October 10, 2024

You’re the Boss Blog: Questioning the TOMS Shoes Model for Social Enterprise

Fashioning Change

A social entrepreneur tries to change the way people shop.

After visiting Argentina and seeing the impact of poverty on some of its children, Blake Mycoskie was inspired to create a philanthropic “for-profit business that was sustainable and not reliant on donations.” The result was Toms Shoes, which promised that for every pair of shoes it sold, it would give away another pair to a child in need.

Since its founding in 2006, Toms has given more than 2 million pairs of shoes to children living in poverty in more than 51 countries. And it now has a line of eyewear that offers the same promise. The organization Mr. Mycoskie created has become a well-known example of a company that is based on business principles but also gives back.

It is also responsible for getting lots of Gen X and Gen Y entrepreneurs to think about business in a different way and for globalizing the buy-one, give-one model that is now so popular. In fact, there are many buy-one, give-one companies that have taken inspiration from Toms, and many of them apply to sell through my company, Fashioning Change. As you can see from our roster of brands, however, only two such companies have met our criteria, which we call our Promise of 5. In fact, if Toms Shoes were to apply to Fashioning Change to sell shoes through our site — it has not done so — it would not make the cut.

It’s for this reason that we have begun to question whether the buy-one, give-one model is the best choice for aspiring social entrepreneurs.

The tenets that drive Toms Shoes’s model are spelled out on the company’s Web site.

  • Identify Communities That Need Shoes
    Together, we find communities that will benefit most from Toms shoes due to economic, health and educational needs, and where local businesses will not be negatively affected.
  • Give Shoes That Fit
    Our Giving Partners order the sizes children in their community need. …
  • Help Our Shoes Have a Bigger Impact 
    Children who are given Toms shoes receive them as part of larger health and education programs run by our Giving Partners. …
  • Give Children Shoes As They Grow
    Children grow fast! Toms works to give shoes to children in need throughout their childhood. …
  • Provide Feedback and Help Us Improve
    We rely on our incredible Giving Partners to provide feedback on shoes’ fit and durability, the giving process and the needs of the community. …

It would be hard to fault an organization that helps people and children get the things they need to survive and even thrive. But while Toms has done an amazing job of providing children with shoes, I wonder if it couldn’t do more to solve the underlying problem that inspired Mr. Mycoskie to create Toms in the first place.

Here’s my concern: Rather than solve the root cause of why children don’t have shoes, Toms has created a business model that actually needs poor children without shoes in order to sell its shoes. Those children are an essential part of the company’s marketing.

The root cause of poverty in many developing countries is a lack of access to fair-paying, sustainable employment. Imagine the positive impact Toms could have if it were to use every decision in its supply chain to address the causes of poverty. Before writing this post, I contacted Toms to see what the company had to say about the pros and cons of the buy-one, give-one business model.

Eventually, I was connected with the company’s chief giving officer, Sebastian Fries, who acknowledged that there were aspects of the Toms approach that could still be improved. When I asked Mr. Fries whether Toms might be perpetuating the poverty of the children who get free shoes, he responded that Toms is “not in the business of poverty alleviation.”

Interestingly, though, that does seem to be the business Toms is in when it comes to selling eyewear. The company’s eyewear contributes to the employment of nurses and doctors that in turn provide sight-giving support and surgeries so that people can become employable, create a sustainable living and get themselves out of poverty. What this contrast told me is that Toms is very good at public relations and marketing and recognizes that it could be doing more.

At Fashioning Change, we understand that every decision that goes into manufacturing a product — the materials, the factory, the packaging, the method of distribution — can produce social empowerment. That’s why we work with companies who are committed to doing things right every step of the way. Based on my conversations with Toms, it is clear to me that the company has a huge opportunity to share the lessons it has learned with the many Gen X and Gen Y entrepreneurs it has inspired.

In fact, I was told that Toms is now trying a program in Ethiopia in which it manufactures in one of the communities where it gives away shoes. The company has plans to do the same in Kenya and India. I asked what percentage of Toms shoes might be made in these factories, but I was told the number was not yet known. I also asked about plans to manufacture in the United States and was told that the United States did not have factories that could fill the company’s needs. I strongly disagree, but that is a topic for another post.

In any case, I think Toms may be evolving in the right direction. What started as philanthropy may now be moving toward what I think of as a real social enterprise — a business that creates systemic solutions to social issues through the use of business principles. One of the many wonderful things about Toms and many other “do good” companies is that we all share an intention to make the world a better place. And we’re all learning as we go.

What do you think? Is the buy-one, give-one model right for social entrepreneurs?

Adriana Herrera is chief executive of Fashioning Change. You can e-mail her at adrianah@fashioningchange.com, and you can follow her on Twitter at @Adriana_Herrera.

Article source: http://boss.blogs.nytimes.com/2013/03/19/questioning-the-toms-shoes-model-for-social-enterprise/?partner=rss&emc=rss

Sustainable Profits: It’s Not Too Soon to Think About Crowdfunding

Sustainable Profits

The challenges of a waste-recycling business.

I have taken a real interest in equity crowdfunding and its potential impact on social entrepreneurs. One reason: I would have loved to have been able to take advantage of it when I was doing my initial financing of TerraCycle.  Had crowdfunding existed then, I would have been able to raise money faster, on better terms, and from a wider range of investors — all good things when it comes to financing a small business.

Here’s a quick update on where things stand (I have written about crowdfunding previously). Broadly speaking, a federal equity crowdfunding law that passed in April as part of the JOBS Act will allow an American company to use an online crowdfunding platform to raise up to $1 million from the general public without these shareholders counting toward the company’s private shareholder cap. I see this as a big opportunity because now entrepreneurs will be able to gain capital and momentum with an early shareholder base that is invested in the company’s success.

Although the law was passed in April, many of its specific provisions require further consideration and official rule-making by the Securities and Exchange Commission and the Financial Industry Regulatory Authority. The S.E.C. has until the end of 2012 to complete its rules. From what I’ve heard, the agency is working hard to hit this goal but it could spill over into 2013. After this, Finra has to write the rules that govern how the online intermediaries get registered and set up. Then these rules have to be reviewed and approved. Unfortunately, this could run into the second half of 2013.

But there are things entrepreneurs can do now to lay the groundwork for successful crowdfunding later. Here are three ideas:

1) Start crowdfunding now. You can use the current crowdfunding model, which is sometimes called “perks-based” crowdfunding or “donation” crowdfunding. In other words, you can pre-sell your product or give it as a perk to people who donate money to get your business off the ground. You can do this now on sites like Launcht.org, which focuses on social entrepreneurs and socially responsible projects, or on ThreeRevolutions, which focuses on sustainable agriculture and food projects. (Another site, the William James Foundation, expects to introduce a crowdfunding platform by early September as part of a business plan competition.)

I think sites like these offer a great way to start building a following and to assess whether anyone cares about your product or service. If you do this, you may have a crowd in place when equity crowdfunding comes along while others will still be looking for theirs.

2) If you are successful with the current model, you can use the money you raise to prove your concept, earn revenue and let your customers guide you. Then use public relations to expose your success, as I discussed in an earlier post.

3) Meanwhile, pay attention as the rule-making proceeds. Take this time to prepare for a crowdfunding offering around the middle of 2013. You will need to be ready to issue shares of your company to a potentially large number of shareholders. You will need to prepare financial statements for review and you will have to be ready to offer a valuation of your company. There will be other considerations, but if you’re ready with these pieces, you’ll be in good shape to move quickly.

Tom Szaky is the chief executive of TerraCycle, which is based in Trenton.

Article source: http://boss.blogs.nytimes.com/2012/08/21/its-not-too-soon-to-think-about-crowdfunding/?partner=rss&emc=rss