Question

Founded in 2006 by Blake Mycoskie, TOMS Shoes was an American footwear company based in Santa Monica, California. Although TOMS Shoes was a for-profit business, its mission was more like that of a not-for-profit organization. The firm’s reason for existence was to donate to children in need one new pair of shoes for every pair of shoes sold. Blake Mycoskie referred to it as the company’s “One for One” business model. While vacationing in Argentina during 2006, Mycoskie befriended children who had no shoes to protect them during long walks to obtain food and water, as well as attend school. Going barefoot was a common practice in rural farming regions of developing countries, where many subsistence farmers could not afford even a single pair of shoes. Mycoskie learned that going barefoot could lead to some serious health problems. Podoconiosis was one such disease in which feet and legs swelled, formed ulcers, emitted a foul smell, and caused intense pain. It affected millions of people across 10 countries in tropical Africa, Central America, and northern India. For millions, not wearing shoes could deepen the cycle of poverty and ruin lives. Upset that such a simple need was being unmet, Mycoskie founded TOMS Shoes in order to provide them the shoes they needed. “I was so overwhelmed by the spirit of the South American people, especially those who had so little,”1 Mycoskie said. “I was instantly struck with the desire—the responsibility—to do more.”2 The name of his new venture was TOMS Shoes.

History

Blake Mycoskie started his entrepreneurial career by creating a college laundry service in 1997 when he was a student at Southern Methodist University. In his words, “After we expanded EZ Laundry to four colleges, I sold my share. I moved to Nashville to start an outdoor media company that Clear Channel scooped up three years later.”3 In 2002, Blake and his sister Paige formed a team to compete on the CBS reality show

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The Amazing Race, coming in second. One of the places that they visited during the filming was Argentina. Fascinated by South America, Blake returned to Argentina in 2006 for a vacation. “On my visit I saw lots of kids with no shoes who were suffering from injuries to their feet. I decided a business would be the most sustainable way to help, so I founded TOMS, which is short for a ‘better tomorrow,”’4 explained Mycoskie.

While in Argentina, Mycoskie had taken to wearing alpargatas—resilient, lightweight, slip-on shoes with a breathable canvas top and soft leather insole traditionally worn by Argentine workers, but worn casually by most people in that country. Mycoskie spent two months meeting with shoe and fabric makers in Argentina. Although he modeled his shoe after the espadrille-like alpargata, he used brighter colors and different materials. “No one looked twice at alpargatas, but I thought they had a really cool style,”5 said Mycoskie. “I’m a fan of Vans, but they can be clunky and sweaty. These aren’t. They fit your foot like a glove but are sturdy enough for a hike, the beach, or the city.”6

Founding his new company that year in Santa Monica, California, the 30-year-old Blake Mycoskie began his third entrepreneurial venture. With a staff of seven full- time employees (including former Trovata clothing line designer John Whitledge), six sales representatives, and eight interns, TOMS Shoes introduced 15 styles of men’s and women’s shoes plus limited edition artist versions in June 2006. The shoes were quickly selected for distribution by stores like American Bag and Fred Segal in Los Angeles and Scoop in New York City. By Fall 2006, the company had sold 10,000 pairs of shoes, averaging US$38 each, online and through 40 retail stores.

As promised, Mycoskie returned to Argentina in October 2006 with two dozen volunteers to give away 10,000 pairs of shoes along 2,200 miles of countryside. Mycoskie wryly explained what he learned from this experience. “I always thought that I’d spend the first half of my life making money and the second half giving it away. I never thought I could do both at the same time.”7 The next year, TOMS Shoes gave away 50,000 pairs of shoes in “shoe drops” to children in Argentina plus shoe drops to South Africa. More countries were added to the list over the next three years.

Business Model

Realizing that a not-for-profit organization would be heavily dependent upon sponsors and constant fundraising, Mycoskie chose to create an innovative for-profit business model to achieve a charitable purpose. For every pair of shoes the company sold, it would donate one pair to a child in need. Mycoskie felt that this model would be more economically sustainable than a charity because sales would be used to achieve the company’s mission. He saw this to be a form of social entrepreneurship in which a new business venture acted to improve society through product donations at the same time it lived off society through its sales.

Mycoskie believed that the firm’s One-for-One model would be self-sustaining because the company could make and sell shoes at a price similar to other shoe companies, but with lower costs. “Selling online (www.toms.com) has allowed us to grow pretty rapidly, but we’re not going to make as much as another shoe company, and the margins are definitely lower,”8 he admits. “But what we do helps us to get publicity. Lots of companies give a percentage of their revenue to charity, but we can’t find anyone who matches one for one.”9

Marketing and Distribution

TOMS Shoes kept expenses low by spending only minimally on marketing and promotion. The company’s marketing was primarily composed of presentations by Blake Mycoskie, fan word-of-mouth, and promotional events sponsored by the firm. The

company won the 2007 People’s Design Award at Cooper-Hewitt’s National Design Awards. Two years later, Mycoskie and TOMS received the annual ACE award given by U.S. Secretary of State Hillary Clinton. This award recognized companies’ commitment to corporate social responsibility, innovation, exemplary practices, and democratic values worldwide. Mycoskie spoke along with President Bill Clinton at the Opening Plenary session of the Second Annual Clinton Global Initiative Conference in 2007. With other business leaders, he also met with President Obama’s senior administration in March 2009 to present solutions and ideas to support small businesses. In addition, he was featured in a CNBC segment titled “The Entrepreneurs,” in which he and TOMS Shoes was profiled.

Mycoskie explained why he spent so much time speaking to others about TOMS Shoes. “My goal is to inspire the next generation of entrepreneurs and company leaders to think differently about how they incorporate giving into their business models. Plus, many of the people who hear me speak eventually purchase a pair of Toms, share the story with others, or support our campaigns like One Day Without Shoes, which has people go barefoot for one day a year to raise awareness about the children we serve.”

Celebrities like Olivia Wilde, Karl Lagerfeld, and Scarlett Johansson loved the brand and what it stood for. Actress Demi Moore promoted the 2010 One Day Without Shoes campaign on The Tonight Show with Jay Leno. It didn’t hurt that Mycoskie’s fame was supported by his Bill Clinton–like charisma, Hollywood good looks, and his living on a boat in Marina del Rey with “TOMS” sails. Famed designer Ralph Lauren asked Mycoskie to work with him on a few styles for his Rugby collection, the first time Lauren had collaborated with another brand.

TOMS Shoes and Blake Mycoskie were profiled in the Los Angeles Times, as well as Inc., People, Forbes, Fortune, Fast Company, and Time magazines. Mycoskie pointed out that the 2009 Los Angeles Times article, “TOMS Shoes the Model: Sell 1, Give 1,” resulted in 2,200 orders for shoes in just 12 hours after the article appeared. In February 2010, FastCompany listed TOMS Shoes as #6 on its list of “Top Ten Most Innovative Retail Companies.”10

By early 2007, TOMS Shoes had orders from 300 retail stores, including Nordstrom’s, Urban Outfitters, and Bloomingdale’s, for 41,000 pairs of shoes from its spring and summer collections. The company introduced a line of children’s shoes called Tiny TOMS in May 2007 and unveiled a pair of leather shoes in Fall of that year. By September 2010, the company added Whole Foods to its distribution network and had given over 1,000,000 pairs of new shoes to children in need living in more than 20 countries in the Americas (Argentina, El Salvador, Guatemala, Haiti, Honduras, Nicaragua, and Peru), Africa (Burundi, Ethiopia, Lesotho, Malawi, Mali, Niger, Rwanda, South Africa, Swaziland, Uganda, and Zambia), Asia (Cambodia and Mongolia), and Eurasia (Armenia). The shoes were now selling for US$45 to US$85 a pair.

Operations and Management

TOMS shoes were manufactured in Argentina, China, and Ethiopia. The company required the factories to operate under sound labor conditions, pay fair wages, and follow local labor standards. A code of conduct was signed by all factories. In addition to its production staff routinely visiting the factories to ensure that they were maintaining good working standards, third parties annually audited the factories. The company’s original line of alpargata shoes was expanded to include children’s shoes, leather shoes, cordoned youth shoes, botas, and wedges. In January 2009, the company collaborated with Element Skateboards to create a line of shoes, skateboard decks, and longboards. For each pair of TOMS Element shoes and/ or skateboard bought, one of the same was given to children at the Indigo Skate Camp in the village of Isithumba in Durban, South Africa.

Blake Mycoskie was the company’s Chief Executive Officer and joked that he was also its “Chief Shoe Giver.” He spent much of his time traveling the country to speak at universities and companies about the TOMS Shoes’ business model. According to CEO Mycoskie in a June 2010 article in Inc., “The reason I can travel so much is that I’ve put together a strong team of about ten people who pretty much lead the company while I am gone. Candice Wolfswinkel is my chief of staff and the keeper of the culture. . . . I have an amazing CFO, Jeff Tyler, and I’ll check in with him twice a week. I talk to my sales managers on a weekly basis. I also call my younger brother, Tyler, a lot—he’s head of corporate sales.”11 The company had 85 employees plus interns and volunteers. In 2009, more than 1000 people applied for 15 summer internship positions.

The company depended upon many volunteers to promote the company and to distribute its shoes to needy children. For example, Friends of TOMS was a registered nonprofit affiliate of TOMS Shoes that had been formed to coordinate volunteer activities and all shoe drops. The company sponsored an annual “Vagabond Tour” to reach college campuses. Volunteers were divided into five regional teams to reach campuses throughout the United States to spread information about the One-for-One movement. To capture volunteer enthusiasm, the company formed a network of college representatives at 200 schools to host events, screen a documentary about the brand, or throw shoe decorating parties.

Mycoskie believed that a key to success for his company was his generation’s desire to become involved in the world. “This generation is one that thrives off of action. We don’t dream about change, we make it happen. We don’t imagine a way to incorporate giving into our daily lives—we do it. TOMS has so many young supporters who are passionate about the One-for-One movement, and who share the story and inspire others every day they wear their TOMS. Seeing them support this business model is proof that this generation is ready and able to create a better tomorrow.”

Mission Accomplished: Next Steps?

When Blake Mycoskie originally proposed his One-for-One business model in 2006, few had much confidence in his ability to succeed. He never generated a business plan or asked for outside support. Mycoskie used the money he had earned from his earlier entrepreneurial ventures to fund the new business. Looking back on those days, Mycoskie stated, “A lot of people thought we were crazy. They never thought we could make a profit.”12 Much to everyone’s surprise, TOMS Shoes had its first profitable year in 2008, only two years after being founded. The company’s sales kept increasing throughout the “great recession” of 2008–2009 and continued being marginally profitable. Mycoskie admitted that the company would have to sell about a million pairs of shoes annually to be really profitable. Nevertheless, TOMS Shoes did not take on any outside investors and did not plan to do so.

In September 2010, Blake Mycoskie celebrated TOMS Shoes’ total sales of one million pairs of shoes by returning to Argentina to give away the millionth pair. Looking forward to returning to where it all began, Mycoskie mused: “To reach a milestone like this is really amazing. We have been so busy giving shoes that we don’t even think about the scope of what we’ve created and what we’ve done.”13

1. What should be next for TOMS Shoes?

2. Blake Mycoskie invested a huge amount of his own time, energy, and enthusiasm in the growth and success of TOMS Shoes. Was the company too dependent upon its founder?

3. How should it plan its future growth?

Answer 1

1.

TOMS Shoes should continue doing what it has been doing for last so many years. It should continue its mission of giving to people who need the shoes. Another way to increase its spread across the world would be to diversify. They can get into the sunglasses segment, socks, and watches as well. This would help the company grow further.

The company already has a strong brand recall and positive brand imagery. New products would further reinforce the product portfolio.

They can also venture into the sustainable mode of business by making shoes from recycled products. These would send a clear signal how the company is committed to making the world a better place.

2.

The company was dependent on the founder. He had become the face of the company. Everyone started to recognize his efforts in bringing the company to where it is today. But this was something which was bound to happen because it was all his idea and his efforts which had bore fruit.

3.

Its future growth can come diversification.

a) Diversification into complimentary products like sunglasses, watches

b) Opening up new territories; setting up operations in new territories untapped market for further growth