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Newsletter: Real Good, Not Feel Good

May 1, 2010 7:12:00 AM / by Tim McCarthy

Being a good cause will not attract sufficient customers to your social business; you must first have a good product with a competitive distinction. [more]

Those were the words Rick Aubry used, apparently a quote from a mentor of his, to describe what is necessary to succeed in a non-profit social business. He means that once you decide your non-profit will enter some form of business, be sure the business can stand on its own.

And he should know since he was creating social businesses 20 years ago, long before it became fashionable.

Rick is the force behind New Foundry Ventures (www.newfoundryventures.org), a highly successful non-profit corporation providing many services to the homeless in Richmond, California.

In the late 1980’s, Rick and his team were challenged - as is every non-profit - with building a sustainable base of revenue for their organization.  In the time since, they’ve built a bakery, a housing division and – believe this or not – a landscaping company.

All tolled, these businesses employ some 300 people and drive an annual revenue for Rubicon Programs of about $17 million.

Rick, who also teaches social enterprise at Stanford’s School of Business, very kindly was the guest of The Business of Good’s forum last week. The video of his presentation and the dialogue following it will be available on our website in a week or two.

The ultimate combination, that is good works and good business, seems to be represented brilliantly by the Rubicon brands.

Consider this: the primary qualification for an entry level worker in these companies is that the applicant must be currently homeless. They figure this makes things a little harder at first, but over time pays off with more loyal workers and a decrease in the homeless, marginalized population of Richmond.

Makes sense to me.

And it is nice karma. Advance the lives of the working poor while serving profitable markets to increase their capacity to serve more homeless people.

Seems simple, and it is. But of course it is still very difficult. Some of the reasons were covered by Rick in his dialogue with us.

First, he defined social enterprise as “a means to create change.”  And social enterprises, or means to change, work best in instances of market failure.

An example would be mattress recycling. Discarded mattresses comprise one of the largest, non-biodegradable elements of any landfill. And yet every mattress has lots of cotton, wood and metal that is recyclable.

The market failure is that it is labor intensive to deconstruct a mattress and therefore there is no profit motivation for the mattress companies and retailers (selling and delivering new mattresses) or the landfill owner to recycle.

Enter several local non-profit corporations that Rick is working with to build a business model around this win/win/win market need.

With 3,000 to 5,000 mattresses a month, a non-profit with ready-labor, such as Rubicon has demonstrated in Richmond, can:

  1. Reduce the cost of mattress disposal to retailers
  2. Reduce space used, and therefore cost, to landfill operators
  3. Do something nice for our environment
  4. Employ a ton of people
  5. Create a revenue stream for their non-profit

To me, this is the penultimate example of a social business because it finds the middle ground where everyone has to work hard but everyone wins as a result of their effort.

The mattress enterprise is an emerging business that Rick and his team (at his new non-profit called New Foundry Ventures www.newfoundryventures.com) believe is scalable.

When he detailed his old bakery business he taught us another important lesson worth sharing with those who may try to start a “business of good.”

New Foundry’s cakes are widely distributed now, in places like Whole Foods and Trader Joe’s. So when a question was asked about competition, Rick’s answer was very telling:

He said that once you enter business, no matter how worthy your cause, it is not enough to be “the best non-profit cake in the case.”  You must be “the best cake in the case.”

That is, people may care but only enough for a first purchase and that’s not even a sure thing.  When they serve their cake to their family or friends, it’s unlikely they’ll say “Yea, it’s not a very good cake but it was made by formerly homeless people in Richmond.”

Rick went on further to say he can’t imagine a company CEO noticing some really bad landscaping at their headquarters and saying to his facilities director, “Oh, I’m not worried about looking bad, it’s for a good cause.”

And so, if you decide to follow (as we and our partners have) this new wave of finding new revenue streams for your non-profit so that we might depend less on the old “ask-model” of fund raising, remember that the challenges might be clearer but no less daunting.

The good news is that we can increase our capacity to serve, like Rubicon did, many fold.

The challenging news is that there are few current markets without competition. A coffee shop down the street from your social business/coffee shop will not surrender their customers without a fight. 

Rick closed the forum with this comment worth remembering in social enterprise:

“There is little competitive advantage in the social mission of your business.”

Each of my for profit companies are operated as socially responsible businesses.  And while that’s a source of pride and motivation for everyone involved, it is rarely among our customers’ reasons to buy.

It’s harder but more profitable to make it “real good, not feel good.”

Tags: Newsletter, Social Business

Tim McCarthy

Written by Tim McCarthy

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