Question - 2: (40 pts) Please read carefully Case Study - B and then answer the case study question at the end of the case study document. 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 mis- sion 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 My- coskie 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 coun- tries, 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, Cen- tral 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." Mycoskie said. "I was instantly struck with the desiro--the responsibility-to do more." 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." In 2002. Blake and his sister Paige formed a team to compete on the CBS reality show 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 injunes 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." explained Mycoskie, While in Argentina, Myconkie had taken to wearing alpargatas-resilient , light-weight lip-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." 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 study enough for a hike, the beach, or the city Founding his new company that year in Santa Monica, California, the 30-year-old Blake Mycoskie began his third entrepeneurial venture. With a staff of seven full time employees including former Trovata clothing line designer John Whitledge), six sales representatives and eight intems, 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 $38 cach, online and through 40 retail stores As promised, Mycookie returned to Argentina in October 2006 with two dozen volunteers to give away 10,000 pairs of shoes along 2.200 miles of countryside. Mycookie wryly explained what he learned from this experience. Talways 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. 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 e countries were added to the list over the next three years Business Model Realizing that a not-for-profit organization would be heavily dependent apce sponsors and constant fundraising. Mycookie chose to create innovative for profit business model to xhieve a charitable purpose. For every pair of shoes that the company sold it would doute one pair to a child in neod. Mycookie felt that this model would be more economically sustainable than a charity because weld be used to achieve the company's mission. He w this to be a form of social entrepreneurship is which a new business venture acted to im prove 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 coste Selling online www.tom.com) has allowed us to grow pretty rapidly, but we're not going to make as much as another shoe company and the margim we definitely lower." he admits "But what we de helps us to get publicity. Lots of companies pie a percentage of their revenue to charity, but we can't find anyone who matches one foecon." Marketing and Distribution TOMS Shoes kept expenses low by spending cely minimally ce 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 3 OT 4 ople's Design Award at Cooper-Hewitt's National Design Awards. Two years later, lycoskie and TOMS received the annual ACE award given by U.S. Secretary of State Hillary Clinton. This award recognized companies' commitment to corporate social respon sibility, innovation, exemplary practices, and democratic values worldwide. Mycookie 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 sup port small businesses. He was also 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 LA Tumes, as well as Inc. People, Forbes, Fortune Fast Company, and Time magazines. Mycoskie pointed out that the 2009 LA Times article, "TOMS Shoes the Model: Sell i Give 1." resulted in 2.200 orders for shoes in just 12 hours after the article appeared. In February 2010. Fast Company listed TOMS Shoes as #6 on its list of "Top Ten Most Innovative Retail Companies 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 Amencas (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 S45 to $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, cordones youth shoes, botas, and wedges. In January 2009, the company collaborated with Element Skateboards to create a line of shoes, skate decks, and longboards. For each pair of TOMS Element shoes and/or skate board 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." The company had 85 employees plus intems and volunteers. In 2009, more than 1,000 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 affili- ate 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 eamed 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." Much to every- one'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 retuming to Argentina to give away the millionth pair. Looking forward to returning to where it all began, Mycoskiemused: "To reach a milestone like this is really amaz- ing. 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." What should be next for TOMS Shoes? 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? How should it plan its future growth