Building a business one foot at a time

TORONTO Fri Apr 9, 2010 3:22pm EDT

1 of 3. A pair of TOMS Shoes are displayed at a Nordstrom's store in Santa Monica, California. TOMS founder Blake Mycoskie started his footware business in 2006 with the idea that for every pair sold he would donate a pair to a needy child. Picture taken March 19, 2010.

Credit: Reuters/Michelle Eaton

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TORONTO (Reuters) - When entrepreneur Blake Mycoskie saw Argentinean children walking barefoot on streets strewn with garbage and broken glass, he didn't just donate some money, he started a company with the goal of putting shoes on the feet of every needy child.

Four years later Mycoskie's Santa Monica-based startup - TOMS Shoes www.toms.com/ - has given away more than 400,000 pairs of shoes and laid the foundation for a new form of business the Arlington, Texas native calls "conscious capitalism."

TOMS, an abbreviation of "Tomorrow's Shoes," is based on a simple concept: for each pair of shoes sold, a pair is donated. Mycoskie conceived his "One-for-One" business model on a trip to Argentina, when as a volunteer on a shoe drive, he witnessed how a simple pair of shoes could change a child's life.

"Many of the kids' feet I saw were really badly cut up and infected and just really gross, for lack of a better word," said Mycoskie, who also noticed how much trouble the non-profit organization he was helping had in getting the right size shoes for the kids, as they were completely reliant on donations. "It dawned on me that instead of looking at this as a charity thing, which is what they were doing, why not look at it from a business perspective and create a business where you sell a pair of shoes and give a pair.

"I just thought it was so much easier, because it's 1-for-1."

As a businessman, Mycoskie knew a thing or two, having started four previous companies, including a national campus laundry service as a 19-year-old college student at Southern Methodist University in Dallas. In between he had an outdoor advertising company (sold to Clear Channel), a failed attempt at a cable reality TV network (prompted by a 2002 appearance on CBS's The Amazing Race) and a successful online driver's education school, which he sold his stake in for "less than 500,000" to fund TOMS.

In the first year Mycoskie sold 10,000 pairs of his South American-inspired canvas espadrilles, which retail for $45. Conversely that meant he was able to give away the same amount to kids in Argentina.

Mycoskie refused to give specific revenue figures, but said it's easy to extrapolate his overall minimum revenues since his 2006 launch - based on 400,000 giveaways at an average cost of $45 - as roughly $18 million.

"When I started TOMS I didn't really see it so much as a business, but as a side philanthropic project," said the 33- year-old, who benefited early on from some unsolicited celebrity endorsements from the likes of actors Brad Pitt, Liv Tyler and Scarlet Johansson to rockstars Bono, Britney Spears and Dave Matthews.

"I don't know how they got them, because we didn't gift celebrities, but they just started showing up in magazines wearing them and that got retailers very interested as well."

One of the early adopters of TOMS was Nordstrom's, a national retail chain. Whole Foods, Bergdorf's, Bloomingdale's, Macy's and Neiman Marcus followed and today the shoes are sold in more than 20 countries. Mycoskie said his goal is to keep the shoes under $45, which he sells to retailers for $22.50. Besides the basic model, Mycoskie has added boots for women for $98 and unisex lace-up "botas" for $79.

"I realized we were a little bit female heavy," said Mycoskie, adding his consumer demographic was skewing 70 percent female, but the recent additions have brought that female-to-male ratio down closer to 60-40. "The laces in the shoe have a bit more masculinity."

Mycoskie said he tried to adopt the Apple marketing model of appealing to everyone. "Apple appeals to my grandfather and it appeals to my sister and it appeals to myself and we're all three different generations," he said, adding his shoes are worn by teenagers, soccer moms, college kids and urban hipsters. "It's just canvas and simple; you really can style it and wear it however you want. The idea that you can wear it all around as a comfort shoe and know that a child is getting a pair appeals to a lot of demographics."

THE PITCH

To date, TOMS has been entirely bootstrapped by Mycoskie, who would prefer to keep it that way. He said the orders are still essentially processed as they come in, allowing him to carry little in the way of inventory.

"We get the orders from Nordstrom's and then we make it and then we ship it to them and then we get paid 30-60 days later," said Mycoskie, who has benefitted from a long-term relationship with his small Texas bank, which has never balked at extending him the necessary credit. This has allowed him to resist bringing in outside investors that might try to impose a more financially-based corporate focus. "A few times I almost took the investment, but ultimately decided not to because I figured it would potentially hurt the culture."

Mycoskie said he plans to double sales this year, moving another 400,000 pairs of shoes. This will require him to significantly expand his current staff of 70. It will also mean ramping up production in his factories in Argentina, China and Ethiopia.

That kind of growth will make it difficult for Mycoskie to maintain the smaller feel he has now and the personal attention he devotes to every aspect of the business.

"I'm trying to hire more people to replace all the core things I've done," he said, adding he wants to free up time to do more speaking engagements on behalf of the children and adults that suffer such debilitating foot conditions as podoconiosis, which happens in mostly developing nations where peoples' feet are in constant contact with highly-acidic soil that can transmit diseases. As many as one million Ethiopians suffer from the foot ailment, which is completely preventable by wearing shoes.

"I always thought as an entrepreneur your career path was to work really hard and build a fortune and then spend your later years giving it away and creating programs to help people," said Mycoskie, who this week (April 8) will host his annual "One Day Without Shoes" www.onedaywithoutshoes.com/ event to raise awareness for his various causes. "Way before I started TOMS I would always tell people my legacy would not be what I created, but what I gave away."