2

Doing good versus doing well
BALANCING IMPACT AND PROFIT

Is yours a business idea that creates the common good? Or a social idea that gets carried out through a business model? Late at night, at social enterprise gatherings, the bars and lounges are filled with people debating this core paradox. As Shari Berenbach of Calvert Foundation says, “Mission-versus-margin is not an abstract trade-off.”1 (For the sake of this discussion, we use “margin” as shorthand for “earned operating income” simply because “mission versus margin” rolls off the tongue better than “mission versus earned operating income.”)

While the trade-off defines the decisions that need to be made, you must look at the question broadly. You don’t have to settle for an either-or option. In fact, the moment you do, you cease being a social enterprise. Without your mission, your commitment to the common good, your desire to cure an ill, you are not social. but it is equally true that without margin, you cannot define your organization as an enterprise.

■ UNLOCKING THE FIRST PARADOX
On balance, Mission Versus Margin is not an either-or.

You need both mission and margin to be a successful social enterprise. Naturally, these two concepts will create some tension. This tension—and there must be tension—will push on you, your decisions, your staff, your culture, and your customer relations. It will permeate every facet of your business. You had better give it as much thought as any other part of your business, be it your financing, marketing, or administration, or else leading a social enterprise will bring out the closet schizophrenic in you and your employees.

If you find yourself thinking it is one way or another, then you are in an unhealthy place. Using the body as an analogy, is one part of your body more important than another? Would you rather do without your hands or without your feet? Would you rather have no eyes or no ears? Would you rather have a brain or a heart? What choice would you make? How would you participate in the conversation about those choices?

The body thrives when all bodily functions work in unison, each part supporting the other. So it is with the world. So it is with a social enterprise and with mission and margin. On balance, mission and margin are absolute equals. And yet on any given day, the proportions might appear to be 70/30 one way or the other. Just as it is with the body. In a track race the feet are more important to the body than the hands, but at a backyard cookout the hands carry the day. Sometimes the mission will feed the margin, and other times the margin will feed the mission. Depending on the situation, you may need to protect the mission by defending the margin or defend the margin by protecting the mission.

Mission versus margin (and margin versus mission) is, in -tellectually, a macro paradox. But in the day-to-day operations of a social enterprise, it is played out in an endless series of micro paradoxes.

Guiding Principles

In order to maintain some level of sanity for yourself, your board, and your employees, you must tackle these paradoxes head-on. One way to do so is by establishing a written set of guiding principles that gets all stakeholders on the same page in defining success.

Establishing these principles before you begin to operate the business is key. Doing so in the heat of battle will lead to wasted energy going in directions that will only accidentally achieve your desired outcome. You would not go to a meeting at a bank and in front of the banker calculate for the first time how much money you need to start your business. Nor would you sit in front of your customer calculating the cost of raw materials to determine your sales price. You recognize the obvious need to be prepared in those instances. Similarly, you need to be prepared for the larger decisions that will confront you. All stakeholders need to know where the values of the business lie. They need to know where you, as the business leader, stand. They need to know what will drive you and your decisions.

■ PRACTITIONER’S TIP
Create a set of guiding principles.

Guiding principles are more descriptive than a mission statement. They describe what can be expected of you in various situations. They should be prepared in cooperation with your board and employees and be readily available to them. State them as overarching principles that do not handcuff management but do provide structure and guidance. Your strategic planning and goal setting should flow from your mission and guiding principles, which should be changed only with a great deal of deliberation.

Your guiding principles should be brief, simple, and few in number. Six should be about right. While we have prepared a longer yet incomplete list to illustrate some of the potential areas your guiding principles might cover, your mileage may vary. The key principles that are important to you will depend entirely on the industry you’re in and the particular “brand” of common good you are seeking to create.

Sample elements of guiding principles

Once you’ve done the hard work of creating your guiding principles, your life will become a lot simpler. The world with which you and your enterprise interact will know where you stand.

To maximize the benefit, communicate your principles widely, including on your web site, for all to see. You will attract the stakeholders you want to work with and will repel those you don’t. Life is short! Visit the Greyston Bakery web site to see an example of a set of guiding principles that leaves no confusion about what Walls and his team are up to.

Practicalities Beyond Principles

We firmly believe that a well-thought-out model, a clear set of operating principles, a combination of deep passion and commitment, and sufficient attraction of capital will, taken altogether, allow you to have both mission and margin. But again, that is a macro concept. Out there in the trenches, where you spend most of your life as the leader of a social enterprise, you face constant individual decisions where you do have to give more or less weight to one or the other of these imperatives.

Joan Pikas of The Enterprising Kitchen recognizes the conundrum as it relates to pricing issues in the highly competitive soap market in which she operates. She says:

I am thrilled that we are making soap, and I think that makes us special. But at the same time, what I care about is that we are giving people an opportunity to get some work experience and get on their feet. If I thought there was a big customer out there who would buy $50,000 worth of product, which would give us a lot of work to do, but I needed to lower the per item price, which meant that we were just barely covering our costs… I would say “okay we are going for this because it means we are going to have x number of women here working on this project.”2

Now, mind you, that’s not a trade-off Pikas can make every day. She may need to augment that big $50,000 customer with lots of smaller, high-margin customers. Or she may need to improve the efficiency of her operations to lower her breakeven point. She may need to amass more purchasing clout to lower her raw material costs. Or she may need to accept a larger portion of her budget via public support. But it’s hardly an either-or, and that’s the important point.

■ PRACTITIONER’S TIP
Most daily decisions aren’t made in perfect
mission-margin balance. They will tip in one direction.

Mission Leverage

Jeffrey Hollender says his company has a variety of missions:

On the one level [our mission] is to provide safer and healthier household products to consumers. Wrapped into that is—probably equally important—our goal to both educate people about environmental, social, and health issues as well as inspire them to believe that through their actions they can make a difference. On another level— and no less important—it is to create a working experience for the people at the company that is better and more fulfilling than they have had anywhere else and that allows them an opportunity to grow and develop as human beings. In a third area, we very much wanted to be a model for what was possible in business terms of integrating our mission with our financial objectives.3

It is not a coincidence that Hollender has managed to build one of the most successful social enterprises (if you consider $100 million in sales and nearly 50 percent margins successful) around not just one but at least three missions—because not only can you make money while pursuing a mission, pursuing that mission can help you make money.

Let’s start with your employees. As we discuss in chapter 6, they’ll operate with a higher level of passion if they resonate with your cause. You will have the opportunity to attract better talent because your company provides more than just a paycheck. Don’t use this knowledge to underpay your em ployees: pay them what they deserve. Their commitment to the mission will provide you an opportunity to connect with them in ways of which other businesses can only dream. People really do care about their planet and their fellow humans and are just waiting for an opportunity to express this. Your mission-driven business will give them that chance.

Now on to your customers. Does it matter to them that yours is a mission-driven company? The short answer is yes. The longer answer is much more complicated, as Walls learned during his early days at the Bakery. When he arrived at Greyston, the Bakery had a reputation for delicious cakes, sloppy quality control, and spotty service. The quality of the cakes and the level of service were the customers’ decision factors. Everyone at Greyston wanted to deliver a great cake every time, on time, but intention didn’t match up with performance, and many customers were not happy. Walls needed to improve on these factors or he would lose the restaurants and delis that were buying from him. No amount of connecting Greyston’s unsatisfactory performance with its challenging mission would ever convince businesses to buy. They would much rather make a donation from the profits they could earn from having someone else deliver them good cakes on time than deal with a lack of performance that would reflect poorly on them to their customers.

When Walls visited these current customers and prospective customers as the director of marketing and sales, he made a conscious decision to not tell customers about the mission. He believed Greyston’s performance could not stand up to its mission and didn’t want to give customers the chance to blame the poor performance on the employees. He knew it was possible to raise the company’s level of performance through better management of all resources, including staff. Once that was done, he could then, with confidence, reveal to his customers the source of their cakes. Many were excited to hear that their purchases benefited those less fortunate. To others, it did not matter at all.

Mission also provides positive leverage to your operations. Being good in one area tends to make you good in others. For example, before you know it you may end up greening your facilities, which tends to reduce costs, liabilities, and regulatory problems. Or you may end up getting your staff involved in community projects, leading to new customers, better suppliers, better real estate and facility options, or political support when you most need it.

Mission leads to financial leverage. In general, banks tend to be nicer to organizations that are doing good because it makes them look good. In the worst-case scenario (one we sincerely hope you never face), shutting down or foreclosing on a “do-good” enterprise is the last thing a bank would ever want to do. In the best case, remember that banks lend on a combination of character, capacity, and collateral and will often give more than a passing nod to the superior character of social enterprisers.

In fact, in just about every area of your enterprise, you can create a positive trade-off between mission and margin.

■ PRACTITIONER’S TIP
Leverage mission and margin to gain a
key competitive advantage.

Of course, there are challenges too, and we’ll delve into those in more detail in the chapters that follow. But the next time someone asks whether your mission is more important than your margin, tell her that your mission and margin are equally important. Tell him that you started your business because you had a yearning to change the way the world operates, that the most effective institution impacting the world today is business, and that you are going to use that power for good. Tell her that you wouldn’t have started your business if you did not have this yearning for change. Tell him that you couldn’t be successful without margin and wouldn’t want to be without mission. Tell her that your business can’t sustain itself without profits and that the world can’t sustain itself without your business.

Tell him that you run a social enterprise—where mission and margin are not an either-or.