Innovation Report- Toms Shoes

Innovation Project: BUS 4630-06 February 2, 2011 Veronica Creamer, Alex Hohmann, Adam Holcombe, & Ian Swapp “THE IDEA WAS GENIUS, really. ” TOMS Shoes has provided one of the most innovative business ideas the early 21st century has seen. Through the “One for One Movement”, TOMS has ushered in a truly altruistic business model which cannot be ignored by the broader consumer goods industry.

By describing what TOMS Shoes is, why it is important, how the One for One idea originated and evolved functionally, and the business model utilized to compel it, a clear void is filled not only for those whose lives are affected at the Bottom of the Pyramid but also in the modus operandi of business in the United States today. This point is also exemplified by delving into the supply chain and specifically what drives the company and its unique features. Lastly, by examining Blake Mycoskie, founder and CEO, and the culture he has created for his novel company, TOMS Shoes’ success via their innovation is pinpointed.

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Although it also operates a non-profit subsidiary, TOMS Shoes is a for-profit footwear company based in Santa Monica, California. Founded in 2006, the company designs and sells unique shoes while concurrently donating, with every pair sold, a new pair of shoes to a child in need. Derived from the word “tomorrow” and the original concept, “Shoes for a better Tomorrow Project”, TOMS Shoes has become synonymous with the One for One Movement. It has leveraged this unique model into partnerships with companies like Ralph Lauren and Element Skateboards.

Originally Mycoskie grappled with the idea of a charity based organization. However, with sustainability in mind, he knew that starting a for-profit business would have a lasting impact. Furthermore, by turning customers into benefactors, his business plan is even more stable as it does not depend on fundraising for support. TOMS Shoes is a marvel business idea that allows its customers to feel good about their purchase far beyond their material appearance. Additionally, the one for one concept is important because it addresses issues far beyond the profit prong of the triple bottom line.

Over one million pairs of shoes have been given away to children since 2006. Children in the Unites States, Argentina, Ethiopia, Rwanda, Guatemala, Haiti, and South Africa have all benefitted from the purchasing of TOMS Shoes, which are available worldwide in over 500 stores and online. Additionally, these children are no longer at risk from soil-transmitted diseases which penetrate the skin through bare feet, or enter through cuts and sores, and are now permitted to attend school because footwear is a requirement.

The company now maintains a variety of shoes types and apparel beyond their initial offerings, allowing even more people to partake in the One for One Movement as there exists a style to fit every need. The idea for TOMS Shoes can be directly linked to the prospects presented by the Bottom of the Pyramid (BoP). As Stewart Hart, an authority on the benefits BoP markets can offer today’s businesses states, “The unmet needs of those at the base of the economic pyramid may present the best opportunity for firms to define a compelling trajectory for future growth”.

For TOMS Shoes, the base of the economic pyramid provided Blake Mycoskie with an entrepreneurial vision that lead to a successful for-profit business venture. In early 2006, Mycoskie traveled to Argentina, a country he previously visited as a contestant on Season 2 of The Amazing Race. While learning how to sail and traveling around the South American country, Mycoskie was perturbed by the widespread poverty and deplorable living conditions he witnessed, especially amongst children. The children’s feet, plagued with cuts and bruises, did not allow them to travel to school and also posed a risk of infection.

Simple play, such as engaging in a game of soccer, could potentially cause substantial risk to their health. Mycoskie believed all of these ailments could be solved by a pair of shoes. While meditating on an Argentinian farm, Mycoskie decided he wanted, “to start a shoe company, and for every pair that we sell, I’ll give a pair to someone who needs them”. Before leaving Argentina Mycoskie studied the alpargata; a traditional Argentinean shoe worn by farmers for hundreds of years consisting of a rope base and a canvas or cotton fabric.

Mycoskie returned to the United States with 200 pairs of alpargata shoes to test the market for his new venture. Recognizing he would need support, Blake advertised on Craigslist for business partners to assist him with his new company. Mycoskie originally opened a factory in Argentina to begin producing the alpargata-inspired shoes while leading the company from his Venice, California apartment. As the company grew exponentially, Mycoskie hired leading industry experts from Asics and Nike to assist with transforming the company from a small business venture into a worldwide shoe provider.

Shortly after launching TOMS Shoes, Blake returned to Argentina along with his fellow business partners and donated ten thousand pairs of shoes to needy children. As Linda Miller, fashion editor for NewsOK, so thoughtfully states, “For many children in need, a better tomorrow starts with the purchase of a pair of shoes today”. Whereas an incumbent firm might struggle to justify a charitable contribution as a percentage of net income, the TOMS Shoes enterprise began with the premise that profit and giving are NOT mutually exclusive; instead they are equivalent.

Mycoskie sums it up, “The goal isn’t how much money you make, but how much you help people”. The business model behind TOMS Shoes spans literally the extremes of the money and social economies as well as the ends of the Earth. Six steps functioning in a cyclical nature provide sustainability and immense future growth. The first step is defined by the charitable need at the Bottom of the Pyramid. Some lower body diseases and a lack of access to education can many times be solved simply by footwear. This reality is lost on most in the developed world; replaced instead by a guilty pleasure associated with purchasing shoes.

The second step comes to light in the form of designing unique shoes and apparel offerings. By replacing the traditional rope sole of the Argentinian alpargata with durable rubber and also adding a slew of colors and designs, TOMS are received by Westerners as unique, individualistic fashion statements. The LA Times strikes a harmonic chord when they say of Mycoskie, “He’s living and selling the SoCal life — with a social conscience”. The third step, perhaps the most important, brings the One for One concept into the for-profit context. The theory is particularly potent because every sale is directly linked to “doing good”.

It has sustaining power precisely because it operates under a for-profit model, rather than relying upon monetary donations. Success Magazine appropriately declares, “TOMS Shoes—and high-profile ‘philanthropic capitalism’— was born”. The next step of the business model is directly related as it illuminates how TOMS draws its funding from the Top of the Pyramid. TOMS is able to capitalize its “shoe drops” by purchases made from the developed and more affluent end of the spectrum; the average TOMS shoe retails for $55 USD. Consequently, the last two parts of TOMS’ business model depend on, and feed off, one another.

It is clear that the consumer dialogue surrounding the company has vastly promoted the movement. Partnerships have been very uplifting to the business, enhancing the good that is done; partners include: Ralph Lauren, Element, Dave Matthews Band, AT&T, Nordstrom, Urban Outfitters, Bloomingdales, Bergdorfs, Neiman Marcus, Whole Foods, Clinton Global Initiative, and various celebrities (S. Johanson, J. Biel, B. Del Toro, T. Maguire, D. Moore, J. Leno). Finally, as a direct result of all aforementioned steps, employee morale is boosted.

After one year with TOMS, employees can take part in a shoe drop across the world. Completing the cycle, 85% of employees and interns were customers first. Furthermore, to put the business model in his words, Mycoskie states, “I wanted to prove that conscious capitalism is a viable business model for innovators worldwide, and entrepreneurs can focus on being ambassadors of humanity”. Over one hundred employees toil over laptops in a warehouse atmosphere to ensure consumers’ altruistic desires yield life changing results in a country they may never visit.

Once sales are made from either the website, www. toms. com, or at one of the more than 500 retail stores, manufacturing begins on the donated shoes. Currently, TOMS Shoes are produced in Argentina, China, and Ethiopia. To ensure that acceptable labor practices are utilized only AAA rated facilities receive contracts and are subject to annual third-party audits. The next step is where the beauty of one-for-one emerges. A non-profit affiliate of TOMS Shoes, “Friends of TOMS”, partners with 501(c)(3)s and NGOs to manage logistics of the shoe drops; shoes donated by for-profit TOMS Shoes.

This remarkable matrimony of for-profit and non-profit expertise leverages the best that the corporate world has to offer. It typically takes four to six months from the date of sale for the companion pair of shoes to reach the feet of an underprivileged child in one of twenty-three countries. This cycle is sustainable, and will repeat itself for two reasons. First, the One for One guarantee makes consumers feel good about their participation in conscious capitalism, and secondly children outgrow their shoes nearly every six months.

Thus, the loop has been closed as one problem becomes the others’ solution. To further understand TOMS Shoes, it is necessary to look in into the entrepreneurial spirit of Blake Mycoskie. Prior to founding TOMS Shoes, Mycoskie started or lead five other companies, which gave him an appreciation for generating culture in addition to proft. His first business was a national campus laundry service, which he later sold before running a successful billboard company. Although he did not win the contest, Blake’s first exposure to national publicity came with his appearance on The Amazing Race.

Through his worldly experiences, Mycoskie is able to inject a breath of fresh air into the culture of TOMS. The company’s website highlights acts of kindness amongst the employees which contribute to the culture; for example, filling each other’s water bottles. Also, TOMS has a global event held annually on April 5 called, “No Shoes for One Day”. This event requests its followers go without shoes for the entire day to better understand the challenges that most individuals in developing countries endure. Last year, the event featured more than 250,000 followers nationwide who participated in the cause.

TOMS also touts its culture for driving more successful individuals to apply for employment due to the sense of purpose employees gain from the work they perform. The office space the company inhabits is worth mentioning as well. The headquarters of TOMS Shoes is nothing more than a small warehouse with a concrete floor and particle plywood separating the cubicles. Marketing conducted by TOMS is very simple in nature. Instead of spending money on expensive advertisements, television commercials, or billboards, the company allows its customer base to spread the message about their shoes.

Most of TOMS’ customers are excited to share their love for the brand and explain the concept to those who are unfamiliar. Although TOMS now sells a variety of apparel including shirts, boots, hats, and pants, they continue to donate only shoes to developing countries under the one for one concept. TOMS’ customers recognize the branding by the emblem, as presented on the cover page. It is very basic in design, defined by the Argentinian flag with the sun replaced by the word “TOMS”.

The company’s website is also very basic with the ability to order shoes or clothing and watch videos of the employees enjoying their work providing small children new shoes in their native countries. Blake Mycoskie has created an innovative company of which any CEO would be proud. He understands that most consumers are willing to pay more for the inexpensive style shoes because they can support the concept of giving to the less fortunate. They acknowledge that this plan generates a win, win, win situation for the company, customer, and the children in developing countries.

The customers’ trust in the company’s promise to give to the less fortunate is an integral part of the TOMS’ business strategy. From the initial purpose of manufacturing, to the progressive business model, and finally incorporating Blake Mycoskie’s entrepreneurial spirit, TOMS Shoes epitomizes what it means to innovate and should therefore serve as an example to businesses everywhere. Most of all, Mycoskie has proven that believing in the caring and good-hearted nature of people is no longer a lost cause.

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