Small Business Labs

Lots of Recent Press On Social Entrepreneurship

Lots of recent coverage of social entrepreneurship in the media.  Yahoo finance has an article called Introducing Social Entrepreneurship that covers the activites of Echoing Green, a social venture capital firm that funds and supports non-profits and social service organizations. 

New York Time Op-Ed contributor David Brooks has a column called "Thoroughly Modern Do-Gooders" that discusses the social entrepreneurship movement.  He describes this group:

"These thoroughly modern do-gooders dress like venture capitalists. They talk like them. They even think like them. That means that aside from the occasional passion for heirloom vegetables, they are not particularly crunchy."

Inc. also has a recent article on this topic.  I really like their definition of social entrepreneurship:

"Social entrepreneurs use cutting-edge, innovative business methods to promote positive social change. While profit is still the primary yardstick for assessing business, social entrepreneurs also measure the extent to which business makes a positive impact on society. Traditional nonprofits and citizen groups have been mainly distinguished by their benevolent intent. In contrast, social entrepreneurs stand out by their pragmatic emphasis on getting results."

No matter how you define it, social entrepreneurship is a rapidly growing small business segment. 

Doing Too Well by Doing Good

Ethos Water is a bottled water company owned by Starbucks.  Their water is sold at Starbucks and other retail locations.  For every bottle sold, Ethos donates five cents to a fund that provides clean water to children in developing nations.  Because of this mission, Ethos considers itself an "ethical brand."  I posted last week on Ethos and what one of their founders calls "The Economy of Integrity."

The lack of clean drinking water is a major global problem, so I was happy to support Ethos.  Over the weekend I went to Starbucks and bought a bottle of their water.  It cost $1.80.  This got me thinking about Ethos, "ethical brands" and doing too well by doing good. 

Ethos Water is a premium brand and priced higher than most of its competition.  For example, San Pellegrino water was available at Starbucks $1.60, and regular bottled water costing 80 cents was on sale next door.  The main reason Ethos is able to price higher is its "ethical branding". They ask consumers to pay a premium price in exchange for helping kids in developing countries get access to clean drinking water. 

In theory the premium pricing provides the money that goes to help the children.  While I couldn't find any financial data on Ethos on Starbuck's website (more on this later), it struck me that Ethos is likely quite profitable.  In addition to charging a substantial premium for their product, their key brand building and marketing expenses are promoting their positioning of "buy water, help children."  In other words, ethical branding is their key marketing program and their donation is one of their major marketing expenses.  And at 5 cents per bottle, it's not an overly expensive marketing program.  Especially since the ethical branding allows Ethos to premium price. 

So from the outside it looks like Ethos is an extremely profitable water company donating a very modest amount of money - in my case less than 3% of what I paid - to help kids in need of clean water.  Added to this, bottled water is not particularly good for the environment. 

So where does this leave me?  In interviews Ethos execs make the point that its not just the money that is important.  The Ethos brand "allows people to understand the world water crisis and feel as if they are connected to the solution."  This is a good thing. I also think socially responsible companies that do well and make a profit by doing good should be both supported and rewarded.   I consider Starbucks to be a pretty socially responsible firm. 

As I sat in Starbucks, I realized my issue with Ethos is they may be doing too well financially relative to the good they are doing.  They also may be doing too well relative to their positioning.  Ethos positions itself as a mission based social service organization, and their website makes them look like a non-profit.  I have a hard time reconciling this positioning with their pricing and my back of the napkin calculations of their profitability.      

I could be wrong about their financials.  Maybe they don't make any money.  Maybe they spend all their profits on water programs for kids.  However since they don't appear to be transparent about their finances, I don't know.  This seems odd, since transparency is something they push as being very important.

I really liked Ethos when I first read about them.  But social entrepreneurship is tricky, and to me they may have stepped over the line with their pricing, positioning and profitability - at least based on the information I currently have. 

I definitely want to support ethical brands and I would like give Ethos the benefit of the doubt.  But for now, my bottom line is their bottom line looks way too good. 

The Economy of Integrity

Interesting post on the Global Strategy Institutes blog on the role of social entrepreneuship.  The post is about Starbuck's owned Ethos Water.  Ethos makes bottled water that is sold in Starbucks and other retail locations.  For every bottle sold, Starbucks donates five cents to a Starbucks run fund that provides clean water to children in developing nations.

According to the blog post, the founder of Ethos Water has coined the phrase "the economy of integrity" to describe social entrepreneurship.  The essential elements of this are (from the blog post):

• Socially-oriented mission from the outset;
• Authenticity;
• Commitment across the value chain;
• Transparency from the start; and
• Consumer engagement beyond the cash register

It is not clear to me why we need a new name - this are basically the same elements that are listed in most definitions of social entreprenship.  But hey, if it leads to more social entrepreneurship then great.

The Growth of Social Businesses

Muhammed Yunus, who won a Noble Prize for his microcredit work, has an excellent article in the Christian Science Monitor on the differences between social businesses and charities.  Key quote:

"A social business is not a charity. It is a nonloss, nondividend company with a social objective. It aims to maximize the positive impact on society while earning enough to cover its costs, and, if possible, generate a surplus to help the business."

He goes on to talk about the human urge to do good:

"Because we are creatures who are motivated to solve the problems of the world, we need to add a new component. Capitalism has the capacity to do good in the world, provided we recognize that the motivation for the entrepreneur need not be exclusively economic and personal."

Jeff Cornwall also points out the growth of social businesses in a recent column in The Tennessean.  Key quote:

"Dr. Arthur Brooks of Syracuse University estimates that while there are about 1.5 million traditional nonprofits in the United States, there are about 9 million grass-roots social enterprises that are not organized as a formal nonprofit."

Jeff also points out that Gen Y is very interested in social entrepreneuship:

"There is a significant increase in interest in social entrepreneurship as a career option among college students today. At last count there were more than 20 universities offering formal programs in social entrepreneurship. Here at Belmont University we will be introducing one of the first full undergraduate majors in social entrepreneurship in the country this coming fall."

We've posted in the past on the trend towards values-based work and we cover social entrepreneurship in our first Future of Small Business forecast report.  In our research we consistently hear that people want work that reflects their life values.  We're also seeing a clear consumer trend towards supporting companies viewed as socially responsible, especially with members of the emerging buy local coalition and with conscious consumers. 

Expect to see social entrepreneurship continue to surge. 

Business Social Responsibility Not Always Easy - Ask J&J

J&J has found itself in an interesting situation.  They are suing The American Red Cross over trademark infringement.  The Pharmalot blog has a good round up of the coverage this has generated, and the Red Cross themselves put out a very strong press release.  Key quotes:

"For a multi-billion dollar drug company to claim that the Red Cross violated a criminal statute that was created to protect the humanitarian mission of the Red Cross-simply so that J&J can make more money-is obscene," said Mark W. Everson, President and CEO of the American Red Cross.   ...All money the Red Cross receives from the sale of these products to
consumers is reinvested in its humanitarian programs and services."

Interestingly enough, the Red Cross doesn't deny in their press release that they are infringing on J&J's trademarks. 

Obviously J&J did not want to do this. While US trademark law is confusing, the simple reality is if you don't protect your trademarks you lose them - and if J&J lets the Red Cross infringe on their trademarks they will lose them.  J&J's blog has their point of view on this topic.  Key quotes:

One of Johnson & Johnson’s oldest trademarks is the Red Cross design. We began using the Red Cross design and “Red Cross” word trademarks in the United States in 1887, predating the chartering of the American Red Cross.

It was disappointing to discover in recent months that the American Red Cross had started a campaign to license the trademark to several businesses for commercial purposes on all types of products being sold in many different retail and other commercial outlets........This action is in direct violation of a Federal statute protecting the mark as well as in violation of our longstanding trademark rights.

....unlike in decades past, the American Red Cross was not working through this issue with us. In fact, they had rejected our offer to turn to third-party mediators to find an agreeable resolution, even after we had indicated our willingness to use a mediator recommended by the American Red Cross itself.

According to J&J negotiatons to fix this problem failed, and they were forced to sue.  Another interesting piece of this is J&J and the American Red Cross have a long history of working together, and J&J has donated over $5 million to the American Red Cross over the last 3 years alone. 

Lot's of data stress the importance of social responsibility programs for both small and big businesses.  Smallbiztrends has a good post covering this, and we've posted on this in the past.  As J&J has found, these programs and relationships are not always easy.  However, being socially responsible is becoming an increasingly important factor in attracting customers, business partners and employees. 

Disclosure:  I've done work for J&J over the last year.  I have not (thankfully) been involved in this issue, nor had any contact with J&J related to this issue. 

The UN Global Compact, Social Responsibility & Small Business

The UN Global Compact is a UN program bringing together private corporations, UN agencies, and civil society groups to work on solutions to the challenges of globalization. 

As part of their meeting in New York this week, several related studies have been released.  Goldman Sachs released a study showing that large public firms that are considered leaders in implementing environmental, social and governance (ESG) policies have outperformed the general stock market and their peers over the last 2 years. 

McKinsey released the results of a survey of participating Global Compact CEO’s (mostly large public corporations) on the topic of ESG and 72% of the respondents said that corporate social responsibility should be embedded fully into corporate strategy and operations.  Key quote from the UN press release:

“Taken together, these … reports show that for an increasing number of business leaders, corporate responsibility is no longer an option, it is a necessity in order to compete successfully…”

Many small businesses officially or unofficially have implemented ESG policies. A recent American Express survey showed that the majority small business owners are concerned about global warming and willing to pay more for green products. Inc. magazine also has an article on B Corporations, which are companies that include social responsibility language in their articles of incorporation.  Key quote:

“To become a certified B Corporation, a company must amend its articles of incorporation to say that managers must consider the interests of employees, the community, and the environment instead of worrying solely about shareholders.”

It is increasingly clear that businesses of all sizes can do well by doing good.  Because of this, social entrepreneurship will continue to grow.