Solving The Puzzle

Jenny is VP of marketing at a $150 million company. Each year for the last three years, her CEO has given the senior team a set of measurable goals. They get a huge bonus when they meet the goals. Every year they’ve met them.

Some of this year’s key goals:

– $30 million in new revenue.
– Double the number of small-business customers.
– Do this without impacting profitability.

Jenny is confident she will meet the goals this year.

And that’s how I know the people in Jenny’s company are passing up a huge opportunity to improve our world.

Huh?

That’s right. Follow me:

Jenny’s company has a simple but powerful formula for financial success that works every year:

– The CEO sets goals that are easy to measure (all numbers).
– He fully empowers his team.
– He pays them a big bonus when they succeed.

The goals are like a puzzle – they only fit together in certain ways, and when the team solves the puzzle they get a big reward. They bring all the creativity and hard work necessary to solve the puzzle.

Last year’s puzzle included, “Do this without impacting profitability.” It would be easy for Jenny to generate the new revenue by lowering prices, or running a massive ad campaign. But the puzzle is harder than that: she has to find ways to reach new customers without spending too much or lowering margins.

Remember, Jenny told me she is confident she will reach her goal. She’s done it three times before. The team has already come up with multiple creative ways to go after new customers.

Now, here’s where Jenny and everyone else in her company is missing an enormous human opportunity.

Jenny’s company will make no measurable impact on any of the biggest challenges in our world: poverty, clean water, clean energy, conflict, education, disease. The company has no social focus at all.

Why? Because there’s no social impact goal tied to their bonus. It’s not a part of the puzzle. Jenny won’t spend any time on it. None of the team’s creative potential will go toward it.

My critic says, “But Salah, it’s not the role of a business to solve social problems. Whatever energy they would use to solve social problems could be used to make more money, which is the purpose of the business. You’re just making the business less effective by injecting extraneous requirements.”

That’s a fallacy that is preventing us from using the vast human capacity in businesses from making big strides toward solving our world’s greatest challenges.

Let me show you how:

Give Jenny this extra goal: “Reduce the number of children who are hungry every day next year by 1,000.” The last part of the CEO’s puzzle is still, “do this without impacting profitability.” Jenny can’t just donate a million dollars to meet the childhood hunger goal, any more than she could just lower prices to meet the sales goal.

The worst possible way to meet this goal is to figure out how to earn more money as a company and then donate the money to organizations that feed children. That will cost over a million dollars. If that were the only way to solve the problem, I would have to agree with my critic.

But that’s not how Jenny is going to solve this puzzle.

Jenny is going to develop creative solutions that integrate the goals – just as you would approach traditional company goals. She will use the social goal as a tool to help meet the financial goals, and use the financial goals as leverage points to meet the social goal.

She might use the requirement about childhood hunger to create new opportunities and tactics for marketing and selling. She might bring opportunity to customers and vendors around the childhood hunger goal that result in a financial benefit. If Jenny is effective, her team will develop a strategy that doesn’t treat the social goal as separate, something outside the main plan, something to figure out at the end. She will use the social goal to help solve the total puzzle.

If Jenny’s CEO will create a social goal that is measurable and clear, and make the team’s bonus dependent on it, he will find what I and other social entrepreneurs have found in our own business experience:

– Brilliant new creative marketing ideas arise from the team.
– New partnership opportunities emerge.
– New dimensions for business appear with customers and vendors.
– A new kind of passion and creativity ignites inside the organization as employees start to see that their work every day is human, not just financial.

Every day millions of people go to work to solve the puzzles presented to them by their company leaders. And almost none of those puzzles include working on the most important problems in our world, because leaders have made the mistake of thinking that the social goal will diminish the business results. That’s an error, and it’s leaving an enormous amount of positive social change on the table.

I challenge every company leader to try this experiment. At your next goal-setting time, add one measurable social goal to your puzzle. Give it teeth: make it as important to the bonus as everything else. Make it impactful: work on the most critical social problem you can. Help your team understand that this goal isn’t a tactic – it’s not a corporate sponsorship donation or a volunteer day. It’s to be integrated into the plan and leveraged, just like the financial and operational goals are.

See the results for yourself. You will never go back, and your whole business will become a part of solving the real puzzle: how our society will cooperate to address the greatest challenges in our world.

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.