When Should Entrepreneurs Pursue a Social Good?
Should your company support a social good? Should it pursue a cause that benefits others beyond your immediate stakeholders? If it is a social good that I feel strongly about, then the answer is a resounding yes. Of course, I jest, and answering this question requires much more consideration.
We should start by clarifying the difference between "social goods" and "corporate responsibilities," the latter of which are obligations that businesses have to their stakeholders. Companies should be held responsible for protecting their employees and the environment and otherwise conducting business in a manner that is not harmful. Performing and committing to these causes is not a social good -- it is the law.
A social good, on the other hand, is traditionally defined as "an action or item that benefits society, such as education, potable water or even access to services such as healthcare. The term implies a positive impact on an individual or society as a whole." It is not the responsibility of entrepreneurs to provide these services, though they can certainly support them through their businesses.
There are strong arguments why pursuing a social good is bad for businesses. Kevin O’Leary, a well-known investor on ABC’s Shark Tank, opined that "businesses are designed to provide returns to shareholders -- not to solve problems of communities." Further, some critics claim that the pursuit of social causes could be hurting the bottom line and creating an unsustainable businesses. Moreover, many startups with a strong social cause find it difficult to raise seed funding.
Toms Shoes, the business founded by legendary entrepreneur, Blake Mycoskie, was built and gained notoriety for its business model of donating one pair of shoes for every pair sold. Toms grew to a valuation of $625 million in 2014, but since has had problems meeting investors' expectations and hinted at scaling back its one-for-one model.
Also, Toms Shoes is not without critics, who speculate that donating shoes to underprivileged communities may be causing more harm than good by creating a culture of dependency -- the old adage "give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime."
Of course, Toms Shoes is just one example among many, and for certain there are thousands of businesses who have found success pursuing a social good. The reality is that entrepreneurs should not pursue a social cause if doing so harms the mission and goals of the company, and they should certainly avoid doing so simply because it is fashionable.
Instead, entrepreneurs should pursue social causes if they are truly passionate and committed to them. Companies that have a social cause ingrained in its DNA stand a much better chance of finding success at the end of the philanthropic tunnel. Because the passion and vision must be set and embodied by the top management, including the founders, any hint at regret or changing course could ultimately derail the effort.
Also, I believe the argument that social causes hurt the bottom line are misaligned. A social cause, be it a one-to-one business model or donating a portion of revenue, is no more or less an investment than that of a new piece of equipment, a new sales manager or a new office. In fact, one could argue that capital investments are much more prone to risk and failure, since these costs are fixed rather than variable.
Entrepreneurs and stakeholders need to approach any commitment to a social cause as what it is -- an investment in the company’s future. And like any capital investment, these investments have a life cycle and need to evolve and adapt to the company’s changing business model and the changing market attitudes.
Further, with government approval at an all time low and an upcoming election with two of the most disliked candidates in decades, we may simply be no longer able to rely on the actions of our elected officials to regulate social goods. Our entrepreneurs and businesses need to lead and police each other, and while the profit motive should and will always align with rules, we need leaders to prioritize social goods to the same degree.
So the question for entrepreneurs is not whether they need a social cause to pursue -- but rather do they want one. Once committed, entrepreneurs need to be resilient to the criticisms and stay the course, just as one would do with a new piece of machinery. Only in the long term can you measure the return on investment (ROI) -- and I believe we will all conclude that any ROI on social goods will always be worth the investment.