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How Steve Madden built a $1.5B biz with just $1,100

CNBC CNBC 26/04/2016 Jane Wells

There's no business like shoe business. At least for Steve Madden. The shoe business is all he's ever known.

"I just plopped into a store at 16, and it was shoes, and that was it," the founder of the company that bears his name said.

He started Steve Madden with $1,100 in 1990. "Today we have over $1.5 billion in sales." 

But this isn't your typical rags-to-riches story. What makes Madden's tale different is that somewhere between the $1,100 investment and the $1.5 billion in sales was a 31-month stint in federal prison for securities fraud tied to "The Wolf of Wall Street."

"What did you think of the guy that played me in that movie?" Madden asked with a sly grin.

But we're getting ahead of ourselves.

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"I used to work on a stool with a shoe horn hanging out of my pocket," Madden said of his first job on Long Island. "The information I gathered, and the knowledge and experience, was invaluable. It was like going to college."

Madden worked in that shoe store for two years "and learned what women want." He then spent years working in a shoe factory learning about design and manufacturing. At 31, he decided to strike out on his own. He was tired of being told what to do, and figured he had better ideas. "I'd be selling the shoes and seeing the voids," Madden said. "It's a business of voids still today. If everybody's making one thing, you can make one thing over here and be the only guy, which is great fun."

He scraped together $1,100 and designed his first shoe, called the Marilyn, a clog that looked like a boot when you wore it with jeans. Madden paid the doorman of his apartment building $60 a day to drive him around New York "because I didn't have a license." He sold the shoes out of the trunk of the car for $16 wholesale to retail for $24. "It just caught on."

Next came a pair of Mary Janes, which mothers started buying for "sweet sixteens, bat mitzvahs and confirmations." Madden finally hit the big time when he created a new take on platforms inspired by the glitter rock he loved in the 1970s. "Platforms are great because they're anatomically more comfortable," he said. "We did it for fashion, not for comfort, but it worked out."

Everything seemed to be working out, even the chain of retail stores Madden opened. What could go wrong?

"Interesting fellow, very smart guy," is Madden's reaction to hearing the name Jordan Belfort. "We used to be very close friends." Not anymore. Belfort, "The Wolf of Wall Street," persuaded Madden to pretend to own shares in an IPO that Belfort actually owned. It was illegal. "I got involved with these guys, and it was some short cuts and stuff I'm not proud of," Madden said. "At the time we sort of thought it was a gray area of IPOs, but it wasn't."

Both men went to prison. Belfort served 22 months, but Madden stayed 31 months. "It made me sharper, it made me more conscious of time," Madden said. It worried him that his business might fail while he was away, that the fashion world would move on. But it didn't worry him that much. Madden wasn't searching the prison library for copies of Vogue. "When you're in prison, you're not thinking about shoe styles. You're thinking about surviving, and you're thinking about your mistakes. You're thinking about your family."

Madden was released in 2005 and barred for a time from having any role running his company. He describes a moment when he ran into Martha Stewart shortly after she, too, was released from prison in connection with a stock trading scheme. "I sensed this bond between us, it just was, you know, she made a mistake, and I made a mistake, but the great thing about America is you get second chances."

Madden is using his second chance to continue guiding his company, but with a little distance. There is a CEO and management team which he credits with growing sales even while he was incarcerated. "My role is different, I'm more of a cheerleader," said Madden, adding, "that's been an adjustment for me, it's really been actually hard."

Does he ever call management to complain about a new shoe? "Every day," he laughed.

So after succeeding, then failing, then making a comeback, here is Madden's advice on how to make it. 

<p>He scraped together $1,100 and designed his first shoe, called the Marilyn, a clog that looked like a boot when you wore it with jeans.</p> © Provided by CNBC

He scraped together $1,100 and designed his first shoe, called the Marilyn, a clog that looked like a boot when you wore it with jeans.

"It sounds a little corny, but if you love what you do, the chances are that you're going to be more successful than if you don't," said Madden. "I would advise people: Do not take jobs for the money. When you're starting out, even if it's for less money, find something that moves you, that stirs you, and you will make tons of money down the road, but at first, don't sell yourself out."

"The Beatles in Germany, nobody knows that side," he said. "They played every night, hours and hours in obscurity in Hamburg, and then they became the greatest band in the world."

He likens that hard work to his career of serving customers, learning about design and manufacturing, and figuring out the shoe business.

"You must always deliver value, no matter what you're doing. If you don't have a product that has value, you're not going anywhere."

"I supposed I always wanted to be in my own business, I guess it was always a dream of mine," said Madden. He credits a mentor with giving him the courage to go for it. "Take what you have, and do what you can do. Put one foot in front of the other. So I took $1,100, I opened a bank account, and I started."

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