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Three Principles to Guide Social Impact in Large and Small Businesses
Bake It, Scale It and Measure It
Today, it was my privilege to speak to a group of social entrepreneurs working to change the world and make a living. This incredibly diverse group of people is engaged in starting and growing businesses that do or have the potential to provide a great living and also make a difference on climate change, health or social justice.
Our discussion got me thinking about three principles that should guide efforts to build profit with impact. These are simple but important.
Bake in the Impact.
These principles apply equally to Fortune 500 companies and start-up social enterprises aspiring to be lifestyle businesses. They apply to every business. Period.
Bake in the Impact
There is a temptation in every business—and many do this—to make impact initiatives a function of profits. If the impact is something you do with your surplus cash, there will be constant pressure to reduce the impact.
Tom’s Shoes is perhaps the most famous example. The company’s original model of giving a pair of shoes for every pair sold has morphed over time. The company still gives generously from its profits.
A few years ago, I wrote a Forbes article about a rapidly growing social enterprise using the one-for-one model in another market. My piece was enthusiastic and glowing. Just a few months later, the company filed for bankruptcy.
While the bankruptcy was not the fault of the company’s model for donating, it did end the giving for a time as the company worked through a restructuring with the court.
Many impact investors picked up on this flaw early in the game. If the impact model depends on profits, narrowing margins will likely suspend the impact at some point.
There is another way. Bake it in. Change the recipe for impact to incorporate it intrinsically into your product offering.
For instance, if you are launching a coffee shop, you could source organically grown coffee beans, paying indigenous farmers a higher-than-fair-trade price. In that single decision, you are fighting poverty and working for social justice while simultaneously seeking to improve the environment. You bake it in.
Now, imagine you work at Chevron. The goal would be to bake in impact in the energy products. The company is almost certainly doing some of this; I’m confident it can do more.
The company can move more of the energy used to produce fuel to come from solar, wind and biofuels, reducing the carbon footprint of its gasoline and diesel fuel. It can incorporate more ethanol and biodiesel products into its supply chain, relying less on fossil fuels. It can power its fuel distribution system with hydrogen-powered trucks. The list is endless, even while continuing to sell fuel for internal combustion engines.
The impact at Chevron could be huge. It isn’t impossible to imagine a future dominated by electric vehicles. In that world, there won’t be as many gas stations. Some legacy energy companies will fail. The most likely to succeed in that world will be selling pure biofuels created with the lowest carbon footprint. There is no reason it can’t be Chevron.
If I’m being honest, I expect it will be a company that didn’t even exist in 2000 that will innovate nearly carbon-free fuels for internal combustion engines and dominate liquid fuel market in 2050.
Whether large or small, new or old, look to incorporate positive social impact directly into your product or service offering. Bake it in.
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Every business, regardless of scale, is tempted to do enough good to get the credit they want and then coast.
Extreme examples in the environmental space are labeled greenwashing. Large companies are especially good at this. They have sophisticated public relations teams prepared to help disseminate news of good deeds. They can sometimes get away with publicizing small measures of good and garnering undue attention as environmentally friendly.
Picture a hypothetical example of a big oil and gas company putting solar panels on the corporate headquarters. The gesture could get a lot of press but would do little, even over time, to reduce the world’s addiction to fossil fuels.
When you bake the impact into the recipe for your product, it is easier to scale it up. Don’t skimp.
In high school, I worked for a bakery that bragged about using real butter in its products. It did. Alongside increasing proportions of margarine, we put diminishing amounts of butter in our products. The company is no longer in business. Surprised? Don’t do that with your impact.
Look for ways to do the opposite. If you’re looking to add more organic or regeneratively grown ingredients to your baked goods, start where you are and then look for more. Today, perhaps, you can find regeneratively grown raisins or almonds. Next week you may find a supplier for walnuts.
Eventually, you may be able to add core ingredients like flour and sugar to your list of regeneratively produced items. One day, you may be able to consistently make a variety of baked goods with entirely organic or regeneratively produced ingredients. Then you can look to add solar power as your energy source, EVs for delivery, programs to prevent food waste, etc. The opportunity is endless.
Back to our hypothetical big oil and gas company with solar panels on the HQ. Where else could solar go? After tearing up vast swaths of land to mine tar sands, could solar farms be built to use that disturbed land? Wind farms? Geothermal? The opportunities are limitless.
Don’t be satisfied with “enough” impact. Stay hungry. Scale it!
Can you imagine running a successful business that doesn’t do the accounting required to measure profits?
There are many short-cuts entrepreneurs use, like cash flow and cash in the bank, but these only work for short periods. Ultimately, successful companies get good at measuring profits. It is almost a fact that you can’t have profit unless you measure profit.
The corollary is also true. You can’t have impact unless you measure it.
The first thing to do is to measure the impact-oriented activities. Our bakery using organic ingredients might start by measuring the volume in pounds of organic ingredients.
In the long run, however, buying organic isn’t the impact, is it? The real impact goal is what organic farming yields: a healthier environment. You get closer to impact measures when you can make scientifically valid estimates of water saved, artificial fertilizers and pesticides used and carbon sequestered.
It is interesting that you have used 12,000 pounds of organic food in your supply chain this year. It is thrilling to know that your sourcing has saved (hypothetically) 5 million gallons of water, avoided using 10,000 gallons of herbicides, 15,000 gallons of pesticides and sequestered 2,000 tons of carbon. That’s impact!
Corporations aren’t really in the same boat. They are in a different watercraft altogether. Big corporations have the resources to produce glossy citizenship reports that, in the best of examples, are full of this sort of data. Best practices demand that they vet such documents in much the same way that teams of legal and accounting professionals scrub annual filings with the regulators.
By measuring impact, you enable yourself to have more every year. There is no limit. Measure it!