At it’s worst, capitalism is perceived like this,
The goal is to make money while you sleep, wake, fuck, breathe. That is the dream, more & more, again & again. It is almost definitely how hedge funds/oil co.s operate, ruthless. Don’t get me wrong, an economic model that allows subjugation of some due to existence of said inferiority, like lack of money or leverage, is Capitalism. This is the world we live in, where there is incentive to rise above others by stomping on them.
Now this is partially true. Humans are greedy and capitalism allows greed to maximize. This is to say, is changing. Towards good and for good reason.
Here, I am gonna talk about social good as a marketing ploy, social entrepreneurship, B-corp and more. I might end up paraphrasing my social entrepreneurship prof. Chris Marquis somewhere, during this. I am grateful for his wonderful class this Spring.
The background song for this newsletter (is a bit long):
SOCIAL ENTREPRENURSHIP & MARKETING
Warby Parker is an eyewear company. They have a viable business model that is competitive with Luxxotica that has a 10X to 25X overhead on frames while WP aims to keep it at 3X to 5X, bringing affordability to the market. They have an interesting social angle to the biz. Starting, with idea of donating a pair of glasses to someone in need whenever you buy a pair from them. A fashion conscious, sustainably sourced, eyewear brand does not require a social mission for its success. Interestingly, this idea stems from one founder’s relationship with a non profit called VisionSpring. The problem being solved is huge, 2.5B people need eyewear with over 625M needing it to encounter challenges to learning. Now this, is definitely what an eyewear brand can stand for. In 2014, Warby Parker finished donating a million pair glasses to people in need in emerging & pre-emerging markets. Going by their impact estimates that a pair increases productivity by 35% & monthly income by 20%, this is simply, huge.
But, I judge these initiative by finding the answers to two questions:
Would the company succeed without the social mission (Costs (-) & PR (+))
Has it helped them more than they have helped people?
Let us answer them for WP,
Initially, WP didn’t absolutely need a social mission, in fact when they launched they built an affordable, sleek looking eyewear alternative to a market that was largely brick & mortar. Their focus on suppliers drove growth. They were focusing on their growth, reaching more customers and getting to a hybrid combination of brick & mortar with e-commerce. VisionSpring ensures eyewear, but not necessarily WB eyewear. They were paying them for every sale they made, definitely could have done without the costs.
There is no visible upside from doing it except for potentially attracting customers who care about access to good eyewear. Answer to 1 is YES.
So far, their impact is huge. They are also making trying easier with their 3D try ons, reducing carbon footprint through delivery and also creating a feature that beats their competition by a mile. Answer to 2, is NO.
I think WP are a great social enterprise. It changes the game when a company has a core value “Do good”. What we have seen so far is Google’s “Don’t be Evil”. I would say the former shows greater intent, but the second one is necessary too.
source: Forbes
Dominos did it as a marketing ploy, they also needed the roads to be better to deliver good quality pizza, engage community, increase presence, they are tech company delivering pizza, definitely optimizing the routes.
Similarly, anyone offering free internet to you, is gonna benefit from it. Facebook tried this at scale in india, where they tried to provide free internet everywhere but weren’t ready to ensure net neutrality. India has strict regulations about net neutrality unlike the States and Facebook plan was thrashed.
Therefore, everything that looks like a social good, might have been spiked with longer term financial gain. Look deeper. Another example is Square:
Square can waive all fee for April for processing payments but let’s get real. This is an amazing acquisition strategy, it is the best possible way to show that Square stands for you in a crises and you should get to it, right away. A great marketing ploy, creates long term value. To think about it, they could just not do it all and still get away with it!
Therefore, It was needed, not every competitor of theirs did it. It does count as marketing, but social good as well!
Let us talk about Amazon. The company has been targeted aggressively by the media, politicians and people on social media for being this huge behemoth being anti-competitive. They recently made one of their old building’s as a home for Seattle’s homeless.
AMZN ’s homeless shelter that supports over a 1000 families.
The question arises, where do we draw the line of good vs marketing?
Facebook was doing a social good by providing the internet, but it helps them with their user base. Dominos is making roads, you may argue that it helps pizza delivery. Amazon providing a homeless shelter may mean that even homeless people can order from amazon with an address! Now, the amazon story in this particular case seems cynical and close to a conspiracy theory.
In the Facebook case, it directly influenced the core of their business. Therefore, it was an expensive acquisition strategy disguised as a social good. Dominos, get smoother roads for pizza delivery to the company back in the extreme long term while marketing the product. If you look at any social good with a skeptical lens, you’ll say it benefits them back somewhere down the line, but so goes for organized religion and non-profits (eg soup kitchens and evangelization).
I argue that if, not a direct short term benefit, we should label it as social good and NOT Marketing.
IMPACT INVESTING
A financial system has the capacity to make or break any capitalist society, Imagine the power of investment banks and hedge funds to create environmental impact and social good. That wet dream is the world of impact investing. Now this is not just investing to help alleviate malaria or Polio in the world like Bill & Melinda are up-to. That is, for the most part, philanthropy. Now how do you make an investment that brings you returns and creates social good. The current $4B impact investing industry produces market rate returns which is a pretty good indication for the future.
Financial returns are well understood, now while investing quantifying social change created due to capital. That’s created by the following formulae:
Social Value = (Social Benefit)/(Social Cost)
Now quantifying this social benefit is a puzzle, depending on how much the value is placed on the said benefit. Say, providing feminine hygiene products in an Indian village vs low cost eye surgery in Africa or creation of jobs in the Mid-west. Trick is, how to make this into a financial gain?
Let’s take Acumen Fund’s $1.5M investment into India’s Dial 1298 for Ambulance, a service for financial poor clients. Supporting a nascent enterprise, Acumen helped them scale and secure market rate investment later which brought social change and a return for Acumen, they even secured a board seat to ensure that Dial1298 stays true to the social mission. Now CalPERS (California employees retirement system) helped with $130M credit line for developing markets to grow while procuring market rate returns.
Quantifying impact is tough. If I am funding a charitable eye surgery, I cannot exactly put a monetary value on the eye. Even though economists have developed methods to quantify it, social value is ambiguous. Though, returns alongside social impact is visible. Luckily for carbon markets you can buy offsets from companies and quantify them, TerraPass is an excellent model that harvested the power of carbon markets. Microfinance, being a high risk industry is extremely successful at quantifying returns compared to others. Some metrics that have been evolved are by GIIRS & IRIS can be seen here.
The United States has an amazing framework for impact investment and creating financial returns. The secret is CDFIs, (Community Development Financial Institution’s Fund) subsidizes community focused investments through tax credits and organizations that are qualified as community based. In order to extend credit to founders across various backgrounds and community, people who have otherwise been ignored due to various divisions in society. C-note, Harnasses the CDFI opportunities to create big social change and at par market rate returns, if you’re a socially motivated American, you can create wonders with Money. Invest to change lives.
There are various other impact funds like Bain Impact fund, and as old as Rockerfeller foundation. The change from the financial industry has huge potential and creates a better, more productive, equal and prosperous world.
B-Corp
A public company’s nightmare is falling share prices. Which is nothing but ensuring that the business is worth owning. What is worth owning here? A financial asset that appreciates in value and / or gives you a size of its earnings over time. Therefore, the Owner is king. It does not prioritize customers, environment etc as long as it does not hurt the owner’s interests.
B-corp envisions to change that. It’s moving the economy from Shareholder capitalism to Stake-owner capitalism. Which means, that everything that a business impacts is prioritized in decision making and not because it will be a PR disaster that hits the owner.
A company must look after its employees, community & culture, environmental impact, governance structure & mission (this is where ethics come in) and also obviously its customers. Becoming a B-corp isn’t competitive, but it is not easy. It subjects a business to a thorough impact assessment on these fronts and gives a B-corp certification with a score that they can improve upon. Quoting from the website:
To certify as a B Corp, a company must achieve a minimum verified score of 80 (ranges from 0 to 200 avg. of 50) points on the B Impact Assessment. Questions about how the day-to-day operations of a company create positive impact for the company’s workers, community, and environment. Companies earn further points if their business model creates positive social & environmental impact as well, qualifying them to Impact Business Model points.
Now why would a corporation care to be a B-corp? Well, there are numerous benefits. The certification attracts investors who care about impact, it enables better employee retention, B-corp actively aids certified businesses with access to a network of resources and aid that help them gain competitive advantage.
You would want to be a B-corp employee, if you are prioritized the same way a business owner is, you know that the culture talk is not just targeted internal marketing. Living guilt free while building something is great! think of the people who helped tobacco scale in 50s & 60s. They knew the health claims they made were wrong but they contributed to one of the world’s largest drivers of cancer. Same with livestock and agro industries today.
Cool companies are B-corps. Allbirds, Patagonia, Swell to name a few. The future is bright for B-corp and more. Whole foods founder said that he should have made whole foods into a B-corp before selling it to Amazon, that said tells you the power of B-corp on enforcing the commitment to good.
The Talk
You may follow these forums and places for studying this further:
World forum for Ethics in Business
It all comes down to this one thing. The foundation of businesses with ethics in mind. Facilitating conversation that being ethical does not mean leaving money on the table, many times rules are bureaucratic and prevent growth for the sake of control and not the greater good, we must change rules. At the same time never forgetting ethics. WFEB is headquartered in Brussels and has been facilitating conversations about ethics in various business faculties from AI, Impact investing & Climate change. Their next conference is scheduled in fall of 2020. You can keep up with them here
Impact Alpha
Quantification, reporting, advancement and taking the cause up across the world. Impact Alpha is one of the leading reports on how to quantify, qualify and notify impact investing and its effect. You can sign up for a free account and see up-to 5 stories a month & follow them on twitter. The things they post definitely make you feel good about our world.
Lastly, A twitter list that I keep updating with relevant accounts.
PHEW:
Hopefully, you read some of this before coming down here. Please grant me feedback, ask questions, comment, or anything you wish to say below, even at the length of this, I appreciate it.
I believe that social good is a mean thing to do. Any social good, done by a great force, creates better customers for the economic engine with greater purchasing power and disposable income. Therefore, providing food, shelter and water to every human on the planet can possibly create the greatest functioning economy we have ever seen.
In conclusion, I think the Rona will usher us into an era of inter-dependence. We will have to rise up to the reality that systems do not function in isolation, forging alliances and inventing together. Eliminating ruthlessness of competition considerably and ushering us towards collective prosperity. As businesses, nations and individuals. Collaboration is gonna be as great as competition if not more so.
The recommendations -
Streaming: Modern Love (Prime video)
SaaS: Notion, An amazing notepad (It is made FREE for personal use now)
I power my website with it.
Reading: I would leave you Bill Clinton talking about immigration in the 90s, it was different to be a democrat in the 90s. Just a message so you think long term about causes while voting and not blind partisanship.
Music:
Cheers! Have an amazing fortnight. 📅
PS - Let me know if you’d like this newsletter thrice a month. You may follow me on:
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www.bharatdevgandhi.com