Companies on a Mission
Entrepreneurial Strategies for Growing Sustainably, Responsibly, and Profitably
By Michael V. RussoStanford University Press
Copyright © 2010 Michael V. Russo
All right reserved.ISBN: 978-0-8047-6162-8
Contents
Foreword by L. Hunter Lovins.......................................................................................ixPreface............................................................................................................xiii1 Capitalizing on an Underground Consumer Movement.................................................................12 The Opportunity: Social Movements Meet the Marketplace...........................................................163 Turning Distinctiveness into Market Acceptance: The Mission-Driven Difference....................................324 Creating and Communicating the Brand: From Customers' Values to Customer Value...................................545 Crafting the Mission-Driven Organization: The Human Dimension....................................................776 Everybody Talkin' 'Bout Heaven Ain't Goin' There: Building Credibility and Avoiding Scandals.....................1017 Learning from the Leading Edge: Lessons for Mainstream Businesses................................................1158 Values Clusters: Portland and Other Hotbeds of Mission-Driven Companies..........................................1369 Growing Pains: Asking Difficult Questions........................................................................16210 Bringing It All Together: Taking Stock, Looking Ahead...........................................................182Acknowledgments....................................................................................................195A Note on the Literature and Research Approach.....................................................................199Notes..............................................................................................................205Index..............................................................................................................243
Chapter One
CAPITALIZING ON AN UNDERGROUND CONSUMER MOVEMENT A REVOLUTION IN SCHOOL LUNCHES
The second time through, it's easier to find Revolution Foods. You simply drive west on Atlantic Avenue in Alameda, California, and make a right at the A-7 Corsair fighter jet. Odd, until you realize you're in the section of town that used to be the Alameda Naval Air Station. So you might say that Revolution Foods is beating swords into plowshares. Founders Kristen Richmond and Kirsten Tobey have converted a couple of commercial buildings that used to serve the military into a base camp from which they are transforming school lunch programs. They are introducing nutritious organic food to schools with disproportionate numbers of disadvantaged kids and creating jobs for low and moderately skilled workers. And they've created a profitable, growing concern with a full plate of opportunities before them.
Revolution Foods is just one example of a movement of for-profit enterprises that are meeting financial goals, promoting social equity, and exercising environmental stewardship. Its story is the story of thousands of small and medium-size companies that have quietly begun demonstrating that business can be about more than money. But don't think for a minute that there's a foolproof recipe for success. Companies on a mission, which I call mission-driven, face all the challenges that their mainstream counterparts do. In addition to financial goals, they confront an additional class of issues stemming from their social and environmental commitments. Indeed, it is a balancing act for companies managing this "triple bottom line," one that requires thoughtful planning, skillful execution, and perhaps most important, an intuitive feel for where and when financial goals and social and environmental initiatives reinforce each other.
The story of Revolution Foods begins with the personal histories of its two founders, who met while graduate students at Berkeley's Haas School of Business. Both Richmond and Tobey had experience in the food service industry, but their passion for serving society and the planet intensified at Haas. The school's leadership in those areas had made it a magnet for enlightened entrepreneurs, and its faculty featured a number of practitioners, such as Will Rosenzweig, founder of the Republic of Tea and a longtime entrepreneur who worked closely with students to develop new businesses. Eventually, Richmond and Tobey decided to create a business that brought healthy school lunches to kids, delivered by an organization that provided its employees with benefits and wages that exceeded industry norms.
But how does a company enter a $7 billion market dominated by such giant food producers as Tyson and Archer Daniels Midland and such large food service providers as Sodexo and Aramark? Not by competing directly with those companies for supersized contracts with San Francisco or Oakland Unified School Districts, that's for sure.
But there was another point of entry.
Charter schools-public schools that receive a per-student allotment from their funding districts and that are allowed considerable autonomy in determining their governance structures, educational missions, and staffing and procurement procedures. A prime example of a new approach to purchasing was when charter schools activated their autonomy to break out of the nutritional null set that represented most school lunches. When parent committees and not administrators made decisions on food, they took the Revolution Foods value proposition seriously. It didn't hurt that charter schools are free to make decisions that aren't bound solely by price and are open to a company that, quite literally, caters to their wishes for better school lunch nutrition.
Still, it wasn't easy. Food procurement at publicly funded schools is bound by federal laws that mandate caloric and vitamin content in lunches and limit fat calories and saturated fat calories to 30% and 10% of the meals, respectively. With reimbursement rates that top out at about $3.00 for the poorest students, it's a tall order to serve a balanced meal. So providers often start with inexpensive fatty foods and then hunt for cheap high-calorie, low-fat ingredients to round them out. The usual choice: sugar, which crowds out healthier but also more expensive vegetables. When bids are based strictly on cost, truly nutritious foods lose out.
To get started, Richmond and Tobey spoke with educators, parents, school administrators ... and children. That last group was forthright. Collectively, students were saying, "People don't care about us. We can tell by the food they serve us." Tobey recalled one physical education teacher who routinely devoted class time to nutrition, only to feel like a hypocrite when he strolled through the cafeteria and met students who wanted answers about why their lunches violated his principles.
The partners found a school willing to pilot their program and started assembling a client base of schools. One of the first schools they approached was Monarch Academy, located in a depressed section of Oakland, California, where 95% of students were on free or reduced lunch programs. This and other initial efforts were a huge success, and Revolution Foods quickly found itself receiving so many inquiries and referrals that it no longer needed to seek out business.
The easy part was creating better meals, of course. The hard part was making them on a budget, because even when a school's administrators agreed to go above the $3.00 federal limit, it was by only a few pennies. Keeping overhead to a minimum was a start. Think entrepreneurship: cheap rent, a meeting room with six unmatched chairs, a thermostat set at a brisk level in February. When it came to food operations, the proper depth of analysis and careful cost and waste control were absolutely critical.
The ingredients for meals, though, presented the company with classic trade-offs with which mission-driven companies invariably wrestle. Executive chef Amy Klein makes all meals from scratch, bypassing high-fructose corn syrup and trans fats and including fresh fruits and vegetables with every meal. But she has to keep an eye on costs, so although being 100% organic is a worthy goal, Revolution Foods is not there yet. Instead, the company must balance the environmental and social value of going organic with the need to be cost competitive. The company also has made progress on biodegradable packaging and composting, but there is still room to grow in this area.
The social mission, however, is paramount at Revolution Foods, whose central core value is "to create healthier schools" specifically "for the kids that have the least amount of access." As of early 2009, 80% of the students that Revolution Foods served had free and reduced lunch status. Hand in hand with this value was one of creating good stable jobs for lower and moderate-income individuals, who now number more than 100 at the Revolution Foods facilities. They are paid above prevailing wages, enjoy full benefits, and are extended access to ownership positions in the company. A further fringe benefit is shared with the entire organization: the educational value of learning about nutrition and the importance of using fresh ingredients and balancing meals.
Hiring the right employees is essential to the Revolution Foods mission, as is their fit into the team concept that drives operations at the company. Diversity in culture, educational opportunity, and work experience is evident at the company, and an important duty for Richmond and Tobey is to keep everyone on the same page (both speak Spanish, a plus in that regard). As they grow from a current staff of 100 by expanding in Los Angeles and entering new markets in other American cities, retaining their company's culture of fluid communication and teamwork will be a challenge.
The company has grown quickly, though, doubling sales in 2007 and then again in 2008, with prospects for another doubling to about $10 million in fiscal 2009. Revolution Foods was serving 14,000 lunches a day by spring 2009, and Richmond and Tobey were choosing between Denver and Washington, D.C., for their next beachhead. The company's long-term goal: nothing less than becoming a "transformative catalyst" for school nutrition nationwide. So although its meals are already touching the lives of thousands of schoolchildren each day, Revolution Foods has ambitions that match the size of the problem it sees. And indeed, it is part of a movement that is changing the nature of social innovation as citizens recognize that many of society's needs can be recast as opportunities for private enterprise.
A DEFINITION What is a mission-driven company? The term can be used in a variety of ways, but within the pages of this book, a mission-driven company refers to a for-profit enterprise that seeks to simultaneously meet profit goals and social and environmental goals that reflect the values of its owners. Values are abstract principles about what is right or proper, such as social justice. In practice, these values are reflected in the goals of mission-driven firms to, for instance, purchase locally wherever possible, improve working conditions in the developing world, and reduce the carbon footprint of their operations. My focus on small and medium-size firms is not meant to suggest that larger firms can't be mission-driven, but as we'll see, most of the creative ideas and new approaches to management come from this less noticed corner of industry.
EMBRACING MISSION-DRIVEN OPPORTUNITIES A New Marketplace Pick up yogurt for tomorrow's lunch, and you'll find organic Stonyfield Farm products on your grocer's shelf. Invest in mutual funds, and you might sock away a few dollars in one of the Pax World Funds, screened to exclude firms that are deemed to be social or environmental laggards. Shop for a sweater to warm up the winter, and you might consult the website of Fair Indigo, a seller of fair trade clothing. In fact, seemingly everywhere you look in the marketplace, there are examples of companies that are offering products and services that represent an important way of creating value for customers-by selling products and services that reflect explicit attention to social and environmental values. And the movement is growing.
Sellers of fair trade clothing-produced by fairly compensated workers under humane conditions-project that sales will grow from virtually nothing to 15% of all clothing sold by 2016. In 1995 there were 55 socially screened funds in the United States with assets of $12 billion, but by 2007 (the last year for which totals were reported by the Social Investment Forum) the number of funds was 260, with assets of $202 billion. Socially responsible investing (SRI) is also a worldwide trend: In 2007, OWW Consulting Research reported 163 SRI funds in Asia, with assets of $24 billion. Even South Africa is home to twenty-one SRI funds and a $1.6 billion investment. Organic product sales still grew 17% in the rough economy of 2008 before entering 2009, where they were projected to slip 1%. But after years of 20-30% gains, the global organic food and beverage industry, which hit $23 billion in 2007, has firmly established itself.
Just who is purchasing the products of mission-driven companies? The Natural Marketing Institute, which for years has been tracking how consumers convert values into purchasing decisions, released new figures in 2009 for the size of the LOHAS (lifestyles of health and sustainability) market segment. Even in the midst of a serious economic downturn, this segment still includes 43 million Americans (77 million counting the not-quite-ready-for-LOHAS segment, the Naturalites). It's been awhile since the overall market for goods and services that specifically target the LOHAS segment was estimated, but in early 2007 it was placed at $209 billion. Fad or long-term trend? The latter, despite what economic turbulence may bring.
Although many mission-driven companies have roots in social and environmental activism, they have outgrown these beginnings to become an influential commercial presence. The drivers behind this movement provide clear notice that mission-driven companies will become even more important in local and national economies.
The first driver creating opportunities for mission-driven companies is conscious consumerism. For an increasing number of consumers, buying decisions don't simply reflect personal needs and aspirations. For these individuals, purchases also reflect the attributes of the selling company in ways that may have nothing to do with the product or its performance. Products from Equal Exchange, a company that guarantees good wages and working conditions in coffee-growing areas where it buys beans, may be indistinguishable from conventional coffees in flavor. But consumers see their purchases from Equal Exchange as a way to improve conditions in developing countries.
Opportunities also flow from the transparency movement. Consumers have never had access to as much information about companies as they do today. A wealth of information appears in the news media, spotlighting companies' social and environmental behavior when it is praiseworthy-or blameworthy. More specifics are on the packages, where certification marks reassure consumers about the ingredients and supply chain of many products. And company details are on the Internet, where sites such as Green America's (formerly Co-Op America's) Responsible Shopper program and Good Guide provide details on hundreds of well-known companies and products. Transparency creates opportunities for mission-driven companies by drawing attention to issues where they benefit from comparisons with their conventional counterparts.
The final driver is the consumption economy. Many consumers worry about their consumption patterns, which are reflected in trends running from increased obesity to the use of shopping carts in department stores. Consumers' sense that they do not have control over their own consumption habits may be one reason that levels of happiness have not increased along with the GDP in most countries. And the social and environmental fallout from this economy is severe, especially in the developing world. Many consumers prefer to purchase from companies that do not compound these problems or that make a proven contribution to their solution.
All these factors direct consumer attention to mission-driven companies. And when consumers care about the broader attributes of companies, social and environmental performance becomes a vital competitive asset.
Different by Design: Social and Environmental Differentiation In the marketplace for enlightened consumers, innovative social and environmental practices that confer authenticity on the company and supply chain practices that break new ground in reducing social and environmental footprints are the keys to success. And this distinctiveness goes above and beyond the types of goods and services sold. That is, the differentiation pursued by mission-driven companies depends less on the product or service itself than on the social and environmental practices and policies of the company. And this form of differentiation erects a barrier to imitation by larger companies, where entrenched constituencies can view social and environmental initiatives as an additional burden or costly distraction.
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Excerpted from Companies on a Missionby Michael V. Russo Copyright © 2010 by Michael V. Russo. Excerpted by permission.
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