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Joyce Groote, of Holeys.
Joyce Groote, of Holeys.

Report on Small Business magazine

Can this woman beat Crocs? Add to ...

The couple initially invested $80,000. Then, in late 2004, seeing a diminishing window of opportunity and frustrated with the glacial pace of decision-making under multiple shareholders, they bought out Rosenberg. (She still lives next door, but has no business involvement with the Grootes. “It was always a cordial relationship, but we were never close,” says Groote. Subject closed.) Finding herself in charge of a company with $65,000 in revenues and one employee, Groote wrote a new business plan targeting a rapid expansion. When Finproject, which had added several other distributors, started having trouble keeping up with demand, Holeys decided to have the shoes manufactured in China. Groote–well versed in intellectual property law from her days in genetics research – first verified there were no patents or other IP restrictions on the clogs or the foam.

Although Groote had an MBA in marketing, she knew zilch about footwear. “[Rick and I]had to learn everything,” she says. The couple, who met when their two organizations merged to become BioteCanada, were used to Groote running the show; Walter had briefly been her No. 2 at BioteCanada and on subsequent ventures, and now serves as VP of operations at Holeys.

The early days were all about keeping up with demand, which grew exponentially. “It felt like you could never completely catch up,” Groote recalls of that time. “There were always things screaming at you to be done.” She remembers learning in the summer of 2005 that the first Chinese manufacturer, brought in by one of the former shareholders, could only make 800 pairs a day. “Which was nothing!” she says. It would be so excruciating, because orders would be piling up and we'd know that container was already spoken for before it even got to Vancouver.” She promptly ditched the manufacturer and found a replacement in China that was willing to grow as needed to meet demand. The new company also helped Holeys tweak the foam formula to give the shoes a snugger fit.

With the shoes designed in British Columbia, manufactured in China, then sold in as many as 40 countries through independent distributors, it proved immensely important to pick channel partners that could both creatively cultivate, and efficiently supply, demand for the Holeys brand. Because, while Crocs called its shoes Beach and sold them for $30 and up, and Holeys offered Explorers at a slightly lower price, they looked virtually identical to unschooled eyes. Besides, the market was soon flooded with much cheaper, no-name varieties that sold for a few dollars at discount stores. Crocs, powered by millions of dollars in private investment–much of it spent on marketing–had become the de facto brand, so when pitching its wares to retailers and consumers, Holeys (which Groote and Walter always bootstrapped alone) leaned on the price difference, the better fit and, in Canada, good old patriotism. Nevertheless, by the end of 2005, Crocs had sold six million pairs of shoes–three times what Holeys would sell in its peak year of 2008.

The two companies fought fiercely for market share. Lani Atkinson, co-owner of two Sproutz Kidz children's clothing stores in Calgary, recalls contacting Crocs about carrying its kids' shoes and being told the shoemaker had too many local retailers already. “As soon as we got Holeys in, Crocs called us back,” she recalls.

Shortly after Groote joined Holeys, she says the Colorado company suggested the two brands stay out of each other's backyards: Holeys would sell in Canada, Crocs would own the U.S. and the world. When she declined, in June, 2004, Crocs bought Finproject – with, Groote dryly points out, the “nice and generous support” of several million dollars in foreign-investment assistance from the Canadian government – and then terminated its supply deals with all its distributors. It also patented Finproject's “proprietary closed-cell resin” under the name Croslite.

That's when Crocs changed strategies, too. In late 2004, Groote received a warning that it was infringing on Crocs' copyright on the shoe. Initially, Groote says she tried to settle the issue amicably. She met with Crocs executives, including then-CEO Ron Snyder and, as she puts it, “we suggested we could find a different way to compete.”

The result? Groote offers a tight smirk.

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