TOMS – A Probationary Winner
Is TOMS one-for-one model a social mission winner?
Background
TOMS was established in 2006 as a casual shoe designer with a philanthropic edge.
Business Model
TOMS business model has been termed compassionate consumerism. TOMS promises consumers that their TOMS purchases will directly improve lives around the world. TOMS creates value by making consumers “feel good” about their purchases by promising to give back to communities in need around the world.
Operating Model
TOMS came under a lot of pressure after 2010 when economists, philanthropists and others questioned whether TOMS was creating lasting value in the communities where shoes were donated. A 2010 Time article offers a summary of the debate, arguing that handouts impede a community’s economic growth [1]. A 2012 Fast Company article directly links TOMS business model to the Time’s article, arguing that “every free shoe donated actually works against the long term development goals of the communities we are trying to help.” [2]
In 2013, this analysis would likely have highlighted the FAILURE of TOMS to align its operating model with its business model, but the company has made great strides over the last 2 years to improve its operations and live up to its promises.
Product Offerings
TOMS has expanded its product offerings, and in turn its “Buy One, Give One” model beyond shoes.
TOMS shoe purchases still provide a free pair of shoes to a child in need, but also helps fund job creation in these regions. To date, 45 million pairs of shoes have been donated. [3]
TOMS Eyewear purchases fund full eye exams, prescription glasses, and eye surgeries. To date, 325,000 people have had their sight restored, returning to each individual their independence and ability to contribute to the local economy. [4]
TOMS Coffee purchases fund a 140 liter supply of safe water, a week’s supply, to a person in need. To date, 175,000 weeks of safe water have been supplied improving health in these regions. [5]
TOMS Bags purchases fund the delivery of a safe birth kit to a person in need, in addition to training for skilled birth attendants in their communities. [6]
TOMS Backpack purchases fund bullying prevention training and crisis counselor training in schools. [7]
In each of its product offerings, TOMS is making newly invigorated efforts to not simply give a free consumer item, but to create jobs, provide training, and stimulate the local economy. There is still room for improvement, with limited transparency into the gains being made in local economies. More positively, increasing their product offerings allows TOMS to increase their revenues by giving consumers more products to purchase. This increase in revenues increases the charitable work that TOMS is able to accomplish.
Production
Since 2013, TOMS has opened manufacturing plants in many of the regions in which they give free shoes. Factories in Argentina, China, Ethiopia, Haiti, India and Kenya now employ over 700 local workers, helping create a more sustainable economy in those regions.
TOMS sources its coffee beans from sustainable farms in regions where TOMS supports communities in need of access to safe water. TOMS has also committed to paying farmers fairly. [8] These commitments boost the local economies and create sources of fair revenues for families in need.
While TOMS has committed to producing one-third of their gifted shoes in the regions that receive them, they could do much more. TOMS currently continues to produce the majority of their shoes and other consumer products in China. While reportedly working with charitable organizations in over 70 countries, production is only occurring in 6 countries with identified needs. TOMS has a long way to go to truly align its operating model with its business promise to improve lives around the world.
TOMS is often credited with being one of the first companies to successfully incorporate a social mission into a business model. This inspired the creation of many similar companies such as Warby Parker, Dog for Dog, Figs Scrubs and many more companies that have arguably had great impacts for people in need. In acknowledgement of the great improvements TOMS has made over the last 2 years, TOMS is a probationary Winner. Hopefully, they will continue to make improvements to their operations in order to better align with the social mission that is such an integral part of their business model.
Interesting post, thanks! I would think dual mission organizations – for-profit but also with a philanthropic edge – would struggle more with aligning their business model and operating model, and TOMS seems to be an example of this.
Perhaps a cynical point of view, but I question if people buy TOMS for the easy feel-good moment of “Buy one, give one” or if they are really looking for TOMS to create the more lasting community impact (or if it’s just because they like the products). If TOMS believes it’s the larger impact that appeals to people, wouldn’t it make sense to move away from the “Buy one, give one” model in order to channel that money toward the larger community products?
Thank you, this is a great post on a very interesting company. In my opinion, TOMS are one of the pioneers of an entire segment of philanthropic consumer purchasing. I think the issue is, which many of these businesses will face with the business model and operating model is how to genuinely show they want to make a difference when they clearly make high profits. As you articulated well in the post, TOMS has faced this issue with endless criticism about its actions and how much help they give versus damage.
We have seen in our Marketing module that many marketing programs (e.g. Dove & Pepsi Refresh) will create a story around their respective brands (environmental, social impact, “real beauty”) in an attempt to demonstrate that the brands care. However, a cynics view (and potentially a realists view), is that the underlying motivation is boosting sales, and these stories are just that…. stories.
When I look at TOMS, I know it is private equity owned and is expected to make high profits and returns for its investors. Given people are paying premium prices for their shoes (effectively enough to pay for their shoes and the donated shoes), is TOMS just the ultimate example of a for-profit company using a heavy social image to drive value for shareholders?
Loved that you wrote about TOM. I read TOMs founder Blake Mycoskie’s “Start Something That Matters” and thought he gave a really compelling rationale for why having a compelling social mission as part of your core business is a huge competitive advantage for a startup given the fierce competition for advisers, talent, funding, suppliers, etc in the earliest stages of growth. In short, his argument is that having a mission beyond profits opens doors that would otherwise not be be opened easily. You alluded to it here in your write-up, but I wonder how and whether the social mission continues to provide a boost to the operating and/or business model as a company matures. Did you see any evidence that they are measuring the value created by this social mission in terms of what advantages it provides to their operating model (e.g. lower advertising spend given given word of mouth support, better manufacturing / supplier relationships in other countries, special treatment from public agencies, etc.?). Thanks for the post!