More entrepreneurs want to be socially responsible these days, but fear a negative impact on profits, growth, and the ability to find an investor. In the short run, there are real costs associated with the “triple bottom line” of maximizing profit, people (social), and planet (environment). But very quickly, it is becoming obvious to startups that the value and satisfaction exceeds the costs.
To legally facilitate startups who want to give top priority to socially conscious solutions, seventeen states, starting with Maryland in 2010, have passed legislation allowing incorporation as a Benefit Corporation (B-Corp). The B-Corp status is meant to reduce investor suits, and gives consumers an easy way to spot genuine social commitment, without assuming it is a non-profit.
I believe this option will spread quickly to other companies, states and countries. Last year, Etsy in New York announced that it had joined the ranks of the now more than 865 companies nationwide as a Certified B Corporation, keeping good company with Patagonia in California and Seventh Generation in Vermont.
Even without B-Corp status, entrepreneurs are speaking out more on the positives to support business models that benefit not just shareholders, but customers, workforce, the environment, and the greater community. Several good discussions take a whole chapter in a recent book “Mind Your Business: Thoughts for Entrepreneurs,” by international entrepreneur Toine Knipping:
Investors favor startups that integrate social responsibility. Investors believe these startups demonstrate more integrity and less risk, as well as being better positioned to deliver long-term, sustainable value to their stakeholders. Of course, investors still require a profitable business model, and the potential for high returns.
Startups can use social responsibility as a competitive advantage. Some customers and stakeholders don’t just prefer that an organization is socially responsible, but insist on dealing only with these startups. That’s a real competitive edge that you can use in your marketing and positioning.
Socially responsible products typically sell at a premium price. The anecdotal evidence is growing that consumers are willing to pay a premium for sustainability, and have started to demand a discount for ‘un-sustainability.’ More startups are using this strategy to improve their profitability, and reduce financial risk.
Social responsibility opens the door to a broader customer base. By adding to perceived value, it can attract more sophisticated and demanding customers less expensively and more quickly. More and more customers choose a company based on their perceptions about the good that they do, as well as the price and service.
Customer loyalty is highest for socially conscious startups. Even way back in the recession, the Edelman Good Purpose study found that 68 percent of global consumers would remain loyal to a brand if the organization practiced social responsibility. We all know the cost of retaining customers is far less than the cost of new customers.
Being socially responsible improves organizational performance. Doing business is a human process. Team members interact on a daily basis with the stakeholders of the startup and the way they feel about the organization has a major and direct impact on how they perform their tasks and do their job at the end of the day.
It is easier to recruit and retain human capital. Employees tend to stay longer with the organization, reducing the costs of recruitment and retraining. This leads to better performance as employees become specialized in their tasks and experienced, but they are also more motivated to give back to the organization and ultimately, more productive.
More and more, the goodwill of the relevant customer community, in large measure, contributes to the success of any product and any company. For some business opportunities, like Facebook and Twitter, the community is the value.
Unfortunately, balancing social and environmental impact against making money for survival and investor return isn’t an easy equation. In the long-run, what your business actually does is what counts. Are you ready for the challenge ahead?