Creating an international company that sells shoes made in Africa has confronted Tal Dehtiar with a series of unexpected challenges. Among them: the color blue.
“The only colors the factories are used to working with are black and brown,” said Dehtiar, who came to Wharton recently as the first speaker in the 2009 Levy Social Impact Lecture Series. “They have never had to make shoes that are gray or purple or blue or light blue. It still happens once in a while. They will give us a pair of shoes and one is light blue and one is dark blue, and they will say, ‘What’s wrong? It’s blue.'”
Dehtiar, who lives in Ontario, Canada, is founder and president of Oliberté, a start-up that hopes to produce casual footwear in Africa and sell it to socially minded consumers in the U.S., Canada, Europe and beyond. Oliberté — a name Dehtiar made up by combining the “Oh” in “Oh Canada!” with the French word for freedom — is a for-profit company, but Dehtiar believes it is “profit with a purpose.” To Dehtiar, that means building the company using fair trade principles such as guaranteeing factory workers a fair wage, paying farmers above market price for raw materials and keeping environmental impacts in mind.
“I personally don’t care about shoes,” said Dehtiar, 29. “I personally care about building jobs in Africa. We just want people to have jobs for the rest of their lives so that they have good pay and they can take care of themselves and their families.”
Dehtiar envisions a shoe company that uses natural rubber from Liberia, harvested from hevea trees and processed locally. The company would then ship the rubber in sheets to Ethiopia, where workers in factories would cut it into soles and combine it with cow, sheep and goat leather from Ethiopian farmers. Shoes would be sold online and in exclusive shops in cities worldwide. As sales grow, Dehtiar hopes to expand operations to as many as 10 African nations.
Dehtiar believes his target market will be affluent adults between 18 and 45 who are part of the so-called LOHAS movement — consumers focused on “Lifestyles of Health and Sustainability.” According to www.lohas.com, the LOHAS market in the U.S. is a $209 billion market of about 41 million Americans — approximately 19% of the U.S. population — who focus on health, the environment, social justice, personal development and sustainable living. “There are about 60 million North American adults who care about and are willing to buy [products] that are fair trade,” Dehtiar says. He anticipates an even bigger buzz about his product in Europe and Japan, where the LOHAS movement is stronger.
A Very Patient Wife
It is too early to tell if Oliberté (www.Oliberté.com) can profit from its purpose. After an exhaustive search, Dehtiar has found three factories he likes in Ethiopia, but he is still struggling to set up the rubber processing plant in Liberia, and has been forced to use rubber from Sri Lanka for his first 3,000 pairs of shoes. Oliberté launched officially on October 1 and hopes to have shoes on store shelves in New York, Philadelphia, Chicago and Seattle by February or March of 2010. Still, he has yet to find an investor willing to provide the $250,000 to $300,000 he needs to keep the company humming. So far he has spent more than $100,000 in personal savings, loans from family and small lines of credit to get the company off the ground.
“The bank says, ‘We’re not going to help you out. Africa is too risky,'” Dehtiar noted. “So I’ve been putting a lot of my money — luckily, I have a very patient wife, so it’s ‘our money,’ not ‘my money’ — into this. But I love my job. I love my life. Yes, we’re broke but we’ll make our money. I’m not worried about that.”
If he remains undaunted, it may be because Dehtiar has a history of taking on big challenges. In 2004, he and Michael W. Brown co-founded the charity MBAs Without Borders using seed money from Wyeth Canada, where Dehtiar worked as a medical sales rep, and DeGroote School of Business at McMaster University in Ontario, where he got his MBA. “When I was running MBAs Without Borders, for the first year, I didn’t take a single [penny in] salary. We just didn’t have the money. Then the second year, I brought in about $1,000 a month,” he said.
MBAs Without Borders sends young MBA volunteers to the developing world to provide guidance and expertise for business development. Over the past five years, the organization has sent more than 100 MBAs to projects in 25 countries, mostly in Africa. Projects have ranged from a handicraft cooperative for HIV-positive women in Swaziland to a product placement campaign in Nigerian films for mosquito nets.
Five years of extensive travel through Africa and conversations with people across the continent sparked Dehtiar’s interest in starting a business there, he said. People told him, “Look, Tal, we don’t need another … charity. We need jobs.” Charity “is not the real way to solve poverty,” Dehtiar said. “You cannot keep giving people things. Over and over again it is a mistake we see, these handouts. You give away T-shirts. You give away money. You give away food. I believe in an emergency, in a crisis, you do need emergency aid … but once a country is stable enough, you don’t need handouts. You need to build jobs. You need to create a middle class. You need to create small businesses.”
Although he knew little about the shoe industry itself, Dehtiar knew a lot about working with international companies — and a lot about his target market. “I understood the kind of consumer who wanted something socially responsible. I knew what they wanted both from a charitable point of view as well as from a materialistic point of view.”
Dehtiar also wanted to build a company that would endure over time. Shoes have been worn for thousands of years and will continue to be worn in the future, he said. Choosing to make an existing product in a new way appealed to him. Entrepreneurs can be successful if they do their homework and capitalize on what they already know best, Dehtiar stated. “Everybody wants to reinvent the wheel, but there’s nothing wrong with doing what’s available and doing it better.”
Skipping the Bribes
He got the chance to pursue the idea after CDC Development Solutions, a Washington D.C.-based nonprofit, acquired MBAs Without Borders in January.
At first, he wanted to build a shoe factory in Liberia, which has a large supply of natural rubber but exports most of it unprocessed. An exploratory trip proved that idea would be too expensive. “When I left Liberia, I realized I couldn’t afford to build a shoe factory. And yet, there was this rubber.”
Dehtiar decided he would try to set up a small-scale rubber processing plant in Liberia and ship the rubber to Ethiopia, which already had tanneries and a budding shoe industry. He researched the rubber-making process and ordered the equipment: custom stainless steel drums from Portugal and heavy rollers from Thailand. “Talk about challenges,” Dehtiar said. “We shipped that in March. It just cleared customs last week. Why? For the last three months, there have been a couple of officials who wanted a bribe. I refused to pay it. That’s not how we do business, because if you pay one bribe, you’ll have to pay another bribe. I don’t feel right about that.” He remains optimistic that his contact on the ground in Liberia will get the plant running within the next six weeks. “We’re hoping to show others that you can do something with this resource.”
Factories in Ethiopia posed different challenges. “A lot of times, they don’t follow the design,” he said. Quality of samples could vary even within the same factory. In one case, Dehtiar severed a relationship with a factory after finding out the owner employed underage workers and didn’t pay as high a wage as he said he would. Dehtiar looked at eight factories and ran competitions between four of them before choosing three. “When we finally launched the company, I think we were on version number 45” of the business plan, he said.
Dehtiar has made three trips to Africa so far and plans to make another before the end of the year. In the process of setting up the company, he relied heavily on contacts he had in Africa to interview factory owners and workers, including one former intern from MBAs Without Borders who stayed for six months in Ethiopia to help. Dehtiar now has four people on his team: a part-time designer in Canada and three locally-hired contacts in Ethiopia and Liberia who oversee operations full time.
He is looking ahead to a positive cash flow sometime between November 2010 and February 2011. The goal: $1.5 million in sales in 2011 — or 15,000 pairs of shoes at about $100 per pair. Those numbers are conservative, based on about half of what shoe companies such as Toms and Veja sold in their first three years, Dehtiar said. “Based on those numbers, we can thrive.”
Oliberté has kept marketing costs low so far. “We don’t do a lot of traditional marketing. We only spend our money on going to trade shows. We don’t do billboards, we don’t do radio ads.” He plans to focus on online sales and ramp up the brand’s exclusivity by selling through small boutiques and select chain stores. “We like to work with [only] one retailer in every city,” Dehtiar said. In the U.S., the company has secured spots on the shelves of Solefood in Seattle, the Bus Stop in Philadelphia, Hanig’s in Chicago, and David Z in New York City. Europe may soon follow: Dehtiar says he receives four to five emails per week from people in Europe who want to distribute the shoes.
Still, it’s a hard sell to investors. His costs are three times that of shoes produced in Asia, so margins are tight. He hopes for $2.5 million in revenue in five years, but investors want to see at least $10 million. Dehtiar has approached more than 35 potential benefactors, with little success. “They say, ‘I can’t give you that kind of money because you’re only giving me a 12% return over the long run, and I want 20% to 25%.'”
Over time, he has learned to focus on sales, orders and celebrity interest in his product when talking to investors, rather than playing up the African connection. “For us to be an African brand would be a huge marketing mistake. As much as people love the story, they care about the numbers.”
His advice to start-ups: Find the capital ahead of time. “You can’t expect somebody to give you a million dollars just because you have a good idea.” In May, Dehtiar taped an episode of “Dragon’s Den” in Canada, the equivalent of ABC’s “Shark Tank,” a reality show where entrepreneurs pitch their business ideas to venture capitalists for financing. He can’t discuss results of the show because it hasn’t aired yet — but will say that he’s still looking for the right investor. Indeed, Dehtiar’s ultimate challenge may end up being the color green.