By Natalie Burg
Profit and social good. For a long time these concepts belonged in two separate, and often opposed, worlds. But today, many organizations are finding that financial viability and social consciousness can be complementary goals.
“I think the first reaction for people is to think the two are in conflict with one another,” says Nur-E Farhana Rahman, co-founder of jewelry company Knotty Gal, which supports a school for girls in Bangladesh. “What we’ve been seeing when it comes to consumer behavior is quite the opposite. Consumers today are so much more conscientious, and they care more than ever about the social impact of what they’re purchasing.”
Socially conscious businesses are all the rage, from fashion to consumer packaged goods. Think Tom’s Shoes, whose One for One program donates a pair of shoes to a needy child for every pair purchased, or home care products maker Seventh Generation, whose Seventh Generation Foundation makes grants to non-profit organizations that promote and improve environmental conservation, the sustainable use of natural resources and social welfare.
Are businesses like Tom’s and Seventh Generation just a trend? Or could so-called “sustainable” businesses be financially sustainable, as well?
DBL Investors believes the latter to be true. The venture capital firm invests exclusively in companies that prioritize their “double bottom line”—that is, a commitment to both financial success and positive social, environmental and economic impact.
“Do you trade off return for impact? Our whole philosophy as a firm is that you don’t,” says Patrick Sagisi, an associate with DBL Investors. “You can find and invest in companies that provide market or better rates of return, while also helping those companies create positive social, environmental impact in the areas where they operate.”
Balancing social good and profitability sounds heartwarming, of course, but good intentions don’t make profits—customers do. Fortunately, as recent research proves, consumers are eager to support socially conscious companies. In 2012, Nielsen found that nearly half of global consumers are willing to pay extra for products and services from businesses committed to social responsibility.
Knotty Gal’s Rahman has found it to be true in her own business, as well.
“When you’re able to let your customers know they’re paying for a product that is not only aesthetically pleasing, but also socially impactful in a positive way, you can ask if they’re willing to pay a premium for it,” she says. “We work hard to target our market to consumers who say, ‘Yes.’”
Indeed, there are plenty of positive responses coming from consumers everywhere. That demand gives businesses like Green Floral Crafts, a company that sources environmentally sustainable home décor such as dried flower arrangements, an advantage.
“When we tell our customers we are a green business and our products are handcrafted by families in villages around the world, not only does it differentiate our products, but it makes our customers feel that they’ve made a good purchase both in terms of value, and contributing socially to others and the environment. ” says Green Floral Crafts owner Leia Tunnaye. “Social consciousness is on the forefront of issues for today’s generation.”
So what makes for a socially conscious business that is truly sustainable? Many companies rubber stamp their products with a “green” label without much meaning behind it. Plenty of financially viable businesses aren’t truly socially conscious, while plenty of truly socially responsible businesses aren’t turning a profit. What’s the secret recipe?
DBL Investors’ Sagisi says a number of models can succeed, especially when a company’s social mission is baked into its business model. For example, Knotty Gal’s handmade knotted jewelry is made in the United States, and, from day one, a portion of proceeds has gone to support the Bhandari Girls’ School in Bangladesh. Green Floral Crafts sources products made from sustainable natural resources and buys them from artisans around the world who are in need of a viable market.
The very core of both these companies’ business models is linked to their missions. They can’t succeed financially without succeeding socially, and vice versa.
“There are so many ways to define what is sustainable,” says Rahman. “Whether we’re called a ‘sustainable brand’ or a ‘socially conscious’ brand, at the end of the day, what matters most is that our mission of promoting girls’ education stays a big part of our story.”
The Nielsen report notes that the majority of socially conscious consumers are young people. In fact, 63 percent of them are under 40, according to the report. Their buying power will extend far into the future, making socially responsible businesses a long-term investment.
But that’s not the only reason the socially conscious business model is financially sustainable. When healthy profits can feed social impact and that impact feeds the profits, it’s a cycle that spells success.
Rahman sees Knotty Gal as a more sustainable alternative to a non-profit model, something she determined after working in the non-profit sector.
“It’s a difficult thing to be constantly fundraising and relying on donors,” she says. “At the end of the day, when you have a for-profit that is more socially oriented… it’s far more sustainable.”
That’s why these socially conscious businesses must, and do, focus on profit just as much as any other business would. After all, there’s no good to be done when there’s no money to do it with. And when doing good is helping to drive profits, that’s a recipe for financial sustainability as well as long-term social impact.
Now that sounds like a trend worth sustaining indefinitely.
A former downtown development professional, Natalie Burg is a freelancer who writes about growth, entrepreneurialism and innovation.
See the article on Forbes here.