The Leverage of … You

We’ve all recently heard the “dangers of leverage” – housing crisis, debt crisis, derivative losses – when it multiplies risk. But it’s also important to understand the power of personal leverage, which enables each of us to maximize our impact for good in the world.

Leverage allows you to take a small action that multiplies itself over and over, so your action can create a large positive effect in the world. It’s dear to me because it makes nonprofit microfinance work, it makes Soap Hope work, and it makes the Good Returns social business model work. Leverage will create the scale we need to solve the world’s greatest problems.

AlSol is a microfinance institution in Chiapas, the state in Mexico with the deepest level of poverty today. When AlSol provides a $50 loan to a woman and helps her start a business we see leverage operating at every level. The woman who receives the loan gets a permanent investment in her well-being. Unlike charity organizations, AlSol doesn’t give its clients food or money or clothing. Instead it gives them knowledge, confidence, skills and loan capital to start a business. AlSol uses leverage: it creates a lifelong change for its client, not just one-time help.

The $50 loan has its own leverage. As AlSol’s client becomes successful the loan is repaid. The $50 can be loaned to another woman who will also repay it. Over ten years the $50 loan will help twenty different women. A $50 gift would have helped only one.

AlSol as an institution creates leverage through the entire world of sustainable nonprofit initiatives. It shares its best practices and its lessons learned with other institutions. As it succeeds, other groups learn from its model and grow faster. Other people become inspired to start their own similar institutions around the world.

It’s because of this kind of leverage at every level that my social business Soap Hope chooses to invest in AlSol. Our own model provides leverage too. Soap Hope’s model of Good Returns, where every dollar of profit spends one year interest-free in sustainable non-profit partners, is designed to scale to thousands of businesses, creating billions of dollars of capital to solve the world’s most pressing problems.

It’s important to remember the power of your own personal leverage. As you make your every day choices in life, notice which ones will multiply many times over for the good of yourself, your family, your community, and your world.

Participate!

You can use your personal leverage with me right now. You might be surprised at the power you have to influence the behavior of thousands of people. Here are three things you can do with me right now in 10 minutes for far-reaching results:

– Share this blog. If you share this blog with 100 friends and colleagues, and they share it with 100 friends and colleagues, what will happen? One of those people – whom you may not even know – may be the next person to adopt the Good Returns model in their business. If that person’s business is an average Good Returns small business, it will generate $100,000 in loan capital – enough to serve four thousand woman through AlSol. Look at that again: one person who shares this blog can help four thousand women from poverty. That one person can be you.

– You can send a bar of soap to a friend. Soap Hope’s packages are designed for leverage. They are designed to capture your attention and educate you about microfinance and the power of each individual to make a difference in the world. If you receive a gift from Soap Hope, you can’t help but give a gift from Soap Hope to another. The profits provide capital to groups like AlSol all around the world.

– Post our video to your Facebook, blog, and Twitter. Videos have leverage – they have the opportunity to become virally active and seen by millions of people.

Salah Boukadoum
Founder, Soap Hope

Scaling Social Ventures

Pepsi – selling chips and soda

You can travel to almost any part of the world and you’ll find products made by PepsiCo. You’ll find Lay’s potato chips in India and Argentina, in France and Israel; you’ll find Pepsi drinks in Egypt, Germany, Canada and Brazil. In the third quarter of 2010, PepsiCo made $1.92 billion in profit.

Let’s look at that number again: in 90 days, during a global economic turn-down, PepsiCo sold soda and chips around the planet to earn two billion dollars in profit.

The performance of PepsiCo is a testament to the power of business. How does this happen? Clearly there’s a lot of complexity to running a global marketing and manufacturing operation. But we can still boil PepsiCo’s worldwide scale down to a few key elements:

1. It creates something that lots of people want.
2. It sells its products for a lot more than it costs to make them.
3. It has access to a vast amount of capital that finances its growth around the world.

It’s #2 – the big profit margin – that makes possible #3 – access to capital. Investors put lots of money into PepsiCo, because they know those profit margins are going to produce dividends and create a high return on investment.

Esperanza – lifting communities from poverty

Let’s look now at Esperanza International, a microfinance institution in the Dominican Republic. Esperanza makes a profit – but not much. Its goal is not to make a lot of money for investors; it is to help women come out of poverty permanently, transforming families and communities.

Unlike PepsiCo, Esperanza provides its service for the lowest possible cost at the expense of large profits. Why? Because its revenues come from the poor, and Esperanza believes it is important to leave as much money as possible in the hands of the poor that it serves. Its mission is to eliminate poverty, not to enrich investors.

Unfortunately, that decision also means Esperanza doesn’t get access to capital as PepsiCo does. Investors will not give Esperanza large and continuous infusions of capital to scale its operations, even though it is profitable – because they can make a lot more money investing their funds in PepsiCo. This is why PepsiCo is on every corner of the planet and Esperanza is not.

Notice that the social good performed by an organization doesn’t figure into the financial equation. It doesn’t matter that PepsiCo sells chips and Esperanza provides a path from poverty. All that matters is the return on investment.

Social Ventures Solve Important Problems

There are thousands of small-scale low-profit social enterprises around the world. They are working to solve urgent problems for society and for the poor. They provide medical services, housing solutions, sustainable energy solutions, clean water operations, anti-poverty programs, educational offerings – all the things we need desperately in our world. But even when these operations are capable of solving problems worldwide, they will never scale fast enough to address these problems on a global basis. They operate like Esperanza, filling an important need but earning only a small profit. There aren’t enough philanthropists in the world to put the needed capital into them. The vast sums of money that are available to finance growth for ExxonMobil, Google, PepsiCo, Bank of America, Microsoft – companies that generate substantial profits and thus high returns for investors – are not available to these important social ventures, and so the problems that they could solve worldwide remain unaddressed.

How To Finance Social Ventures

It’s always a better idea to work with existing forces rather than trying to change them. Asking investors to take a lower return in exchange for improving social conditions is an idealistic – and unrealistic – dream. Lobbying governments to provide capital is the same. That’s why we have invented the Good Returns model. This model works with existing market forces to drive capital into social ventures. It supports the desire of investors to make high returns, of entrepreneurs to create wealth for themselves, and of consumers to get the products they want at the lowest price.

Good Returns is simple. Any small business can do it: when it’s normally time to pay a dividend, instead 100% of the dividend is loaned to a sustainable social venture for one year, interest-free. After that one year, the social venture repays the capital and the investor receives his dividend.

Example: at the end of each year, my company Soap Hope calculates its profits and pays its taxes, then reserves some of its cash for the next year’s capital needs. Every remaining dollar goes to microfinance institutions so they can make more loans to more women. After a year, these institutions repay Soap Hope, and Soap Hope then distributes that money to its investors.

Why is this not philanthropy? Because the investor’s return is much higher in a Good Returns company than in a “normal” company. Because Soap Hope operates under the Good Returns model, we are able to inspire our customers to levels of loyalty and viral marketing that a traditional business never could. “100% of profits are invested for women in poverty” – it’s a powerful draw for customers. They can change the world just by choosing Soap Hope over a competitor. Soap Hope receives hundreds of messages each month from customers who are thrilled by our social mission. A traditional company would need a large marketing budget to achieve the same goal. Soap Hope has thousands of customers working to spread the word.

Is a one year loan of any use to a social venture? Definitely. If you think about the flow of money, the Good Returns model creates a semi-permanent capital pool. Each year we are repaid the prior year’s loan so investors can take their share – but we replace the capital with the new year’s profit distribution. When thousands of small companies operate together this way a very large pool of capital will be created to power social ventures.

Good Returns is organizing to provide services to entrepreneurs and social ventures around the globe. Some of those key services:

  • A program to teach entrepreneurs how to implement Good Returns in their business
  • A Good Returns seal to tell consumers their purchases are helping to solve the world’s biggest challenges
  • An insurance bond that guarantees investors will receive their dividend after its year of service
  • Education for nonprofits to teach them how to transition from a fundraising model to a sustainable low-profit social venture model

Social ventures have already figured out how to solve pressing world problems. They just need capital to scale their operations. Good Returns will generate billions of dollars for social ventures – all financed by consumers who choose companies that are working for good in the world.

Please share the Soap Hope mission – empowering institutions that help women in poverty around the world – with friends,  family, and the media. Buy from Soap Hope and help change the world.

Poverty Offsets – Local Commitment to Global Good

When a developer wants to build, in some areas she must offset her impact on the environment by planting trees. Companies that want to be carbon-neutral can purchase carbon offsets from other businesses. I propose a similar idea for public projects that are made possible by our incredible prosperity in the developed world – arts centers, sports stadiums, parks and sculptures. I call it a Poverty Offset.

In my home town of Dallas, we’ve created a fantastic cultural beacon for our Arts District: the AT&T Performing Arts Center. Renowned Dallas leader Bill Lively led the effort to raise $354 million over a nine-year period.  The Center houses four new performance venues and a public park, all designed by world-famous architects.  This amazing project is like a lens that has focused the city’s creativity, capital, leadership, culture, and expressive passion all in one dense area in downtown Dallas. The production is highly local and demonstrates what people can accomplish when they are able to harness their community resources.

I propose that we “offset” the local, resource-rich creation of such a facility with an equal attention and passion for the opposite side of the coin: the global resource-poor. As we amass such a powerful achivement of capital and creativity for Dallasites and the arts, let’s also amass an equal amount of capital and creativity for the poorest across our world.

I propose a Poverty Offset for the AT&T Performing Arts Center.  Let’s create a new nine-year plan – this time to invest $354 million of capital into sustainable social ventures worldwide that reduce poverty, create clean water solutions, reduce disease, drive renewable energy solutions, and enable education in those parts of the world that struggle most. Dallas has thriving social venture and arts communities that will be energized around such a grand project. The Center’s venues can contribute space and act as an event catalyst. The great philanthropists and fundraisers that made the Center possible can coordinate resources for this Poverty Offset as the next phase of giving. The entire city will be inspired as we know that the Center is now not just about arts and culture, but also about creating massive new opportunities for our world community.

Let me be clear: I’m not suggesting that we raise $300+ million in charitable donations or “give money away.” I propose that we use this project to motivate, direct, and leverage that capital into sustainable social enterprises that address global-scale problems.  Done in the right way, all $354 million would return to its sources in Dallas. One approach is the Good Returns model. There are many others we can incorporate.

Bill Lively has moved on to another big project: he’s now President and CEO of the North Texas Super Bowl XLV Host Committee. Cowboy Stadium cost over a billion dollars to create. What would a Poverty Offset for the Stadium and the Super Bowl look like?

If every stadium, arts center, arena, museum, and park focused equal attention on the resource-poor through a Poverty Offset, we would quickly create a trillion – yes with a T – dollar capital pool and see powerful, sweeping improvements in the lives of billions of people across the world – not through handouts, but through opportunities provided by sustainable social ventures.

My first career was as a classical pianist, so I have a deep love of music and art. I understand the importance of expressing our higher selves through arts, sports, and culture. But we must also express our higher selves by extending opportunity to those around us, so they too can have their own full expression of life.

Let us start here in Dallas with a Poverty Offset for the Performing Arts Center. Let’s get together and create a broad and clear strategy for this nine-year initiative and a way to measure our $354 million investment in the world’s neediest. Let’s rise to our highest selves, Dallas: use the great cultural gains we’ve made in the past decade as a launching point to become the world leader in global social philanthropy, the world’s clear example of how to scale social entrepreneurship to solve our greatest global challenges.

Salah Boukadoum
Citizen, Dallas

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