, but will be going headto-head with the likes of Procter & Gamble and L’Oréal. And then the next battle begins.
Heritage brand Dennis based his original shea-butter products on his grandmother’s recipes.
I T TA K ES A V IL L A G E A cornerstone of SheaMoisture’s operation is its fair-trade production program that helps beneﬁt suppliers. Here’s how it works.
FIND FEMALE SUPPLIERS
Sundial starts by identifying high-quality sources for its ingredients, including shea butter, shea soap, and baobab oil. The company currently buys from more than 2,500 women in Ghana and Turkey, and plans to add suppliers in Brazil, Jamaica, Kenya, and Morocco this year.
PUT COMMUNITY FIRST
The company’s Community Commerce team works with suppliers to identify local needs. “We see what investments Sundial can make that will improve their lives, like making the process more environmentally friendly or bringing piped water into the area,” says Sean Hall, VP of Community Commerce.
CREATE THE PRODUCTS
After harvesting, ingredients are sent to Savannah Fruits, a Ghana-based company that weighs and tests them before shipping them to Sundial’s factories in New York and Amsterdam, where they undergo chemicalfree refining and are added to products.
COMPLETE THE CIRCLE
SheaMoisture creates nearly four dozen Community Commerce–labeled products, which are distributed to more than 20 leading retailers nationwide. Ten percent of the gross sales of these items are channeled back into Community Commerce initiatives.
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How a new cybersecurity approach based on the human immune system could keep your data safe By Steven Melendez Illustrations by Jon Han
The program coordinator at the Catholic Charities of Santa Clara County in California never suspected that an email she received earlier this year contained anything more than the corporate invoice it claimed. But as soon as she opened the attachment, malware began to encrypt data on her computer. The breach threatened to expose far more than just her personal ďŹ les: In order to provide its customers with health care, immigration assistance, and other social services, Catholic Charities handles the medical and
40 FastCompany.com September 2016
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ﬁnancial records of more than 54,000 people each year. Of all the cybersecurity systems—including ﬁrewalls and antivirus software— that the nonproﬁt had in place to shield those sensitive documents, only one ﬂagged the intrusion. The security breach was detected by the ﬂagship product created by Darktrace, a U.K.-based cybersecurity company founded in 2013. Just days before the malware attack, Catholic Charities had begun testing Darktrace’s pioneering new technology, the enterprise immune system (EIS). Modeled after the human body’s immune system, the EIS embeds in a computer network and learns what behavior is considered normal for that system. It can then spot suspicious activity and even work to slow an attack, just as the human immune system releases antibodies at the ﬁrst sign of invasive cells. Darktrace’s immunity approach represents a compelling new take on cybersecurity. The $75 billion industry is under mounting pressure to evolve beyond traditional methods as dated systems have failed to prevent high-proﬁle hacks on major businesses. With attackers increasingly relying on fast-moving algorithms to carry out highly sophisticated security breaches—such as those that have recently compromised major universities and hospitals—Darktrace is responding in kind, creating complex formulas that allow machines to continuously scan entire networks and register anomalies that other advanced systems may overlook. Its technology, built in part by former members of the British Intelligence Agencies MI5 and GCHQ, is intended to support—and enhance—existing systems. Where most cybersecurity companies focus on teaching their technology to recognize the digital footprints of malware (which can quickly become outdated as new attacks emerge) or building ﬁrewalls to block intruders, Darktrace takes a more hands-off approach. Rather than rely on humans to feed them speciﬁc examples of suspicious
behavior, its algorithms train themselves to ﬁnd abnormalities— a technique that’s known as unsupervised machine learning. “The concept of Darktrace says that [as attacks become more sophisticated] you’re not going to be able to keep the bad stuff out,” says Vanessa Colomar, a member of Darktrace’s board of directors. It’s far more effective to ﬁgure out how to stop attackers once they’re in. CEO Nicole Eagan says the EIS has been deployed in more than 1,000 networks worldwide, with clients ranging from a twoperson hedge fund to a global bank. Once the hour-long installation is complete, the EIS searches for new threats while also examining the network for existing breaches. “Within the ﬁrst and second weeks, we ﬁnd things out of the ordinary in about 80% of the Fortune 500s we’re deployed in,” says Eagan. “It’s things their legacy tools totally missed.” That success has helped accelerate the three-year-old company’s growth. Of the companies that have registered for its 30-day free trial, about two-thirds have become paying customers. The company, valued at $100 million, now has 20 ofﬁces, including outposts in New York; Hong Kong; Warsaw, Poland; and Milan. Darktrace’s use of unsupervised machine learning comes with certain beneﬁts: Since there are no assumed rules about what a hack looks like, attackers can’t simply tweak their code to dupe the system. And since the EIS operates as an observer, there’s no barrier that hackers could try to disable. “What we’re really passionate about is that there’s no one algorithm that rules them all,” says Dave Palmer, Darktrace’s director of technology. “We’ve got a dozen different machine-learning techniques, all ﬁghting to be the best representation for your speciﬁc setup.” (See sidebar for an example.) Not everyone agrees that unsupervised machine learning is the best approach to cybersecurity. Supervised learning—the technique used by antispam ﬁlters, in which
42 FastCompany.com September 2016
SELF-DEFENSE How Darktrace halts a hypothetical ransomware attack BREACH An HR employee opens an attachment believing it is a résumé. His computer connects to a server in Eastern Europe; ransomware begins encrypting files.
RECOGNITION The EIS spots an anomaly: No device in the company’s network has ever connected with this server.
REACTION As ransomware encrypts documents, Darktrace flags the employee’s computer for accessing so many files.
RESPONSE Antigena, Darktrace’s system for slowing attacks, limits the number of files the employee’s computer can open and blocks its access to shared folders and corporate email.
NOTIFICATION Within a half-hour of the breach, a Darktrace analyst sees the activity and tells the company to remove the computer from the network. Some of the computer’s files have been compromised, but the ransomware did not spread through the network.
algorithms are taught to discern between junk mail and the real thing—can help eliminate false positives that sometimes result when an unsupervised system reacts to a routine change within a network. (For example, an algorithm might notice that data is suddenly being transferred to Dropbox and ﬂag it as a security violation, when in fact the company just added Dropbox as an ofﬁcial storage tool.) Avoiding such confusion is why some security companies take a hybrid approach of supervised and unsupervised machine learning. PatternEx, which launched in February, uses unsupervised learning to scan for abnormalities, then presents its data to a human analyst to distinguish true attacks from false positives. In a recent study, researchers from PatternEx
“The concept of Darktrace says that [as attacks become more sophisticated] you’re not going to be able to keep the bad stuff out.” and MIT found the system caught 85% of attacks, while delivering fewer false alarms than unsupervised learning alone. There hasn’t been a similar lab study completed on Darktrace, though Eagan says her system—despite being totally unsupervised—typically generates ﬁve to 10 alerts per client per week. Eric Ogren, a senior analyst at IT advisory ﬁrm 451 Research, says that most businesses will likely opt for the headache of false positives if it means a more secure network. “What’s the bigger risk, that you chase down a false positive, or that someone makes off with your customer data?” he asks. “I think that within ﬁve years, unsupervised machine learning is going to be driving security architecture.”
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IN THE BAG
A decade after leaving fashion, the husband-and-wife team behind Kate Spade is back. By Kim Lightbody Photographs by Celine Grouard
A new vision Kate Valentine Spade brings a more mature perspective to her new accessories line. 44 FastCompany.com September 2016
No one knows the beneﬁts and perils of turning your name into a brand better than Kate Spade. The designer’s eponymous line of bright handbags and shoes dominated fashion in the late ’90s and early aughts, and remains prominent today. But when your brand no longer belongs to you—Kate and her husband, Andy, sold their stake in 2006 for almost $60 million—how do you launch a new company? You begin by changing your name: Late last year, Kate visited a Manhattan courthouse and ofﬁcially became Kate Valentine Spade. She’s now doing business as Kate Valentine. Her new accessories company, launched in February, is Frances Valentine, named after her two grandfathers. The quiet arrival of Frances Valentine, which sells shoes and handbags directly to consumers online and through a handful of retailers including Nordstrom, Bloomingdale’s, and Shopbop, took some industry pros by surprise. Created by Kate and Andy, along with Kate Spade partner Elyce Arons and former shoe design director Paola Venturi, the company has an impeccable fashion pedigree. But instead of going big and bold, the founders wanted to bring their new brand forward slowly. “[We thought]: We’re going to make mistakes,” says Kate. “Let’s make them on a smaller scale.” Or, as Andy explains: “The expectations are higher now. So we have to make a great product, and then we’ll build out the company.” The market that the Spades are reentering has changed dramatically in the past decade. Social media has personalized the way people discover and follow fashion, and the affordable-luxury industry is already crowded with brands like Coach, Michael Kors, and, of course, Kate Spade, along with new
direct-to-consumer lines like M. Gemi. Then there’s the economy: “America is not a growth engine for luxury,” says Sucharita Mulpuru, an analyst at Forrester Research. “Americans aren’t spending a ton, and we’re not seeing more rich people [enter the market].” The Frances Valentine team is undeterred, banking on the strength of Kate’s designs and her husband’s marketing savvy. The company’s fall line, which includes patent-leather ﬂats and suede ankle boots, haircalf totes and leather bucket bags, is reminiscent of Kate Spade: elegant yet quirky, with an air of preppy suburbia. But like the designer herself, it’s a bit more grown-up, and Kate says she’s brought a new architectural perspective to her work. The signature Frances Valentine heel is a textured knob, a nod to Buck-
comes in. After growing Kate Spade, he spearheaded the concept and launch of its rugged menswear line, Jack Spade, in 1999. Since then, through his creative studio, Partners & Spade, he’s worked on marketing campaigns for companies including J.Crew, Whole Foods, and Target, and led the design of Warby Parker’s successful retail outposts. With Frances Valentine, Andy has tasked himself with creating a company narrative that resonates. He’s looking to open a ﬂagship in New York and plans to bolster their social media presence with insider content. And he’s personalizing things: The brand’s ﬁrst photo shoot took place in the desert, an homage to Andy’s childhood in Arizona, while the second campaign is set in the Spades’ Manhattan apartment and focuses more on the couple’s
HOUSE OF SPA DES A timeline of Kate and Andy’s journey from scrappy entrepreneurs to CEOs (and back)
A gold leather bag from Frances Valentine, below. Right, the line’s signature Bella heels.
Kate and Andy Spade launch their first company out of a cramped N.Y.C. loft. Kate’s soon-to-be iconic nylon handbag is quickly picked up by retailers such as Barneys and Fred Segal.
Kate and Andy have a daughter, Frances Beatrix Valentine Spade, nicknamed Bea.
The Spades open their inaugural store, in New York City’s SoHo neighborhood.
The Spades and their Kate Spade cofounders, Elyce Arons and Pamela Bell, sell their minority stake to Neiman Marcus; Liz Claiborne acquires the company later that year.
Neiman Marcus purchases a 56% stake in Kate Spade for $34 million, giving it majority ownership; the first Jack Spade store opens and reveals Andy’s quirky style: Alongside clothing and messenger bags, it features a collection of boyish objects like a huge stuffed shark and an old Boy Scout manual.
J.Crew’s Liquor Store, an artsy Manhattan menswear boutique that Andy helped conceptualize and design, is a hit with critics and shoppers. Its success helps his nascent branding studio, Partners & Spade, gain traction.
Courtesy of Frances Valentine (handbag, shoes)
Family matters Andy Spade is infusing Frances Valentine with his own life story.
minster Fuller’s geodesic dome. “The shoes really have a very different and distinct point of view,” says Anne Egan, VP and divisional merchandise manager for salon and designer shoes at Nordstrom. But with the U.S. clothing and accessories market expected to grow by less than 2% this year, according to Mulpuru, Frances Valentine will also have to attract shoppers by creating a strong brand identity. That’s where Andy
city life. “We’re trying to ﬁgure out what our lives are now and how to talk about that—how to tell a more grown-up narrative of where we are today,” says Andy. For the Spades, business will always be personal. “When we left the [industry], everyone said, ‘Why would you ever go back to it? You don’t have to do this,’ ” says Andy. “And we say, ‘No, we love to do this.’ It’s important that we get back to doing what we love to do.”
2012 2000 Kate Spade enters pop culture with a mention on Sex and the City.
Partners & Spade goes national: Andy and his cofounder, Anthony Sperduti, develop Target’s eccentric, well-received “Falling for Fall” television spot.
2004 Kate Spade expands rapidly, adding nine stores, unveiling a homeware collection, and launching an e-commerce site.
2016 The Spades launch their new Frances Valentine line with a party in Kate’s hometown of Kansas City. September 2016 FastCompany.com 45
“I’M A RECOVERING SOCCER PLAYER” Abby Wambach spent 14 electrifying years leading the U.S. women’s national soccer team to Olympic and World Cup victories. She talks about taking on wage inequality, the importance of her image, and why retiring is like being fired—and being reborn.
Playing the field Retired soccer star Wambach is writing her next game plan.
46 FastCompany.com September 2016
In your soccer career, you scored more international goals than any other player, man or woman. But you’ve said that you don’t want to be remembered only as a soccer player. Why is that? I was able to go out on top, as a World Cup champion, and I’m so blessed to have been able to do that. That said, having had 30 years of experience playing a sport, I have kind of stymied my growth as an adult. I’ve been so transﬁxed and focused on this one goal of attaining championships and [being] my best soccer self. I don’t regret it, because it offered me so many beautiful things. But when that gets stripped away, it’s like: Did I love what I [was doing]? I loved representing my country, but there were parts of playing that were brutal—the injuries, the recovery from those injuries, always being
Stylist: June Nakamoto at Shotview; assistant: Keiko Hoshi; white linen suit, black vest: Francesco Smalto; T-shirt: Gap; bracelet: Cartier; hair and makeup: Corinne Fouet
Interview by Laynie Rose Photograph by Sophie Delaporte
challenge you? The ESPN thing is a mind shift. You have to get into the mind-set of a coach rather than analyzing a game from a player’s perspective, even though they want a player’s perspective, on some level, from me. There are some nuances that I have yet to learn. And I will learn them. I’m very conﬁdent in myself in that way. But I’m also trying out [other] new things. That’s why I signed on with ESPN: They’re giving me the leeway to ﬁgure out what I like. I have all these other projects [in the works] with my own businesses, starting up my new [soccer-training] camp, and creating a path centered around this revolution that I feel is happening around us. There’s something in the air, around the women’s movement, around equality, the gay movement, and I want to be a part of it. We have to start honoring each other’s differences so that these tragedies [like the mass shooting in Orlando] stop happening.
On your ESPN podcast, Fearless Conversation With Abby Wambach, you’ve talked of how retirement brought on an “existential crisis.” Retirement has been enlightening, but also really hard at times. Everyone experiences it, whether you get ﬁred, or you’re changing careers, or having children, and your life is completely ﬂipped upside down. People don’t talk about their hard times enough. Sometimes you cry, sometimes you’re stuck, “A Disney-owned you drink too much. company hired a gay sometimes It’s almost like recovery. I’m a rewoman with short covering soccer player.
hair who dresses androgynously. I’m a reminder that change is happening.”
What did you learn about yourself in the process? You have to accept that you’re going back to the drawing board to ﬁgure out what you’re going to be good at, what you’re going to enjoy, what’s going to fulﬁll you. I think that’s especially [hard to do] with the level at which I played: I have very high expectations for my life. Not the lifestyle, but the successes, the goals, and the dreams. They’re massive.
You’ve written your memoir, Forward, and you’ve got your podcast and a new role as an on-air analyst for ESPN. How do these endeavors 48 FastCompany.com September 2016
Made in America Wambach celebrates her 2015 World Cup victory.
Where do you start? It’s already starting in the things that I’m involved in, like working for ESPN. A Disney-owned company hired a gay woman with short hair who dresses androgynously. That is, for me, a telltale sign that I chose the right company, because they’re not scared of someone pushing the boundaries. I’m here as a reminder that change is happening, but we still have a long way to go. You’ve been very vocal since you retired about closing the gender pay gap in soccer. Why didn’t you speak out about it more when you were playing? When I retired, I realized, ﬁrst of all, that I needed a job—I’m not a male professional athlete who’d signed massive contracts. I did just ﬁne, but it’s not lifetime kind of money. It [prompted] me to do this deep thinking. I got really pissed off. And then, as I was writing my book, I realized that maybe I didn’t do enough when I was playing, when I could maybe have had more impact, to help grow the game and help this wage
Dennis Grombkowski/Getty Images
on a diet, always traveling, and always pushing my body to its nth degree. What’s important for me now is that I’m starting over. I have a chance at a second career, and that’s both exciting and terrifying.
discrepancy get smaller and smaller. At the same time as I was basically regurgitating this emotion and information to put into my memoir, the women on the national team ﬁled this grievance against U.S. Soccer for equal pay. And so—this is all part of what I was talking about earlier—it feels to me like there’s this revolution happening. There was so much good that came out of Title IX [the 1972 law requiring equal opportunity for women in higher education]. The “If my fans have lost idea behind it was driven primartrust in me, I won’t ily by women wanting to be able judge them for it. to educate themselves to become They get to decide doctors. But the best side effect was who they want requiring universities to have the to follow, who they same amount of female athletes as male athletes. If you look 20 to 30 want to idolize.” years down the road [from that decision], I’m the by-product. I’m the direct by-product of women before me doing work to ensure equal treatment, to ensure equal opportunity. And what you ﬁnd now is more women in sports, and more women in professional sports. That equalized things in a way that really did change the world, and now I want to do my part. Your memoir is just being published. What was it like writing something so revealing? It’s been the most brutal and beautiful experience I’ve ever undertaken, professionally, because it’s so personal. There’s a public persona that I put out there for a lot of reasons, the ﬁrst being that as one of 23 [players on the national team], I couldn’t really speak my mind about A head above Wambach faces off against Japan in the 2012 Olympics.
30-SECOND BIO Abby Wa m bac h HOMETOWN
all of my life. I was speaking for so many other women, and I didn’t want my personal life to get mixed in. So now I get to shed some light on who I am.
Rochester, New York NATIONAL SOCCER TEAM APPEARANCES
255 CAREER GOALS
184 PIVOTAL PLAY
A game-saving header in the final seconds of the 2011 World Cup quarter-final match against Brazil LEGENDARY INJURY
A black eye, thanks to a sucker punch delivered by Colombia’s Lady Andrade in the 2012 Olympics
You were arrested for driving under the inf luence in early April. You’re a role model for millions, which comes with a certain amount of responsibility. How will you go about rebuilding trust? I am just being myself. I’m not worrying about rebuilding trust because, honestly, if my fans have lost trust in me after making a mistake like this, one time, then that’s their prerogative, and I won’t judge them for it. They get to decide who they want to follow, who they want to idolize, and those are the consequences I have to live with. In a statement after your arrest, you said that the truth would come out. What did you mean by that? There’s not going to be some massive, “Oh, wow, she didn’t do it,” sort of thing. No. I got into a car after I’d been drinking. I pled not guilty because I had to, then later changed the plea to guilty because that’s who I am. But there are some nuances and pieces of information that make the why a bit more clear. For me, it’s not about, “No, I didn’t do it.” It’s about understanding the full picture before you cast judgment on someone else. People will see as they read my book that getting pulled over was the best thing that could have happened to me. I think that’s a valuable lesson. During your career, you delivered a lot of clutch plays under s e r io u s pr e s s u r e , br i n g i n g home a World Cup and a pair of Olympic medals. Do you miss the adrenaline rush that comes from competing on the world stage? There’s a dopamine release into your system when you’re extending your limitations day after day. It was almost like an addictive chase. I’ve gone snowboarding, I’ve played tons of golf. It’s impossible to re-create.
50 FastCompany.com September 2016
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What I Learned
three-year-old company with 75 employees, for example—skip the systems and focus on progress.
Think like a coach
Silicon Valley human resources veteran Patty McCord helps businesses build influence.
When everyone works long hours, relationships can feel familial —a dynamic that clouds judgment when you need to let someone go. At Netflix, McCord re peated: “We’re a team, not a family,” and encouraged executives to treat employees like players in a sports franchise, where roster cuts aren’t personal. This approach led to McCord’s own exit in 2012. With Netflix in transition and its culture clearly defined, CEO Reed Hastings asked her to depart.
By Vivian Giang Photograph by Nicholas Albrecht
During Patty McCord’s 14 years as chief talent officer of Netflix, her unconventional approach to human resources shaped the workforce that transformed the DVD-by-mail retailer into a top contentstreaming service. Her philosophy, which included unlimited vacation and no annual reviews, is detailed in a 124-page report, “Netflix Culture: Freedom and Responsibility,” which Sheryl Sandberg has called “the most important document ever to come out of the Valley.” Now a consultant, McCord helps businesses such as Warby Parker and Birchbox hire effective teams. Here’s how she forms company culture.
Toss the employee handbook McCord says some startup executives introduce infrastructures, such as complex hierarchies and compensation systems, as soon as they get funding. But imitating a grownup company can inhibit innovation if employees spend time chasing manager approvals, McCord says. She recommends that smaller startups—a
52 FastCompany.com September 2016
Give perks a purpose McCord says that some benefits favored by tech companies, such as in-office hammocks and personal chefs, are “a race to the ridiculous.” Instead, align extras with your values. If you’re running a retail company that donates clothes to kids, send employees to a developing country to deliver the products. “Perks are designed to make people happier at work, but you’re not accomplishing anything just by giving people more stuff,” she says.
Be honest with inexperienced hires Help wanted McCord says her human resources policies are designed to attract “fully formed adults.”
McCord says that if Warby Parker had employed only retail veterans, they might have tried to deter the founders from opening a showroom when the industry was going digital. She recommends tapping some amateurs for their openness to risk, but let them know that if things don’t work out, you’ll do what’s right for the company. This kind of transparency, McCord says, is the key to building a company culture that is rooted in trust.
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FACEBOOK’S BEAUTIFUL MIND
The social network is in a race to master artificial intelligence and machine learning. Here’s how it might win. By Daniel Terdiman Photograph by Celine Grouard
In June, Facebook unveiled a new technology with a remarkable ability: DeepText, an artiﬁcialintelligence engine that can understand “with near-human accuracy,” according to its engineers, the content in thousands of posts per second—in more than 20 different languages. The program, which promises to grow increasingly adept at grasping the subtleties of human communication, has profound implications for how Facebook serves up content, products, and services to its more than 1.65 billion active monthly users. On Facebook’s Messenger app, DeepText can anticipate when someone needs a car and serve up a link to Uber; on the site’s News Feed, it can analyze a person’s interests to surface the most relevant stories and comments. Ultimately, it can help Facebook create a more personalized and seamless user experience. As CEO Mark Zuckerberg wrote in a June post about his company’s AI investments, “One of our long-term initiatives is to
services that are more intuitive and can more easily connect you with the things you care about by 54 FastCompany.com September 2016
Heady matters Facebook’s Yann LeCun is leading a team that teaches machines common sense.
understanding the meaning of voice, text, images, videos, and other information.” Over the past few years, the biggest companies in tech have coalesced around the idea that the next era of computing will be deﬁned by artiﬁcial intelligence (also known by myriad other terms, such as “machine learning” and “deep learning,” which all effectively mean that advanced algorithms can perform human cognitive tasks). Microsoft has several hundred scientists and engineers doing AI
research. Amazon CEO Jeff Bezos recently said his company has a thousand people dedicated to its voice-recognition ecosystem alone. Apple and Uber are also investing heavily in the space. But the 800-pound, preternaturally intelligent gorilla is Google, which has established itself as the AI leader, aided by a series of acquisitions that underpin everything from its search engine to driverless cars. Facebook has more than 150 people devoted solely to AI initiatives, and execs say they’ve tripled
their investment in processing power for research (without specifying the amount). But the company is relying on more than money to compete. Its real advantage lies in a pair of unique labs, one of which is designed to explore the outer edges of AI while the other is making viable products inspired by their ﬁndings. Facebook’s most important investment in this space has been Yann LeCun, who joined the company in 2013. One of the most accomplished scientists in the ﬁeld, LeCun helped found a branch of deep learning known as convolutional neural networks, which are the building blocks for developing scalable automated natural-language understanding, image-recognition tools, and even voice-recognition and visual-search systems. LeCun now heads the Facebook Artiﬁcial Intelligence Research program (FAIR), a team of 60 people who concentrate on fundamental science and long-term research in the sphere. Think of FAIR as a streamlined version of an old-school corporate R&D lab whose success is measured more in scientiﬁc advancement than in product creation. “The main mission of Facebook is connecting people,” LeCun says, “and the ﬁrst thing you have to do is make sure the communication works between people through translation.” To that end, he has tasked his team—many of them academics—with an ambitious assignment: to teach machines common sense by giving them the ability to learn through observing
S M A R T ER PRODUCTS How AI advances are changing the way you experience Facebook
Photograph by Christophe Wu
Product pipeline Candela’s Applied Machine Learning lab at Facebook turns research into user enhancements.
the world. FAIR’s biggest project right now is natural-language understanding for dialogue systems, which will power Facebook’s AI-fueled assistants, including its year-old M, which lives inside the Messenger app. This system would also be the foundation for automatic-language translation, a feature Facebook considers crucial as it grows internationally. The yin to FAIR’s Yann is Joaquin Candela of Facebook’s Applied
Machine Learning lab (AML). Candela, who previously worked as an engineering manager at Facebook, keeps AML focused on using work such as LeCun’s to create deployable products, including automatic captions for videos and better algorithms for ranking feeds, ads, and searches. One of AML’s newest teams, computational photography, is working on programs to stabilize videos and organize visual content on users’ phones. LeCun’s and Candela’s teams work together to translate science into products. “They have to have personal relationships,” says LeCun of the two labs. “And they have to collaborate really closely.” That’s
Facebook’s year-old app, which lets people share snapshots with friends, uses image recognition to identify human faces on your camera roll with 98% accuracy.
Facebook automatically translates News Feed items into more than three dozen languages for some 800 million people every month. In the future, DeepText will be able to further customize feeds based on users’ interests (rather than simply likes and shares).
At a conference in April, Facebook demonstrated a tool that would allow people to search for and filter photos with keywords, thanks to technology that automatically identifies what’s in an image.
why Facebook keeps data—and people—moving freely between the two groups of researchers. The facial-recognition team, for example, started at FAIR and later transitioned to AML. DeepText, too, was a direct implementation by AML of FAIR’s work on classifying and understanding text. Much of this exchange is enabled by a proprietary research and engineering pipeline created by Candela’s group that allows any Facebook engineer to test and share AI projects internally. “This is the beautiful thing,” Candela says. “I always encourage people to beg, borrow, and steal. You don’t have to reinvent the wheel.” Members of the labs are also encouraged to be as open as possible—publishing, speaking, and sharing open-source code as they would at the university labs on which FAIR and AML are partially modeled. Facebook’s research dynamic has already yielded new products, some more subtle than others. When the Moments app launched last summer, its uncanny ability to automatically scan a user’s camera roll and identify friends’ faces took some people aback. Today, Moments is among the most downloaded apps in the Android and iOS stores. And as long as FAIR and AML are coming up with breakthrough AI developments that enable such hits, Facebook will give them the resources they need to compete. As CTO Mike Schroepfer says, “Both groups have paid for themselves for the next ﬁve or 10 years, easily.”
Auto Accessibility Facebook’s recently unveiled object-recognition technology can tell vision-impaired users what’s in a photo.
M This Messenger-based assistant can help users make purchases, restaurant and travel arrangements, and appointments. LeCun hopes to make M even more useful by imbuing it with common sense.
September 2016 FastCompany.com 55
THE NEW FOOD NETWORK
Portland’s first food hub is bringing the farm to a bigger table. By Hannah Wallace Photograph by Chloe Aftel
Foodie paradise Ecotrust food-systems expert Amanda Oborne’s research was the basis for the project design of the Redd on Salmon Street.
56 FastCompany.com September 2016
It’s easy enough to buy a handful of heirloom tomatoes at a local farmers’ market. But what if you need 400—or even 4,000—of them? What if you want to bring this kind of produce to large restaurants, grocery stores, or school and prison cafeterias? Scaling sustainable agriculture has long been a challenge, even in locales as progressive as Portland, Oregon—until now. In July, the Portland-based environmental think tank Ecotrust opened phase one of the Redd on Salmon Street—a $23 million, 80,000-square-foot campus that’s part food hall, part food hub. Inspired by the research done by Ecotrust food-systems expert Amanda Oborne, the Redd functions as a central warehouse where small and midsize farmers, ranchers, and other producers can stash their products—in 2,000 square feet of cold storage—until they’re ready to be distributed. The Redd can also aggregate them, enabling local producers to sell to larger buyers. Already, the Redd’s distribution partner, B-Line, has signed on more than 30 local farms and producers, like Carman Ranch, renowned for its grass-fed beef. They also count Airbnb’s nearby corporate cafeteria and the Oregon Museum of Science and Industry among their clients. And because this is Portland, the grub is distributed not by trafﬁccausing, CO2-spewing trucks but rather electric-assist trikes (and soon electric vehicles) towing insulated trailers. The food-hub concept has been spreading across the country— there are about 350 of these kinds of distribution centers already— but the Redd offers a new twist, operating as a for-proﬁt business that rents out retail, ofﬁce, and production-kitchen space to support the behind-the-scenes storage and operations. Oborne is conﬁdent that the Redd can grow Oregon’s regional food economy from boutique to mainstream. “Farmers’ markets helped us wake up,” she says. “Projects like the Redd will help us grow up.”
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Microsoft’s plan to bring people with autism into the workforce is a bold experiment in the power of neurodiversity. By Vauhini Vara Illustration by Brian Rea
Blake Adickman had gone through a run of unfulﬁlling IT jobs at small, no-name companies when, this past April, Microsoft invited him to travel from his home in Florida to Redmond, Washington, to interview for an engineering position. He’d heard about Microsoft’s grueling application process and imagined sitting through exhausting conversations and technical tests. Instead he found himself in a conference room, listening to classical music and working alongside 16 other candidates to build devices out of Legos. Over the course of two weeks, managers stopped by the room to chat. By the end, Adickman considered some of his competition to be friends. The whole process, he said, was “extremely relaxed.” This was, in fact, the point. Adickman, 26 years old, is autistic, which affects his communication and thought processes; he has some trouble maintaining eye contact, for instance, and he occasionally isn’t sure that he is catching social nuances in conversation. He was participating in a yearand-a-half-old program developed by Microsoft to identify great autistic job candidates by putting them through an application process that is better 58 FastCompany.com September 2016
Future of Work
See who has made an impact September 27th New York City
Book your tickets to the inaugural D&AD Impact Award Ceremony dandadimpact.com
suited to their communication styles. Gone are the back-to-back interviews, replaced with several days of informal observations and conversations, along with more traditional interviews. And it doesn’t end there: Upon being hired, autistic employees are assigned mentors to help with issues as mundane as ﬁguring out which bus to ride to work and as complicated as having a tough conversation with a boss; their managers and colleagues go through special training sessions. Microsoft isn’t the ﬁrst company to attempt to identify and support such employees—the German software ﬁrm SAP, among others, have similar initiatives—but it is the highest-proﬁle one to have gone public with its efforts to expand the notion of employee diversity beyond traditional categories such as gender and race. And though Microsoft’s program is still nascent, its impact could be far-reaching. Problem solver “The [autism] unemployment rate is chronic,” says Microsoft’s Jenny Lay-Flurrie. “It’s not a reflection of the talent pool.”
Future of Work
It has been almost two decades since an Australian sociology student, who was on the autism spectrum herself, coined the term “neurodiversity” to signify that brain variations are normal and should be respected, just like differences in gender and race. While that concept has gotten some traction in schools, the corporate world has taken little overt notice. But that might change soon. Diagnoses of autism spectrum disorder (ASD), a catchall name that includes a range of symptoms from muteness to the milder social awkwardness of what is also known as Asperger’s syndrome, have become much more prevalent over the past couple of decades. One in 68 children were diagnosed with ASD in 2012, up from one in 10,000 in the 1980s—a spike that many researchers connect to growing awareness. Soon these children will be old enough to enter the workforce. About half of autistic children have
average or above-average intellectual ability, according to the CDC. But the unemployment rate is extraordinarily high—up to 80%, says the advocacy organization Autism Speaks (though precise ﬁgures are hard to come by). “As a whole, people with autism— even those who are quite bright and intellectually quite capable—are facing worse job prospects because of their social challenges,” says Dave Kearon, the director of adult services at Autism Speaks. Kearon and other experts believe that companies’ traditional hiring processes are biased against autistic candidates. Someone who looks at his lap instead of at his interviewer, for example, might come across as awkward or even rude. This can be especially frustrating for highfunctioning autistic people with college degrees. “They can’t get a job that’s commensurate with their abilities,” says Kearon. The situation is now attracting the attention of people who are in
IN GOOD COMPA N Y Microsoft’s efforts are part of a larger movement by corporations to bring autistic adults into the workforce. Here’s what others are doing. SAP The German software company launched its pioneering Autism at Work program three years ago. It has since hired more than 100 people, with a retention rate above 96%.
FORD The automaker kicked off its FordInclusiveWorks initiative in June. In partnership with the Autism Alliance of Michigan, the 30- to 90-day job-training program places individuals in Ford’s product-development group.
FREDDIE MAC With the Autistic Self Advocacy Network, Freddie Mac created an internship program for students and recent college graduates, placing them in divisions like IT, finance, and investments and capital markets.
WALGREENS At Walgreens distribution centers in South Carolina and Connecticut, 40% of employees are people with physical or mental disabilities, including autism. The centers have become so productive, they inspired Walgreens to create a store-training facility for autistic workers.
HEWLETT PACKARD ENTERPRISE Hewlett-Packard partnered with Australia’s Department of Human Services and the Specialist People Foundation in 2014 to create a five-week training program called Dandelion. It has resulted in more than a dozen hires. 60 FastCompany.com September 2016
Photograph by Ian C. Bates
Revitalizing downtown takes the same ingenuity as moving a bass guitar across town. When Portland was ready for a new light rail system, they went to the people to crowdsource ideas. Ideas like adding more space for bikes, wheelchairs and guitars. Siemens not only builds custom trains designed for a city’s unique needs, it keeps them running on time, efﬁciently and reliably— supporting commuters, neighborhoods and new businesses in Portland and around the country.
© Siemens, 2016. All Rights Reserved.
Future of Work
The new recruit A recent Microsoft hire, Blake Adickman heard about the company’s autism program from his college’s career services and disability office.
the position to change it: high-level corporate executives who happen to have autistic children. Early last year, two such Microsoft employees began laying the groundwork for a new hiring program, inspired by CEO Satya Nadella’s mission to transform the company’s culture to be more open and fast-moving. (He also has personal experience with the challenges of disabilities: Two of his children have special needs.) Mary Ellen Smith, corporate vice president of worldwide operations, and Jenny Lay-Flurrie, now Microsoft’s chief accessibility ofﬁcer, had seen through their children and children’s friends that many autistic people are not only capable of meeting serious intellectual demands, they also have qualities that can be suited for tech jobs, such as being detail-oriented and skilled at pattern recognition. Perhaps by adjusting the hiring process, Lay-Flurrie thought, Microsoft could gain a competitive 62 FastCompany.com September 2016
advantage by discovering great candidates whom other companies were overlooking. Smith spotted another opportunity: More than 1 billion people across the globe have disabilities. “The better we represent all people on the planet, the better [Microsoft is] going to be able to serve all the people,” she says. Nadella sees the program as part of the company’s broader mission to make products for “people of all abilities,” in part through hiring programs that “foster an inclusive culture that seeks out and learns from diverse perspectives.” With the help of Neil Barnett, Microsoft’s director of inclusive hiring and accessibility, Smith and Lay-Flurrie sketched out a small hiring program. They would identify through an open application process a handful of high-quality candidates who would come on-site for several weeks to work on projects and meet managers with open positions. The goal: Make as many
good matches as possible, though it would be up to managers to decide whether to extend an offer. Microsoft received 700 résumés for about 10 spots in the April 2015 pilot program. Since then, it has held two more sessions. (At press time, another was planned for the end of August.) The early results have been modest but promising: 16 people— nearly half of the candidates invited to the campus—have been hired, most of them in entry-level technical roles including programmers and data scientists. So far, all have performed at or above expectations. None have left Microsoft. Lay-Flurrie and Barnett are now trying to scale the program— holding it four times a year. “It’s great that we’re hiring ﬁve or 10 or 15 people, but to really drive that inclusive culture, we’ve got to ﬁgure out how to get a lot of these things into the mainstream,” Barnett says. To facilitate this, they’ve shortened the program from four weeks to two
and expanded the applicant pool, which was initially restricted to locals, to candidates from all over the country. Still, they face some persistent difﬁculties, including identifying managers who are hiring for appropriate positions. One serious challenge is that there’s no well-established pipeline of autistic candidates for technical positions. To hire programmers who are women or people of color, you can go to conferences or organizations for engineering professionals from those backgrounds, but there’s no analogue conference circuit for recruiting autistic professionals; what’s more, some autistic people hesitate to advertise their condition to potential employers. Microsoft has been tapping universities’ disability ofﬁces and autism organizations, but Barnett and his colleagues wonder if they’re reaching even a fraction of the qualiﬁed candidates. At the end of the last hiring session, although 13 jobs were open, managers felt only ﬁve candidates met their high bar for employment. After his visit to Microsoft, Adickman went back home to wait and see if he’d get an offer. He had felt an unusual sense of ease when he’d visited Microsoft. With his characteristically clinical attention to detail, he’d noted that because so many people smiled at him on campus, they must be happy with their jobs. Exactly two weeks after leaving, he got a call from a recruiter: He’d made it. Microsoft was offering him a position as an engineer, at a salary so much higher than what he’d previously made that it seemed extraordinary to him. In June, he moved to Redmond, with his parents’ help. And a couple of days before he reported to work, his family all went to lunch at a Thai restaurant. Over pineapple fried rice, his mother recalled that years earlier, a psychologist had warned her that her son wouldn’t even go to college, let alone become a successful professional. She never believed it. Now she wanted to ﬁnd that man and tell him just how wrong he’d been. Photograph by Ian C. Bates
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Cole Haan’s fresh wingtip oxford behaves like a running shoe. By Lauren Schwartzberg Photograph by Keirnan Monaghan & Theo Vamvounakis
For an 88-year-old producer of time-honored driving shoes and classic loafers, Cole Haan embraces a widely accepted, very contemporary corporate rallying cry: “Respect tradition enough to reinvent it.” Scott Patt, vice president of design and innovation, used that maxim two years ago to issue a challenge to his team. What could they do, he asked, to transform the iconic but notoriously inﬂexible wingtip oxford into a comfortable performance shoe, without compromising its elegance?
The problem There’s a rite of passage for every fashionable young man: trying on his ﬁrst oxford. But what Patt says looks like a work of art on the shelf feels like a relic—it’s too hot, too stiff, too heavy. He thought there had to be a better option.
T h e e p i p h a ny As a 15-year veteran of Nike who joined Cole Haan in 2013, Patt knew how to build comfort and movement into a shoe. He instructed designers to experiment with cutting varying ﬂex patterns—small slices in the sole that help it mimic the way the foot naturally moves—into the oxford. Yet even with a more pliable sole, the rest of the shoe was still too ﬁrm. Patt realized that to create a more comfortable oxford, he was going to have to rethink the traditionally rigid leather and uniform wingtip pattern—elements 64 FastCompany.com September 2016
that were once considered too untouchable to modify.
T h e exe c u t i o n To increase ﬂexibility, Patt’s team cut barely noticeable notches on the top of the sole, where it attaches to the leather exterior, and on the orthotic (or what Patt calls the “sock liner”) that comes inside every shoe. They also found a way to use the conventional wingtip
perforations, known as broguing, to provide additional breathability, experimenting with more than 50 patterns. As a ﬁnishing touch, they added extra padding on the tongue and heel, making the blacktie accessory feel even more like a sneaker.
The result This September, Cole Haan will release the GrandRevølution Wash-
ington, a $400 high-end men’s dress shoe with a range of motion that is capable of bending, right out of the box, without damaging the leather—no breaking in required. In the coming months, the company plans to apply the same design elements to its line of women’s pumps and sandals, as well as men’s loafers. For Patt, no tradition is too sacred for an upgrade: “The opportunities for reinvention are pretty limitless across the brand.”
iPHONE SALES HAVE SLUMPED, THE STOCK IS DOWN, AND PUNDITS INSIST THAT APPLE IS A TECHNOLOGY LAGGARD. SO WHAT? CEO TIM COOK AND TEAM ARE PLAYING THE LONG GAME. WHY THE COMPANY MAY BE STRONGER THAN EVER. By Rick Tetzeli Photographs by JoÃ£o Canziani 66 FastCompany.com September 2016
“Our reason for being is the same as it’s always been,” says Apple CEO Cook. “To make the world’s best products that really enrich people’s lives.”
E EDDY CUE DOESN’T LOOK LIKE A MAN IN THE MIDST OF HIS TOUGHEST YEAR IN DECADES. SPORTING AN UNTUCKED APRICOT CAMP SHIRT AND BLUE JEANS OVER CAMOUFLAGE SOCKS AND A PAIR OF BLUE LE ATH E R R AC I N G S H O E S FRO M G E R M A N Y, A P P L E ’ S S V P O F INTERNET SOFTWARE AND S E RV I C E S P U LL S U P A C H A I R AT O N E O F TH E M A R B LE -TO PPE D TA B LE S O U T S I D E C A F F É M AC S , TH E E M PLOY E E R E STAU R A NT AT TH E H E A R T O F A PPLE ’ S 2 3 YEAR-OLD CUPERTINO CAMPUS. (THE COMPANY WILL BEGIN TO MOVE INTO ITS NEW “SPACESHIP” HQ NEXT YEAR.) CUE DIVES RIGHT INTO TELLING ME ABOUT H I S L ATE ST H O R RO R STO RY: 68 FastCompany.com September 2016
The collapse, two nights earlier, of his beloved Golden State Warriors in the NBA Finals, which Cue had the dismal pleasure of observing from a courtside seat. “Am I in mourning?” he asks of his team’s loss to LeBron James’s Cleveland Cavaliers. “You better believe it. I’m not watching ESPN, I haven’t gotten onto a sports website, I haven’t read a newspaper. When I turn on my TV, I only go to the DVR.” “Eddy, this is on the record,” warns Craig Federighi, Apple’s SVP of software engineering, from across the table. “I’ve got no problem with that,” replies Cue, who is such a Warriors fan that he was featured on the front page of the San Francisco Chronicle after the team’s comeback victory in the conference ﬁnals a few weeks earlier, in a photo that showed him screaming in red-faced celebration along with Stephen Curry. He leans over my iPhone, which is recording the interview, and enunciates his next three words to make sure they are loud and clear. “I love LeBron!” Then he gives way to a set of hearty and rueful guffaws. It’s 62 degrees in Cupertino, the sun is shining, the smell of cumin and garlic from the café’s chicken masala special ﬁlls the air, and the chatter among the couple hundred employees enjoying their lunch seems lively and bright. Nowhere is there any hint that “Apple is doomed,” as suggested by Forbes and other outlets, or that it is engaged in a “user-hostile and stupid” campaign against its customers (The Verge), led by CEO Tim Cook, a “boring old fart . . . a supply-chain supplicant” (culture critic Bob Lefsetz). Under Cook’s leadership, Apple has come to seem quite fallible to many people. Its recent products have seemed far less than perfect, at least compared to the collective memory of its astonishing iPod–iPhone–iPad run from 2001 to 2010. There are the public embarrassments, like its 2012 introduction of Maps, or those 2014 videos of reviewers bending, and breaking, an iPhone 6 Plus. Apple Pay hasn’t become the standard for a cashless society, and the Apple Watch “is not the watch we expect from Apple,” according to John Gruber, editor of Daring Fireball, the preeminent Apple-centric website. Then there are the design ﬂaws: Apple Music has been saddled with too many features, as if it were something designed by, God forbid, Microsoft; the lens on the back of the iPhone 6 extrudes; the new Apple TV has an illogical interface and confusing remote control. Perhaps, say the worriers, Apple is doing too many things at once, cranking out multiple editions of the watch, endless varieties of watchbands, iPhones and iPads in numerous sizes, proprietary earbuds alongside headphones from Beats. Credible reports that the company is spending billions of dollars in R&D to explore the possibility of designing a car only heighten the fear that Apple is spread too thin. Steve Jobs had been the company’s editor, proud of saying no to features, products, business ideas, and
OVERHEARD DURING THE APPLE FREAK-OUT REAL REACTIONS, CULLED FROM THE TECH COMMENTARIAT, TO APPLEâ€™S TUMULTUOUS 2016. THE APPLE FAITHFUL HAVE NEVER BEEN MORE POLARIZED.
Illustrations by Peter Oumanski
September 2016 FastCompany.com 69
new hires far more often than he said yes. Apple’s seemingly diffuse product line reinforces the argument that Cook is not as rigorous. (The fear has a worrisome precedent: During the early and mid-1990s, Apple’s product line was a mess of marketing-inspired offerings, and both its reputation as a unique manufacturer and its business suffered.) The criticism crescendoed last April, after Cook announced that, for the ﬁrst time in 13 years, Apple’s revenue had decreased, by 13%, from the corresponding quarter a year earlier. Sales of iPhones had slowed even more, off 16%, an alarming development given that the smartphone accounts for 65% of the company’s total revenue. Meanwhile, the company’s competitors seem to be jetting ahead. Amazon, Facebook, Google, and Microsoft have dazzled the press with announcements of upcoming products that will use artiﬁcial intelligence, or AI. Some, like Microsoft’s Cortana, are software applications that promise to anticipate customers’ needs in useful, personalized ways. Others are already packaging that ability in hardware; in less than two years, Amazon has sold more than 3 million Echos, its $199 canister that’s a voice-controlled personal assistant. Google revealed plans for a similar product, Home, in May, to much fanfare. Critics look at Apple’s ﬁve-year-old Siri, its voice-controlled agent, and cavil that the company has nothing as ﬂashy to reveal. So, is Apple doomed? Of course not. As John Gruber says, “Any conversation that uses that word is in silly la-la land.” With Macs, iPads, and software applications and services, Apple isn’t a one-trick pony like BlackBerry, to use an example cited by those most freaked out about the recent iPhone slowdown. It recorded $50.6 billion in sales during that “disappointing” quarter, more than the combined revenue of Google parent Alphabet ($20.3 billion) and Amazon ($29.1 billion) over the same period. Its $10.5 billion in proﬁts outpaced not just the combination of Alphabet ($4.2 billion) and Amazon ($513 million) but also Facebook ($1.5 billion) and Microsoft ($3.8 billion). “I don’t read all the coverage on Apple that there is,” Cook tells me a few days after my lunch with Cue and Federighi. “The way that I look at that is, I really know the truth.” And he’s ready to talk about it. Traditionally, Apple execs give interviews only when the company has a new product to hawk. Often, Jobs would only cooperate with magazines that promised to photograph him alongside one of the company’s devices. But change is afoot at Apple, and not just in the communications department. Apple has embarked on a mission to improve its four operating systems (for Apple TV, iPhone, Mac, and the watch), services like Apple Pay and Apple Music, and even the size of the iMessage bubble on your iPhone screen. It has redesigned the layout 70 FastCompany.com September 2016
NINE WAYS TIM COOK HAS TRANSFORMED APPLE SINCE STEVE JOBS APPOINTED COOK CEO IN 2011, APPLE’S REVENUE HAS TRIPLED AND MORE THAN A BILLION PEOPLE NOW USE ITS PRODUCTS.
AppleCare, and the App Store, and that part of the business is growing faster than hardware sales. “I expect it to be huge,” Cook says. “It’s already large. If you look at it on a stand-alone basis, and we’ve started disclosing this now, it’s tough to ﬁnd many companies that are as big.”
Apple means business 1
Apple controls its technology destiny Apple increasingly relies on its own prowess at designing many of the chips and sensors that power its devices. That gives the company even tighter control over designing a harmonious, symbiotic hardware and software experience, which matters not only for the future of the iPhone but for whatever comes next.
Apple is a services company as well as a device company Apple generates 12% of its revenue from digital services such as iCloud, Apple Pay,
Beyond corporate graphics departments, Apple never focused much on enterprise sales. Now it has a big deal with IBM to sell its devices to the corporate world. The iPad Pro is increasingly targeted at business users, reframing the iPad from a consumer device—in which interest is declining—to a next-generation business laptop.
downloads (and the resulting revenue). Apple marketing chief Phil Schiller now runs the store and has made more changes in the past six months than ever before, introducing promotional placement and expanding subscriptions to make apps a better recurring business.
Apple has bought into public beta Apple now realizes that trying to be perfect out of the gate is overrated. iOS 10 is being vetted by public beta testers. The new ﬁle system that will debut next year is already in developers’ hands. Even Apple Watch reﬂects the company’s willingness to put out a product, see what users like and don’t like, and react accordingly.
Apple is a fashion brand The company’s products have long been exemplars of good industrial design, but now Cook has incorporated the idea of seasons and collections for products such as the Apple Watch (witness its collaboration with Hermès on bands). The refreshed Apple Stores, in the hands of Burberry veteran Angela Ahrendts, also reﬂect this inﬂuence: Accessories are presented less as tech doodads and more as fashion products.
can complement Apple’s other strengths. As Cook says, “I want Apple to be here, you know, forever.”
Apple embraces public advocacy Steve Jobs had a mission: to popularize computers as “a bicycle for the mind,” and to make them as beautiful as any other object that people care about in their lives. Cook has made Apple a moral company, too—in his coming out and supporting transgender policies; by ﬁghting the FBI over consumer privacy; and in his signiﬁcant push to make Apple an environmental leader in a business that is inevitably resource intensive. “My belief is that companies should have values, like people do,” Cook says.
Apple is chasing new frontiers it may not be able to own From cars to health care to original streaming content, Apple is making big-money bets on lucrative markets that are crowded, complex, and unlikely to be dominated by any single company. “Our strategy,” Cook says, “is to help you in every part of your life that we can.”
Apple is a global financial power 5
Apple’s App Store is a marketing platform One billion people come to the App Store to ﬁnd out what’s worth putting on their iPhones, and Apple is relying on more
The company has $233 billion in cash on hand. It has spent approximately $117 billion on stock buybacks in the last twoplus years. While some see these ﬁnancial manueverings as distractions, this is all part of Cook’s professionalization of the company. Such ﬁnancial sophistication September 2016 FastCompany.com 71
“We are a company that has learned and adapted as we’ve gone into new domains,” says Federighi.
of its retail stores and its online App Store. It is making radical changes to maligned offerings like Maps, Siri, and the watch. It is wooing app developers in brand-new ways, knowing that their creativity is what enriches the $250billion-per-year ecosystem that has been built on Apple devices. It is almost certainly exploring the possibility of manufacturing a car. These moves are the building blocks for the newest iteration of Apple. Apple’s future may look very different from its past, and Cook, Federighi, and Cue wouldn’t have it any other way. “Look,” says Cue, who somehow manages to look both like a man who just woke up and a compact ball of perpetual energy, “one thing you know if you’ve been in technology a while, you’re only as good as the last thing you did. No one wants an original iPod. No one wants an iPhone 3GS.” Apple executives are careful to avoid suggesting that the company is moving beyond its founder’s vision, but that’s exactly what’s happening in Cupertino. It’s a subtle, evolutionary change. Cook is pushing Apple into a future that is bigger and broader than anything Jobs could effect during his too-short life. “I want Apple to be here, you know, forever,” he says. Those lulled by last spring’s bad news into dismissing Cook and his team are likely to miss the scope of the company’s ambitions and its progress in achieving them. While Amazon, Facebook, and Google may crow loudest about their bold ideas, Apple may well have the biggest role in actually deﬁning our technological future.
ĐĐ “Do you have more ﬂaws than you used to?” “Do I personally have more ﬂaws than I used to?” Tim Cook laughs as he responds to my poorly phrased question. “I’ve always had ﬂaws. Always!” “Now we’re getting where I wanted to go!” I tell him. “You can lie down for the rest of the interview.” Cook remains in an upright position, and when his chuckles subside, he answers the question I intended to ask. “Is Apple making more mistakes than we used to? I don’t have a tracker on that.” Cook, despite a job that’s become more challenging during his ﬁve years as CEO, doesn’t seem to have aged a whit. Having your company lose $180 billion in market value (which Apple has in the 17 months since I last interviewed Cook) should manifest itself in some way, but he is still trim and ﬁt, his eyes lively, his good humor intact. “We have never said that we’re perfect,” he continues. “We’ve said that we seek that. But we sometimes fall short.” Indeed, the iPod, iPhone, and iPad—and the ﬁnancial success they engendered—obscured the fact that Jobs oversaw almost as many ﬂops as hits during Apple’s resurgence: the circular, nearly unusable mouse that came with the ﬁrst iMac in 1997; 2001’s beautiful PowerMac
“ O C C A S I O N A L LY Y O U W A N T THE JETSONS TO COME TO R E A L I T Y, ” S AY S C O O K . “ T H AT ’ S W H AT A P P LE I S S O G RE AT AT: P RO D U C TI Z I N G TH I N G S A N D BRINGING THEM TO YOU, SO YO U C A N B E A PA R T O F IT.”
G4 “Cube,” which was discontinued after one year; Rokr, a music phone Apple released with Motorola in 2005; the iTunes social recommendation network Ping, and many more. “The most important thing is, Do you have the courage to admit that you’re wrong? And do you change?” Cook says. “The most important thing to me as a CEO is that we keep the courage.” Gadﬂies who scorn Cook’s Apple for its imperfections also scold the company for being “behind” in whatever is the technology du jour. This is nothing new. “What tends to happen with Apple, not just today but in the 18 years I’ve been here,” says Cook, “is that invariably some people compare what we’re doing now to a vision or a product that somebody says they will create in the future.” Over its 40 years of existence, Apple has been seen as a laggard in music, video, the Internet, telephony, wireless, content creation, networking, semiconductors, software applications, touch screens, gesture controls, materials, messaging, news aggregation, social media, voice recognition, and mapping. (That’s not even close to being an exhaustive list.) Nevertheless, the company has managed to survive by doing an unmatched job of integrating the most important of those technologies into products that eventually delight many customers. By the time Jobs died, Apple’s innovation process—the way it accomplishes that job of creating, acquiring, improving, and integrating technology—was polished and proven. It was arguably Jobs’s greatest gift to his successor. Cook has built on that gift, in a way that suits him. Apple’s CEO is a deeply grounded man who has not been blinded by Jobs’s brilliant legacy. Jobs only came to appreciate the incremental nature of innovation during the second half of his life; you get the sense that Cook understood and loved process from birth. This focus on detail is often mentioned as a weakness. But, in the ﬁve years under Cook,
Apple’s revenue has tripled, its workforce has doubled, and its global reach has expanded rapidly. That’s a remarkable record. Cook has shown a great capacity for getting improvements from every corner of the company, and for then deploying those gains across a wider canvas of software, hardware, and services than Jobs ever had at his disposal. He will never be as ﬂashy as Jobs, but he may just be the perfect CEO for the behemoth Apple has become.
ĐĐ One of the most underappreciated realities about Apple is that it has always been a company that learns on the ﬂy. “I’ve always thought there are a number of things that you have achieved at the end of a project,” Jony Ive told me and Brent Schlender in 2014 when we interviewed him for our biography Becoming Steve Jobs. “There’s the object, the actual product itself, and then there’s all that you learned. What you learned is as tangible as the product itself, but much more valuable, because that’s your future.” This continual learning process is central to the way Cook manages Apple. He accepts the inevitability of ﬂaws, but relentlessly insists that employees pursue perfection. “I twitch less,” says Cue cheerfully when I ask about the difference between Jobs and Cook. “No, no, no, just kidding! Steve was in your face, screaming, and Tim is more quiet, more cerebral in his approach. When you disappoint Tim, even though he isn’t screaming at you, you get the same feeling. I never wanted to disappoint Steve, and I never want to disappoint Tim. [Other than them,] I have that feeling with, like, my dad.” Perhaps the best example of this continuous improvement at work under Cook is the company’s rehabilitation of its Maps app, which was universally scorned after its introduction in September 2012. Apple Maps’ miscues were legion: Bridges seemed to plunge into rivers; September 2016 FastCompany.com 73
hospitals were located at addresses actually belonging to shopping centers; directions were so bad they confused airport runways with roads. Apple didn’t have a billion customers at the time, but it had more than enough to turn the app into a national joke. “Look, the ﬁrst thing is that you’re embarrassed,” says Cue. “Let’s just deal with that one fact of emotion. These things mean a lot to us, we work really hard, and so you’re embarrassed. We had completely underestimated the product, the complexity of it. All the roads are known, come on! All the restaurants are known, there’s Yelp and OpenTable, they have all the addresses. The mail arrives. FedEx arrives. You know, how hard is this?” Cue, left leg jittering under the table, recounts how Apple regrouped after the mess. “What it causes you to do ﬁrst is ask, How important is this? Is this a place where we need to triple or quadruple down, or did we make that mistake because the product’s not that important to us? We had long discussions at the ET [executive team] level about the importance of Maps, where we thought it was going in the future, and could we treat it as a third-party app? We don’t do every app. We’re not trying to create a Facebook app. They do a great job. We decided that Maps is integral to our whole platform. There were so many features that we wanted to build that are dependent on that technology, and we couldn’t see ourselves being in a position where that was something that we didn’t own.” The changes didn’t come easy. Shortly after the app’s debut, Scott Forstall, a 15-year Apple veteran who was in charge of its development, was eased out. That was just the beginning. Forstall had overseen dozens of people working in relative isolation: Several thousand people now work on Maps. “We needed to develop competencies that we initially didn’t appreciate,” says Federighi, who looks like a cross between Sam Waterston and Anthony Perkins, with the silver hair and aircraft-carrier black eyebrows that have led Apple fandom to dub him “Hair Force One.” “Maps presents huge issues relating to data integration and data quality, things we would need to do on an ongoing basis.” But the company did more than just throw numbers at the problem. Cook also forced his execs to reexamine, and change, the way they worked with development teams. Famous for being secretive, Apple opened up a bit. “We made signiﬁcant changes to all of our development processes because of it,” says Cue, who now oversees Maps. “To all of us living in Cupertino, the maps for here were pretty darn good. Right? So [the problem] wasn’t obvious to us. We were never able to take it out to a large number of users to get that feedback. Now we do.” Apple now does public beta testing of its most signiﬁcant software projects, something that Jobs never liked to do. In 2014, the company asked users to test run (Continued on page 96) 74 FastCompany.com September 2016
BREAKOUT STAR APPLE MUSIC’S HEAD OF GLOBAL CONSUMER MARKETING, BOZOMA SAINT JOHN, GIVES US A TASTE OF THE PASSION POWERING THE STREAMING SERVICE.
“C ’mon, we’re gonna rap! C ’mon, y’all!” Bozoma Saint John, trying to get Apple’s keynote audience to sing along to the oldschool classic “Rapper’s Delight,” shook up Apple’s Worldwide Developers Conference in June. Her lively walk-through of the revamped Apple Music signaled a new direction for the service, which debuted a year earlier, and injected a new personality into the canon of Apple presenters. We caught up with Saint John a couple of weeks after her triumphant performance to learn more. Why hadn’t we seen you before at an Apple event? Well, darling, we’re only in year two. I don’t know why it seems longer than that. Listen, baby, we’re just getting started. The ﬁrst Apple Music generated enormous discussion. What did you learn from it? We should be paying attention to all of the ways that people want to listen to music. You want to have the security of your library as something that you listen to again and again, and you must have equal balance between that and being served something new. I really like R&B from 1993, but I like R&B that I just heard last week, too. How do I get both of those things? There’s not a lot of algorithmic curation in Apple Music. Human curation allows you to have the emotion. Music makes
you feel happy, it helps you when you are feeling sad, it gets you pumped up, and it calms you down. You want me to keep going? Because I could preach. Algorithms can’t do that? I don’t know if I’d go that far, but, yeah, people who love music and have passion for it can curate it in a way that can connect to you as a human being. How does Apple Music ﬁt into the whole of Apple? I want to listen to my Apple Music on my iPhone, I also want to listen to it on my iPad, I want to play it on my Apple TV, I want to be connected everywhere I go. It ﬁts into the puzzle of everything that is Apple, and, therefore, it should not be seen as some sort of separate entity that is trying to ﬁnd its way. How does this point of view translate to your marketing of the service? We follow the passion point, the thing that you as a consumer want to know about, then let me concentrate on the passion to communicate that thing to you. For instance, the spot we did with Mary J. Blige, Taraji P. Henson, and Kerry Washington deﬁes what people would do in traditional marketing. You have these three black women who are mature and listening to music much in the same way you do with your friends, and yet you don’t look anything like them. The passion and the emotion of that interaction, though, is universal. —Mark Sullivan
“I gave the presentation in my voice,” says Saint John of her captivating demo at Apple’s June keynote.
September 2016 FastCompany.com 75
SOULCYCLEâ€™S HIGH-ENERGY, CANDLELIT, SPIRITUAL WORKOUTS HAVE GROWN INTO A NATIONAL PHENOMENON. WHAT WOULD YOU PAY TO FEEL PART OF THE TRIBE? By Jonathan Ringen Photographs by Emiliano Granado
Feeling flush “The company is in a pretty good financial position,” CEO Melanie Whelan says of SoulCycle’s impending IPO. “We don’t need to rush to do anything.”
ride, plunges the studio into candlelit darkness and cues up Sia’s “One Million Bullets,” the ﬁrst song of a playlist she stitched together during the ﬂight. It roars from the speakers at nightclub volume. This sweat-inducing, self-actualizing, multisensory experience is, of course, SoulCycle, which, after beginning in a single makeshift studio on New York’s Upper West Side a decade ago, has expanded to cool urban neighborhoods and afﬂuent suburbs from coast (the Hamptons) to coast (Malibu). SoulCycle will offer 160,000 classes this year at 62 studios, but this one is a little special. Not only is SoulCycle CEO Melanie Whelan here—crushing it in the coveted ﬁrst row, which is always reserved for expert riders—but she’s not even the biggest VIP in the room. Alongside her is a woman who pretty much everyone at the company refers to as simply “her” or “FLOTUS”: Michelle Obama, whose world-renowned biceps, can-do attitude, approachable stylishness, and regular attendance at SoulCycle basically make her the personiﬁcation of the brand. SoulCycle is a beloved form of exercise for an Oscar party’s worth of bold-faced names, from Hollywood stars (Lena Dunham, Jake Gyllenhaal) to pop hitmakers (Lady Gaga, Ariana Grande) to CEOs (J.Crew’s Mickey Drexler and Warby Parker’s Neil Blumenthal). Obama is riding tonight with friends and members of her crew (including her hairstylist). “It’s her sanctuary—where she goes to let her hair down with her daughters and connect with them in a way that’s really fun,” says Whelan of the First Lady. “That’s the ethos of what we do.” For the next 45 minutes, the instructor, Cole—wearing a Madonnaconcert-style headset and makeup that’s surprisingly on-point, considering how much sweat is involved— shouts motivational slogans as the class whoops and grinds its way through simulated hill climbs; furious, high-tempo sprints; moves designed to work each rider’s core; and an arm-toning sequence of dumbbell exercises. It’s all performed with enough synchronized precision to make a squad of Beyoncé backup dancers jealous. Something undeniable does happen, amid the darkness and the volume and the heat—the heat!—as the tightly packed riders churn through the routines. It’s the same trancelike rush that comes when you push a little harder than you thought you could, an addictive feeling that keeps people coming back for more. Well, that and the excellently on-trend gear available for sale in the lobby, the tanks and caps and tights and sweatshirts, featuring wheel and skull logos, that reveal to the world that you’re part of the tribe. “It’s not a demographic, it’s a psychographic,” says Whelan of her customers. “These people value experiences. They place a premium on community, they like to build relationships, they like to know about what’s going on.” In an era where Amazon has been able to steamroll traditional storefront operators faster than you can pedal a spin bike with its resistance turned down, running a retail business built on a communal experience just may be the only way to compete.
ON A RECENT MONDAY EVENING, AROUND 60 OF THE MOST F O R M I D A B LY F I T A N D R E L E N T L E S S LY UPBEAT RESIDENTS OF WASHINGTON, D . C . , F I LT E R I N T O A W H I T E-WA L L E D STUDIO SPACE AND HOP ONTO SHINY ROWS OF YELLOW-AND-GRAY EXERCISE BIKES. THEY INSERT THEIR CLEATED SHOES INTO THE PEDALS with satisfying little snicks, and soon the whirring sound of dozens of spinning ﬂywheels ﬁlls the grapefruit-scented room, one wall of which is emblazoned with a long mantra that includes the words CHANGE YOUR BODY, TAKE YOUR JOURNEY. Women (in spandex capris and tank tops, their hair gathered in topknots) outnumber men (muscle tees and shorts), and almost everyone sports a logo in the shape of a wheel or a skull-and-crossbones on at least one item of clothing. Laurie Cole, a veteran instructor who has ﬂown in today from Los Angeles to lead the 78 FastCompany.com September 2016
Faces in the crowd SoulCycle instructors and participants, photographed June 23, 2016, at the company’s Tribeca studio
While other ﬁtness studios may offer spinning, SoulCycle’s experience, underpinned by the company’s culture, has made it unique. “You’re sweating your butt off, but you’re also with a group of people that you usually know,” says Warby Parker’s Blumenthal. “That combination is powerful. It’s why people come out energized and wanting to do it again and again.” That devotion has helped SoulCycle generate eye-popping ﬁnancials. In July 2015, the company ﬁled its IPO prospectus, which revealed $122 million in 2014 revenue and proﬁt margins nearing 30%. Our conservative estimate is that the company will generate $175 million in 2016, and Whelan has indicated that she will take SoulCycle public when market conditions improve. (The company, citing the “quiet period” restriction against releasing results not in its SEC ﬁling, declined to disclose its current ﬁnancials.) Skeptics wonder how long the indoor-cycling trend—or any modish exercise—can stay popular. And even if it does, what’s to keep riders loyal to the higher-priced SoulCycle brand? Can such a quintessentially New York experience translate to the rest of the country? And will the riders who give SoulCycle its cachet—all those movie stars and early-adopter cool kids—still show up once everyone is doing it? To Whelan, these questions totally miss the point. SoulCycle, as she sees it, isn’t competing against other ﬁtness companies. “I always say that our real competition is Netﬂix,” she says, meaning anything that might keep you at home and not out in the world. “SoulCycle isn’t about ﬁtness,” she reiterates. “It’s about a very powerful breakthrough for people, which can be physical, but can also be emotional or about community, about connection. Once people connect to it, it becomes part of their life. So, $30 for that?” WHELAN, 39, HAS THE LEAN, TONED PHYSIQUE of a lifelong athlete who takes ﬁve SoulCycle classes a week, and her manner is both friendly and intense. She grew up in Baltimore, and while attending an all-girls school in the suburbs she began working out in a local gym and played varsity ﬁeld hockey, basketball, and lacrosse. “Not well, but I played,” she says. “I was more of a team leader than the best athlete, but I loved the feeling of being part of a team.” When she got to college, at Brown University, she planned to become an architect or engineer. “I’ll never forget the day I gave up engineering,” she says. “I was sitting in my dorm room and I had this massive turbine that I had to design and I just looked at it and was like, ‘I don’t want to do this.’ ” 80 FastCompany.com September 2016
Her summer internships with engineering ﬁrms, meanwhile, had shown her that her interests lay much more with what was happening on the corporate side. Her father—an entrepreneur who ran a D.C. messenger business and later, when the fax machine took a bite out of his revenue, a transportation company—provided Whelan with her earliest model in life and business. “He got up every morning at ﬁve, and would go swimming for an hour before he got on the bus and the train,” she says. Whelan recounts a favorite story about being at a Busch Gardens amusement park as a kid, watching her dad lug around an early briefcase-size cell phone so he could be reached. “The hardest part of his job was if people let him down or didn’t live up to the way he operated,” she recalls. “But the people that did, he’d really take care of them.” Whelan arrived at SoulCycle to run operations in 2012, after her employer, the gym chain Equinox, acquired a majority stake in the ﬁtness startup. Julie Rice and Elizabeth Cutler, the brand’s near-mythical creators, who, as young moms in 2005, partnered with spinning coach Ruth Zukerman to create a form of exercise that was quick, efﬁcient, and addictively fun. (Zukerman left a few years later, and teamed with investors to launch SoulCycle’s main rival, Flywheel Sports, which is more competitive than communal, and thus skews somewhat more male.) A year earlier, SoulCycle had just six studios and annual earnings of less than $5 million. Whelan had run a team at Equinox that looked for business-development opportunities. Impressed with a SoulCycle class, she brieﬂy considered trying to duplicate the experience with a new, competing brand. “I think the expression is ‘for a hot minute,’ ” she says. “But we realized that the brand and experience was so unique and there was so much buzz around what Julie and Elizabeth had created. It was much better for us to bring what we did best at Equinox—operating expertise, real estate expertise—to fuel the back end and let them run with the experience.” Rice and Cutler still sit on the SoulCycle board, although they mostly cashed out their stock (to the tune of $90 million each) when Equinox increased its ownership stake in the run-up to the IPO. The board, which also includes Whelan’s old Equinox boss Harvey Spevak, passed the CEO job to Whelan last year. “Melanie was as instrumental in the growth as anybody,” says Spevak. “When we were thinking of taking the growth to another level and considering an IPO, it was just obvious that she’s the right person.”
AS SO MUCH OF TR A DITION A L RETA IL CONTINUES TO GET AMAZONED, SOULCYCLE H AS BECOME TH AT R A RE THING: A DESTIN ATION W I T H E N E R G Y.
O N A N A M T R A K T R A I N F R O M H E R H O M E I N N E W YO R K TO WA S H I N GTO N , D.C. , W H E L A N wears a long gray cardigan, light-wash jeans, and a pair of silver-glitter slip-on Vans. She and her team, including Anthony DiMaggio, her VP of development, are preparing for a packed 24-hour visit, including a panel as part of the United State of Women Summit (where President Obama will declare himself a feminist). At 1 p.m., the train pulls into Union Station, and Whelan orders an Uber for her and her team. Whelan carries around a large leather dufﬂe, which no one offers to take—a sign of the CEO’s refreshing lack of pretense, but also the strong likelihood that no one on her team is more capable of carrying it comfortably. First on the agenda is a trip to visit new sites Whelan is considering for expansion. To real estate developers, SoulCycle is more than just an (Continued on page 98)
September 2016 FastCompany.com 81
THE GREAT SCRAMBLE FROM YOLKFREE MAYO TO CHICKENLESS “EGGS,” HAMPTON CREEK CEO JOSH TETRICK IS BRINGING HIS VISION OF SUSTAINABLE, PLANT-BASED FOODS TO GROCERY AISLES ACROSS THE COUNTRY—AND HE’S CRACKING A FEW SHELLS ALONG THE WAY. By Jonathan Ringen Photograph by Joel Stans
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F From Silicon Valley to SoMa, the Bay Area is packed with blockbuster companies that were built on little more than a good idea. But there’s only one that was built on a condiment. Three years ago, Hampton Creek’s Just Mayo, which swaps a protein derived from Canadian yellow peas for the eggs that help emulsify oil into sandwich-spreadable goodness, appeared in Whole Foods (and, later, Walmart and Kroger) stores across the nation. Among an increasingly influential coalition of shoppers—ethics-minded consumers, along with vegans and people with food allergies—it was an instant hit. To a casual observer, vegan mayonnaise hardly seemed like the opening salvo in a war to capture supermarket-aisle space from giants like Unilever, Kraft, and Nestlé. To Josh Tetrick, the 36-year-old founder of San Francisco– based Hampton Creek, it was that and more. A high school football star from Birmingham, 84 FastCompany.com September 2016
Alabama, who still speaks with a Southern drawl, Tetrick sees the entire global food system as an opportunity for the kind of rip-it-up-and-start-again thinking at which Silicon Valley excels. Or as he puts it, ﬂashing a wolﬁsh grin, “I want us to be the biggest food company on the planet. And I want us to do some good at the same time.” His plan? To create a whole range of high-tech, plant-based products that use fewer resources from farm to factory to table, cost less, and are both healthier and tastier than traditional products. The company deploys a three-part process: identifying underutilized, low-impact crops (like sorghum, which requires little water); applying computer data to determine if any proteins they contain might be functionally useful in food (the way the yellow pea turned out to be a great emulsiﬁer); and then using advanced cooking techniques (via a dream team of Michelin-starred chefs) to create tasty recipes for packaged products. Mayo is just the beginning of Hampton Creek’s plan to carry the natural-foods zeitgeist into the middle aisles of supermarkets everywhere. Walmart stores nationwide recently rolled out Hampton Creek’s new salad dressings and will soon carry the company’s cookie dough and pancake mix; they join a line of ﬂavored mayos including sriracha and chipotle. Even more signiﬁcant is the ﬁve-year agreement Hampton Creek has signed to supply these items and more to Compass Group, the planet’s biggest food-services company—which dishes up some 4 billion meals a year to clients ranging from universities and hospitals to IBM and the United States Senate. (According to Compass executive vice president Susie Weintraub, the company saw in Hampton Creek an important opportunity to position itself as healthy and missiondriven.) Nearly four dozen products are in the pipeline for the near future, including pastas, cookies, cake mixes, and, most impressively, totally eggless scrambled eggs. In the long-term, the company has plans for some 500 other foods. “When I went to San Francisco and met Josh and his team, I was pretty blown away,” says Hampton board member Kathleen Sebelius, former governor of Kansas, and the Obama administration’s secretary of health and human services until 2014. “They were rethinking the entire food chain.” Dressed in a blue T-shirt and jeans, Tetrick—who is himself a vegan but is fundamentally allergic to using any kind of food co-op–style language to describe either his eating habits or his business—is perched on a stool at a long counter in the temporary open space that houses most of his 130 employees, up from just 62 a year ago. His 8-year-old golden retriever, Jake, is sprawled out nearby. Tetrick’s vibe is Matthew McConaughey–ish and easygoing, an affect that friends suggest he uses to his advantage. “He walks into a room with his Southern accent and his T-shirt and everybody underestimates him,” says Tetrick’s friend Andrew Zimmern (the chef and Travel Channel personality is a formal Hampton Creek adviser). “A lot of smart people I know need to let you know how smart they are right away; Josh is okay if you never think he’s smart.” Earlier this year, the company moved from a gritty storefront ofﬁce to this vast, 95,000-square-foot headquarters in a former bread factory in San Francisco’s Mission District. Bohlin Cywinski Jackson, the architecture ﬁrm that Steve Jobs commissioned to build Pixar Animation Studios, is set to renovate the space into a hive of test kitchens, production lines, and R&D facilities—but for now those functions are all spread across a large room on the second ﬂoor that resembles a school cafeteria. Tetrick, who usually works at a counter in the middle of the still-raw space, grabs a nearby football and toys with it as he spins out his vision for the company. “We have 7.4 billion people on the planet right now,” he says. “There’s going to be, like, 9 billion people in 30 years. I want us to have some sort of positive impact on at least one meal a day, whether people are eating once a day or seven times a day. And I want Kraft to be inspired by what we’re doing and do better, too.” According to data from Chicago-based market research ﬁrm IRI, which tracks grocery-store sales at a wide range of outlets (though not Whole Foods), Just Mayo’s sales leaped from $4.6 million to $11.8 million in the past year. That’s still just a tiny fraction of the multibillion-dollar condiment industry. But Hampton Creek’s deep bench of prominent investors, expansion into an ever-growing array of products, global ambitions, and its strong food-service business have clearly made at least one traditional food giant a little nervous. Unilever, which makes (depending on which coast you live closer to) Hellmann’s and Best Foods mayonnaise, ﬁled suit in October 2014 against Hampton Creek, alleging false advertising. The core issue, Unilever asserted, was that a product called Just Mayo should, by deﬁnition, be made with eggs. Though Unilever dropped its suit two months later (Unilever declined to comment about the lawsuit for this story), last August the FDA initiated an investigation into Hampton Creek’s labeling, and the American Egg Board, which is appointed by the USDA, launched a campaign that seemed designed to, ahem, smear the upstart brand. By the end of last
Hampton Creek founder and CEO Tetrick used a highprofile lawsuit by Unilever to share his company’s story with the public.
year, though, the USDA launched an investigation into the egg board’s efforts, and Hampton Creek and the FDA came to an agreement. The product and name stayed— the only concession Hampton Creek made was to add language to labels deﬁning Just as a reference to “justice.” The Unilever suit and FDA probe turned out to be a major boon to the young company. “It gave us a crazy opportunity to tell our story again and again and again to millions of people all across the world,” says Tetrick, who also has a penchant for taking out full-page ads in The New York Times to tout the company’s mission. “It increased sales, but more than that, it gave us this window to be, like: All right, this is who we are. And we could say it over and over again through a gazillion different people and tons of different media.” The kicker? Unilever came out with its own eggless, mayo-like product last February, Hellmann’s Carefully Crafted Sandwich Spread. According to a Hellmann’s spokesperson, the new condiment is aimed at consumers whose diets are becoming more plant-based and organic. “I love it,” Tetrick says, with a booming laugh. “Food is a trillion-dollar market. There’s room for more than one singular company.” IN A L ABLIKE SPACE ON THE FAR SIDE OF THE ROOM, EQUIPPED WITH INDUSTRIAL MIXERS, RESTAURANT-
quality ovens, and a walk-in fridge, a half dozen apron-wearing chefs are cooking up the future. More speciﬁcally, they’re knocking together an assortment of Hampton products for me to sample: photogenic little vanilla cupcakes, a batch of oven-fresh cookies, crudités to dip into various dressings (the Caesar is particularly good), spicy Asian-inspired noodles, and a perfect stack of ﬂuffy, eggless pancakes. “We Photograph by Anastasiia Sapon
have six fucking Michelin-starred chefs here,” says VP of product development Chris Jones. “We’d better be able to make a pancake!” Jones—who looks exactly like a hipster chef should, in a blue bandanna, thick-frame glasses, and stubble—arrived at Hampton Creek in 2012, just as the company was beginning to pivot from its ﬁrst, unsuccessful idea. Tetrick and a partner had developed a concept for an egglike, plant-based protein that they would sell to large food manufacturers as a bespoke ingredient, and had been working with a top condiment brand (he can’t say which) that was interested in making a sandwich spread. When that deal fell through, it seemed natural for Hampton Creek to make its own product. It needed to taste really good, though—and to make sure that happened, the company tapped Jones, the chef de cuisine at Chicago’s pioneering September 2016 FastCompany.com 85
86 FastCompany.com September 2016
Circle of friends HAMPTON CREEK’S HIGH-POWERED SUPPORTERS AND ADVISERS HAVE HELPED THE COMPANY GO MAINSTREAM. HERE’S A LOOK:
K ATHLEEN SEBELIUS FORMER HEALTH AND HUMAN SERVICES SECRETARY
The D.C. insider signed on as a Hampton Creek board member last summer, just as the company began wading deeper into food and farm policy.
ANDREW ZIMMERN CELEBRIT Y CHEF
Zimmern has showcased Hampton Creek on his Travel Channel show, Bizarre Foods. He also started a Change.org petition in support of the company after Unilever filed suit.
STELLA MCCARTNEY FA SHION DESIGNER
Ethical-fashion pioneer and vocal animal-rights activist, McCartney is a fan of Hampton Creek and is friendly with Tetrick and chef Jones.
TROY CARTER FOUNDER AND CEO, ATOM FAC TORY
One of Hampton Creek’s newest advisers, Carter is steeped in both entertainment and technology, and brings an astute understanding of branding and media to the company.
CHRISTINA TOSI FOUNDER, MILK BAR
An official Hampton Creek adviser, the chef and decadent-dessert entrepreneur has spent time with the company’s culinary team and is using their sorghum in her Milk Bar empire.
BILL GATES ENTREPRENEUR AND PHIL ANTHROPIST
The mogul has met with and grilled Tetrick on his plans for Hampton Creek on several occasions. He featured the company in a much-talked-about “Future of Food” blog post in 2013. Illustrations by Adam Cruft
Illustration source images: Leigh Vogel/Getty Images (Sebelius); Neilson Barnard/Getty Images for SOBEWFF® (Zimmern); Theo Wargo/WireImage/Getty Images (McCartney); Kevin Mazur/WireImage/Getty Images (Carter); Greg Gayne/Fox (Tosi); Karim Jaafar/AFP/Getty Images (Gates)
molecular-gastronomy restaurant, Moto. “I put my luggage down, started up the mixer, and began making mayo,” Jones says of his arrival. “It was just this cycle of trying new proteins to see if we can make the texture, the ﬂavor, the feel better. That was the initial phase.” Tetrick had discovered Moto’s brand of science-based cooking when he happened to catch a TED Talk by the restaurant’s visionary chef Homaro Cantu and his dessert wizard Ben Roche. “They were making things like sushi printed on edible paper and a beet burger that bled,” Tetrick says. The recipes for these all-new food experiences required science-driven cooking techniques—much like the team at Hampton Creek uses now. Today, eight Moto vets, including Roche, work at Hampton Creek, following Moto’s closure this past February after the sudden, tragic death of Cantu. By combining Hampton Creek’s new ingredients (yellow-pea emulsiﬁer, the cookie-dough sorghum) with their high-tech cooking abilities, the chefs are exploring a whole variety of variables in foods—from new ﬂavors and nutrition to shelf stability and production cost. “They’re more like software developers than traditional culinary masters,” says Tetrick. Still, Hampton Creek’s current line is driven at least as much by old-fashioned cooking as it is by scientiﬁc innovation. “I look at it almost like it’s a chop shop,” Jones says. “We’re taking out some of the things that are bad and putting some great things back into it.” Consider a product like their ranch dressing, which just launched in Walmart and Target. According to Tetrick, the dressing’s “system,” which incorporates the recipe, the processing, and the manufacturing, is about 12% to 15% unique to Hampton Creek. “That’s not insigniﬁcant,” he says. “That percentage enables us to develop a product that meets our philosophy—clean taste, doesn’t have a lot of junk in it, affordable price, better for the environment.” But there’s at least one imminent product that begins to approach scienceﬁction levels of interesting. It’s the highly convincing scrambled-egg alternative called, well, Scramble. According to Jones, Scramble is made out of “almost 100%” new stuff—based on a legume that Tetrick simply calls “the magic bean.” The idea isn’t to replace the eggs in your home, but rather, Jones says “the big, 50-pound bag of eggs that live in the food-service world. You look at how they’re produced and where they come from—there’s gotta be a better way.” To demonstrate, Roche pours what looks like yellow pancake batter into a
hot nonstick pan over medium heat. “Ideally, this is going to work the same way your normal chicken egg does,” he says. As the liquid coats the pan in a thin sheet, the edges begin to slightly soufﬂé. He gives it a little stir with a spatula and the Scramble shifts from liquid to solid curds in the same alchemical way that real scrambled eggs transform. “The gel speed is really fast,” he says. “You never really think about that when you’re cooking, but eggs cook really quickly—almost immediately.” He plates the Scramble and seasons it with some salt that naturally contains sulfur compounds, adding a dash of eggy ﬂavor. To the eye, what we’re looking at couldn’t be anything but scrambled eggs. It sheers with the side of the fork like an egg, chews like an egg, and—this is a testament to the power of texture—tastes reasonably egglike, if a bit grassy. “This is by no means a ﬁnished product,” says Roche. “The ideal is it would taste like nothing. So people could add whatever ﬂavor they wanted.” To Jones, what Hampton Creek is doing marks a foundational shift in how we cook and eat. “Josh always laughs at me when I say this, but we’re still using the same recipes Escofﬁer wrote down, like, 100 years ago,” Jones says. “What we’re doing here is going to new food planets and seeing what’s there that we can use. There are 400,000 plants and species and subspecies out there. What do they all do?” IF TETRICK HAS AN ENTREPRENEURIAL HERO, IT’S ELON MUSK. A DOZEN OR SO COPIES OF ASHLEE VANCE’S
Musk biography are stacked on an ofﬁce bookshelf, and there’s one on almost every staffer’s desk. It’s no coincidence: Musk’s Tesla Motors is a capitalistic enterprise built on the idea that two of humanity’s main systems—transportation and energy—are broken, presenting vast business and social-beneﬁt opportunities. Tetrick sees Hampton Creek as applying that same kind of thinking to food and agriculture. The seeds for his vision were sown in his twenties when, after law school, he went to sub-Saharan Africa on a Fulbright scholarship and ended up working there on a variety of social-good projects for seven years. “Helping kids get off the street and into a school in South Africa, working with farmers in northern Kenya, or helping attract foreign investment, those things sound very good,” he says. “They actually had little to no impact.” The mind-boggling scale of the issues he observed led Tetrick to believe that the core systems we take for granted—especially food—just weren’t working for huge swaths of humanity. “Not only are kids going to school malnourished, which means they can’t think, farmers in northern Kenya are dealing with climate change,” he says. “Here, people eat in ways that are degrading their own bodies and also degrading the planet. So it’s a multifaceted problem.” He returned to the U.S. and, in 2011, launched Hampton Creek with his friend Josh Balk. They were based out of a tiny Los Angeles apartment that Tetrick was living in with Jake the dog. He invested his life savings—around $30,000—and wrote up a pitch deck, looking for venture ﬁnancing. The original idea was for the plant-based egg substitute that Hampton Creek would sell to food giants. One VC bit: Sun Microsystems founder Vinod Khosla wrote Tetrick a check for $500,000. By early 2012, Tetrick had moved Hampton Creek to San Francisco, had given up trying to work with other food brands, and was starting to manufacture Just Mayo out of a makeshift 2,500-square-foot space in the SoMa neighborhood. A local-news crew did a segment on the vegan-mayo upstart, which somehow ended up on the front page of the Drudge Report. “That’s not always the best place to be,” Tetrick says. “But for 48 hours, I was getting calls from the media from all over the world. And then I got an email, which I probably still have, from a guy named Errol who was formerly the head grocery buyer at Whole Foods. And he was like, ‘Can you tell me more about what your company does?’ ” Whole Foods began stocking Just Mayo nationwide three months later. Tetrick has since lined up more investors, from Facebook cofounder Eduardo Saverin to Google DeepMind cofounder Mustafa Suleyman and Li Ka-shing, one of Asia’s richest men, who is helping the company expand aggressively into that region. “Hampton Creek is the rare combination of a great market potential paired with a great entrepreneur,” says Yahoo cofounder Jerry Yang, another investor. The company has taken on more than $120 million to date, valuing it at $1 billion. O N A L A R G E M O N I T O R I N F R O N T O F A Y O U N G C O M P U TAT I O N A L B I O L O G I S T I N H A M P T O N C R E E K ’ S N E W
headquarters, an array of brightly colored dots hover in virtual, three-dimensional space. Blue dots represent an actual scrambled egg, dots of other colors represent various versions of the Scramble. The 3-D space represents texture, encompassing six parameters, including hardness, resilience, and sponginess. “See those gray ones?” researcher Jonathan Mung asks about some dots that are ﬂoating in the vague vicinity of the real-egg ones. “We added an enzyme, which made them jump up here.”
One key difference between Hampton Creek and, say, Unilever is the emphasis each puts on this kind of approach. At Hampton Creek, data underpins everything. The “technology team,” as the R&D crew are called, is led by two scientists—chief of R&D Jim Flatt, a biochemical engineer, and vice president of R&D Lee Chae, a computational biologist who specializes in using machine learning to identify potentially useful patterns in the countless proteins found in plants. They are creating a massive data library of plants and their potential functions in food, such as emulsiﬁcation, structure, and nutrition. The idea is to create a monumental data library of plants and their potential roles in food production—fodder for experiments by the in-house chefs. They’re still in the early days, though. “This ﬁeld is really, really young,” says DeepMind’s Suleyman. “It’s going to take decades to really nail it, but the progress that they’ve made in three years is superimpressive.” Hampton Creek has made a major investment in automating the process with a robotic, four-stage lab, which it says will be up and running by the end of the year. “We call it Blackbird,” says Tetrick, for no other reason than “it gets everyone stoked to have it called something cool.” The Blackbird devices, which screen plants for biological activity and interactions, are similar to machines used for pharmaceutical research—but are new in the food-development world. Chae gestures at a seemingly high-tech gizmo in the current nonrobotic lab: It measures ﬁrmness. “This is a modernday food-science machine,” he says. “It takes hours upon hours to characterize a sample. We’re going to take that, miniaturize it, speed it up, and multiply it so we can run, say, a dozen samples at a time.” It’s a prospect that the scientists believe can make the kind of massive-scale difference that Tetrick is promising. “We’ve already had some good discoveries,” says Flatt. “But this?” He pauses and shakes his head with wonder. “Gosh, imagine if we generate knowledge at 50 to 100 times faster? How many new products is that going to enable?” And in the nearer term, there’s one simple change you can probably expect. “We’re thinking about actually changing our name to Just,” Tetrick says, “because it’s come to symbolize both elements of what we stand for: fairness and doing some good, and free of unnecessary crap.” “Plus,” he adds, with a smile, “we got a lot of free marketing out of that Unilever thing.” September 2016 FastCompany.com 87
A cutout image decorates a wall of the photo studio at American Apparel headquarters in Los Angeles.
By Anjali Mullany Photographs by The Collaborationist
MEND THE SEAMS?
CAN AMERICAN APPAREL
IN THE PAST YEAR, THE COMPANY HAS DEALT WITH ANGRY PROTESTS, LAWSUITS, LAYOFFS, AND BANKRUPTCY. NOW THE REAL CHALLENGE BEGINS.
Everything seems normal as we approach American Apparel’s sevenstory factory and corporate headquarters in downtown Los Angeles. I’m riding shotgun next to CEO Paula Schneider in her slightly worn electric Ford Fusion, ’80s music jamming quietly from the speakers. 90 FastCompany.com September 2016
We park and enter the light and orderly American Apparel shop on the ground ﬂoor. As Schneider shows off some recent display changes, I notice that we’re the only ones in the store but don’t think much of it—it’s still only about 10:30 a.m. on a Friday, and the building isn’t located on a high-trafﬁc street. But as we head toward the building’s corporate entrance, I realize something’s a little weird. I see gargantuan, tattooed men in blue shirts smile attentively near the doorway and I vaguely recognize one of them, which is implausible—I don’t live in L.A. It takes me a moment to realize that I saw his face earlier in the day, when I had met Schneider for breakfast in Little Tokyo. When we had gotten in her car afterward, she seemed to be waiting for the car behind us to pass (it didn’t), so I had looked through the rear window to ﬁnd out what was going on. Now I realize that this man had been following us all along. The security guards accompany us on the ride up the elevator, past six factory levels to the top ﬂoor of the building, where another guard greets us and uses his key card to let us through to the company’s ofﬁces. The percussive hum of textile machinery below fades as the heavy door closes behind us. It’s not unheard-of for famous CEOs to employ private security, but Schneider isn’t Jack Dorsey or Mark Zuckerberg—she’s running what is essentially “a T-shirt business,” as she puts it. However, this is no ordinary T-shirt business. Not only is American Apparel, one of the most controversial clothing manufacturers of the 21st century, dealing with retail woes similar to those faced by brands like Gap, Uniqlo, and even J.Crew, but it is recovering from such a tumultuous and dramatic series of years—including sexualharassment allegations, layoffs, bankruptcy, and protests—that Hollywood stars such as Adrian Grenier reportedly want to option the movie rights. Schneider, the target of heated, ongoing demonstrations, is attempting to steer the company toward a bright and less complicated future, motivated by the 7,500 employees depending on her to preserve their jobs, as well as by the bondholders who took over the company in a debt-equity swap during its bankruptcy restructuring last year. And if it takes a security detail to enable her to focus on this, so be it. When I meet with her, 16 months into the job, she knows what she is up against. After all, Schneider had told me over breakfast, “one year is like 17 years at American Apparel. And this has been a very wild year.”
American Apparel launched in 1988 as a T-shirt business that founder and former CEO Dov Charney ran out of his dorm room at Tufts University. After Charney opened his ﬁrst retail store, on Los Angeles’s Sunset Boulevard,
“This is like somebody who has gained a thousand pounds, and then in six weeks expecting them to lose it,” says American Apparel CEO Schneider of the company’s turnaround.
A BRAND IN FULL American Apparel has always captured the public’s attention. 1. Protesters outside the company’s headquarters in July 2015 calling for new CEO Schneider’s resignation 2. American Apparel founder and former CEO Dov Charney, in a 2010 photo 3. Print ads from 2004 to 2006, one featuring Charney himself 4. Print ads from 2015 and 2016, created under Schneider’s leadership
in 2003, the brand quickly became a phenomenon, famous for its local, sweatshop-free manufacturing and notorious for its sexually charged advertising. Much of the artsy, indie subculture that emerged in the early 2000s dressed the way it did in part because of Charney’s knack for producing high-quality, affordable basics, and kitschy, often-provocative items such as thong bodysuits, shiny disco pants, and striped kneesocks. When it became a public company in 2007 (through a reverse merger), American Apparel had 143 stores in 11 countries and was valued at nearly a billion dollars. It wasn’t just the merchandise that set the company apart. From the beginning, American Apparel eschewed fast fashion (the practice of copying new runway trends immediately and cheaply) in favor of generating its own iconoclastic staples. Instead of outsourcing manufacturing to low-wage overseas workers, it produced almost everything it sold in its own factory in Los Angeles, by employees working above minimum wage with access to on-site services like English classes, massages, yoga, and a medical clinic. It also didn’t Photoshop the models in its ads—and many were not models at all, but company employees. “American Apparel turned advertising upside down,” says the company’s current SVP of marketing, Cynthia Erland, who came aboard last year after Schneider took over as CEO. “It was brilliant what they did to bring in real girls, unretouched, and now you see it everywhere.” 92 FastCompany.com September 2016
Many of these young women were featured, snapshot-style, in casually lascivious poses, taking fashion’s penchant for sexualized imagery to a new level: exposed nipples, spread legs, and visible pubic hair all made appearances in the brand’s advertisements over the years. (Occasionally, porn stars were used as models.) A number of these ads were shot by Charney himself, sometimes in his own bed. Once in a while, he’d appear in the ads. The strategy seemed to work, and sales continued to grow, but watchdogs howled. It didn’t help that Charney was being hit with multiple allegations that he had sexually harassed female employees. (Charney did not comment on the record for this story.) Several lawsuits would be ﬁled against him, all eventually dropped or settled in private arbitration. By any measure, Charney was an unconventional manager, dating employees and occasionally walking around headquarters in American Apparel underwear. The company took risks with its balance sheet as well. In the wake of global expansion (119 new stores between 2005 and 2008), it took out a series of high-interest loans—but as sales slowed after the recession, the expansion failed to throw off enough cash ﬂow to service the debt. Along the way, the company was buffeted by operating snafus like a $15 million software overhaul at a new distribution center. In the spring of 2014, deciding that American Apparel would need a change in leadership, but knowing that Charney wasn’t going to leave
Mark Ralston/AFP/Getty Images
Ringo Chiu/Alamy (Charney); American Apparel (leotard, Japanese print ad, 2006; Meet Melissa. print ad, 2005; Après Ski. print ad, 2004; black top, underwear, and skirt print ad, 2016; Hello. print ad, 2015)
quietly, the board hired a private investigator to look into Charney’s activities, uncovering years’ worth of salacious emails and texts, as well as videos and photos of Charney and other employees naked or engaged in sexual behavior at work. At least one of those videos—of Charney dancing naked at the ofﬁce in front of some female employees—was leaked online, sparking a media ﬂurry. That July, the board suspended Charney as CEO, citing the old harassment suits and ﬁnancial mismanagement as justiﬁcation. With an interim CEO in place, Charney remained at the company as a paid consultant. He hoped that the board would bring him back if he found the right partner. He turned to his friend Ilse Metchek, the president of the California Fashion Association, for help. “I’m kind of a mother ﬁgure to him,” she says with a laugh. “He is nuts, but I love him.” She connected Charney with Schneider, another longtime friend, who had 30 years of experience at apparel companies like BCBG, Laundry by Shelli Segal, and Warnaco, and most recently was a senior adviser to a private equity fund identifying turnaround opportunities in the sector. “At that point, Charney and the board acknowledged that operationally somebody was needed,” Metchek says, “and he was conﬁdent that he was remaining on as the chief merchant.” Charney and Schneider met in the fall of 2014. Schneider recalls that they “had a good conversation,” but that he was always being offered just a
consulting position. “It was to work together, but not as co-CEOs,” she says. The board announced in December 2014 that Schneider would be the sole CEO—and that Charney was ofﬁcially being terminated. Charney responded by ﬁling multiple lawsuits against the company for everything from conspiracy to defamation. (Those motions are all pending or have been stayed by the company’s bankruptcy ruling.) On January 5, in spite of the ﬁnancial struggles, Schneider took the helm. American Apparel “is an incredible brand,” she says. “Who wouldn’t want to be involved with a brand this strong?”
Nothing could have prepared Schneider for what happened next. First, the company didn’t have enough liquidity to produce its full spring lines for 2015. She was forced to institute production-ﬂoor measures that cut overtime for factory workers (before she arrived, Schneider says, the company was spending $10 million to $15 million annually on overtime pay). She closed 40 underperforming stores. And then there were layoffs. That’s when the big trouble began. “We had to save money, and we started furloughing people, and that is what opened the door for a lot of unrest,” she says. “And I can understand that. But I had no choice, or we were going to go to a very bad place very quickly. Otherwise, everybody would have lost September 2016 FastCompany.com 93
American Apparel design director Benno Russell and marketing chief Cynthia Erland
their jobs.” The logic behind the decision didn’t make it any easier: “It’s still a miserable experience,” she says. “To watch these people have to walk out the door is painful.” The “unrest” began as protesting—and escalated from there. Laid-off factory workers linked up with labor activists and began demonstrating, in an effort to unionize. Creative executives loyal to Charney who had quit or been ﬁred joined the crowds in the factory parking lot giving speeches, waving signs, and handing out ﬂyers decrying Schneider and the board. Sometimes there were hundreds of protesters. Sometimes Charney himself appeared. (In June 2015, the board obtained a restraining order against Charney so that he would stop saying negative things about the company and actively trying to get board members removed.) Schneider witnessed this dissent through the windows of her midcentury-style ofﬁce. “There have been moments, like when I ﬁrst saw my face on a [protest] placard and went, ‘Oh, my God,’ ” she recalls. “It was a bit appalling, and then you’re like, Okay, that’s how we’re gonna roll. I have skin like an alligator at this point. I have to.” VP of marketing operations Sabina Weber, whom Erland recruited from Universal Music, recalls that “there were demonstrations at 1 o’clock every 94 FastCompany.com September 2016
Wednesday. We knew to shut the blinds, shut the windows, turn the music on, lock the doors, in case they could come upstairs and bust them down— which did happen once,” she adds, referring to an incident when protesters made it past security and attempted to access the company’s ofﬁces. “We were standing behind and pushing the door closed. [There were people] in tears,” she claims. After the episode, Schneider installed more guards at the building. The company’s ofﬁces were moved from the ﬁfth ﬂoor, where creatives had sat alongside sewers and cutters, to the seventh ﬂoor—a move that some factory workers, especially the Charney loyalists, considered symbolic of a chasm between senior management and blue-collar employees. Clashes persisted (digital director Thoryn Stephens recalls meeting with Schneider in her ofﬁce when a newly ﬁred member of the creative department burst in, screaming at her), as did mistrust. “We couldn’t leave any documents lying around because they would get taken and shared and posted online,” Weber says. Internal ﬁnancial statements were leaked to BuzzFeed, for example, by disgruntled employees whom Stephens says have since been “purged” from the company. With a $311 million debt load—interest payments alone were more than
$35 million a year—and share prices about to hit bottom at 11 cents (down from a high of $15.80 in 2007), Schneider and the board concluded that the only way forward was through bankruptcy. In an August 17 regulatory ﬁling, they publicly afﬁrmed their doubts about having enough liquidity to get through the next 12 months. Two days later, factory workers and activists, protesting lost wages, used a multicolored stick to beat up a 6-foot-tall piñata of Schneider in the factory parking lot. The piñata version of Schneider clutched a bright orange Birkin bag painted with a dollar sign. “I do have an orange bag,” Schneider says, ﬁnding some humor in the situation now (she says it’s not a Birkin). She watched the activity through her ofﬁce window, then closed the blinds and got back to work. American Apparel ﬁled for bankruptcy on October 5. A consortium of creditors (including Monarch Capital and Goldman Sachs) agreed to convert $200 million in bonds into equity and provide $90 million in ﬁnancing, plus $70 million to help address acute liquidity problems. The plan would wipe out the remaining investments of Charney and other former employees, along with all other shareholders. The New York Stock Exchange began delisting American Apparel later that month. Charney countered in January with a $300 million takeover plan of his own, backed by two creditors—Hagan Capital Group and Silver Creek Capital Partners. American Apparel rejected the offer, and Charney’s hopes were dashed when Schneider’s restructuring model was approved by the bankruptcy-court judge. American Apparel emerged from bankruptcy as a private company at the end of the month, sparking a new round of protests.
This outsourcing has been a hot topic within and outside the company— MADE IN DOWNTOWN LOS ANGELES has been a central part of its branding for years. Workers (and labor activists) worry that outsourcing beyond American Apparel’s own factory is just a step toward moving production outside of the United States. But, “no one’s good at everything,” says James Yunker, American Apparel’s head of product and design, who worked under Charney for four years. “Reaching out to other companies within America that specialize in certain items allows us to bring down our costs.” Metchek agrees. Schneider “is making some very smart moves in terms of outsourcing the manufacturing merchandise that they are not proﬁcient in,” she says. Schneider insists that the company will continue to manufacture in America, even if specialty items are created in other factories. “It still means American jobs, whether [people] are hired directly through the company or they’re working for another company and [making products] for us,” she says. One thing she learned during a brand audit she commissioned last year is that outsourcing to another country would be damaging in the long-term, despite any near-term ﬁnancial beneﬁts. “American Apparel can’t afford to not be American. People care a lot about ‘Made in America,’ which is great,” she says. “It’s not called Chinese Apparel, it’s American Apparel.”
In almost every way imaginable, Schneider’s management style differs from that of her predecessor. Charney, by all accounts, had his hand in virtually every part of the business—trying on clothes to evaluate ﬁt and designing ads himself. Schneider is what marketing chief Erland calls a “macromanager,” letting other people run their own departments. “If someone comes to A few months later, things have cooled signiﬁcantly. The protests, though me and says, ‘Everything is screwed up,’ then I make them list everything,” not entirely over, have decreased (“It’s not every Wednesday at 1 o’clock,” Schneider says. “And then after once or twice, no one does it again, because Weber says), and the crowds have gotten smaller. Charney has turned his no one wants to list everything. Here, it’s about ﬁnding solutions.” attention to building a new basics company in Los Angeles, and many forAll this is new, Weber says, for a company that she claims “has been a mer American Apparel workers are part of his effort. totalitarian regime—one person [making] every decision at every level. On American Apparel’s sewing-room ﬂoor one April afternoon, workThat is not sustainable.” ers—many from Central America and Southeast Asia—guide swaths of A slew of new initiatives are now coursing through the company. Product colored fabric beneath the buzzing needles. Some wear masks to protect chief Yunker is engaged in a subtle revamp of American Apparel’s clothing. A themselves from tiny particles of cloth, which ﬂoat visibly in soft rectangles recent store redesign has been implemented. A partnership with Postmates of light near the windows. Latin music begins to play over the loudspeakhas sped up delivery times for online purchases. The company has ramped ers, and everyone stands up to stretch, a mandated break led by pairs of up its Snapchat and Instagram promotion, aiming to attract customers who women in the middle of the room. Everyone looks tired, but some joke and weren’t even born when Charney sold his ﬁrst ringer tee. laugh with each other as they go through their routine, lifting their legs and Meanwhile, Schneider’s marketing team is attempting to tone down rotating their wrists. It’s a particularly bad week for the workers, as nearly American Apparel’s ads without diluting the brand. “All we did is change 500 of their colleagues were let go a few days earlier in another round of the gaze from a voyeuristic male gaze to layoffs, but still a few women bust out a [a] female point of view,” Schneider says. couple of dance moves. “She should still be sexy, or he should still Now that the company has emerged be hot, but it’s not as sexualized.” Gone from bankruptcy, relieved of immobiliz“There have been moments, are the spread thighs and bare breasts, the ing debt and free from Wall Street expeclike when I first saw my face nipples visible through sheer clothing—to tations and public-disclosure pressures, on a [protest] placard and the dismay of many former employees and Schneider and her team are focusing on went, ‘Oh, my God,’ ” CEO American Apparel die-hards, who fear that the fundamentals. “You can have a lot of Schneider recalls. “It was a the brand is in danger of turning into Gap. brand value, which this company has, but bit appalling, and then “One thing that came back from the brand we need to bring it back to the product,” you’re like, Okay, that’s how audit,” Erland responds, is that for many Weber says. “The brand has been running American Apparel customers, “the overly on fumes for a long time.” we’re gonna roll.” sexualized is offensive.” Production and design now follow a Design chief Benno Russell, who left in strict calendar, set by Schneider. “You have 2014 after 11 years with the company and to have your raw materials where they’re returned last spring, believes that some of supposed to be, your bundling down, your the explicit imagery of previous campaigns product cut up and ready to sew—there “was unnecessary.” Now, he says, “we deﬁnitely want to, in a poetic move, are a thousand steps that go into making this run smoothly,” Schneider hand the camera to a woman or somebody who is in touch with more of says. “And it’s more complicated [at American Apparel] because you’re their feminine sensibilities.” knitting your own yarn, you’re dyeing your own fabric, and you’re manuSchneider is also trying to lean on the progressive community that has facturing everything here and shipping everything yourself.” In part, as a long existed around the brand. Known for its “Legalize LA” immigration result, niche items that fall outside of American Apparel’s knit-production campaign and its “Legalize Gay” marriage efforts, American Apparel is expertise—sweaters, denim—are now being outsourced to other factories adding feminist and voter-mobilization efforts. In June, it debuted a line around Los Angeles. September 2016 FastCompany.com 95
of “Make America Gay Again” hats and clothing, a direct shot at Donald Trump. Tapping into maker culture, Schneider is positioning American Apparel’s website and stores as a platform for outside artisans and designers to submit accessories and housewares for inclusion in American Apparel stores. It’s planning small-batch testing of these items at retail locations in late summer.
“This will take two to three years,” Schneider says of the company’s comeback plan. But she still faces liquidity issues—only about 20% of American Apparel’s spring 2016 product line is available in retail locations. The company literally didn’t have enough money to produce it all. American Apparel will also continue to off-load excessive inventory from previous seasons—product that “still generates income, but has stayed at the party too long,” Schneider says. “This is like somebody who has gained a thousand pounds, and then in six weeks expecting them to lose it.” Unlike other retail chains, which outsource their manufacturing and can quickly copy new runway blockbusters, American Apparel isn’t constructed to pump out an endless range of products; it can’t cast a big net like Zara or H&M and hope for some hits. So it is taking the opposite approach, trimming and reﬁning its offerings. “If you’re in fast fashion, you have to replace,” Schneider says. “If you’re American Apparel, you have to evolve.” All of this takes patience—and money, something the company still doesn’t have enough of. “We just barely eked along, [my] ﬁrst year,” she admits. Many of the people I talk to at the company are conﬁdent that the turnaround will work. “Why else would I be here, if I didn’t believe that?” Yunker says. Others aren’t entirely sure. “Ask me again in six months,” Weber says dryly. As for Schneider, “I’m invested emotionally,” she says passionately. “I feel inspired by the good that American Apparel can do. It has a social conscience—it leans left, I lean left. It has a big voice that I think can be helpful to a lot of people. It employs a lot of people.” Even so, there have been moments when her family pressured her to resign. “Sometimes my kids have said, ‘Mom, is this worth it?’ When they looked at the piñata video they were like, ‘Oh, no, oh, no.’ ” I ask her about this as we get back into her car on our way to dinner. She struggles with her seat belt, then gives up. (It’s broken, she tells me, insisting that her other car is nicer.) Then she laughs a little. She’s a breast cancer survivor—an aggressive version of the disease nearly took her life ﬁve years ago. “When you’re sick and you get better, I think you look at things a little bit differently,” she says. “You don’t sweat the small stuff.” Watching people kill your piñata efﬁgy isn’t exactly small stuff, I suggest. She shrugs. “It wasn’t going to stop me,” she says, pulling out of the parking lot, her bodyguard trailing us in his car. “Those were scare tactics. I have a business to run.” firstname.lastname@example.org
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Apple (Continued from page 74)
its Yosemite upgrade to OS X. Last year, it introduced beta testing of iOS, which is the company’s most important operating system. “The reason you as a customer are going to be able to test iOS,” Cue says, “is because of Maps.” Maps’ critical notices have gotten markedly better, and although the most prominent tech reviewers still prefer Google, everyone acknowledges Apple Maps’ vast improvement. (It’s also far more popular on iOS than Google Maps.) But the enhancements that Cue and crew have driven affect more than the app alone. Maps is now integrated into many popular iOS apps, including Airbnb, Foursquare, Yelp, and Zillow. Improving a platform like Maps creates beneﬁts for the ecosystems that sit atop Apple’s products. “Maps is this core organizing structure for the physical world in which you interact,” explains Federighi. “The map is a foundation for building all kinds of value on the platform, just as our operating systems are a foundation.” The duo won’t discuss what’s next for Maps, though many features are likely to involve giving the service more artiﬁcial intelligence than it already has. (Maps directing you to a different route from the one it ﬁrst recommended is an example of basic AI at work.) Cue offers an example of something he’d like to see. “Let’s say I’m at home doing email before work,” he says. “I’d like Maps to tell me, ‘Don’t leave now. Your commute will be cut by 15 minutes if you stay home for a while.’ That would be very helpful.” What Apple has accomplished with Maps is an example of the kind of grind-it-out innovation that’s happening all the time at the company. You don’t hear a lot about it, perhaps because it doesn’t support the enthralling myth that innovation comes in blinding ﬂashes that lead to hitherto unimaginable products. When critics ding Apple for its failure to introduce “breakthrough” devices and services, they are missing three key facts about technology: First, that breakthrough moments are unpredictable outcomes of ongoing, incremental innovation; second, that ongoing, behind-the-scenes innovation brings signiﬁcant beneﬁts, even if it fails to create singular disruptions; and, third, that new technologies only connect broadly when a mainstream audience is ready and has a compelling need. “The world thinks we delivered [a breakthrough] every year while Steve was here,” says Cue. “Those products were developed over a long period of time.”
ĐĐ Over the past year, artiﬁcial intelligence— broadly deﬁned as the capability for machines to “think” for us by crunching loads of data—has become one of those technologies that capture
the public’s imagination, and all the action seems to be taking place somewhere other than Cupertino. At its recent IO conference, Google promised to reshape several of its products around AI, a move that has been hailed as visionary. The hottest consumer product with AI features doesn’t even come from Apple— it’s Amazon’s Echo, with its hint of a world in which computing simply surrounds us. Who needs handheld devices when you can just ask questions of the air and have the furniture bark back answers? A closer look, however, reveals that Apple’s development of its most consumer-oriented AI service, Siri, is very much in keeping with the company’s distinct and widely misunderstood approach to deploying new technology. Apple has been using various kinds of AI for years, for things like the personal recommendations available via iTunes since 2003. Siri was introduced in late 2011, nine months before Google Now and three years before Microsoft’s Cortana and Amazon’s Alexa. Apple relies on a simple, two-pronged approach to develop Siri. It’s one that makes clear why Apple doesn’t worry about who’s ahead or behind. What matters to company executives is how successfully Apple steers its own everimproving product to customers. First, the company works constantly to improve the underlying technology. As with Maps, Siri is the beneﬁciary of Apple’s treatment of it as a continually updated online service rather than something refreshed only with a major OS upgrade. Customers have caught up to the fact that Siri can successfully answer a wider variety of questions: It now handles 2 billion queries a week, double what it did a year ago. Second, Apple regularly seeks out new places where Siri can help those customers. On an iPhone, Siri handles voice commands and questions by tapping into apps and pulling out answers. In cars equipped with Apple’s CarPlay dashboard-display system, it will recommend travel routes, ﬁnd restaurants, and perform other functions. You can use Siri with an Apple Watch (presuming you haven’t socked yours away in a drawer). You can also use it to control your television via the Apple TV remote. Unlike Maps, Siri isn’t replacing a real-world analogue. So, Cue says, “you’re trying to determine what are the features, what are the ways it can work really well, what are customers looking for, and what are the things you can do that are going to improve their lives.” Cue’s thinking explains, in part, why Apple opened Siri up to app developers this summer, though only in six categories: ﬁtness, messaging, payments, photos, ride hailing, and voice calling. Let Siri shine where she’ll be most valuable to users. For now, Siri is as good as anything that’s out there. Using one’s voice to control Now is fun some days and frustrating others, and reviewers say Cortana can be equally inconsistent. Alexa, the digital assistant within Echo, is to be
applauded for the speedy way it answers many queries, but my son often shouts at it in exasperation. Alexa can also be used with the Amazon Fire TV Stick to control a TV, but it’s not in cars. If AI is becoming desirable to mainstream customers, Apple, the company that is supposedly so far behind, is better positioned than anyone to take advantage of an AI moment. None of its competitors offer both a wide range of products and a history of delivering great consumer experiences. Apple can put Siri to work in all kinds of existing services and products. Customers will see the impact this fall, when they’ll be able to use Siri on their Macs. They will also discover more AI features in the Photos app, making it easier to manipulate and organize their pictures. Drivers with CarPlay are likely to see more AI in automobiles as well. Lacking such an extensive product ecosystem, Apple’s competitors have less appealing choices: They must limit their use of AI, invent brand-new products built around the technology (as Amazon did with Echo), or rely on partners to incorporate the technology in third-party products. Apple will occasionally push its customers past their comfort zone, as it might this fall if the iPhone 7 removes the headphone jack. But it never forces the bleeding edge on its customers. In late 2015, it quietly acquired a voice-AI startup called VocalIQ that is reputedly working on the next-generation Siri, but you can be sure that its technology will only ﬁnd its way into devices when Apple believes it is truly ready. Artiﬁcial intelligence is an alluring concept—machines that think for us!—but it also could have unforeseen ramiﬁcations. Apple gives its billion customers comfortable doses of AI, because, despite the common misconception, it isn’t a company for geeks. “People like things they can do now, not just think about,” Cook says. “I’ve been thinking about The Jetsons since I was a kid. But occasionally you want The Jetsons to come to reality. That’s what Apple is so great at: productizing things and bringing them to you, so you can be a part of it.”
ĐĐ In the mid-1970s, when reruns of The Jetsons were still a staple of Saturday morning TV, Steve Jobs and Steve Wozniak started Apple Computer with the goal of selling a new kind of machine to an audience they measured in the hundreds. As the company grew, its mission broadened. When Jobs returned in 1997, he would tout the fact that Apple sold an “experience” that could not be matched by other manufacturers. At ﬁrst, the experience was one of using a single computer in which the company’s software and hardware was seamlessly meshed. Jobs hoped that the excellence of Apple’s personal computers might bring in an additional 1% market share, an increase that would have stabilized Apple’s ﬁnancial health. By the time Tim Cook became CEO, this concept of an “Apple experience” had grown to mean owning and using a collection of three
Apple devices (iPad, iPhone, and Mac) networked to one another and the Internet. The experience now being sold by Apple has expanded far beyond that. As Cue says, grinning at the ambition: “We want to be there from when you wake up till when you decide to go to sleep.” Cook himself is only slightly less brash. “Our strategy is to help you in every part of your life that we can,” he says, “whether you’re sitting in the living room, on your desktop, on your phone, or in your car.” It’s impossible to understand Apple’s future, and Cook’s challenge, without acknowledging that the experience Apple sells today is not just a collection of devices, but a web of hardware, software, and services that is itself connected to other webs of apps and services made primarily by other companies. These other webs include everything from the “app economy,” which already runs on Apple software and devices, to emerging ones such as the connected home and car as well as wearable computing. To achieve its goal of serving its customers all day long, Apple must do more than ensure that its own products work brilliantly—it also must attempt to make them work seamlessly with these many other disparate networks. It must be a notable, reliable player in ecosystems that it doesn’t own itself. Apple does an extraordinary job of extracting revenue from the worlds in which it already plays a role, and its future revenues will depend on this even more. Horace Dediu, an inﬂuential analyst now working with the Clayton Christensen Institute for Disruptive Innovation in Boston, estimates that Apple customers deliver an astronomical $40 per month apiece to the company, versus the pennies per month that Facebook and Google collect, and the few dollars a month that Amazon receives. That’s primarily a result of the expensive devices its consumers are buying. But subscription services such as Apple Music and iCloud storage are starting to deliver signiﬁcant cash. Revenue from services now accounts for 12% of Apple’s total sales, up from 9% the year before. In fact, Apple’s services revenue exceeds Facebook’s total revenue. And Cook says the company has just gotten started. “Oh, yeah. I expect it to be huge,” he says, smiling, his Alabama drawl becoming more pronounced as he delivers the good news. The iPhone’s sales may have dipped for a quarter, but it is far from dead. Its ability to interact with other products is a strategic advantage, and it remains central to what analyst Neil Cybart already calls the “Apple Experience Era.” “Your auto or your home may have dozens of microprocessors in them, but they’re dumb products,” says Dediu. “When the smartphone enters that environment, it gets integrated, and the vehicle [or the home] gets intelligent.” Your iPhone is loaded with your personal preferences, as well as the latest software for managing the world around you, like apps for your thermostat and Philips Hue lightbulbs. Think of the way iPhone
automatically connects via Bluetooth to your car’s sound system, and you can start to imagine the role it could play as consumers accumulate more sensor-embedded devices. The iPhone will continue to morph, in ways designed to ensure its place as the primary way we interact with and manage our technological experience for the foreseeable future. Apple will sell more devices, but its evolution will also enable it to explore new revenue opportunities. This is how Apple adapts. It expands its portfolio by building on the foundation laid by earlier products. That steady growth has made it broader and more powerful than any other consumer technology company.
ĐĐ It’s entirely possible that Apple will never introduce a product as universally desired as the iPhone. That doesn’t mean it won’t continue to be a great company. “The iPhone entered a market that was the biggest on earth for electronic devices,” Cooks tells me, as we’re wrapping up our interview. “Why is that? It’s because eventually, everyone in the world will have one. There are not too many things like that.” Then Cook makes another one of his points that can get lost if you don’t understand the care he takes with every word. “It’s hard to imagine a market deﬁned in units—not revenues—that’s that big.” In terms of unit sales, yes, there may never be another iPhone. But in terms of revenue, well, look at the industries that Apple is just now entering, or is rumored to be pursuing. Media and entertainment is a $550 billion global market. Global car ownership is a $3.5 trillion business. Annual global health spending is more than $9 trillion. And while Apple may not currently dominate any of these arenas, remember that analysts once thought Apple would have a hit on its hands if it could garner 1% of the mobile phone business. As we’re saying our goodbyes, Cook and I stumble into discussing health care, and he perks up again. “We’ve gotten into the health arena and we started looking at wellness, that took us to pulling a string to thinking about research, pulling that string a little further took us to some patient-care stuff, and that pulled a string that’s taking us into some other stuff,” he says. “When you look at most of the solutions, whether it’s devices, or things coming up out of Big Pharma, ﬁrst and foremost, they are done to get the reimbursement [from an insurance provider]. Not thinking about what helps the patient. So if you don’t care about reimbursement, which we have the privilege of doing, that may even make the smartphone market look small.” One percent of $9 trillion is $90 billion. Even Apple might call that a pretty good business. Rick Tetzeli is an editor-at-large at Fast Company and the coauthor of Becoming Steve Jobs. email@example.com
September 2016 FastCompany.com 97
SoulCycle (Continued from page 80)
amenity—it’s a symbol of urbanely afﬂuent style, which has allowed company execs to negotiate below-market rents as it expands. This wasn’t always the case: When SoulCycle ﬁrst grew out of New York, it was perceived to be a bit of a nuisance. The studios are loud; they require a lot of parking; they create trafﬁc snarls every hour as classes change over. Each needs about 4,000 square feet of mostly open space. That’s why Equinox is such a good corporate partner; the gym chain is owned by the real estate giant Related, which helped SoulCycle ﬁnd good locations at attractive rates early in its growth. (SoulCycle still gets ﬁrst looks at prime spots in new developments, such as New York’s vast upcoming Hudson Yards project.) As the brand’s clout has risen and so much of traditional retail continues to get Amazoned, SoulCycle has become that rare thing in the world of retail: a destination with energy. In that regard, the studios aren’t so different from Apple Stores; in fact, SoulCycle’s ﬁrst suburban D.C. studio opened in Bethesda, Maryland, in 2014, directly across the street from the tech retailer. “SoulCycle studios punch above their weight,” says Related CEO Jeff Blau, who credits the brand with adding value to his real estate portfolio. “You put a SoulCycle in [a development], and it’s conﬁrmation of the location and the building.” For competitive reasons, Whelan asks that the speciﬁc neighborhood she’s visiting today remain unnamed, but it is both afﬂuent and youthful, with a residential-but-urban vibe. The ﬁrst potential location we see—currently occupied by a sleepy sporting-goods store in a circa-’90s development that could use refreshing—has much of what SoulCycle needs, including public-transportation access. “The neighborhoods need to be dense, but we don’t necessarily have to be on the corner,” says DiMaggio, who worked with Whelan at Equinox. “We’ve discovered that we can be a couple of blocks away and people will still come to us.” Whelan and her team don’t ﬁnd their way to areas like this by accident. SoulCycle carefully monitors an email inbox where riders can express their interest in prospective locations, the addresses of its social media followers, and the popularity of various pop-up events, such as a 10-city collaboration with Target earlier this year, which offered classes as well as a line of Target x SoulCycle gear. Studios in some of those Target cities, such as Houston, have already launched. Others, including Denver and Atlanta, are on the road map as part of Whelan’s plan to open at least 13 studios this year. But nothing beats on-the-ground intel, which is why SoulCycle sends scouts—and sometimes the CEO—into potential new markets to understand the local exercise culture and start to identify evangelists for the brand. A block away from the old 98 FastCompany.com September 2016
sporting-goods store, Whelan ducks into a boutique that sells workout clothes. She quickly buttonholes the young woman working the cash register—who turns out to be a huge SoulCycle fan—for opinions about the area and its residents. “Whether it happens now or in 2017 or 2018, it’s good to understand the market,” Whelan says afterward. “The demos and psychos seem to line up.” Energized by the encounter, Whelan hops back in an Uber to visit SoulCycle’s Georgetown studio. It’s after 3 p.m., and the only solid food she has consumed is half a gluten-free mufﬁn. Otherwise, she takes in nothing but liquid: a berry smoothie, several bottles of water, and two iced coffees—one with almond milk, one with coconut milk. “I am not a foodie,” she says cheerfully. “Too many other things to do. If it’s not liquid, I don’t want it. Lunch is for suckers.” INSIDE A DOWNTOWN MANHATTAN DANCE studio a week after Whelan’s D.C. trip, a group of about 20 SoulCycle instructor-trainees (and a few vets) circle up around their leader, ready to absorb some key tenets of SoulCycle’s brand of hospitality. The mood is very high school drama club, with lots of touching and hugs and casual massages, but the stakes are high. Last year, more than 1,000 people auditioned to be instructors, and just over 100 were hired. When Marvin Foster, a dance and ﬁtness trainer and SoulCycle’s director of new talent, cues the music—Rihanna and Drake’s “Work”—the entire group whoops with delight. Following Foster, they swivel and groove and crawl like tigers along the ﬂoor. They pair up and bop down an imaginary runway. They twerk (mostly the dudes) and pirouette and bust out pole-dancing moves. It looks like about as much fun as a human being can have.“We started the dance workshop as a way for the groups to get off the bike, get out of the studio, and not worry about the method, just celebrate movement,” Foster says. “But it also helps them understand [their students’] vulnerability.”
“ W H AT K EEP S RIDERS COMING BACK ARE OUR I N S T R U C T O R S ,” S A Y S S O U L C Y C L E ’ S N E W -T A L E N T C H I E F. “ T H E Y N E E D T O H A V E A N X - M E N P O W E R .”
This class is one of the ﬁnal stages of a 10week boot camp known as Instructor Training One. “What keeps riders coming back are our instructors,” says Foster. “They need to have what I call their X-Men power, the secret power inside of them that we can help bring out.” The program is part of Soul University, a comprehensive slate of coursework that’s designed to provide employees an ever deepening immersion into the SoulCycle way. For Whelan, it is the element that makes the SoulCycle experience almost impossible to replicate. In order to grow the way Whelan wants, she has had to codify SoulCycle’s values in a form that would allow staff that never met the founders to be able to channel them. When she ﬁrst arrived, a small team, including Rice and Cutler, developed six “core values,” a list that has since expanded to 10. The one which all the others grow out of, is: “We are a culture of ‘yes.’ That’s how we hire, that’s how we operate, and that’s how we engage with each other,” says Whelan. It wasn’t enough to print up those core values on a bunch of mouse pads—though SoulCycle did that. More crucially, they had to be shared and absorbed and consistently reafﬁrmed by employees. One of the tools SoulCycle uses to make them tangible is to give each staffer a set of 10 pins, each representing a core value—like WE GET DIRTY, meaning no one is too important to help clean a studio, or RECHARGE. Employees are encouraged to hand them out to coworkers who embody each of the particular ideals in a major way. (Everyone seems to agree that a beloved longtime facilities worker at company headquarters has the biggest collection.) “That is how we’ve been able to scale this,” Whelan says. “Once you articulate these things clearly, you’re able to develop a whole set of principles and operating metrics and hiring plans and review strategies around your core values.” These instructors who dance with abandon— athletic, charming, good-looking, comfortable in their bodies—are not just celebrating that they’re about to lead their ﬁrst SoulCycle classes, the last step in their training. They’re missionaries, spreading the brand’s gospel one ride and rider at a time. Some will teach “roosters,” the mega–type A sorts who ride at 6:30 a.m. on their way to work. Others will cater to very different riders, like the ones who go to Brooklyn classes set to punk rock and metal tunes, led by a tatted-up, formerly obese rocker dude who begins by saying, “My name is Noa and I’m an alcoholic. . . . Oh, wait, wrong group!” There are classes set entirely to Kanye West, the Grateful Dead or, famously, the Hamilton soundtrack. And now there are classes in Pennsylvania and Texas and Illinois, and soon enough, no matter where you live, there will likely be a class near you, too. “If we can get through to the First Lady, who is one of the busiest, over-prioritized people in the world?” Whelan says. “That gives me great hope that there are many other people SoulCycle can still affect.” firstname.lastname@example.org
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From the troubled birth of Facebook to the rise and fall of N.W.A., these staff favorites capture the thrills and dangers of corporate life.
Glengarry Glen Ross 1992
“If I hadn’t been very rich, I might have been a very great man.”
The Apartment 1960
Set in the Rolodex-spinning, martini-swilling world of a 31,000-employee 1950s insurance colossus, Billy Wilder’s insightful look at brutal workplace misogyny and the perils of ladder climbing is by turns funny and devastating.
“A-B-C. A: Always. B: Be. C: Closing. Always be closing. Always be closing.”
Office Space 1999
“Um . . . I’m gonna need you to go ahead and come in tomorrow. So if you could be here around 9 that would be great, mmkay?”
“Some people take and some people get took.”
Willy Wonka & the Chocolate Factory 1971
9 to 5 1980
Innovation meets marketing genius when an idiosyncratic candy entrepreneur (Gene Wilder)—a sort of psychedelic proto Elon Musk—creates an international frenzy with a stunt that will admit five lucky fans to his moonshot factory.
“I am your employee and as such I expect to be treated equally, with a little dignity and a little respect!”
Broadcast News 1987
The Devil Wears Prada 2006
“We are the music makers, and we are the dreamers of dreams.” Jane Fonda, Lily Tomlin, and Dolly Parton play women suffering under a jerky boss at a generic company in this hilarious—but also pointed and prescient—look at casual office sexism.
James L. Brooks’s sharp romantic comedy—with Holly Hunter as a top TV producer—explores painful realities of office politics and relationships, all set against the extremely stressful world of the news business. “Wouldn’t this be a great world if insecurity and desperation made us more attractive?”
In Silicon Valley creator Mike Judge’s brilliantly detailed take on cubicle-culture malaise, a programmer (Ron Livingston) exacts revenge on his tech-company employer.
A young journalist (Anne Hathaway) scores a spot as an assistant to the most terrifying fashion magazine editor (Meryl Streep), who teaches her about life, work, and the unexpected complexity of blue sweaters—or was that cerulean? “She’s not happy unless everyone around her is panicked, nauseous, or suicidal.”
The Social Network 2011
David Fincher and Aaron Sorkin recast Facebook’s sunny founding myth as a white-knuckled morality tale, depicting Mark Zuckerberg (Jesse Eisenberg) as a coding savant in denial about his personal demons. “You’re not an asshole Mark, you’re just trying so hard to be.”
Straight Outta Compton 2015
Drug dealer Eazy-E (Jason Mitchell) taps his profits and business savvy to form a worldchanging rap group and record company with Dr. Dre, Ice Cube, and other friends. In F. Gary Gray’s emotional rags-to-riches N.W.A. biopic, contracts are as ruthless as gangbangers. “I told you not to sign that shit, Dre.”
D ON 10
YCL ED PA P ER
100 FastCompany.com September 2016
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Adapted by David Mamet from his Pulitzer Prize– winning play, this bleak vision of business at its most gritty tracks salesmen (Al Pacino, Jack Lemmon, and other greats) as they scrabble to survive in the brutal world of low-end real estate.
Orson Welles’s cinematic masterpiece follows a newspaper tycoon at the turn of the 19th century, offering a cautionary—and still relevant—look at the perils of turning your back on the workers who’ve helped build your empire.
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Illustration by Geo Law
Illustration source images: Todd MacMillan/Universal Pictures/Everett Collection (Straight Outta Compton); 20th Century Fox/Everett Collection (The Devil Wears Prada, 9 to 5); Everett Collection (Willy Wonka); Columbia Pictures/Everett Collection (The Social Network)
10 GREAT BUSINESS MOVIES