Importing Opportunity by Lisa Guyott April 15, 2010 Most start-up companies face challenges as they develop their business, which is one reason, perhaps, why 60 to 70 percent of new ventures fail in the first 10 years of operation. But few have encountered quite as many as did Kate Herzog, founder and president of House of Talents, during a recent buying trip to Ghana,West Africa.In the middle of a 13-hour journey from Accra to the Northern Region of Ghana, a tire on the dilapidated Jeep in which she was riding went flat. An easy matter to fix, but the wrench the driver had on hand could not remove the final lug nut holding the hubcap to the wheel. For seven hours, Herzog and her companions waited by the side of the road in the hopes someone would stop – a hope made somewhat futile by the high incidence of armed robbery on that particular road, resulting in a reluctance of passersby to help stranded motorists. Eventually, the tire was changed, and Herzog made it to her appointment with the weavers she had commissioned to make baskets. By this time, it was after midnight, and most of her artisans had gone home, so Kate and her companions set off for their hotel in a nearby town … until the Jeep’s engine died. Faced with a two-hour walk to the hotel, Herzog and her fellow travelers accepted a ride from a passing vehicle and finally made it to their hotel after 2 a.m., perched on the back of a tractor.For many, these obstacles may have spelled an end to their entrepreneurial dreams. But for Herzog, a native of Ghana, they emphasized the roles patience, experience and community play in building her House of Talents.Thanks to TintinHouse of Talents sells hand-made artisanal products such as soaps, jewelry, bags and baskets. Herzog incorporated the company on June 6, 2009, after graduating with an M.B.A. from the University of St. Thomas. The for-profit company’s mission is simple: to alleviate poverty by connecting artisans from developing countries with consumer markets worldwide. Accomplishing her mission will be less simple, but all the more meaningful if she succeeds.Alleviating poverty has been Herzog’s goal since she left Ghana. She learned to read at the age of 10, thanks to an American she knew only as “Davis,” an anthropology student from California pursuing his master’s degree in Ghana. He stayed with the family for only a short time, but after he left he sent the family their first series of books, The Adventures of Tintin. It was this gift that helped to shape Herzog’s future goals. “I thank Davis and the many like him who do the best they can and are not deterred by doubts that their gift, perhaps, might be too small to make a difference.”Herzog hoped to someday make a similar difference. From the time she received her first paycheck as a working adult, she knew she wanted to help the poor in Ghana. But her nascent ideas revolved largely around the plan to “get rich and send money.” She spent a great deal of time serving on boards, but it became increasingly clear to her that the worthwhile charitable organizations in which she was involved were not the solution. “It’s not about just sending money to a place and not knowing anything about it. It’s about giving people the tools to help create their own prosperity … prosperity they can continue and nourish on their own,” she says.Herzog realized that to make her emotional mission a practical reality she would need a broader understanding of business. She began the Full-time UST MBA program in 2007 for the express purpose of starting her own company. “Throughout the program,” she notes, “I was acutely attuned to subjects that would help – entrepreneurship and global business, for example.“As I went on, things became less emotional and more practical. I ran ideas past classmates and faculty. Professors would ask hard questions or refer me to others for more information.”The for-profit company’s mission is simple: to alleviate poverty by connecting artisans from developing countries with consumer markets worldwide.Through this trial-and-error approach, Herzog gradually created a business plan, which she used to persuade the American Refugee Committee to critically review her objectives and methodology. She met with faculty at colleges and universities outside of St. Thomas to ensure objectivity. She secured an initial agreement from a local boutique, Bibelot, to sell some of her products. She approached anyone she could think of to get them to “poke holes in my ideas.”Over the course of two years, her original idea, loosely defined as “help people/bring goods to market,” evolved into a clearly articulated plan to locate and work with individuals who were already well-respected artists and help them bring their work to a broader market.The import/export puzzleHerzog made her first buying trip to Ghana in the fall of 2009. Before her departure, she found a list of artisans through the West Africa Trade Hub, an organization sponsored by USAID. After further research into the organization, however, she discovered the entities it represented were already organized and prepared to bring their products to market. Herzog’s target artisans had to be different. “If I’m going to alleviate poverty, I have to work with people who are good at what they do but don’t or can’t produce the quantity necessary to export their own goods.” So she began drawing on her own experience and background. She called old friends and family members in Ghana and began by asking “Where is the place I can help most?”She returned to her hometown of Abompe, known for its bauxite necklaces, where friends and family referred her to artisans in nearby villages. Through this word of mouth, Herzog was able to make contact with eight artisan groups, each creating different products but all interested in making a difference in their communities and their own lives.“I go to where I believe the majority of the economically disadvantaged are, i.e. the rural areas and also areas in the cities where opportunities exist. I like the rural areas, because that is where I spent most of my childhood and teenage years, and I understand the dynamics better.”That first trip lasted four weeks. During her time in Ghana, Herzog was able to establish the infrastructure that would allow her to stay in touch with the artisans, collect the completed products and prepare them for shipping.Locating the artisans turned out to be the easy part. Getting the products into the United States has proven to be the most difficult, and the most expensive. “Somehow, I was able to gloss over the fact that the goods would have to be inspected by customs,” she laughs. She had to take a crash course in export regulations, duties and Fair Trade exemptions. She paid a visit to the customs office at the Hubert H. Humphrey terminal in Minneapolis where she received an intensive, one-on-one lesson in exporting goods from Africa.Herzog has had to become an expert not only on market demands, but also on customs regulations and shipping fees. She discovered that there is much more to shipping items than she could have imagined. For instance, if each item does not show a country of origin, there is a fine. If the wrong tariff code is entered on the bill of lading, there is a fine. If the materials from which the items are made are not listed, there is a fine. Certain goods shipped from certain developing nations with certain gross domestic products are exempt from taxes, but others are not.These factors have the greatest impact on the fees she can and must charge for the goods House of Talents markets. “I make certain each artisan receives at least 20 percent of the sale price. They receive 50 percent of that up front, before they’ve even created their goods. The remaining 50 percent is paid once the product is delivered to my partner in Ghana, inspected and approved. They are paid whether the product is sold or not. So far, we’ve paid about $10,000 to our artisans.”“Life is a challenge”In addition to selecting artisans who are already just that – talented craftspeople – Herzog makes certain her artisans do not turn into assembly lines. She takes extra time meeting with people, explaining that she is interested in one-of-a-kind pieces. “I want buyers to love the product first, not where it came from.”Herzog is committed to helping Ghanaians improve their abilities to make works of art, pass those traditions on and make a living. She selects artisans committed to improving their communities and who provide employment for people who are otherwise difficult to employ. “One of our partners employs single mothers, the disabled and students who are working to stay in school,” she says. “Another artisan works with young girls who cannot have an education or have dropped out of school due to financial reasons. She teaches them personal hygiene, cooking and a trade, such as how to batik and tie dye. When they graduate, they not only know how to take care of themselves, but they also are trained to take care of themselves economically – the goal is to provide young women self esteem, the tools to achieve economic independence.”In more concrete terms, House of Talents has bought one laptop and two digital cameras so artisans can photograph their pieces and send them to Herzog for review and feedback. The company is providing scholarships to teenage girls to continue their educations. And a volunteer Web designer from California designed the company’s Web site, and enlisted a second-grade class at a school in Alameda, Calif. to send books to start a library in one artisan’s village.The Web designer is someone Herzog met through a classmate, just one of many contacts who have made a difference in translating her dreams into reality. Fellow alumni stepped in and volunteered to hold house parties to sell the baskets, jewelry and soap her artisan communities were busy creating. Others offered to label the items when they were delivered, take photos for promotional purposes and develop an inventory system. Still others even offered to babysit Herzog’s two youngest children so she and her husband, Phil, could have some much-needed time off. And the university has been a strong ally, providing her with free office space, telephone and access to faculty and staff through the “incubator” program administered by the Schulze School of Entrepreneurship. “Even as a sole proprietor, you never run your business by yourself. If it weren’t for my family, friends, classmates and the university, I could not do this.”Herzog chose the name House of Talents because it exemplifies both the nature of her business and the community it hopes to serve. “These are people who have talent and are part of a community or house. They don’t work just for themselves, but for themselves and their neighbors. They also do not see themselves as poor – they say ‘life is a challenge, and we just need some help moving forward.’”Herzog turns away those who ask for handouts and those who seek only to benefit themselves. “It does not do anyone any good to build someone a house. What happens if the house falls down? They just have to wait until you return to fix it. People have to be able to make a living that sustains them and their communities.” They have to build their own house of talents, as Herzog is well on her way to doing.