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  It was Tyler, waking up—they hadn’t noticed that he was asleep beside them under a heap of bedding. Luckily, he was wearing clothes. And the UPS rep turned out to be a good sport, once she calmed down.

  The apartment had two other bedrooms, occupied by my two roommates. Both of these guys had nine-to-five jobs, so when they went to work, I turned our home into the TOMS office. The roomies were cool with this as long as everyone was gone and the apartment was clean when they came home by six o’clock. And they didn’t want us to use their bedrooms, which was fair.

  Because the place was small and we had boxes all over, that summer I decided to move my office outside into the yard, where I placed a desk and a chair. As a result of being outside all day, I looked tanner than I ever had before. When people came to meet Jonathan, they would walk past me and then ask him, “Who’s the random dude out there in surf trunks?”

  However, as business picked up, we had to use the roommates’ bedrooms; there was no other space left. The guys knew it, but because at the end of each day we ran around making the rooms look absolutely immaculate, they didn’t say anything.

  Well, almost immaculate. The person whose room we used the most was Jimmy, then the president of my online driver-ed company. After running that company all day, Jimmy would come home wanting to chill, only to find little cardboard shavings littered throughout his room. That was the one thing we couldn’t always clean up—those tiny pieces of padding that fall out of boxes. Because Jimmy was anal about cleanliness, the little pieces drove him crazy. For nine months he was frustrated, but because he paid the least in rent, he did his best to cope. (It’s a good thing his frustration didn’t get the best of him, because we ended up hiring him to run our international sales.)

  When we got our first big media hits and stores started calling with orders, TOMS had only three interns and me and our low-rent infrastructure. We owned one cordless phone with a constantly dying battery, so no one could talk long when prospective customers called. Whenever the phone rang, whoever was closest would answer.

  One day it rang, and since I was nearest, I said, “Hello, TOMS Shoes.”

  The man on the other end of the phone was very nervous. “I’m calling from Nordstrom,” he said. “I need to place a test order for one hundred pairs immediately.”

  Now, Nordstrom is known for having an incredible shoe department. It can take years for the company to even hold a meeting with you. But the man on the phone said that his boss had seen TOMS featured in a fashion magazine, and that shoppers were already coming into stores asking for them as a result. So he wanted to try us out.

  “I’m an assistant buyer,” the man continued. “My boss is on my back. I need to get this order processed right away.”

  “I would love to send them to you,” I said, “but we don’t have any shoes now.” This was true.

  “No, you don’t understand,” he said. “This is Nordstrom calling. I need the shoes immediately.”

  “Sir,” I said, “I don’t have any.”

  The man started to get a little testy. “Just put me in touch with the sales department,” he snapped. “Right now.”

  Not sure what to do, I tossed the phone to one of the interns. She shrugged. “Hi,” she said. “This is the sales department.”

  The Nordstrom guy repeated the same rap for the intern—he didn’t know we were all sitting in one small room—and she in turn repeated what I had said. The man became so frustrated that this time he demanded to speak to customer service. So the intern handed the phone over to another intern.

  But before the Nordstrom buyer could complain again, the next intern said, “Look, that first guy you talked to was the company founder, the second person was an intern, and I’m just another intern.”

  The guy finally laughed. “You guys are that small?”

  “Yes, we are,” he said.

  The man couldn’t do anything but wait, and in two weeks we sent him the shoes. Today, Nordstrom is one of our largest customers.

  These stories are not just fun to tell, they also capture the excitement and sense of possibility that compensate for the deprivations and anxiety of the start-up period. Many of the greatest business stories in recent history have similar creation myths—usually involving a magical space called “the garage” (and for “garage” you can substitute “apartment,” “basement,” “attic,” or even “car”). Starting up in a small, improvised space is not only fun but can be an advantage with interns and early employees. For one thing, by operating out of an unconventional space, you’re automatically lowering their expectations. No one expects an immediate financial reward from an internship or start-up gig, particularly one that shares its office space with the family car; everyone is excited to be a part of something new. And, unlike working out of an office, working out of the garage makes everyone feel equal; there are no corner offices or other perks to compete for, so the pecking-order mentality disappears. Everyone feels they are part of one team, and that helps create a great company culture from the start.

  Many of the greatest companies in the world were started out of a metaphorical garage. Bert and John Jacobs, founders of the apparel brand Life is good, got their start selling shirts out of the back of their van. Kenneth Cole’s first shoe display was in the trunk of his car. Two guys named Ben and Jerry, with $8,000 in savings and a $4,000 loan, leased an old gas station in Burlington, Vermont, as their first ice-cream store. Mark Zuckerberg co-created Facebook in his Harvard dorm room. Kevin Rose began Digg in his apartment. Reid Hoffman began LinkedIn in his living room. And Steve Jobs initiated Apple in his actual family garage.

  But this isn’t just a recent phenomenon. In fact, almost all of the successful brands that people love and adore began with few resources. For example, in 1950s California, Ruth and Elliot Handler started a picture-frame business in their garage. They also made dollhouse furniture with excess material and soon realized that toys were more profitable than picture frames. After 1955, they released a doll to go with that toy furniture—her name was Barbie. Their company: Mattel.

  Also in the 1950s, there was a man in Detroit who lived on the top floor of his home with his family while using the bottom floor as a recording studio; he eventually expanded to his garage. Soon artists such as Diana Ross and the Supremes, the Temptations, Stevie Wonder, and Gladys Knight and the Pips were dropping by—the garage belonged to Berry Gordy, Jr., the founder of Motown Records; it is now part of the Motown Historical Museum.

  A lack of resources is no reason to avoid starting a company. If anything, it often inspires creativity and a competitive edge. Even though they may have excellent ideas, many people still believe that they can’t start a business because they don’t have enough of everything else. But our lack of resources when we started TOMS is one of the reasons we’ve succeeded. How can that be?

  Being comfortable can hurt your creative entrepreneurial spirit. An early and unearned sense of security can be the worst thing that can happen to a business. If you have little money and have to bootstrap and improvise to pull things together, that becomes embedded in your company’s DNA forever—so as you scale up, you maintain the frugality and efficiency that helped you survive your earliest days. For instance, now that TOMS is an established, successful business, we could throw resources around with a little less care than we used to, but we don’t. We still emphasize creative problem-solving and are scrupulous with our expenditures. Our culture is lean and mean—well, maybe not mean. But being creative and resourceful are skills we honed in our hungry days, and they are just as useful now. It’s an impulse that can lead to extraordinary success.

  For instance, in 2001, a man named Tom Szaky was looking for a bottle in which to put the product he was selling—liquefied worm-poop fertilizer—and decided that even the cheapest bottling options were too expensive. He found that discarded plastic soda bottles, which were essentially free, worked fine. He soon started TerraCycle, a company that produces a natural plant food made f
rom worm waste packaged in reused containers, many of which are collected through fund-raising programs. Today the company also repurposes waste packaging into new products ranging from cellphone holders to messenger bags, thereby reducing the amount of waste that goes into our nation’s landfills. In the decade since the company started, its sales have more than doubled each year and its products can now be found in Home Depot, Target, Walgreens, OfficeMax, and Walmart, among many other locations.

  Bootstrapping our first trade show with a homemade booth at the Action Sports Retailers show (ASR) in San Diego.

  Szaky funded the early days of his start-up by winning business-plan competitions and he saved money by hiring a team of thirty-five dedicated interns and housing them all in one house, where they slept three or four to a room. Szaky would personally wake up each intern in the morning, blasting Vanilla Ice music over the loudspeakers.

  According to renowned Silicon Valley venture capitalist Mike Maples, companies that start off overfunded actually are in more danger of faltering than those that are underfunded; too much money, he says, is not only unnecessary, but also toxic. Maples points out the inverse relationship between the amount of money an entrepreneur spends at start-up and the business’s ultimate success. It’s no coincidence that blue-chip companies like Cisco, Google, Facebook, Digg, and even Microsoft began as hyperfrugal start-ups.

  Yes, it’s hard to turn down money. But if you raise more than you really need, you’ll probably end up with a three-bin copy machine when one bin would do, or a fancy telephone system when cellphones would do just as well. Or you might create fancy positions, hire extraneous personnel, like vice presidents who don’t do anything except hand out business cards that say they’re a vice president. Worst of all, that money comes with strings attached: You’ll have to answer to investors who tell you how to run your business but might not share your core values.

  Some of the most interesting business failures in the last decade were companies that simply had too much cash. Who knows what might have happened to Pets.com, for instance, if it had had limited resources? Instead, the firm, formed in 1998 as a pioneering Internet pet-supply store, managed to capture more than $300 million in venture capital—so much money that it was able to buy a multimillion-dollar television ad aired during the Super Bowl in January 2000. But no matter how much money the company made—which wasn’t much—Pets.com just kept burning through their capital. According to Thinking Inside the Box, by Kirk Cheyfitz, the online company spent $11.8 million in advertising in its first fiscal year while generating only $619,000 in revenue. By the fall of 2000, Pets.com had collapsed. What if it had started more simply and grown organically? Their idea wasn’t terrible—today there are viable online pet-supply operations—but clearly their execution had some flaws. Perhaps if they hadn’t had so much capital, they could have been more entrepreneurial and successful.

  SEAN’S FRUGALITY

  Falling Whistles is a nonprofit organization that campaigns for peace in the Democratic Republic of the Congo. It was started in 2009 by a young man named Sean Carasso, who was inspired by his experiences when he went on TOMS’ second Shoe Drop—and who has since become a friend of mine.

  Afterward Sean decided he wanted to make a difference, and while traveling in Africa, he came up with an idea: Falling Whistles, which sells whistles for $34 to $104 to raise money for education, advocacy, and the rehabilitation of war-affected people. (The name comes from Sean’s conversation with a former child soldier who told him of children sent into battle armed with whistles.) In 2010, Falling Whistles opened an office in Washington, D.C.; a year later it was helping advocate for free elections in Congo, and it continues to do everything it can to help people understand Congolese politics.

  Sean started Falling Whistles with five dollars. With that money he and some friends bought “five crappy whistles from the surplus store. We sold those, and we had $50. We went and bought more crappy whistles and we had $150.” With that money they eventually were able to organize a fund-raiser and begin to build a coalition of supporters.

  Sean says that his father taught him the most important lesson in business: “If you spend less than you make, you will always be profitable.” Sean and his team did everything they could to spend less. “I had a friend in Houston who read my journal entry on his iPhone. We had a conversation the next day. He sold his company the next week, packed up his car, and drove to L.A. to run finance for us for free.”

  And: “We put out the word that we needed interns; we had eight kids show up in our front yard and say, ‘We’ll do whatever it takes.’ ”

  And: “We lived on nothing. We ate Top Ramen and spaghetti for a year and slept in bunk beds. We started in a house where we were stuffing six people into three bedrooms. We had our office in the garage.”

  In that last office, Sean threw a housewarming/office launch party and asked people to bring any extra supplies they had. “We got a whiteboard and whiteboard markers. Printer paper, an old printer. Coffee mugs, coffeemaker … the basics.

  “Not having any resources in the beginning has made us much better at everything we do. It’s made us more frugal with our money, more responsible with our time and staff, more focused with our partnerships in Congo and the States. Learning to survive is one of the best lessons in entrepreneurialism. You just have to make magic every day.”

  Similarly, Webvan.com started with a solid idea—home grocery delivery—that allowed it to raise a great deal of money even though the grocery industry historically has very thin margins. Webvan started in 1999 in Foster City, California, and immediately expanded to eight additional cities by 2001, with plans in place to enter twenty-six more. It had been able to raise $320 million in capital by going public, but between its expensive warehouse infrastructure, 2,000 paid employees, and other high expenses, the company folded later in 2001. Years later, companies like FreshDirect have succeeded in the exact same market by building their businesses slowly and intelligently.

  eToys was another unfortunate story of the dot-com bubble—one more company founded in the late 1990s that raised a lot of money and had tons of press. Its stock rocketed from twenty to seventy-six dollars on its first day of trading, but, like Pets.com, eToys spent millions on advertising and marketing, far more than it made in sales, and the owners filed for Chapter 11 bankruptcy protection in 2001 (although the name is back in business under new ownership). Meanwhile, Amazon.com, Toys “” Us, and Walmart have all successfully entered the online toy business over the years and the market has grown dramatically.

  At TOMS, we tried to make the best of our limited resources through one of the most nontraditional means ever: From day one, we wanted to help those in need. That odd beginning led to customer loyalty that in turn helped make our business thrive.

  If you incorporate giving into your business model, and give your business a mission larger than your bottom line, you also create opportunities that companies with more resources might not be able to enjoy. If it weren’t for this model, AT&T, Theory, Ralph Lauren, and all our other partners would not have approached us to collaborate. People want to feel they are making a difference, and few things make them more likely to provide a discount or a break than knowing they’re giving something back—not to a company but to the community at large.

  Unfortunately, many people think they can’t give anything away when they start a business because they have nothing to give. Nor, they fear, can they afford to share a percentage of profits, because they don’t have any profits yet. But that’s the very reason you should do it: Without resources, you will need a lot of other people’s help, and the best way to get that help is to stand for something bigger than just yourself and your business.

  Remember, in this era when so many of us spend our work and personal hours sitting alone with our computers and digital devices, people want to be part of something that throws them back into the world and connects them to other people—even if they won’t make money on it. There are lo
ts of ways to get people invested in your project. Think of the online user-editable encyclopedia Wikipedia. It started with very few resources—and even now is run quite frugally—but it gave people an opportunity to become part of its creation. Once people found out they could publish their expertise on Wikipedia, offering and exchanging ideas with the world, its resources pool jumped exponentially. It now has thousands of unpaid volunteers, who’ve become a part of something great and lasting.

  Here are some other ways to amplify limited resources:

  Social media barely existed a decade ago; today these sites are a force that can’t be ignored. Facebook, LinkedIn, foursquare, Gowalla, Twitter, and a host of new sites every day allow people to interact easily and freely.

  The best thing about social media is that you don’t need money to benefit from them fully. They are the great leveling factor between companies with resources and those without. Today, TOMS has a greater social-media presence on Facebook and Twitter than most Fortune 500 companies do. For many large companies, social media are a secondary form of brand maintenance, if not an afterthought. For us they are built into the very DNA of our business.

  When I moved to Los Angeles, I was working in the entertainment business, brokering product-placement deals and starting my all-reality cable channel—and living on a friend’s couch. I didn’t have much in the way of resources. But I knew that if people were going to take me seriously, a powerful Hollywood address and an office couldn’t hurt.

  FREE SPEECH

  In the beginning, everything at TOMS was free—or at least we wanted it to be. The goal was to get as much of what we needed as possible without spending any money. Often we did that by explaining our business model, letting people know that if they helped us we would be able to give away more shoes.