By Mike Montgomery, Forbes Contributor
April 28, 2015
Millennials are on track to spend $200 billion per year starting in 2017. One of the many things that sets this generation apart is its insistence that business be about more than just turning a profit. According to a survey by Deloitte, 73% of Millennials believe businesses can have a positive impact on the world, but they also think today’s companies aren’t doing a very good job.
In order to capture those Millennial dollars, entrepreneurs are making philanthropy as much a part of their businesses as marketing and new product development. But philanthropy can be tricky. It’s not enough to just tack a charitable donation onto each sale. The philanthropy has to be authentic to the company’s brand and its mission. Even then, things can backfire.
Just look at the cautionary tale of Toms Shoes.
When Blake Mycoskie launched Toms Shoes in 2006, he had what at the time seemed like an ingenious hook to set his company apart in the competitive shoe market. For every pair of canvas shoes the company sold, Toms would donate another pair to children living in poverty around the world. During its first year, Toms gave away 10,000 pairs of shoes. In its second year that number jumped to 200,000.
But recently Toms has come under some very severe criticism. Many in the philanthropy world say that donating shoes might not be the best way to help poor communities; it might even harm them. From a recent Fast Company article on the Toms problem:
“Rather, the charitable act of donating a free pair of shoes serves as little more than a short-term fix in a system in need of long-term, multi-faceted economic development, health, sanitation, and education solutions.”
Giving away shoes can hurt local cobblers, which disrupts the local economy. And it risks creating an economy of dependence. While it’s much safer for kids to be running around with shoes than without, Toms’ charity didn’t address the reasons why they were going without shoes in the first place.
Toms (which has expanded beyond shoes) has since gone back to the drawing board and come up with more thoughtful forms of giving. The company now donates a birth kit(which includes a clean pad, gloves and sterile equipment to cut the baby’s umbilical cord) with the sale of every bag. With every bag of coffee the company sells, it gives money to help provide clean water. And while Toms still donates shoes, it now tries to source them from local producers to help strengthen struggling economies.
“I like the progression they’ve gone through and how they’ve challenged themselves to go beyond the original model,” says Valeria Budinich, leadership member at Ashoka, an organization that invests in social entrepreneurs.
I spoke to Budinich and other social entrepreneurial experts to find out what startups can do to incorporate philanthropy in ways that create a double bottom line — growing earnings while also doing good.
Don’t manipulate your customers.
Millennials, more than older customers, have very keen lie detectors. They know when a charitable offering is there just to make the company look compassionate. They want to buy from brands that incorporate meaning in an authentic way. Nike is a particularly popular brand with Millennials because, like Toms, it’s had to fight back against criticism of its business practices. The company now works hard to ensure that its workers around the world are being treated fairly, and publicizes annual factory audits.
“Think about how you can involve your end customer in a way that you can develop products that have meaning,” says Budinich.
Be thoughtful about your supply chain.
Many businesses try to stand out with marketing campaigns that promise organic ingredients or locally sourced foods. This is a trend we’re seeing more and more, not just from stores like Whole Foods but also from retailers like Wal-Mart. The superstore chain came under fire last year when it expanded its organic program; farmers questioned whether the food labeled “organic” in Wal-Mart stores would truly be organic. Wal-Mart has had to bend over backwards to assure customers that it is living up to the organic ideals. Budinich says it’s crucial that, if you are going to tout your supply chain as part of your social-good pitch, you follow through and stay consistent.
“The worst thing is to trivialize it and turn it into very opportunistic behavior,” says Budinich.
Build philanthropy into the core of your business.
On its face, Ben & Jerry’s is a very successful ice cream company. But Lara Galinsky, senior vice president at Echoing Green, points out that the company incorporates philanthropy into almost every aspect of its business.
“From where they source their brownies to how they treat their employees to how they distribute their philanthropic dollars, the company is creating a social impact from the institutional level and the employee level,” says Galinsky.
Not everyone can be Ben & Jerry’s. But if you aspire to create social good while building your company, make sure that philosophy reaches into every aspect of your business.
Find a concrete way to show your impact.
Millennials don’t just want a general, fuzzy sense that they are doing good with their dollars. They want to see proof that their money is having a real impact. That’s why Kai Buehler created Causora. His online platform connects brands with causes to help them offer tangible contributions with every purchase. For example, buy a meal, feed a hungry child; download an app and give clean water for a day.
“We’ve found that 90% of consumers like to shop brands that give back,” says Buehler. “But it should be something that aligns with the product and the company.”
Learn from others’ mistakes.
Companies like Toms and Nike have had to take drastic steps to ensure customers that they really are sincere when they talk about doing good while doing well. Entrepreneurs who are starting new businesses have the opportunity to see what other companies have done and to avoid those same mistakes. If philanthropy doesn’t fit organically into your business model, maybe skip it. Seeming opportunistic is the worst thing a growing business can possibly do.
Making philanthropy part of your business can do a lot to make the world a better place, and it can help your company tell a meaningful story. But make sure you proceed with caution. Missteps can have serious consequences.
Follow me on Twitter at @CALinnovates.
To find the original Forbes article, visit: http://www.forbes.com/sites/mikemontgomery/2015/04/28/how-entrepreneurs-can-avoid-the-philanthropy-pitfalls/3/