Class: 2014 Winter Accelerator
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Juggling Three Bottom Lines: The Balance Between Social and Financial Sustainability. 2/6
Corporate Social Responsibility. A phrase that 10 years ago, if uttered in a board meeting would been as “faux-pas” as shouting out Voldemort through the halls of Hogwarts. Or at the very least would have elicited a snarky wise-crack or two…followed by a period hushed cynical chuckling.
While most industries are far from embracing the concept, the tide of change has certainly begun to turn as socially conscious consumers, tired of corporate greed, are beginning to dominate the market.
For ages, traditional free-market economists like Milton Freedman have argued that a corporation’s sole responsibility is to it’s bottom line…to shareholders. But in the wake of a post-recessionary economy, new schools of thought have emerged to expand those responsibilities. Companies aim to maximize value for not just shareholders…but to all the stakeholders effected by a business’s commerce; customers, employers, suppliers and even communities. Bottom lines are no longer singular and instead include people and planet as well as profit.
Yet despite pioneers like John Mackey (CEO of whole foods and inventor of stakeholder theory) and John Elkinton (founder of SustainAbility and the concept of Triple Bottom Line), we’ve yet to put a methodology behind the juggling act of managing the competing forces of 5 stakeholders…or 3 bottom lines. How should companies prioritize? Make difficult decisions? And to draw the line…when there are already 3 of them?
Brenna Schneider, founder of 99DegreesCustom and resident expert on “business with a mission”, is a perfect example of the challenging but vital prioritization process a socially empowered entrepreneur faces every day. Start ups, in their particularly vulnerable state, must be especially cautious to when it comes to making decisions with social intent.
What happens in a situation where bottom lines are at odds? A productivity issue with an employee, a green solution that harms your margins…a funding opportunity from an investor that may compromise your ideals?
The balancing act begins.
It’s no surprise that any factor detracting from the profitability of a fledgling business for the sake of another bottom line is a red flag. If the business isn’t financially sustainable… it won’t be around to accomplish the impact it dreams of. An employee that drains resources but doesn’t add value simply can't continue with the company… regardless of intention.
On the flip side…any decision that’s maximizes profitability at the expense of any of the major stakeholders begs to ask the question… “ is this a business worth creating”? A funding option that has the potential to scale the business yet misses it’s mission... may be …for that entrepreneur…of questionable pursuit.
According to Brenna, “values will become the touchstone that you use to make business decisions. They will guide your conversations with customers, investors, etc. It’s important to figure out your values early on, so they can guide how you grow as a business. You have a blank slate. You can be the kind of entrepreneur that you want to be. Build your values into every decision you make so that every step of the way, you build a culture around them.”
Building the social mission of the business into the core financial model is only the beginning. Managing one bottom line is a feat in itself. Managing three is not for the faint of heart. But the truly inspired entrepreneur adapts their model to leverage what they’re passionate about changing. Defining your values and beliefs allows an entrepreneur to surround themselves…and their business opportunity… with employees, customers, investors, and others who believe in their cause. The goal is not just to sell to people who need what you have; the goal is to sell to people who believe what you believe. The goal is not just to hire people who need a job, but its to hire people who believe what you believe. The goal is not just to seek a funding partner that wants a financial return on their investment…but one that believes in seeing the return on our communities, our society, our economy, and the market.