Good Returns = Good Incentives

One of the special benefits of the Good Returns model is that it causes all the parties in the model to be incentivized for desirable outcomes.  A quick recap of Good Returns:

A business invests 100% of profits into sustainable non-profit organizations each year, for a rolling one year term, in the form of an interest-free loan.  The non-profit uses the cost-free capital to increase the reach of its sustainable mission (for example, providing more microloans to women in poverty, or issuing more low-cost student loans in Africa, or providing low-cost medical services in Guatemala, or … ).  At the end of the next year, the original funds are returned to the business and the process repeats itself.

Here are some of the interesting structural outcomes that Good Returns creates:

Management is motivated to maximize profits. The company’s management team is motivated to drive the company’s bottom line, just as in any traditional capitalist business.  This incentive is a big advantage over non-profits, which often burn money and other resources because they are not required to generate profits to survive.

– Non-profit partners are motivated to become sustainable. The vast majority of non-profits are unsustainable – they must continually raise funds from donors in order to survive. In order for a company to invest in a non-profit and be assured of the return of capital, the non-profit must be sustainable, or at least have a segregated sustainable program. Good Returns will drive more non-profits to develop sustainable programs.

– “Mission-fudging” is eliminated. In many traditional for-profit social enterprises, the management team must be incredibly strong in its convictions about the mission, because every dollar spent on the mission is one less dollar in profit, which results in lower compensation for the management team.  It’s simply not realistic to count on large numbers of people to give up personal gain for mission on an ongoing basis.  Under Good Returns, every extra dollar of profit is an extra dollar toward mission, not taken from it.

– Investors will come. In its first year in business, Soap Hope had more than 45% month-over-month revenue growth on a fraction of the marketing budget that a traditional startup would require.  How did we achieve this growth? By the passion of our customers for our mission – they communicate virally to friends, family, and through online social networks. If a company can create significantly more leverage from its marketing budget, it can drive higher return on capital for its investors. We plan to prove this assertion through the financial results from Soap Hope and other early Good Returns companies.

I’m curious to see what else we will learn about the structural benefits and drawbacks of the Good Returns model over time.  Please share your thoughts and experiences with me.

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Many people have asked how they can help. I ask for and welcome your help:

  • Purchase your all natural soap and body care products from Soap Hope – it’s less expensive than in the store, even with shipping
  • Use Soap Hope for corporate gifting and personal gifts
  • Connect me with national radio and tv personalities if you have those relationships
  • Write about Soap Hope on your blog
  • Share the Soap Hope fan page on your Facebook wall
  • Tweet about us as often as you are willing

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Coming Soon:

Non-profits: I’ll be writing a post for you about many different types of programs that non-profits can implement that are all sustainable.

Investors: soon I will write a post about how down the road dividends will be insured against loss while they are doing their one year of service.

Good Returns: My intention is to develop Good Returns as a stand-alone organization that provides certification for sustainable non-profits, financing programs to mediate timing differences between companies and non-profits, an insurance guarantee for invested funds, a brand that companies can use to attract and retain customers – I’ll discuss this and more in an upcoming post.

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Thank you for your loyalty and support!

Regards,

Salah Boukadoum
Co-Founder, Soap Hope

9 thoughts on “Good Returns = Good Incentives

  1. Does Good Returns carry an insurance policy that guarantees the assets against loss? Also, I believe that a person who receives a loan at a rate below prime has to classify the difference in interest as income. Since these are for non-profits does that mean that the lost interest (up to the prime rate) is a tax deduction in the case of Good Returns?

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    • Ean, thanks for the thoughtful questions.

      – The long term vision for Good Returns includes certifying non-profits on a sustainability scale and providing an insurance policy based on the certification. Businesses will be able to pick from a menu of Good Returns certified non-profits, and their investments will be guaranteed. However in the short term, Soap Hope and other early adopters will be taking a calculated risk with their capital to get the program going. To minimize risk, we choose non-profits with a long track record, transparent financial reporting, and a capital pool that is substantially larger than our investment. We also spread the investment among three different non-profits for diversification.

      – We are not aware of any tax benefits to the model today, but our long-term plan includes lobbying to obtain a tax benefit for providing interest-free loans to non-profits. At the very least, we would like to be able to delay payment of income taxes on our profits during the year that they are deployed for Good.

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  2. There are several catch phrases that concern me. They invest 100% of their profits. I would be interested to see what their cost are. If the two owners both take $500,000 as salaries, they could still donate 100% of their profits ($20,000 the first year) and it would sound great, but in reality might not be.

    They also say they invest their profits for a year. After that year do they pocket the profits? Who do they pay dividends to?

    I would like to believe this is as they say, I have just seen too many scams use the same thing to make people believe it is something its not.

    Make me believe Salah, lets have some transparency. Thanks.

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    • Hello M. Lane,

      At Soap Hope the owners are not paying themselves anything. We are funding this venture out of our savings from a prior business. We are also developing standards for the Good Returns model that prevent this kind of “sham marketing” – shareholder-owners are allowed to pay themselves as much salary as they like, but any amounts over $200,000 must flow through the model. ALL dividends must flow through the model.

      If you’ll read about the approach more carefully you will see that there is no donation – there is an interest free investment. That is an integral part of the model. Good Returns does not ask the investors or shareholders to give up their profits – just to put them to work a year at a time in sustainable social enterprises. It’s this unique approach that will allow Good Returns to scale. Very few entrepreneurs will give up all their future profits (Newman’s Own does it, but that’s a rare exception.) Many, many businesses and shareholders will defer their dividends for a year however – it’s great for business and it’s rewarding. If we want broad solutions, we need models with broad appeal.

      You ask if the owners “pocket” the profits after a year, as though there is something negative about taking home one’s hard earned profits, even after providing them to society for a year. Creating profits responsibly is the bedrock of creating a middle class, providing employment, improving society, building shared infrastructure, and contributing to progress in our society, and it should be encouraged and rewarded.

      Regarding transparency, I agree that will be important. As this model develops, participating companies will have to provide certification from an independent CPA that they did indeed follow the rules. Soap Hope will post a certification on its website later this year.

      Please learn more about the details of the Good Returns model in my TED Talk here: http://s-hope.co/shtedgr.

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    • Jason, thanks for your questions. We have a program that allows you to invest in institutions that we have already vetted and where we have a process and agreements in place. I will have a colleague reach out to you by e-mail with details.

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