The business of giving: TOMS Shoes

Mike Zimmerman. The idea was genius, really. Blake Mycoskie, at the time best known for a 2002 stint on the reality show The Amazing Race, was looking to start something. He'd already started half a dozen businesses, from laundry to billboards, but nothing had inspired him. Mycoskie wanted to inspire. Add to the world, not take from it. He was young, motivated, overflowing with entrepreneurial spirit and without an idea. He had some cash, but where to put it? His muse finally arrived in Argentina, of all places.

He'd gone there in January 2006 to learn how to play polo - Argentina has some of the best polo farms in the world. But in the backcountry, he saw other things: many poor children, shoeless, and some of the locals wearing simple yet incredibly comfortable farming shoes. So he was sitting on that Argentinean polo farm one day "and that's where the epiphany happened," he says. Cool shoes... a style not seen in the States... redesign them, bring them north, and for every pair you sell, give a pair away to one of those shoeless children.

TOMS Shoes - and high-profile philanthropic capitalism - was born. He has created an entire business model that inspires. "Ultimately, I'm trying to create something that's going to be here long after I'm gone", he says.

Business has thrived. As the fashion industry and consumers have embraced the many styles of TOMS Shoes, "shoe drops" organized by the company in Argentina, Ethiopia and South Africa have distributed 140,000 pairs of shoes to needy kids. The shoes, priced from $44 to $70 (and $98 for a women's boot), are the ultimate feel-good purchase. The charitable business model has attracted famous business partners as well (there are now limited-edition Dave Matthews Band shoes, for example).

Through all this, Mycoskie maintains a weird double-life. Half his time is spent on the business, meeting with style mavens and fashionistas, working on fresh designs, and getting the word on the street through personal appearances and projects like his ubiquitous AT&T commercial. The other half is spent in desolate countries handing out shoes to smiling kids - the aforementioned "shoe-drops". The company plans to give away 300,000 shoes in 2009.

The Ethiopian drops are of particular interest to Mycoskie. "There are hundreds of thousands of people subject to a significant foot disease called podoconiosis, or 'podo''''Ã he explains. "A long time ago, Ethiopia had volcanic activity, which left a silicone in the soil that actually goes into your foot skin and causes the lymphatic system to break down. The feet swell badly, almost like an elephantiasis of the feet, and it cripples people -not just physically, but mentally, because they're seen as lepers and ostracized."

TOMS Shoes helps keep those children's feet healthy, and healthy kids can attend school. And once they're in school, a real future takes root - all because of a simple pair of shoes. Another benefit: Mycoskie has played many games of soccer with kids on several continents - sometimes with a bunch of rolled-up plastic bags for a ball. "I'll motion that I want to play, and next thing I know, I'm either shirts or skins and playing soccer with some of the most passionate players in the world. Soccer is our universal language with the kids."

TOMS's charitable business model has also proven so far to be recession-proof: While most businesses have hacked people and expenses, TOMS is hiring. Mycoskie cites two big reasons for this: "First, consumers are now conscious about where they put their dollars. A product like TOMS that gives to others is appealing to people more than ever. Also, the bigger a company gets, whether it's a shoe company or any other corporation, your margins get very small because you have the gigantic overhead. You manage the business by pennies. But we know every day that we're going to give away one pair of shoes for every one we sell, and that's that. If we can't make the business work that way, then the business just doesn't work. So there's never a temptation to cut things."

And therein lies the deep chasm that keeps many companies from doing more to give back, especially when times are as brutal as they've been for all businesses: The giving isn't priced in. "Giving has been incorporated into our business model from the start, so the cost per shoe is fixed,he says. "If a company says, 'Now we're going to give away 50 percent of what we bring in!' they're built in a way that they wouldn't handle it." Then Mycoskie smiles. "Their shareholders sure wouldn't handle it."

That doesn't give companies a free pass when it comes to being more charitable and friendlier to their communities, however. It just means businesses need to become more creative, Mycoskie says. "The best place for a business to start is by asking simple questions: What are our strengths? How can these strengths help people who need it? For example, an accounting firm can help a nonprofit establish their own accounting system. It's all about identifying a need and doing whatever you can to fulfill that need, whether your resources are big or small."

The one-for-one business model is remarkable in that, unlike a straight charity, it's sustainable. That was Mycoskie's plan from the beginning. "I started TOMS with about a half a million dollars of my own capital," he says. "If I would've taken half a million dollars and just bought shoes to give to the kids, I would've been able to give the shoes once. It never would've been as far-reaching and sustainable as TOMS Shoes is now. If you take the option of starting a for-profit business that gives back a large part of what it brings in versus a straight charity, you're going to help a lot more people with the for-profit business."

TOMS also capitalizes on intangible benefits from its business model. Employee morale is never a problem - how could you be down when you know everything you do makes children happy? TOMS also attracts better-caliber talent than your typical shoe company. "The company culture is unique", Mycoskie says. "I've been lucky enough to attract passionate, dedicated people who will do anything to make an impact on the world. They are all seeking something more than a 9-to-5 job."

Another TOMS business strategy (that has become an outright advantage): Let your product give consumers a story to tell. Hey, cool shoes. Thanks. They're TOMS Shoes. They give away a pair to kids for every one they sell.... Buyers feel so good about their purchase they want to tell others about it. Very few businesses inspire that kind of word-of-mouth, how-cool-is-this buzz.

The challenge for Mycoskie now is keeping pace. Shoe companies constantly require new products and designs. Mycoskie is young (still just 33), media-savvy and ambitious, but his double-life - much of it spent on airplanes - is exhausting. Still, he's finally found his inspiration: an iconic product and a business that provides sustainable giving to those who need it most. "My hope is to inspire other companies to either incorporate the one-for-one model, or straight-on giving, in everything they do."