Conscious Company Magazine | Issue 5 Jan/Feb 2016 by Conscious Company

8 LEADING ACCELERATORS | 7 TIPS FOR SCALING SUSTAINABLY

THE FUTURE OF BUSINESS AS USUAL

WHAT WILL IT TAKE TO SCALE?

THE INSIDE STORY HONEST TEA’S ACQUISITION BY COCA-COLA

IMPACT INVESTING RENEWABLE ENERGY SUSTAINABLE AGRICULTURE

SOLARCITY’S CEO LYNDON RIVE PREDICTS THE FUTURE OF SOLAR

THE RISE OF KIND

AN EXCLUSIVE CONVERSATION WITH FOUNDER AND CEO, DANIEL LUBETZKY

FOOD | ENERGY | FINANCE | INNOVATION & DESIGN | LEADERSHIP

TABLE OF CONTENTS

ENERGY

LEADERSHIP

7 GUIDEPOSTS FOR LEADING CONSCIOUS GROWTH BY LORI HANAU

THE JOURNEY TO FULFILLMENT BY NATHAN HAVEY

SERVANT LEADERSHIP PIONEER JACK LOWE JR.

*Cover Story

SOLARCITY: A CONVERSATION WITH CO-FOUNDER LYNDON RIVE*

MARKETPLACE

COMPANY ON THE RISE: THRIVE MARKET

NATURA: THE WORLDâ&#x20AC;&#x2122;S LARGEST B CORP

8 LEADING ACCELERATORS*

HONEST TEA: THE INSIDE STORY*

WHAT WILL IT TAKE TO SCALE CLEAN ENERGY?* BY A.RODRIGUEZ; D.MORTON; H.LOVINS

FOOD

A BUSINESS TREND WORTH WATCHING

DANIEL LUBETZKY: KILLING IT WITH KINDNESS*

WHITE OAK PASTURES: SCALING SUSTAINABLE FARMING*

VITAL FARMS: THE LARGEST PASTURE-RAISED EGG COMPANY IN THE U.S.*

Photo: Uli Westphal

BUILDING THE BUSINESS

7 THINGS TO KNOW FOR SCALING YOUR BUSINESS* BY GERRY VALENTINE

GROWING YOUR “SELF” WHILE GROWING YOUR COMPANY BY FLIP BROWN

FINANCE INNOVATION & DESIGN

SOCIAL MEDIA FOR CONSCIOUS BRANDS BY JULIE URLAUB

MAKING SUSTAINABILITY CONSULTING AFFORDABLE: ELLIOT HOFFMAN & REV

CORPORATE STRUCTURE FOR YOUR SOCIAL VENTURE BY RYAN SHAENING POKRASSO

REVVING PETALUMA: SUSTAINABILITY CIRCLES IN ACTION BY JAY HARRIS

REAL ESTATE DEVELOPMENT MEETS CONSCIOUS CAPITALISM BY JOHN MONTESI

LAUNCHPAD FOR SUSTAINABLE FASHION BY CHET VAN WERT

101

AN INTERVIEW WITH DON SHAFFER, CEO OF RSF SOCIAL FINANCE

106

TAKING ON INVESTORS WHILE KEEPING YOUR VALUES BY DAVID BRODWIN, ASBC

109

IMPACT INVESTING: WHAT WILL IT TAKE TO GET TO SCALE?* BY FRAN SEEGULL

FROM THE EDITORS As the new year begins, it’s natural to reflect on the past, while simultaneously looking forward to what the next year has in store. For CONSCIOUS COMPANY, reflecting on last year brings up thoughts of gratitude, perseverance, and the beginning of what we hope is a very long journey. As we look into 2016, we see visions of growth, new and exciting challenges, and hopefully scaling our impact. With our company’s own journey on our minds, we decided to dedicate the first issue of the year to examining what growth and scale mean in the sustainable business community. For many mission-driven businesses, the more they grow, the more impact they can have. On the other hand, rapid growth entails a difficult balancing act for any young company, and mission-driven companies in particular can struggle to maintain their values and vision as they scale. With the right strategies and leadership, though, revenues and impact can grow hand-in-hand. We hope that the stories and reflections you’ll find in these pages will inspire a broader conversation about how businesses can grow consciously and purposefully.

January | February 2016 • Issue 5 The Conscious Company Magazine Team CO-FOUNDER AND COO Maren Keeley CO-FOUNDER AND EDITOR-IN-CHIEFTESS Meghan French Dunbar ART DIRECTOR Cia Lindgren ADVERTISING MANAGER Amber Lee Eckert

With respect and gratitude,

BUSINESS DEVELOPMENT MANAGER Kate Herrmann

Maren, Meghan, & the entire CCM Team

COPY EDITORS Jack Mott Robin Dickerhoof Molly McCowan ASSOCIATE EDITORS Samantha Voncannon Devon Bertram TRANSCRIPTIONIST Jonnifer Cadorna ENERGY EDITOR Pablo Leon MEDIA CONSULTANT Lesley Barnes Jared Levy WEBSITE GURU Jay Mantri & Thrive Consulting Group ADVISORY BOARD Ashley Coale Devon Bertram Emily Olson Katie Dunn Nathan Havey Scott Dunbar Wendi Burkhardt Photo: Julie Harris Photography

NEWSSTAND CONSULTANT Bill Golliher & Full Circle Strategies, LLC PRINTING - Publication Printers CONTACT INFORMATION

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GENERAL INQUIRIES, SUBSCRIPTIONS, AND REPRINTS: info@consciouscomag.com ADVERTISING: advertise@consciouscomag.com PHONE: 720.924.1091 www.consciouscompanymagazine.com facebook.com/ConsciousCoMag Follow us @ConsciousCoMag

LEADERSHIP

GUIDEPOSTS FOR LEADING CONSCIOUS GROWTH AN INTERVIEW WITH MICHAEL PIRRON, FOUNDER OF IMPACT MAKERS

IMPACT MAKERS AT A GLANCE Location: Richmond, VA Employees: 100 Founded: 2006 2014 Sales: $11.6 million Awards & Recognition: • Inc. 500/5000 4 years in a row (2012 to 2015) • B Corp Best for the World 3 years in a row (2013 to 2015) • Richmond Virginia/Central Virginia region - Best Places to Work 2014 and 2015 • #8 in the Inner City 100 Fastest Growing Companies in America by Fortune Magazine Impact: In April 2015, Impact Makers reached $1 million in giving to the local community. The company aspires to give more than $100 million to the local community by 2024

BY LORI HANAU For conscious companies, growth is different by definition. We don’t grow only for profit; we grow for purpose. We scale not only for a greater bottom line, but also for greater impact. For today’s conscious leaders, growth is transformed from an operational imperative into an expression of organizational integrity. When we grow, our actions match our intentions and our values become the vehicles for the work. No more sacrificing well-being for wealth or selling out to scale up. This is growth from the inside out. The key to growing consciously is committing to internal growth — through personal development and cultivating group wisdom — as much as we commit to external growth — scaling our profits, reach, and impact. When we expand our mindsets and “heartsets” alongside our bottom lines and distribution channels, we open

ourselves to creative business structures and solutions that defy the rules of business as usual. Don’t just take it from me: take it from Michael Pirron, founder of Richmond-based Impact Makers, a social-impact IT consulting firm. Pirron started his business in 2006 with just $50, a laptop, and the commitment to live his values through his work. What makes Impact Makers unique is its business model. As a B Corp owned by two public charities, Impact Makers is creating a replicable hybrid business model through which profits and services directly benefit charitable nonprofits in the communities they serve. The idea is to build a business model that benefits community, providing a means for market-priced returns for investors, but never doing so at the expense of employees. Even though Pirron owns exactly zero percent of the company, both he and Impact Makers are growing by leaps and bounds — one personally and the other financially. Impact Makers reached $11.6 million in sales in 2014, and this year they are expected to hit the $17 million mark. With 37 new hires in 2015 alone, the company was named the eighth fastest-growing inner-city company in the country by Fortune Magazine, and has been recognized on the Inc. 5000 America’s Fastest Growing Companies List for the past four years in a row. I was honored by the opportunity to talk with Pirron about how he is growing Impact Makers with integrity. I distilled his wisdom into these seven guideposts for leading conscious growth:

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LEADERSHIP

GO FOR PERSONAL-DEVELOPMENT BREAKTHROUGHS “If I leave to go to work every day and can’t participate at home as much because I have to make an income,” Pirron said, “I have to be able to look my kids in the eye and say I’m going to work for something that is more than just a paycheck.” As a husband and father, the word “work” for Pirron means making an income “in a way that lives life to the fullest and is values-aligned.” This was the impetus behind starting Impact Makers. Even though it meant risking everything he had, Pirron saw starting the company as a personal growth opportunity he simply “had to go for.”

BRING SHARED LEADERSHIP INTO ACTION

ENCOURAGE INDIVIDUALS TO OWN THEIR AGENCY In the early stages, there were a lot of growth challenges to overcome. The biggest question Pirron faced was how to bring people in, take ownership, and grow the company without the option of equity ownership. Impact Makers is designed as a very flat organization, built on the concept of shared leadership. According to Pirron, it has to be, because the only thing he has to offer is the fact that every single person in the company owns as much as the founder: zero percent. That means that every employee also has the chance to own the vision, mission, and values as much as Pirron. “It couldn’t be about me,” said Pirron. “In order to be successful, I had to let go of a lot very early on.”

The flat structure of Impact Makers meant employing atypical leadership practices from the beginning. “Even though I was the founder, we started off with three other people in equal leadership,” Pirron said. “If I was too directive in decision-making, I knew people wouldn’t have stayed very long.” By avoiding a singular and directive leadership model, Pirron gets to see the natural drive of his employees to come to work and build the business because they believe in it.

Impact Makers’ Revolutionary Business Model VCC creates a fund that supports charities and invests in B Corps and other companies with a social mission

$ $

VCC

Impact Makers gave 100% ownership of the company to the community of Richmond, VA by gifting 70% equity to The Community Foundation Serving Richmond and Central Virginia (TCF) and 30% equity to Virginia Community Capital (VCC)

(30%)

(70%)

IMPACT MAKERS

JANUARY / FEBRUARY 2016

The company donates pro bono consulting services to local nonprofit organizations and gives 30 percent of its annual operating margin to | CONSCIOUS COMPANY community MAGAZINE charity partners

TCF creates a fund that supports charities and invests in B Corps and other companies with a social mission

TCF

$ $

LEADERSHIP

“We don’t grow only for profit; we grow for purpose. We scale not only for a greater bottom line, but also for greater impact.” UTILIZE COLLABORATIVE DECISION-MAKING With a team of just four or five employees early on, collaborative decision-making became a cornerstone of company culture. “As we scaled, we did restructure, but we have remained very collaborative with a 13-person leadership team,” Pirron said. “This is essential to our environment.” At Impact Makers, the key to largescale collaboration is accountability: “We give people accountability for certain decisions, pushing down decision-making as much as possible, and in ways that lead with our values,” Pirron said. CHOOSE A RENEGADE BOARD OF DIRECTORS Entrepreneurs of fast-growing enterprises usually select their board of directors to enhance industry knowledge and access to influence. But Impact Makers insisted on something else: a team of people that could help distribute the company’s profits into the community, where they would do the most good and have the greatest impact. It is the board that determines how best to give 100 percent of the company’s equity away, and, in doing so, ensure that the mission and company remain sustainable. BAKE YOUR VALUES INTO EVERYTHING YOU DO At Impact Makers, “lead with your values” is a mantra. “We have built a reputation formed on our values,” said Pirron. “We tell our staff, ‘if you do the right thing ethically and morally, and you do the right thing for the client, the executive team has your back 100 percent of the time.’” Pirron attributes the success of

Impact Makers to the model itself attracting and retaining top talent. Compared to the industry average of around 20 percent planned turnover, Impact Makers has seen only 10 people leave in nine years. “Mission-aligned teams for clients outperform ones that aren’t,” said Pirron. “This brings economic value to our clients and it is meaningful for our employees and our leadership team. Come and stay. That’s why we have grown.” DREAM BIG FOR FUTURE SCALE AND IMPACT Impact Makers sprang from a vision to benefit community through business, and that remains the aim. “Fast-forward 10 years from now, [and] our vision is to have a $100to $150-million liquidity event that creates one of the largest charitable gifts to the region,” Pirron said. “The philanthropic fund created out of our sale will make impact-investments locally with its principal, rather than in Wall Street, and, with the earnings, our charitable giving legacy continues.” Impact Makers will achieve all of this while providing market returns to its investors and ensuring that employees share in the value they have worked so hard to create. The company is committed to proving the model so others can copy it and bring it to their own communities. Companies like Impact Makers show us what it takes for conscious companies to grow with integrity. When we replace the drive to gain individually with the dream to benefit collectively, we innovate what it means to grow. As Pirron points out, there is no individual upside for employees in that a singular person is not going to get rich from production or profit margins. In the

place of the promise of individual gain, Impact Makers has scaled successfully because of its promise of shared benefit, with all profits going back to meet the needs of the community as a whole. At the end of the day, Impact Makers is a group of middle-class professionals doing the same work they have always done, but giving it a different structure in order to cultivate collective benefit, ultimately making the same impact in the community as the large foundations in town do. As the company grows, so do the benefits, and so too does the intrinsic motivation of employees, founders, and clients alike. That, says Pirron, is a really disruptive game changer, and I couldn’t agree more. Photos: Impact Makers

Lori Hanau is dedicated to supporting shifts in consciousness, communication, and community in the workplace. She is the founder of Global Round Table Leadership, where she works with people and teams to build the personal and shared leadership capacities required to meet the call and needs of our times. She is also faculty at Marlboro College’s MBA in Managing for Sustainability. Lori has been supported in shared leadership by Claire Wheeler and Lainie Love Dalby in the writing of this article. Visit www.globalroundtableleadership.com to learn and share your stories of shared leadership.

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LEADERSHIP

THE JOURNEY TOWARD FULFILLMENT BY NATHAN HAVEY

In March of 2015, 140 people gathered at Impact Hub Boulder in Colorado to celebrate the launch of CONSCIOUS COMPANY. As part of the celebration, five Colorado businesspeople told their stories of how they found fulfillment in their professions. They also challenged the people in the crowd to do something that would advance their personal fulfillment through work. By all accounts it was a great event. But in the days that followed, we discovered that for some attendees it had been more than that. Taking the challenges to heart, some people had quit their jobs, some had met with supervisors to tackle issues that had been simmering for years, and some had (finally) started the company of their dreams. We set out to launch a magazine that night, but we ended up launching a national conversation as well. According to Gallup’s State of the American Workplace study, 70 percent of people are disengaged from their jobs. That means they come to work and do what they are supposed to do, but they don’t have much heart in it. They look forward to the end of the day and the end of the week. Maybe it is due to a bad boss, maybe it is work they don’t particularly enjoy, maybe it is an absence of deeper meaning, but whatever the cause, these people — most of us — don’t care that much. Within that 70 percent, a little less than 20 percent of people, one in five, are actively disengaged. That means they are actively sabotaging the success of their employers. Gallup estimates that this status quo, which it says is holding back the economy, costs the US between $450 and $550 billion in lost productivity each year. The social costs, however, are harder to measure. Chronic illness accounts for 75 percent of US healthcare costs. The single greatest contributor to chronic illness is chronic stress, and the leading source

of stress is work — especially work that is dehumanizing, unenjoyable, and meaningless. We spend half of our waking adult lives at work. The influence that workplace culture has on us, our families, and our communities is difficult to overstate. In our companies and in our lives, we must balance our financial ability to sum with our human capacity for substance. A little more than five months after experiencing the power of that storytelling event in Boulder, we kicked off the inaugural national tour of an event series about fulfillment at work. We called it Sum and Substance. Sum and Substance held events in five cities last year: Seattle, Raleigh, Dallas, Boston, and Chicago. In sum, 28 storytellers challenged more than 400 people to take the next step on their own journeys to fulfillment at work; the stories are available for your viewing pleasure at www.sumandsub.com. In substance, a national conversation was started

to urge people not to settle, and to help employers focus on the purpose beyond profit that businesses exist to fulfill. Through survey responses submitted by Sum and Substance attendees the day after the show, along with other writings on the topic, we are studying workplace fulfillment more deeply. We don’t have any grand conclusions to share just yet, but we do have a few interesting anecdotes. We asked people to tell us what fulfillment at work meant to them, and we got a wide variety of responses. Among those responses there were five words that were used more frequently than any others:

POSITIVE

DIFFERENCE PEOPLE

WORLD

IMPACT

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“Chronic illness accounts for 75 percent of US healthcare costs. The single greatest contributor to chronic illness is chronic stress, and the leading source of stress is work — especially work that is dehumanizing, unenjoyable, and meaningless.”

Nathan Havey at Sum+Substance Boston

LEADERSHIP DO MANAGERS HAVE A RESPONSIBILITY TO HELP PEOPLE FEEL FULFILLED? According to legendary systems thinker Peter Senge, “To be effective today, the leader shoulders an almost sacred responsibility to create conditions that enable people to have happy and productive lives.” So that’s a “yes,” but how should a manager do that, exactly? Much of the research we’ve seen points to a nearly universal desire among employees to feel cared about on a personal, not just professional, level. In his wonderful book “Lead from the Heart,” leadership consultant and speaker Mark Crowley offers managers a five-step process for making a personal connection and thereby inspiring employees to reach their highest achievements and fulfillment. The key is periodic one-on-one meetings.

1: CLARIFY YOUR INTENTIONS

Gail Warrior tells her story at Sum+Substance Dallas

We also asked attendees how fulfilled they are at their jobs now, and what, if anything, about their current job was not fulfilling. The average fulfillment score was a seven out of ten (more on that in a future article), but several people reported being unfulfilled, clocking in at five or below. Here is what that sounds like: • “I don’t believe the work that I’m doing is helping others.” • “I believe in the mission … but I don’t feel valued or challenged.” • “I don’t feel like I have a purpose within the organization.” • “I don’t have any agency to run projects I care about.” Finally, we wanted to know whether Sum and Substance had changed the way attendees thought about fulfillment at work. The results on this question were mixed. Some people, particularly those who said they are currently fulfilled at work, reported no change. But others reported a significant change. One woman who attended the event in Dallas had this to say: “I used to think that fulfillment at work was something that few people were lucky enough to experience.

Hearing five stories at one time and knowing that this event has been done in several cities somehow makes fulfillment at work seem more attainable.” In 2016, Sum and Substance will bring events to more cities, and as we do, we’ll share what we are learning in the pages of this magazine. In the meantime, go forth and do good work. Photos: Sum+Substance

When you set up the meeting, make sure you tell your employee that you want to talk about their career and personal development aspirations. Ask them to spend some time before the meeting thinking about how you could help them grow professionally.

2: EXPRESS GRATITUDE

One-on-one meetings with the boss carry an anxiety-producing stigma. Open the meeting by expressing sincere gratitude for all of the work the employee has done. Be speciﬁc. This will help the employee relax and set the tone you want.

3: FOCUS ON THE EMPLOYEE

Address any questions or concerns the employee brings to the meeting, and schedule more time if you can’t get them resolved right away. Identify what motivates your employee and what is important to them. Identify short- and long-term career aspirations and establish a development plan. Finally, use the ﬁnal moments of the meeting to solicit suggestions for how you can improve as a leader.

4: DISCOVER DREAMS AND ASPIRATIONS

Ask the employee how they feel about the progress they are making toward their goals and whether there are speciﬁc skills they would like to develop. Ask if they have given thought to next steps and long-term destinations. Find out what you can do to help them achieve their dreams.

Nathan Havey and his team at Thrive Consulting Group partnered with Conscious Company Magazine to create Sum+Substance. He hosted the 2015 tour and is proud to serve on the advisory board of Conscious Company Magazine.

5: DEVELOP A PLAN

A written plan that gets ﬁled in a drawer and forgotten about is no good here. You need to demonstrate a real commitment to helping your employee grow by following through on your end of the plan that you create together.

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LEADERSHIP

A CONVERSATION WITH SERVANT LEADERSHIP PIONEER JACK LOWE JR. ser•vant lead•er•ship (n.)

A style of leadership where the leader of a group serves the individuals on the team, rather than having a traditional command-and-control hierarchy where employees serve their boss. A servant leader puts the needs of others first, focuses on the growth and wellbeing of those on the team and in the community, and fosters an atmosphere of trust and empowerment. In 1964, Jack Lowe Jr. joined TDIndustries, his father’s mechanical construction and facilities services business, in Dallas, Texas. Despite possible stereotypes of what a Texas-based construction company might have been like in the mid-’60s, Lowe Jr. walked into a very conscious and intentional culture that had been created under the direction of Jack Lowe Sr., who had successfully pioneered a new way of running his business known as servant leadership (a term coined by Robert K. Greenleaf). Using this same style of leadership when Lowe Jr. took over TDIndustries as CEO in 1980, the company made it through a major economic downturn (which they were the only major contractor in Texas to survive), scaled at an impressive rate, and accrued accolades, including being recognized on Fortune’s list of the 100 Best Companies to Work For every year since the list’s inception. We spoke with Lowe Jr. about how servant leadership works, the challenges associated with its adoption, and how building trust can save a company.

What is your personal definition of servant leadership? Jack Lowe: The role of a leader is to serve those being led. Our simple definition is that you help those around you grow. Can you tell us about the evolution of servant leadership for you? JL: My dad started TDIndustries in 1946, and in the late ’60s we were pretty small — around 300 people — and we would promote people to leadership roles but they were not succeeding, and there was a lot of unrest. My dad stumbled across this pamphlet on servant leadership that was actually written for college 14

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students, who of course were protesting on campuses around the country at that time. After reading the pamphlet, my dad decided to invite about 15 employees at a time over to my mother’s house. They represented a cross section of the company, and no one’s immediate supervisor would be there. The pamphlet would be there, and they would spend an hour or two talking about it during these seven-hour sessions. The reason he did this, and what he had discovered, was that you can promote a plumber to be a plumbing foreman, or a salesperson to be a sales manager, or an accountant to be an accounting manager, and all of these people have tons of technical

CONSCIOUS COMPANY MAGAZINE

capabilities and tons of training in their technical skill, but none of them have had any training in leadership. Plumbing and engineering are complicated, but they’re not as complicated as people. My dad realized that we needed to figure out some way to help people be better leaders. At first we thought servant leadership was mostly just being nice to each other, but now we know that some accountability needs to be built in, as well. Now we’d say that the definition of a servant leader is somebody who influences others; whether you supervise others or not, if you influence others, you’re a leader.

LEADERSHIP

Can you give us an example of servant leadership in practice? JL: Servant leadership builds trust. If people think you’re helping them grow, then they like you and trust you. Trust allows you to do all kinds of things, like navigate difficult situations and change strategic direction. If you don’t have trust, you can’t do much of anything. Probably the best example of this happened in the late ’80s, when the construction business in Texas collapsed. Our revenue and our net worth declined by half, and we were in a desperate situation. We had a defined benefit retirement plan where you would get one percent of your salary for every year that you worked for us when you retired. So if you made $100,000 and you worked for us for 40 years, you’d get $40,000 a year for the rest of your life upon retirement. Usually these types of pension plans are underfunded, but ours was overfunded by a million dollars, which is very rare. But the only way to get that extra million dollars was to terminate the retirement plan. The good news was that the company would get that $1 million and we would distribute the other $4 million that was in the plan to

the employees. The problem was that I didn’t think we could make it with just $1 million; I thought we needed two. But it was the employees’ money; I couldn’t make them give it up. So we brought the employees together and we came up with a plan. I met with just about everybody in the company over the next few weeks. I told them no one would know who had agreed to give up some of their retirement money and who hadn’t, and nobody’s job would be on the line, but the company needed their help. And we were able to raise over a million dollars and saved the company. That was built on trust. What are some of the other benefits that servant leadership has had for TDIndustries? JL: We have been able to grow more because we have better leaders. Plus, we can attract talent because people want to work for us; we’re known as a great place to work, and we have that reputation because of our servant leadership practices. We’ve also got great partners who refer good people to us because of our good reputation. It’s only because we have a lot of good

people who are capable of stepping up into leadership roles that we can grow. Are there any challenges that you’ve faced in implementing this leadership style? JL: Yes, we’ve terminated very profitable senior executives who just aren’t right for the way we do things. Those are hard decisions to make, but if you’re not growing people, even if you’re very profitable, we’ll let you go. We terminated one of our most profitable business unit’s managers about five years ago because he was just chewing people up. That’s not OK with us. What advice do you have for someone who might be thinking about implementing servant leadership at their company? JL: The good news about servant leadership is that it works. It will really help you as a businessperson. It’s harder than just being an autocrat, but it works better. If your goal is to be part of an organization that thrives and succeeds, I believe something like this is the best way to do it. Photo: TDIndustries

Members of the TDIndustries Team

“Plumbing and engineering are complicated, but they’re not as complicated as people. My dad realized that we needed to figure out some way to help people be better leaders.” CONSCIOUS COMPANY MAGAZINE

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COMPANY ON THE RISE:

THRIVE MARKET

FIRST-YEAR MILESTONES: Expanded from 15 full-time employees to more than 350 Opened a 350,000+ square foot, state-of-the-art fulfillment center in October 2015 Became the largest online retailer of exclusively non-GMO products Launched first Thrive Market branded product SKU (organic, fair trade, virgin coconut oil) Closed $30 million Series A round led by Greycroft Partners and e.Ventures, with participation from Scripps Networks, the founders of The Honest Company, TOMS Shoes, Vitaminwater, Stonyfield Farm, and Zulily

LOS ANGELES-BASED THRIVE MARKET, FOUNDED IN NOVEMBER 2014, HAS QUICKLY AND QUIETLY BLOWN UP OVER THE LAST YEAR. The online wholesale marketplace is the first socially conscious virtual retailer, selling more than 2,500 products ranging from almond butter to shower gel. The membership-based service provides consumers with exclusive access to products at 25 to 50 percent off retail prices. The company has scaled in record fashion, closing a $30 million Series A round in July 2015 and doubling in growth every month since its inception.

“

What’s so exciting about Thrive is that it’s a hyper-scalable business with a fully integrated social mission. To date, there have not been many social enterprise companies that have really scaled, and we’re very excited to prove that thesis and inspire other entrepreneurs to solve social challenges with business.

”

— Gunnar Lovelace, Co-founder

Fun Fact: Each full-priced membership sponsors a free membership for a low-income family to be able to access healthy, wholesome food at discounted rates. The company released a direct giving application last year, which enables low-income families, teachers, students, first responders, and veterans to apply for and be instantly approved for their free Thrive Market membership.

Photo: Thrive Market

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â&#x20AC;&#x153;Natura strives to aggregate value for the Amazon so the forest is worth more standing than it is cut down.â&#x20AC;?

The ucuuba fruit

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NATURA A LOOK INSIDE THE INNOVATIVE PRACTICES OF THE WORLD’S LARGEST B CORP BY DEBORAH LEIPZIGER

NATURA AT A GLANCE Location: São Paulo, Brazil Founded: 1969

Employees: 6,000+ Structure: Publicly traded In Short: Brazilian cosmetics and personal hygiene company

In late 2014, Brazilian company Natura became the world’s largest B Corp. The company produces and distributes cosmetics and personal hygiene products throughout Latin America and France, and has redefined the nature of beauty with its tagline “Bem Estar Bem,” or “Well Being Well.” In 2013, Natura was recognized as one of the 10 most innovative companies in the world by Forbes, and 58 percent of Brazilians now use the company’s products. Natura is an example of true sustainability at scale: as the company grows, so does its positive impact. So how does a cosmetics company drive sustainability on such a large scale, and what can other companies learn about growing a company’s impact? The answer takes a systems-thinking approach. In addition to creating natural products, Natura embeds sustainability into its brand and practices through numerous cutting-edge strategic initiatives. CONSCIOUS COMPANY MAGAZINE

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5 LARGEST B CORPS IN THE WORLD Natura is the largest B Corp in the world. The four other largest B Corps are:*

Making the Amazon More Valuable Business Development Bank of Canada Canadian bank offering financing, subordinate financing, venture capital, and consulting services to small and medium-sized companies across the country.

Cabot Creamery Vermont-based cooperative of dairy farms producing award-winning dairy products, including cheese, butter, yogurt, cottage cheese, and sour cream.

Green Mountain Power Electric utility based in Vermont focusing on a transition to clean energy generation and innovative energy storage solutions.

Patagonia California-based outdoor apparel company creating clothing and gear for the silent sports: climbing, surfing, skiing and snowboarding, fly fishing, and trail running.

*listed alphabetically

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CONSCIOUS COMPANY MAGAZINE

Natura is working to develop a new economy in the Amazon region that values preservation over destruction. The old economy, based on extraction and rainforest devastation, is a threat to Natura and its business model of making products derived from living, standing forests, or “floresta em pé.” Natura strives to aggregate value for the Amazon so the forest is worth more standing than it is cut down. The only way to add value is to create a demand for the products of the living forest, such as its seeds, fruits, and oils. For example, Natura has discovered a new ingredient, the ucuuba fruit, which comes from the Tocantins and Pará regions of Brazil. When ripe, these fruits release red seeds, which create a sort of floating carpet in the flooded areas where they grow, and which have ideal characteristics for cosmetics: they are hydrating but not heavy. In the past 30 years, the ucuuba tree has become nearly extinct because it has been cut down for its wood. Natura uses the seeds to create a butter that is used in hydrating lotions and soaps and, as a result, has made the ucuuba plant three times more valuable for its seeds than for its wood.

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Industrial Symbiosis: Natura’s Ecoparque In March 2014, Natura built its Ecoparque production facility in the Amazonian city of Benevides. The vision for the Ecoparque is for Natura to work alongside several other companies to promote industrial symbiosis, in which waste products from one company are used as raw materials for other products made by other companies. For example, Natura makes soap out of the seeds of the maracuja, or passion fruit. Natura hopes that a juice company or a biomass company might be interested in using the pulp or the fiber of the passion fruit, and will choose to be located in the Ecoparque to be close to the source of these raw materials, which are Natura’s waste products.

3 Social Biodiversity: The Ekos Product Line In order to help maintain the biodiversity of the Amazon forest, Natura also fosters social biodiversity. This concept allows the region’s communities to benefit financially from being suppliers of Natura’s raw materials. Natura provides incentives for local communities to preserve the forest, and then Natura and the communities share the benefits. These practices are embodied in Natura’s Ekos brand, which the company launched in 2000. The Ekos line is produced using raw materials from the rainforest, including cacao, guarana, Brazil nuts, and less-known products like andiroba and copuassu. Natura uses rainforest communities’ knowledge of local plants and their various properties to create its products, essentially transforming their traditional knowledge into modern technology. By relying on these communities to source raw materials, Natura is investing in and incentivizing them to protect the forests where they live.

OTHER B CORPS ON THE PUBLIC MARKETS Public Companies that Have Become Certified B Corps • Natura (BVMF: NATU3) • Snakk Media Ltd. (NZX: SNK) • Australian Ethical (SX: AEF) • New Resource Bank (OTCMKTS: NWBN)

B Corps that Have Completed an IPO • Etsy (NASDAQ: ETSY) • Rally Software (subsequently decertified by B Lab following acquisition by CA Technologies)

B Corps Acquired by Public Companies • Plum Organics by Campbell Soup Company (NYSE: CPB) • Happy Family by Groupe Danone (OTC: DANOY) • Five:am by PZ Cussons (LON: PZC)

Public Companies that Have Certified a Subsidiary • Unilever (Ben & Jerry’s) (NYSE: UN) • Procter & Gamble (New Chapter) (NYSE: PG)

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Tenets of Integrated Reporting According to Paul Druckman, CEO of the International Integrated Reporting Council, there are six basic tenets behind integrated reporting:

Communication about value creation: How does the company use the six types of capital to create value?

Articulation of strategy: How are risk management and performance indicators derived from strategy?

Connectivity of information: How are the different parts of the business connected? How do the various types of capital used by the business interconnect?

Future orientation: Rather than focus on historic data alone, the integrated report addresses whether the company is prepared for the challenges and opportunities of the future, beginning with its business model.

Understanding the external environment: How does the company impact the external environment and how is it impacted by it?

Concise and clear communication: Many company reports are not readable and concise. The goal of integrated reporting is relevance and integrated thinking.

4 Integrated Reporting To promote greater transparency about its activities and vision, in 2013 Natura launched its first integrated report — a concise communication that clearly articulates the company’s strategy, governance, and overall performance in the short- and long-term. As the first company in Brazil to adopt integrated reporting, Natura has committed itself to “radical transparency.” Most corporate reporting is based on a rear-view-mirror analysis of the company and fails to provide a full picture of how the company creates value. Integrated reporting allows companies to report on how they address the following six forms of capital: 1. Financial capital 2. Manufactured capital 3. Human capital 4. Social capital (relationship capital) 5. Natural capital 6. Intellectual capital The focus on a broader range of metrics and multiple forms of capital within the integrated reporting process has helped Natura reinforce the company’s overall values of holistic and long-term thinking. In addition to clearly defining the company’s priorities and commitments in a transparent manner, this process creates a supportive and collaborative dialogue and environment for all stakeholders of the company.

The combination of these four practices has made Natura a true leader in the sustainability movement. By working with local communities, making resources more valuable, promoting collaboration and resource-sharing with other companies, and using radical transparency with all stakeholders, Natura integrates sustainability into the core fabric of the company’s corporate identity, creating a model for others to emulate and be inspired by. Photos: Natura

Deborah Leipziger is an author, consultant, and professor in the fields of sustainability and social innovation. She advises companies, governments, and UN agencies on human rights and environmental issues. She has advised leading multinational companies on strategy and supply chain issues. For more information go to: www.deborahleipziger.com

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8 LEADING ACCELERATORS

decade ago, programs to assist startups and budding entrepreneurs, often referred to as accelerators or incubators, were few and far between. Recently, however, such programs have proliferated, with hundreds springing up all over the world â&#x20AC;&#x201D; think Techstars, Y Combinator, and AngelPad. These programs typically provide mentorship, education, access to substantial networks, introductions to potential investors, and, in some cases, direct investment in companies in exchange for a small piece of equity. But what about programs for mission-driven companies? Fortunately, accelerators, incubators, and leadership programs have emerged to meet the ever-growing demand from this sector as well. Weâ&#x20AC;&#x2122;ve identified eight leading programs worldwide that cater specifically to conscious companies.

CHEAT SHEET Program

Founded

Ideal For

Structure

Program Length

Makes Direct Investment?

Echoing Green

1987

For-profit, nonprofit, or hybrid organizations with a social mission

Accelerator

2 years

Yes

2008

Social entrepreneurs and intrapreneurs within companies, nonprofits, and activist campaigns

Accelerator combined with experiential learning

1 year (10 weeks on-site)

No, but some companies are provided with stipends

2009

Impact-driven, post-revenue companies solving major global problems in agriculture, education, energy, financial inclusion, and health that have raised less than $1 million in capital

Post-accelerator/ venture development program

4 months

Yes, but onlyÂ in companies chosen at the end of the process by their peers

2009

Early-stage companies that generate profit by delivering a social or environmental value

Accelerator

12 weeks

No, but manages a pool of investments

New York, NY

The DO School Berlin and New York, NY

Village Capital

Washington, D.C.

GoodCompany Ventures Philadelphia, PA

Unreasonable Institute

2009

Social-impactfocused businesses looking to scale

Accelerator

5 days to 5 months

No, but companies are provided with access to more than 100 investors in the network

2011

Leadership teams of growth-oriented businesses that have a higher purpose, with annual top-line revenues between $250,000 and $30 million

Leadership Academy

18 months to 2 years

Yes, but not in all participating ventures

2012

Mission-driven for-profits where the mission is embedded in the product or service

Accelerator

10 weeks

Yes

2013

Early-stage companies and entrepreneurs looking specifically to integrate the tenets of Conscious Capitalism into the DNA of their business model

Accelerator

4 months

Yes

Boulder, CO

MAC

Tempe, AZ

Fledge

Seattle, WA

Conscious Venture Lab

Washington, D.C.

MARKETPLACE What inspired you to launch this program? Cheryl Dorsey: When I was growing up as an AfricanAmerican kid in the late ’60s in Baltimore and witnessing countless inequities, my mother would tell me, “Life’s not fair, but it’s up to you to figure out a way to change it.” My various experiences along my path to becoming Echoing Green’s president were part of me learning how I could help make the world a fairer place. What’s inspiring about the Echoing Green community is that each of us seeks to determine what impact we want to have on the world. We call this finding what’s “right for you and good for the world,” and for Echoing Green, that is enabling the committed, passionate leaders we support to do the important work they do across the globe to achieve systemic improvements.

Location: New York, NY Founded: 1987 Employees: 32 Program Graduates: 700+ Program at a Glance: Echoing Green

offers three fellowships: the Global Fellowship, for innovators working to improve communities around the world; the Climate Fellowship, for social entrepreneurs revolutionizing mitigation of and adaptation to climate change; and the Black Male Achievement Fellowship, for visionaries pioneering solutions to the barriers facing black men and boys in the United States. Fellowships are awarded on an annual basis. Fellows are invited into programs that offer seedstage funding, ongoing technical support, strategic assistance from industry experts, and leadership development programs for social entrepreneurs working in more than 70 countries.

What do you believe is the largest predictor of future success for the companies that you have worked with? CD: Particularly for companies with a social mission, leadership potential is a strong indicator of future success. It’s often leaders who are closely linked to the problem they’re seeking to solve who bring the most innovative solutions. When we select fellows, a key part of our vetting process is learning about each leader’s passion for having a transformative impact upon the important social challenge they’ve identified. Commitment and resilience, along with a supportive network and tools, are key to the success of the extraordinary enterprises our fellows launch in communities across the globe. What do you believe is the greatest barrier for young companies in terms of scaling their ideas and businesses? CD: The entrepreneurs who seek Echoing Green funding are presenting new business models to address systemic social challenges and generally need a longer and subsidized financial runway to innovate, learn, and become investmentready. The longer timeline for a return on investment can make these companies a challenging sell to venture capitalists, angel networks, and other traditional early investment sources. We’re seeing a lot of potential in the burgeoning field of impact investing, but there is a need for investors and entrepreneurs to co-create the terms for more risk-tolerant funding. It’s critical that we build the investment and support system to help them go further, faster. echoinggreen.org

IMPACT • $3.4 million invested in the 2013 and 2014 classes of fellows • $33.4 million raised from outside capital for the 2013 and 2014 fellows’ work — 9.8 times the initial investment • 150,000 people at nearly 200 colleges, universities, and nonprofits reached through the Work on Purpose program 26

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Photo: Echoing Green

MARKETPLACE What inspired you to launch this program? Florian Hoffmann: We are living in an era of unprecedented change. In 1960, the average Fortune 500 company had been on the index for an average of 60 years, whereas today the average company has only maintained that status for 15 years. Massive disruptions are so widespread that everyone is affected and everyone feels that change is something that happens to us. The knowledge and skills necessary to succeed are constantly changing. In the face of such disruption, how can we truly empower people around the world? That is why we founded The DO School — to empower talented young entrepreneurs and leaders within organizations to turn their ideas into action. What do you believe is the largest predictor of future success for the companies that you have worked with? FH: The companies that will succeed in our modern era of disruption are those that are talented in three areas. First is the ability to select an idea that they are passionate about delivering and to find purpose in its implementation. Second is the ability to effectively and efficiently engage outside stakeholders in the planning and implementation of the idea. And third, and most important, is the ability to engage and respond to mistakes. Failure and crisis are where we find the true meaning and purpose in our ideas. Organizations that can iterate their way through those times are best suited for the 21st century. What do you believe is the greatest barrier for young companies in terms of scaling their ideas and businesses? FH: The biggest and most vital barrier to overcome is to simply get DOing. Of course, coming up with worldchanging ideas and strategies is vital, but ultimately, the value assigned to ideas and planning is totally overstated. Ideas and plans are not what will create a better world. Only through implementing, learning, and iterating can true success and impact be achieved. thedoschool.org

Location: Berlin, Germany, and New York, NY Founded: 2008 Employees: 25 Program Graduates: 240 through its Entrepreneurship for Good Program and 2,000 in other DO School programs Program at a Glance: The DO School

combines the traditional accelerator approach with a unique learning-by-DOing, challenge-oriented method. Twenty fellows are selected for each program and come together for 10 weeks to develop their own ventures and also learn by working on a sustainability challenge given by a leading organization (such as H&M, Covestro, or the City of New York) that is of material value to the organization’s strategic goals. During this time, the fellows collaborate with team members from the challenge organization and with external practitioners brought in to provide guidance on special issues or topics. At the end of the 10 weeks, the fellows present social innovations from the challenge to the sponsor organization and then return home to launch their own ventures. Once home, fellows receive 10 months of support from The DO School’s network of experts and mentors in more than 70 countries.

IMPACT • 2.2 full-time jobs created on average per participating venture • $360,278 raised by participating companies to launch their ventures • 4.4 volunteer positions created on average per venture

Photo: The DO School

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Location: Washington, D.C.

“The traditional investment process rewards entrepreneurs who are well-connected and good at pitching, but are not necessarily good at building great businesses.”

Founded: 2009 Employees: 28 Program Graduates: 500+ Program at a Glance: For each

program, Village Capital recruits a group of 10 to 12 entrepreneurs who have unique solutions to a major problem (e.g., lack of access to financial services for low-income Americans). Through three four-day workshops, enterprises refine their business models through customer interaction, hypothesis testing, receipt of mentoring, and investor engagement. At the end of the program, entrepreneurs assess one another against 20 investment criteria. The top two ventures, as ranked by their peers, receive seed capital from VilCap Investments, Village Capital’s affiliated venture fund.

IMPACT • $118 million in investment capital leveraged • 8,545 jobs created

What inspired you to launch this program? Ross Baird: We believe that if entrepreneurship is going to change the world, it has to include everyone. We launched Village Capital to democratize entrepreneurship by empowering anyone, anywhere in the world, to start a company regardless of their background. The traditional investment process rewards entrepreneurs who are wellconnected and good at pitching, but are not necessarily good at building great businesses. Village Capital puts entrepreneurs in the driver’s seat of the due diligence process, creating more equitable investments. What do you believe is the largest predictor of future success for the companies that you have worked with? RB: The largest predictor of future success is whether or not companies are effectively hypothesis-testing to de-risk the assumptions inherent in any early-stage business. Companies that are willing to go out and build evidence to support all the different facets of their business are almost always more successful in the long run. What do you believe is the greatest barrier for young companies in terms of scaling their ideas and businesses? RB: In the areas where we work, the biggest barrier for young companies is access to opportunity. Talent is universal, but 75 percent of US venture investments are made in Silicon Valley, New York, and Boston, and we believe great ideas everywhere deserve the funding and support required to solve global problems. For companies solving major global problems, it’s even more difficult to raise money to scale because investors tend to avoid highly regulated industries — the same sectors that affect the lives of people every day. vilcap.com

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Photos: Village Capital

MARKETPLACE What inspired you to launch this program? Catherine Griffin: We launched the program because we believe in the power of business to transcend the limitations of the public sector, deliver innovation sustainably, and unlock tremendous value by solving the world’s greatest challenges. Hackathons and similar challenges fall short by overlooking the business model development work required to take new innovations to market at scale, and traditional tech venture programs fail to address the unique challenges that entrepreneurs in the social space often face. What do you believe is the largest predictor of future success for the companies that you have worked with? CG: A great entrepreneur. Other than that, a mix of broad market demand with a specific innovation insight are key. We identify demand drivers, and work with entrepreneurs to tighten and refine their proof of concept and pilot-stage execution. What do you believe is the greatest barrier for young companies in terms of scaling their ideas and businesses? CG: We’ve found the greatest barrier to be steadfast loyalty to a mission and delivery mechanism, rather than fitting an innovation to an expressed market demand. goodcompanyventures.org

Location: Philadelphia, PA Founded: 2009 Employees: 3 Program Graduates: 75 Program at a Glance: GoodCompany

Ventures chooses early-stage entrepreneurs to participate in an intensive 12-week program where they are guided through a series of expert and investor panels, tactical workshops, peer-to-peer critiques, and one-on-one coaching sessions cumulating in an investor pitch event.

IMPACT • More than $60 million in private capital raised • More than 300 jobs created

Photo: GoodCompany Ventures

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What inspired you to launch this program? Will Butler: We launched the Unreasonable Institute because we envision a world in which no one is limited by their circumstances.

Location: Boulder, CO Founded: 2009 Employees: 10 Program Graduates: 120 Program at a Glance: The Unreasonable Institute identifies between 10 and 20 ventures that have the potential to address problems like poverty, lack of education, and social injustice at scale. Fellows are invited to participate in a fiveweek program where they are provided with hand-picked mentors out of a pool of more than 50, plus access to more than 100 potential funders, partners, and workshops to help grow their impact. Once entrepreneurs leave the program, they have access to a global network of entrepreneurs, mentors, and funders in 50 countries.

What do you believe is the largest predictor of future success for the companies that you have worked with? WB: Support from mentors who have been through the process before, along with clear goals for where the venture is headed and what the venture aims to achieve, are the largest predictors of success. What do you believe is the greatest barrier for young companies in terms of scaling their ideas and businesses? WB: Support. Entrepreneurs often lack the clarity, people, and capital they need to scale their impact, and it becomes their largest barrier to success. unreasonableinstitute.org

IMPACT • 93% of ventures have successfully raised funding • $72 million in funding raised from outside capital • 2,900 jobs created

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Photos: Unreasonable Institute

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What inspired you to launch this program? Kyle McIntosh: In 2011, my father Scott and I decided that we wanted to be active investors and develop a hands-on program to provide intellectual capital to each business we invested in to help them grow. We use Conscious Capitalism as our lens to assess a business’ long-term potential. We do all of this because it works toward what truly gets us out of bed in the morning, which includes furthering the MAC6 purpose of building better communities to eliminate extreme poverty.

Location: Tempe, AZ Founded: 2011 Employees: 7

What do you believe is the largest predictor of future success for the companies that you have worked with? KM: It is always the team that makes a business successful, which is why MAC6 changed from an accelerator to a leadership academy. Ideas are a dime a dozen, but a strong leadership team that is able to create traction toward a common vision is what will truly give a business the ability to scale toward financial success and the commensurate good that they intend to create in the world. What do you believe is the greatest barrier for young companies in terms of scaling their ideas and businesses? KM: The greatest barrier for young companies is not getting scrappy or being tenacious enough. Great entrepreneurs are insane and fanatical about making something happen and achieving success in tackling a problem that they see in the world. It is never easy, and it is never a straight line. To the extent that entrepreneurs can get scrappy when it gets tough and surround themselves with people who are able to do the same, they will leap over, go around, or bust right through any barrier that comes their way. mac6.com

Program Graduates: 12 companies Program at a Glance: Prior to this year,

MAC6 operated as an accelerator. In 2015, the organization changed its model to become a leadership academy that provides intellectual capital alongside direct investment to participating companies. After assessing each member of a participating company’s team and any current gaps in roles, MAC6 works with the business teams to implement a “people-centric operating system.” The organization uses two tools, Target Training International Success Insights and the Entrepreneurial Operating System, to accelerate team performance through understanding key behavior, motivation, and professional soft-skill differences throughout each organization.

IMPACT • $7.2 million invested • 122 companies invested in

Photos: Mac6

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What inspired you to launch this program? Michael “Luni” Libes: Few of the thousands of entrepreneurship programs focus on companies that solve the important problems of the world, and less than a handful of those are for-profit organizations helping other for-profit organizations. There is a market need for what we do. That, and I just love to help start startups.

Location: Seattle, WA Founded: 2012 Employees: 1 full-time plus more than 300 volunteer mentors

Program Graduates: 39 Program at a Glance: Anyone, from

anywhere, can apply to the Fledge program. Seven teams are chosen to participate and each of those teams is given $20,000 in cash and invited to Seattle for 10 weeks of intense education, guidance, and mentorship.

What do you believe is the largest predictor of future success for the companies that you have worked with? MLL: Beyond looking for entrepreneurs with that magic “spark,” the key to fledglings’ success lies in the fact that they are trying to solve problems that, if solved, make the world truly better off. What do you believe is the greatest barrier for young companies in terms of scaling their ideas and businesses? MLL: Starting and scaling companies is an incredibly difficult process. It requires a broad set of skills, not all of which are taught in school, much less as a single discipline. That lack of schooling in entrepreneurship leads first-time entrepreneurs to repeat the same mistakes as others, which only increases the failure rate. Fledge fills in those gaps to help our entrepreneurs focus on making new mistakes. fledge.co

IMPACT • More than $10 million in follow-on funding raised • More than 300 jobs created

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Photos: Fledge

MARKETPLACE What inspired you to launch this program? Jeff Cherry: Improving the state of entrepreneurship — the manner in which we start new businesses and the manner in which those businesses engage society — is one of the most important missions of our time. Our goal is to change the way capitalism is practiced in America. We believe a more human and humane form of capitalism is required if we as a society are going to reach our true potential. In a simple statement, we attempt to answer the question, “What kind of world could we create if entrepreneurs, executives, and investors cared as much about people as they do about profit?” What do you believe is the largest predictor of future success for the companies that you have worked with? JC: Without question, the quality of the leadership team is the single most important predictor of success. The ability to stick to the notion of organizational purpose as the true driver of success requires a level of servant leadership that most entrepreneurs and executives do not possess. We’ve found that many companies and entrepreneurs understand the ideas of managing for stakeholders, creating a highly engaging culture, and even discovering organizational purpose. But when things get difficult, if the leaders aren’t prepared to stay the course, everything falls apart very quickly. What do you believe is the greatest barrier for young companies in terms of scaling their ideas and businesses? JC: First, they must embrace the notion that purpose and consciousness are going to be the main drivers of value in the future. Once this is internalized, they must quickly develop leadership capabilities to actually build a business based on culture. Finally, they need to have confidence in their convictions when it comes to raising capital so that even when it takes longer than planned, and it always does, they stay resilient and focus on philosophically aligned investors. consciousventurelab.com

Location: Columbia, MD Founded: 2013 Employees: 6 Program Graduates: 10 companies Program at a Glance: Conscious

Venture Lab (CVLab) invests between $25,000 and $50,000 for 5 to 10 percent equity in participating companies. Each cohort includes five to ten businesses that participate in a mentor- and curriculumbased program that strives to accelerate impact and financial performance as quickly as possible. The curriculum, which was created in partnership with R. Edward Freeman from the University of Virginia Darden School of Business, is 30 percent Lean Startup, 50 percent Conscious Capitalism, and 20 percent pitch preparation. The process focuses on purpose-based entrepreneurs who have an idea that can scale and impact the lives of a large number of customers within five years.

IMPACT • 8 investments totaling $200,000 • More than $500,000 in additional capital raised in the first year • More than 80 new jobs created

Photo: Conscious Venture Lab CONSCIOUS COMPANY MAGAZINE

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THE INSIDE STORY FROM CO-FOUNDER SETH GOLDMAN

HONEST TEA AT A GLANCE Location: Bethesda, Md. Founded: 1998 Employees: 140+ 2015 Sales: $170 million Structure: Coca-Cola invested 40% in the company in 2008 and bought the company in 2011 Fun Fact: Honest Tea is the nation’s top-selling organic bottled tea

Maryland-based Honest Tea sets the bar high, demonstrating how a company can scale through acquisition while staying true to its mission and values. Bought by Coca-Cola in 2011, Honest Tea is now an independent operating unit within the company. Its co-founder, Seth Goldman, also remained in control as “Tea-EO” — a first for a company acquired by Coca-Cola. In November 2015, Goldman reduced his dayto-day role with the company, stepping into a new role as Tea-EO Emeritus. We spoke with Goldman about scaling a company through acquisition, maintaining core values, and the challenges associated with growth.

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How did Honest Tea get its start? Seth Goldman: The main idea actually started in business school in 1995. We were doing a case study of the beverage industry and just talking about what was and wasn’t out there. I ran track and crosscountry in college, so I was always thirsty and felt like the drinks were so sweet. My professor at the time, Barry Nalebuff, became my co-founder. I had gone up to him after class and said, “This is what’s missing.” He totally agreed: “Yes. Let’s make some samples. Let’s do focus groups.” I was in my second year of business school. I was not in a place where I was able to really pursue the idea, but it stuck with me. I then left business school and went to work with Calvert Investments, a mutual fund company. I was in charge of marketing and sales for their socially responsible portfolio. I loved the mission, loved the work, but felt the need to do something more entrepreneurial. I was just waiting for the right idea. After giving a presentation to a bunch of entrepreneurs in New York City that kind of fell on deaf ears, I went for a run and was thirsty and went to a beverage cooler. I was with a classmate from college and I said, “This is still missing. There’s still nothing here.” I reached out to Barry, who had just come back from India, and he had come up with the name Honest Tea. He’d had the insight that most of the bottled tea sold around the world is just the dregs — it’s mainly the tea leaves, not the high-quality tea. If you’re spending 25 cents to make a bottle of tea and, of that 25 cents, 1 cent is tea, why not spend 3 cents on the tea and make it higher quality? Organic wasn’t

really an option at that time, but why wouldn’t you at least try to get better tea and not sweeten it up with high-glucose corn syrup? That was why the name Honest Tea made sense. I was excited about the idea and about Barry’s willingness to invest, and — things happen for a reason — in the fall of 1997, I ended up with a little windfall from an investment my father had made in 1972. All of a sudden, I got a check for $50,000. I thought, “Wow. That has to have happened for a reason. That’s my start-up money.” I left Calvert and started the company out of my house. It was a funny conversation I had with the head of Calvert when I told her I was going to do this. She said, “Wait. You’re going to leave a mutual fund company for bottled tea?” We told the founder of Calvert on a conference call, and there was just silence on the other end. It was challenging to start up. I had no idea what the beverage industry was like and had never done anything like it. We started small, but we got up and running and got into Whole Foods as our first account. We did okay in natural foods, but we didn’t do so well elsewhere. We kept growing, though. People kept saying no, and we kept persisting until we wore them down. In the first 10 years we grew to become the best-selling tea in the natural-foods world. We were always looking for continuous improvement. We kept thinking about what more we could do around our mission. How could we take it up a notch? We kept evolving, and that’s still how we think about it. We’re on the journey and we’ve made a lot of progress. Where have the challenges been with growing at every stage and trying to focus on continual improvement? SG: For the first 10 years, the biggest challenge was distribution. One thing about the beverage

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industry that’s really unique is that no matter how good your product is, if it’s not available to people, it’s a thought experiment; it’s not real. This was what drove us to partner with Coca-Cola. We had to get this product available to people — not just in natural food stores, but wherever they shopped. The folks we would go to for distribution, outside of the naturalfoods channel, were the people distributing Snapple and all these sweet drinks. And these guys — I’ll say guys because it was universally men — would say, “It’s not sweet enough. It’s too expensive. It tastes like grass.” It was a taste they weren’t familiar with. So that was a huge struggle, and it was absolutely a constraint on our growth. Once we started working with Coca-Cola, all of a sudden we had distribution to wherever we wanted. When Coca-Cola invested we were in about 15,000 stores, which wasn’t bad, but now we’re in 120,000 stores.

All of a sudden, we’re seeing growth everywhere in the past 18 months. We expected it on the coasts and in the natural-food stores, but now we’re in chains like Sheetz and Wawa — places that never got traction before. We just launched nationally with Wendy’s, which now sells our brewed tea in all their locations. Wendy’s is also selling our Honest Kids line in their kids’ meals. The overlap between the Wendy’s consumer and the Honest Tea consumer prior to this happening was probably very little, maybe five percent. But all of a sudden, all these people are getting exposed to organic, fair-trade, low-sugar products. It’s a neat moment. Despite the fact we’ve been at it 18 years, it’s like there’s a new growth ahead. Do you feel like a cultural shift brought on this rapid growth phase, or was it your partnership with Coca-Cola? Or perhaps a little of both?

SG: I think it’s a little of everything. There’s no question that the population has shifted. People’s diets have absolutely evolved. One of the most exciting areas is the kids’ market. Honest Kids is a product we brought out in 2007. When that came out, the dominant brand, by a significant amount, was Capri Sun. Every Capri Sun was 100 calories, and filled with high-fructose corn syrup. We have been taking market share in that category aggressively, and while the whole category has been going down, we’ve been growing. Now Capri Sun is more like 60 or 70 calories. Their products have a big label that says “no high-fructose corn syrup.” Not only our presence, but our success in that market has helped create a climate where these brands feel they need to change. There was a great quote by Rose Marcario from Patagonia. She said something like, “We have to make it uncomfortable for the competition not to follow us.” I think we’ve definitely done that in the kids’ category.

HONEST TEA’S SALES GROWTH $120,000,000

$90,000,000

2011 Coca-Cola Purchases

$60,000,000

2008 Coca-Cola Invests

$30,000,000

1998

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2000

2002

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2004

2006

2008

2010

2012

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What was the key component in maintaining your culture and mission?

SG: Don’t do the whole deal at once. Let each side understand how the other works and demonstrate and develop trust with each other. Coca-Cola initially SG: I think part of it was the deal invested with us in 2008. For the first structure. This was the first deal CocaCola had ever done where they didn’t buy three years, we were really independent. the company 100-percent outright. Their As a result of that structure, when they culture had always been to buy the entire had the chance to invest and buy the rest of the company in 2011, it was already brand. working. When they first invested, we I’m friends with the president of Vitá were at $23 million [in revenue]. By the Water. They did their deal [with Cocatime they bought the company, we were Cola] before we did, and he told me, at $72 million. So we’d grown threefold “You’re not going to be around in a year. in three years. The first three months they’re going to They said, “Why should we change want to know your opinion. The next anything if it’s working?” I think the three months they’re going to want to other thing they came to appreciate was know your phone number. After that, how much we understood our customer they’re not going to want to know you. and our consumer, You’re irrelevant.” and that we had Our deal was We didn’t start relationships structured very they didn’t have differently. When doing our Mission with Whole Foods they called, in the Report until and the natural start, I said, “I’m channel. So why not negotiating. Coca-Cola invested they buy it We can’t sell. This with us — every year should and take it over? brand is too new, before that we were They didn’t want to there’s too much lose our team. They growth ahead. The just trying to stay in didn’t want to lose mission is on its business. After they my authentic voice way to realizing around the brand itself, but it’s not invested, it didn’t and the messaging. there yet. There’s change our mission, For me to stay, a lot more work to I needed to feel a do.” And they got it. and we’ve been sense of ownership. transparent and And they got that. Was there any accountable about The chairman of internal resistance Coca-Cola had been to the sale within that. an entrepreneur Honest Tea? himself, so he understood why SG: The only person that was relevant. I guess there really who was against it was my father, isn’t any other brand they’ve bought who said at the time, “I see you doing where the CEO is still around, though. something, living what you believe. Also, make sure your mission is You’re thriving and enjoying it. I just embedded in your brand. For us, our don’t want you to lose that.” It was good mission was always about the product to hear, and I had to reassure him that we were selling. It was low-calorie; it I thought, as I did and still do, that it still is. It was organic; it still is. It was was the right thing. He has since come fair trade; it still is. If you build a brand around. with the mission being the equity of the brand, then the only way to compromise What advice do you have for small that is to take those [values] away. or medium-sized companies that are And those criteria are all third-party thinking about being acquired by a verified. It’s not that we just say, “We’re larger brand? What challenges should environmentally friendly.” That’s a they keep an eye out for? mushy term that can mean different things. Outside verifications

SETH’S 3 TIPS FOR ENTREPRENEURS

BUILD SOMETHING YOU BELIEVE IN.

If you really believe in it, you won’t give up. You have to evolve, but you also have to keep going at it if you truly believe in it. We got told “no” so many times by so many distributors, but we never gave up. We didn’t make any profit for the first 10 years, but we were building a model that was still making change happen, and that was really important. It kept us going.

EMBED YOUR MISSION INTO YOUR PRODUCT SO IT CAN’T BE COMPROMISED.

That way there won’t be any temptation to dilute your mission, because it’s what your company stands for.

DON’T JUST THINK ABOUT HOW TO MAKE SOMETHING 10 PERCENT BETTER THAN WHAT IS ALREADY ON THE MARKET.

When everyone was at 100 calories in tea, we didn’t just go out and say, “We’re going to sell a 90-calorie or an 80-calorie tea.” We said, “We’re coming out with a 17-calorie tea,” which was dramatically different. How can you make your point of difference so dramatically different than anything else that you reduce the switching temptation? If someone becomes an Honest Tea drinker, they’re not going to go, “Oh, there’s no Honest Tea. I’m going to buy some Snapple,” because the products are so different.

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THE SCALE OF

are important because otherwise the claims can get watered down. How would you respond to someone who says you “sold out” to CocaCola?

500

The number of brands in Coca-Cola’s product portfolio, representing over 3,500 beverages

23 MILLION The number of retail outlets worldwide where Coca-Cola products are sold

$45

BILLION

The net operating revenue of Coca-Cola in 2014

1.9 BILLION

The number of servings of Coca-Cola products that consumers drink every day

130,000+ The number of Coca-Cola employees worldwide

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SG: We are holding ourselves accountable — we’re documenting everything we’re doing. Everything we sell is organic, but the range of organic offerings has grown. When Coca-Cola invested in 2008, we were at about 30 percent Fair Trade Certified; now all of our teas are Fair Trade Certified. We’ve just converted all our sugars to Fair Trade Certified as well. Those initiatives cost more. When you shift to organic and then to fair trade, you can’t make it up in scale; you’re raising your cost of goods. With CocaCola’s support, we have made those moves. The dollars we are investing in communities has grown, and it grows every year. We’ve been very transparent about it. We didn’t start doing our Mission Report until Coca-Cola invested with us — every year before that we were just trying to stay in business. After they invested, it didn’t change our mission, and we’ve been transparent and accountable about that. What is the challenge that has kept you awake at night? SG: I don’t lose as much sleep as I used to, but the challenge now is truly scaling and getting a broader part of the population to buy this product. Most people don’t know what “organic” means. They don’t understand the difference between organic and natural. It’s still a challenge, but that’s why I’m so excited to be in places like convenience stores and Wendy’s. No one goes to Wendy’s saying, “I’m going to buy an organic product,” but all of a sudden they’re being presented with an organic option. What an amazing opportunity: millions of servings a week to people who could be our customers if they only knew about it. Coca-Cola has invested in us to make us a billion-dollar brand. This year we’ll be at about $350 million, which

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is neat. Our total sales have been about $170 million, but the way it works in retail means $350 million. It’s great, but it means we still have more growing to do. We’ve come up with our new mantra from the Beastie Boys song called “No Sleep Till Brooklyn” — ours is “No Sleep Till Billion.” Do you believe that in order to truly scale a company you need to sell your brand to a larger organization at some point? SG: No. I think it depends on the business. For us, as a beverage business, there was just no way we would get to the customers we are getting to now unless we were on beverage trucks. There aren’t independent drink companies of scale. The only one of any scale that’s not part of Coca-Cola, Pepsi, Dr. Pepper, or 7UP is Red Bull. They have their own trucks. So, for our industry, it was the right thing to do. It really depends on the industry, what you are bringing to market, and how you distribute it to market. Here’s an example of why it works for us: before Coca-Cola invested with us,

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we were spending about 18 cents on each bottle. When we started working with Coca-Cola, they were able to get each bottle for 13 cents because they can buy so many more. We save 60 cents per case this way. I knew the first thing we were going to do with the money we saved was to convert to fair trade. You could say that we need to make a good margin, but if it costs us a penny more per bottle to go to fair trade, we can put half the money toward our margin and half the money toward making this tea fair trade, or even toward adding fair-trade sugar. Coca-Cola’s scale helps us do things that we wouldn’t be able to do as an independent company. Do you feel positive about the future of the food industry? Where is it heading?

SG: I’m a notorious optimist. You’re not an entrepreneur if you’re not an optimist. I feel optimistic about the whole future of our economy. One of the reasons I feel that way is the impact movement: there is a rising generation that’s serious about making an impact and not compromising what they do. It bubbles up to the older generations. Consumers are also finally getting it. To me, the biggest driver has to be the consumers — they’re getting empowered in a way they weren’t before. It’s ironic in a sense, because I think people feel more powerless about elections. There’s a frustration that the establishment isn’t really doing what we want it to do. I say there’s an election going on every day in the store: with the products they buy, people can vote for change or Photos: Honest Tea for the status quo.

“There is a rising generation that’s serious about making an impact and not compromising what they do. It bubbles up to the older generations.”

THE IMPACT OF COCA-COLA HONEST TEA’S CURRENT NUMBERS COMPARED TO JUST BEFORE COCA-COLA INVESTED IN 2008 ANNUAL SERVINGS SOLD

34,033,275

261,154,335

2007

2014

ANNUAL POUNDS OF FAIR TRADE INGREDIENTS PURCHASED

72,000

1,550,856

2007

2014

ANNUAL POUNDS OF ORGANIC INGREDIENTS PURCHASED

790,000

6,722,336

2007

2014

ANNUAL FAIR TRADE PREMIUM GENERATED

$29,313

$200,124

2007

2014

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ENERGY

THE U.S. RENEWABLE ENERGY LANDSCAPE In November 2015, the US Department of Energy produced its report “Revolution Now,” which detailed the current landscape of renewable energy growth in the U.S. Findings include:

DISTRIBUTED SOLAR PHOTOVOLTAIC Over 8 GW installed by 2014, equal

LAND-BASED WIND

in capacity to 16 typical coal-fired power plants

Wind accounted for 31% of all new generation capacity installed in the U.S. from 2008 through 2014

31%

LEDS

78 million

total LED bulbs installed through 2014 - a six-fold growth since 2012

UTILITY-SCALE SOLAR PV

EVS

GREW BY in 2014 to 9.7 GW total —

68%

Nearly

over 99% of this total has been installed since 2008

300,000 electric vehicles

sold through 2014

Falling Costs for Clean Energy Technologies INDEXED COST REDUCTIONS SINCE 2008 120 100 80 Land-Based Wind Distributed PV Utility-Scale PV Modeled Battery Costs

60 40 20

LEDs 2008

Wind

2009

2010

“Power purchase agreements for wind have fallen from rates up to 7 cents/kilowatt-hour (kWh) in 2009 to an average of 2.4 cents/kWh in 2014.”

2011

2012

2013

2014

Solar

“Between 2008 and 2014, the cost for a PV module declined from $3.57/watt (W) to about $0.71/W. The total cost of utility-scale PV systems fell from $5.70/W in 2008 to $2.34/W in 2014 — a decrease of 59 percent. This means solar is increasingly reaching cost parity with traditional electrical generation from natural gas and coal in parts of the United States.”

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ENERGY

SolarCity TRANSFORMING THE UTILITY INDUSTRY ONE ROOFTOP AT A TIME Brothers Lyndon and Peter Rive founded SolarCity in 2006 after their cousin, billionaire entrepreneur Elon Musk, suggested an idea for a solar company as they were driving to the annual Burning Man festival in Nevada together. By selling customers aﬀordable, clean electricity instead of expensive solar panels, SolarCity has grown to be the largest residential solar installation company in the country by far. The company’s focus on service-based solutions and innovative financing models has allowed it to scale solar so fast that utility companies have taken notice — and fought back. We spoke with Lyndon, SolarCity’s CEO, about the secrets to SolarCity’s success and his vision for the future of the electric power industry.

SOLARCITY AT A GLANCE Location: San Mateo, CA Employees: 15,000 Founded: 2006 2014 Sales: $255 million Structure: Publicly traded Fun Fact: SolarCity has installed more than 1.7 gigawatts of solar capacity in the US, enough to power almost 300,000 homes

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ENERGY

What has been the most critical component to SolarCity’s growth since its inception? Lyndon Rive: We’ve roughly doubled every year for the last nine years — it’s been incredible growth. We’ve grown from two employees to 15,000 employees, and expanded from one warehouse to about 80 locations in 19 states now. The reason for our rapid growth has been the high demand for solar. Of course, you need demand in order to have growth. Consumers want to use clean energy and they want to have control over their own energy costs. There’s high demand for solar — people like the product. And referrals are one of our largest sources of new customers. But when you look at the energy sector, it’s massive. Even with all of our growth, even with the entire solar industry’s growth, solar still has less than 1 percent penetration. But it’s the biggest trend in the market.

SolarCity is the number one installer of residential solar systems in the US. What do you believe is the most important aspect of SolarCity’s business model? LR: Early on, we decided to vertically integrate, which means that we provide all the services ourselves. Most of the solar industry has multiple companies working with one customer. You’ll have the company that does the sales, and you’ll have another company that does the financing, and you may even have another company that does the installation. It ranges from two companies to four companies that a customer has to deal with, depending on which company they go with. There are very few companies where you only deal with one company, and I think that has made such a big difference for us. We can provide the highest level of support, highest quality of installation, really control the experience, and really invest in

our team. I think that is what has enabled us to become the leader in our industry for the country. Why do you think other solar companies haven’t vertically integrated? Is it cost-prohibitive? LR: It’s really hard. Initially, it’s capital intensive and you have to roll out all of the infrastructure. It’s a little easier to outsource a lot of the work and have somebody else own some of the responsibility and leverage the existing infrastructure that is already in place. There are a lot of solar companies out there — over 5,000 — and it’s a lot easier to use their infrastructure as opposed to building it out yourself. But the downfall of that is that you have limited control of their infrastructure, so you can’t control the customer experience fully. But if you look at our top competitors, they are now starting to vertically integrate because they realize that it is ultimately the

30% 86%

The solar industry employs 86% more Americans than the coal industry

The percentage of new energy capacity in the US from solar in 2014, compared to 2% in 2009

In 2015, solar has been the largest single source of new energy capacity in the US

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1:78

In 2014, one out of every 78 jobs created in the US was created by the solar industry

The number of Americans employed by the solar industry in 2014

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ENERGY

best solution for the customer. To maintain the gap with our competitors, we’ve gone even further with vertical integration. We’ve acquired a company [Zep Solar] that builds unique solar installation equipment that makes our solar system aesthetically look better than any other system out there. So now we have another differentiation that makes it easy to identify our solar systems versus other systems when you’re driving around on the street — we just have a unique look that’s much better than our competitors’. Another differentiator is SolarCity’s innovative financing model. Can you explain the financing model to us and discuss how these financial tools have supported SolarCity’s growth and ability to scale? LR: The way we describe it is that we are an energy company and we sell you energy. We install the equipment for free, the equipment itself is free, and the service is free. What you pay for is the electricity — we only charge you for the electricity, and we charge you less than what you would pay to the utility. If you paid 20 cents per kilowatt-hour from the utility, you can buy electricity from us for 15 cents per kilowatt-hour. So we’re roughly 15 to 20 percent cheaper than the utility’s prices. If you have the choice of paying more for dirty energy, or less for clean energy, which one would you pick? Even a 5-year-old should be able to answer that question. What is your vision for the future of the electric power industry in the United States? LR: To me, there’s no doubt in my mind that there’s a transformation happening — it’s not even up for debate; it is happening. We’re going to toss all of our fossil fuel-based energy infrastructure for renewable energy infrastructure. That’s going to happen. The nice thing is, the train is already moving in that direction, and another thing is, we have no choice. There are two options, and the correct choice is very clear.

Rive’s Top 3 Lessons Learned So Far as CEO

EMBRACE DISRUPTION

I was expecting a little more from the business leaders of the country, specifically when it comes to the utilities. We have a big problem we have to solve. Climate change is real. I often ask myself how bad the casualties need to become before we react. How many Hurricane Sandys do we need to have before we realize that we have no choice but to fix this problem? Even people who work at utilities know that there’s a big problem that we have to solve, that climate change is real. Despite knowing that, they aren’t changing their business model because the profits of the business override the necessity to solve one of the world’s biggest problems. I was expecting people to be more receptive to this change and to understand that it is important to be collaborate on making the transition rather than fighting every single step of the way. All we’re fighting for is customers’ choice, competition, and using clean energy — why fight that? These are all good people, so I was surprised that they didn’t embrace this new disruptive technology themselves and say, “OK, how do we take this disruptive technology and disrupt our own business?” Companies who don’t embrace disruption will often find themselves in severe difficulties because the disruptive technology is usually a better solution. The monopolies may feel that they don’t need to embrace it because they’re monopolies, but I think that’s a mistake.

PEOPLE ARE THE MOST IMPORTANT

I know it sounds like a cliché and there have been many books written about this, but it’s absolutely true — the most important aspect of a company is its people. There’s nothing more important. A company’s value is just the accumulation of the people who work there. So if you have good people who can solve big problems, you have a valuable company.

COMPETITION IS GOOD

I’ve learned that competition is a really good thing. Our competitors — not just the utility companies, but other solar companies — force us to run a little harder, work a little harder, solve a little better. They force us to bring our A game. If you don’t have good competition, you kind of get complacent and then you bring your B game. Good competition forces you to be alert and never get complacent.

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“Competition drives you to be more innovative, to think outside the box, to really start to make a product. Utilities have no competition, and they haven’t had competition since the industry started over 100 years ago.”

Just look at the rate of new solar being adopted in the country — this is a really important statistic. You have to compare new solar to other types of new energy being deployed today, not to total energy, because it took us 80 years to build up the existing energy infrastructure, so it’s not fair to compare solar to 80 years’ worth of fossil fuel investment. In 2009, solar was only 2 percent of all new energy being deployed in the country. In 2014, solar was over 30 percent of all new energy being deployed in the country. Now, in 2015, it’s the largest single source of new energy in the country. It has overtaken wind, it has overtaken natural gas, and it has overtaken coal. It is very clear that the transformation is happening. Solar is still only a little less than

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1 percent of the total energy in the country, but if we maintain that rate, it won’t be long before it becomes 50 percent. Eventually, as the existing infrastructure phases out, the majority of all new energy being deployed in our electrical infrastructure will be solar. The way I see the future, we’ll have centralized generation and we’ll also have local generation where energy is created at the place where it’s needed; we’ll have both. I think most people will prefer to consume their own energy on-site, and so I think we’re going to have a highly distributed infrastructure — no different from computers. Back in the old days, you used to have one big mainframe computer. And then we decentralized into thousands of little computers and found that things worked better that way. That way,

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there’s redundancy, there’s no single point of failure, and the turnaround speed and the processing speed are way faster. The same thing applies to solar; if you have millions of little power plants all over the place, then there’s nothing that can take down the grid. Even if a bad storm comes, it can still work. Do you have any projections as to when solar will overtake natural gas and coal as the cheapest source of electricity? LR: It has already, today. This is something that people always overlook. When people look at the cost of producing electricity with natural gas or coal, they look at the wholesale number, which is around 3 or 4 cents per kilowatt-hour. But then you have to transport that

ENERGY

energy for hundreds of miles through an expensive transmission and distribution infrastructure to get the energy to the place where it’s needed. That cost needs to be included when you’re comparing solar to natural gas and coal, and that cost is included in the retail rate that you pay. So, when we sell energy, we compete against the retail rate [rather than the wholesale rate]. The relevant question is how much does it cost to deliver energy to the location where it is used? Today, solar is cheaper than coal and natural gas in 19 states. We can provide energy at a lower rate than you can buy it from your utility. What do you think are the biggest obstacles to reaching a future where solar is the most prevalent source of energy? LR: The biggest obstacle is dealing with the incumbents, the utilities. The utilities don’t want to change their business model. Their business model is a cost-plus-based model. There is no competition, so the business model doesn’t require any innovation. The number one driving factor for innovation for any product is competition. If there were only one cellphone in the entire country, how good would that cellphone be? If there were only one car in the country, how good would that car be? Competition drives you to be more innovative, to think outside the box, to really start to make a product. Utilities have no competition, and they haven’t had competition since the industry started over 100 years ago. So, the biggest obstacle that we face is getting the monopolies to change their business model and accept that solar is a challenger. They don’t want to give consumers the right to choose because then it will start creating competition, and the last thing they want to see is competition. Instead of competing, the way they’re fighting us is by lobbying and leveraging their political influence to try to prevent solar from stealing market share and to stop the adoption of solar. So those are the

fights that we’ve had. We’ve had over 44 public fights between the solar industry and the utility industry. We’ve won 42 out of those 44. It is clear that consumers want choice, it is clear that they want to control their own energy, and it is clear that they want to use clean energy. But whenever you’re dealing with a monopoly, it’s going to be difficult to get them to change. Tell us about your vision for SolarCity and the next five to ten years. What’s next for SolarCity? LR: I feel that in the next five years the battles between the solar industry and the utilities will be settling down. There will still be this disruption, but people will start learning how to work together. I see a future where the solar industry tends to have two customers. One customer will be the homeowner or business owner who we’re selling energy to. The other customer will be the utility, who we’ll sell grid-related services to. The future of solar-plus-batteries will be important to this business model. If you have solar, plus a smart inverter and a battery, you can provide tremendous grid services to the utility — you can help with voltage control, you can help with reactive

power, and you can help with demand response and load shifting. These grid services are really important to the utility. Normally, the utility has to spend money to build infrastructure that can provide these services. Today, the rule is that the utilities have to deploy infrastructure to make money and it is a cost-plusbased system, so the more money they spend, the more money they make. What I see happening in the future is the utility’s business model changing and the rules changing so that they will be able to make money using somebody else’s infrastructure — other people will spend the money and they’re just going to subscribe to their services. But the utility will be able to make money off these services because they will be the facilitator and because they provide the connection to all the homes and businesses through the grid. So what I see happening in the future is mass-scale deployment of distributed solar; that is, rooftop solar on businesses and residential homes combined with storage that can provide grid services to the utility, which is one customer, and straightforward electricity to homeowners and business owners, who will be our other customers. Photos: SolarCity

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ENERGY

BY ANDREW RODRIGUEZ, DONNA MORTON, AND HUNTER LOVINS The golden era of renewable energy has been a long time coming, and it is finally dawning. Prices of renewables are now on par with, or lower than, conventional sources of energy, and will be everywhere soon. Innovation — including social and political innovation, technological innovation, and business-model innovation — will enable this beneficial revolution to replace fossil fuels once and for all. What’s not to love about renewable energy? It can mitigate the global threat of climate change. It gets cheaper every year, and in comparison with fossil fuels (per dollar invested), provides far more jobs. Renewable energy fuel sources are free and we cannot run out of them. Well, technically we can — about five billion years from now. With wind and solar power, every country on earth can become energy-independent and more secure simultaneously. Would this mean an end to all wars? No, but it would sure mean fewer of them. Renewable energy makes sense scientifically, politically, and economically. It is better for our health and the health of our planet. And so, unsurprisingly, the age of renewable energy is here. In June 2014, Citigroup released a report, “Energy Darwinism: The Evolution of the Energy Industry,” that warned 48

JANUARY / FEBRUARY 2016

of the “alarming fall in the price of solar.” Alarming to whom? Citi stated that this was now the “Era of Renewables,” predicting that within 10 years, solar, even without subsidies, would be the cheapest way to generate electricity. It happened even faster than that. In April 2015, Michael Liebreich of Bloomberg New Energy announced that “fossil fuel just lost the race with renewables … The world is now adding more capacity for renewable power each year than coal, natural gas, and oil combined. And there is no going back.” In March 2015, Bloomberg Business reported that from 2013 to 2014, California went from utilityscale solar installations supplying 1.9 percent of its electricity mix to 5 percent. This is commendable. If increasing renewable energy’s share of the energy mix is good, using 100 percent renewable energy is better still. Many cities in Germany have done just that, companies from Unilever to Apple are on that path, and whole countries now have it as a goal. Scotland has pledged to use 100 percent renewable energy by 2020. It seems as if the momentum is unstoppable, and innovation will drive this revolution faster and further. In the US, policy has a key role to play. Renewables need to be unleashed from the harmful subsidies now enjoyed

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by fossil fuels and nuclear power. Hundreds of companies have signed the call by the coalition We Mean Business to put a price on carbon. And socially, we need to get beyond the perception that renewables are intermittent and unreliable. With the right smart grid, adequate storage, and integrated renewables, a mix of solar, wind, and water can work anywhere in the world. Finance is the mother of all human systems. Where capital flows, momentum follows. Humanity and our planet need smart and impassioned investors to help speed along the renewable energy future we need and want. The rise of the divest/invest movement is a great example of social innovation in finance designed to disrupt business as usual. Every investment has impact, though not always the impact we might want. As Ellen Dorsey said, “If you own fossil fuel companies, you own climate change.” Utilities that choose to burn fossil fuels to make energy are equally part of the problem. But does it matter if we divest? The University of Oxford’s Stranded Assets Programme reports that it does: “Divestment outflows, even when relatively meager in the first wave of divestment, can significantly and permanently depress stock price of a target firm if they trigger a

ENERGY

“It seems as if the momentum is unstoppable, and innovation will drive this revolution faster and further.” change in market norms.” The divestment movement can make business as usual untenable, and in doing so, can provide momentum for alternatives and the companies leading that innovation. Businesses are positioning themselves through research and development of technologies to enable renewable energy generation to reach 100 percent. They understand that competitive businesses in the coming “Clean Economy” will supply the pieces we need to meet our energy demand renewably. When renewable energy takes over, investors in the innovative companies will reap the rewards. If you think Tesla Motors is a car company, you are not alone. The truth is far more interesting: Tesla is valued at half the market capitalization of General Motors, yet sells 300 times fewer cars. Why? Because Tesla is a battery company. Announced this year, Tesla’s battery business, Tesla Energy, will make batteries for utilities, commercial and industrial companies, and homeowners. With more than 100,000 orders placed even before the factory to make them was up and running, Tesla is sold out through all of 2016. Innovation in batteries will enable the solar panels on our roofs to become “firm” power, freeing people from “dirty” energy use even when the sun is not shining. If you think that is wild, imagine this: Tesla Motors already has more than 100,000 batteries deployed around the country in the cars they have sold. Overnight these cars sit idly in our driveways, yet with a few adjustments, the technology could be a source of on-demand energy for homes. We could charge our Teslas by day with solar and wind power at our offices, bringing us that much closer to 100 percent renewable energy. Companies like ABB Group are driving innovation around demand response. Where battery technology

can ensure energy supply when we need it, smart-grid technologies can smooth spikes in demand that would otherwise be met by conventional energy sources. As our appliances and buildings become more networked, a smart grid can intervene when energy demand peaks by turning off power to an idle dishwasher or lowering the heat in an empty conference room. The opportunities for companies to innovate in the smart-grid space are tremendous. Technologies like intelligent metering, connectivity hardware and software, and economic incentives from utilities can all drive “green” consumer decision-making. It’s called a smart grid for a reason: anything that can lower energy consumption without us noticing is pretty smart. Companies like SolarCity are innovating through business-model design. While the cost of solar-panel systems has been decreasing, it still represents a large up-front cost for many families. With SolarCity’s financing options, families are able to install solar panels for $0 down. The reduction in their electricity bill then offsets their loan payment. When the loan is paid, families own their solar power generation and all of the clean energy it produces, which is now free for the life of the panels. Some families are even able to generate income by supplying excess energy generated to the grid, allowing others to benefit from their investment. This was the sharing economy before it was cool. If you believe that 100 percent renewable energy is the future the world needs, wants, and will have, join us. Divest from fossil fuels. Make wise investments in companies that are innovating in this space. Choose renewable energy options from your utility company or install solar panels. Together we can halt climate change and save the earth. Humans don’t have to trash the place, and with innovations like these, we won’t.

Disclaimer: This article is not an offer or recommendation to buy or sell any security. Donna, Andrew, Hunter, or clients of Principium Investments, LLC may own securities of the companies discussed, so don’t make investment decisions solely on what you read here. Investing is your responsibility, so do your own research and/or consult with a qualified investment adviser whom you trust.

Andrew Rodriguez is a financial advisor and research analyst at Principium Investments. He is a graduate of Pinchot University’s MBA program and is a writer, with previous job titles ranging from impact investor and executive coach to pastor. He brings strong technical and emotional skills to advocating for capital markets to accelerate the Clean Economy. Donna Morton is the director of business strategies at Principium Investments. She brings decades of experience in sustainability, economics, social innovation, clean energy, and ethical wealth management. Donna is a lifelong social entrepreneur as well as a frequent speaker and thought leader. She is also an Ashoka, Ogunte, and Unreasonable Fellow. Hunter Lovins, president of Natural Capital Solutions, works with companies, countries, and communities to implement profitable strategies for sustainability. Hunter is the co-author of “Natural Capitalism,” and she has been recognized with the Mitchell Prize, the Right Livelihood Award, and the Lindbergh Award for environment and technology. In 2000, she was named a “Hero for the Planet” by TIME magazine.

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FOOD & AGRICULTURE

PURPOSE-DRIVEN SUBSCRIPTION SERVICES A TREND WORTH WATCHING Hungry Harvest

Location: Baltimore, MD

The Gist: A weekly subscription service that gathers produce that would otherwise be thrown out for cosmetic reasons or because of oversupply and delivers it to subscribers at a reduced cost. For every bag delivered, a meal is donated to someone in need.* *currently only available in Washington, D.C., Baltimore, and surrounding areas, with plans to expand to New York City

Photo: Uli Westphal/Imperfect Produce

SoupBoxLove

Imperfect Produce

The Gist: A monthly subscription service that delivers artisan dry soup mixes directly to subscribers’ homes to encourage family meals and dialogue over healthy food. For every box delivered, a donation is made to a rotating foodbased charity of the month.

The Gist: A weekly subscription service that collects “ugly” produce — the fruits and vegetables that are typically discarded by farmers — and delivers them to subscribers’ doorsteps at a discount to retail prices.*

Location: Boulder, CO

Location: San Francisco, CA

*currently only available in San Francisco and the Bay Area

GreenTowers

Location: State College, PA The Gist: The GardenBox monthly subscription service delivers a tray of pre-seeded microgreens, which can be grown indoors in two weeks, directly to subscribers’ homes. Photo: SoupBoxLove CONSCIOUS COMPANY MAGAZINE

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AN EXCLUSIVE CONVERSATION WITH

FOUNDER DANIEL LUBETZKY

ON THE SECRETS BEHIND THE RISE OF KIND At KIND, the name says it all. Few entrepreneurs have been as successful at integrating their values with their branding as KIND’s founder and CEO, Daniel Lubetzky. Lubetzky started with the belief that kindness should define both his company’s products (which are intended to be kind to your body and your taste buds, as the company’s tagline points out) and its culture (fans are invited to give #kindawesome cards to anyone spotted doing a kind act, which that person can redeem for a free snack and another card). KIND has now become a household name, being sold in more than 150,000 retail locations, from Starbucks to gas stations. However, contrary to popular belief, the brand was not an overnight success. Lubetzky and KIND struggled for four long years after the company’s inception, growing slowly from 2004 to 2008. But, as one of his team members put it, Lubetzky is the type of leader who “does not see a limited version of reality.” Through grit and determination, Lubetzky persevered and landed an equity infusion from VMG Partners in 2008 that finally provided the company with the resources it needed to scale. And the rest is history; consumers have now purchased more than a billion of its products. We spoke with Lubetzky about building a purpose-driven culture at his company, the primary driver for the rise of purpose-driven companies, and what kindness means to him.

KIND AT A GLANCE Location: New York, NY Founded: 2004 Employees: 600+ Structure: Privately held 2015 Estimated Retail Sales: $1 billion+ In short: Snack company on a mission to inspire kindness with products ranging from bars to breakfast items, all made with wholesome ingredients

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What was your original intention in starting KIND? Daniel Lubetzky: My father was a Holocaust survivor. He was 9 years old when the war started and 16 when he was liberated by American soldiers from the concentration camp. He always made sure to remind me that the reason he survived was because of the kindness of others and that throughout that very harrowing experience there were people who showed that they honored the humanity of others and who took risks with their own lives to help my father survive. My dad was always very kind to everybody; that was the way he lived. KIND was launched the year that my dad passed away. In many ways, the brand was inspired by his persona, his values, and his way of inspiring people to be kind to one another. The reason why kindness is so important to me is because when people are kind to one another, not

only do they both end up better off, but it’s also one of those forces that can build bridges between people. It’s one of those things that can help us discover each other’s humanity and help us discover that we are part of something bigger than us; we’re part of the human race. Every day I try to prevent what happened to my father from happening again to other human beings — by building bridges. I have always been very committed to making peace between neighbors and using business as a model for building bridges between neighbors striving to coexist in conflict regions. After 10 years of doing that work [through PeaceWorks, a for-profit company that sells healthful food products made by neighbors on opposing sides of political or armed conflicts], I had figured out the food industry and had made all the mistakes in the world, but I had learned a lot. I noticed that whenever I traveled or had to skip lunch or dinner, I would

very often be hungry but unable to find a healthy snack that I could feel good about eating. One of the motivations for KIND was to create products with nutritionally rich ingredients you could pronounce that would be easy to eat anywhere and travel with — something that would be wholesome, convenient, healthy, and tasty. Because I had been running PeaceWorks for 10 years, I had discovered the beauty of being able to do more than just run a business, but also to do it in a way that advanced the social good. I really wanted KIND to accomplish something more for society, in addition to trying to promote healthy living and healthy eating. It would be about inspiring kindness and about encouraging people not just to be kind to their bodies and their taste buds, but also to the world and each other.

”

“BEING KIND IS NOT SYNONYMOUS WITH MEDIOCRITY.” 54

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What is the culture at KIND like, and what is the culture like today compared to when you got started? DL: The challenge that I face today is finding balance between ensuring a kind culture and kind values and ensuring that we still have an ownership mentality and that we’re always driven. Sometimes in modern society, people think that if you are kind you’re also soft, and that if you are driven then you’re also a jerk. We really want to define kindness as including a commitment to excellence. For example, I’m in the process of writing an email to my team, and the title is “That KIND Killer Instinct.” We’re about maintaining that killer instinct. We aim for the stars. We really, really give it our very best. We don’t give up. But we do it in a kind way, with kind principles and values. But it is a very important balance to strike, because if people are just being nice to one another and they are not driving themselves and each other, then we’ll find ourselves five or ten years from now as the laggard that’s not leading and not growing. On the other side, we don’t want to grow and lose our heart and our values. We want to make sure that as we are reaching new heights, we never lose sight of what’s important to us. To us, the means is just as important as the end. We do everything with a team spirit and with a family feeling and culture, and our policies are geared on that premise. The way we treat our team, the policies for team evaluation, and the policies for dealing with things that are not working

out are all premised on very earnest, open, transparent communication and on the best intentions to do right by the company and to think bigger for the community and not just about ourselves. Based on those values, we have been able to do some very innovative things in terms of HR policies because people are always thinking about each other. It’s part of our culture that team success is what defines us. It’s never about the particular accomplishments of a department or an individual; it’s always about us. It has been a constant evolution. In the beginning, it was about survival. We didn’t have the luxury of giving people the policies that we give them now because we could barely meet payroll. We didn’t have the great maternity policies that we just implemented, or the type of progressive hardship policies to help people who get stuck in a bad situation, or even our current vacation policies. Now we can afford to build a set of values and policies and benefits that we could not have when we were still a small company. When you’re a five- or ten-person organization, you know everybody and everybody knows you, and you also know what everybody is doing, so there is no room for people to be jerks. We’ve always had a kind environment. In the early days it was a lot less structured and a lot less polished, but I think we have developed it more as we’ve grown. Today, we have 600 team members, and it is just completely different. I have grown up a lot. I’ve learned

“Our society is going to have no option but to try to tackle some of the gigantic challenges that we face by relying on the private sector and market forces, because the power of market-based solutions is that they’re scalable and self-sustainable.”

KIND’S GROWTH

KIND has roughly doubled sales every year since inception

111% KIND’s compounded annual growth rate over the last five years

1 Billion Since inception, KIND has sold more than 1 billion bars and clusters; in 2014 alone, the company sold more than 455 million units

150,000+ The number of retail locations that sell KIND products

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FOOD & AGRICULTURE from incredible people who have been doing these types of practices for a lot longer. I bring to the company the kind values that I want, but other people have really helped bring a structure and professionalism into the company. Speaking of team members, what do you look for when you’re hiring new team members? How do you ensure that you’re hiring a team that can facilitate your company’s culture? DL: One of the most important things that I look for in hiring is introspection: the ability to analyze oneself and to be self-critical and to be comfortable receiving feedback. That includes receiving feedback from yourself, being able to evaluate what you’re doing right and what you’re

doing wrong, and constantly asking yourself how you can be better. In my opinion, introspection is one of the biggest determinants of personal and professional growth because a person may or may not have a particular skill or experience, but if they are self-critical, they’re going to stretch and grow. If they’re not introspective, they’re eventually going to get stuck. I was in a board meeting a few months ago, and I told the board that one of the things I really like is that there are no jerks at KIND. It’s not like we’ve created a screening process or spoken to the HR team and said, “Don’t hire jerks; make sure you hire good people.” It just happens because it’s part of our culture. Our team finds and hires people who are just good human beings.

Being kind is not synonymous with mediocrity. Some people think if you’re kind, you’re soft and you’re a pushover, but for us nothing could be further from the truth. It is very important to us that the people we hire are hungry and have a commitment to excellence and hard work, but that everything they do is done with kind values. As you’ve grown from just a handful of team members to 600, what challenges have been involved with maintaining your mission? Have you had to compromise anything as a result of this tremendous growth? DL: It is crucial to make your values a part of your culture so that when you’re no longer interacting with all of your team members on a daily

“It is crucial to make your values a part of your culture so that when you’’re no longer interacting with all of your team members on a daily basis, they will be your ambassadors and continue to behave in accordance with the values and standards that you’ve set.”

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FOOD & AGRICULTURE basis, they will be your ambassadors and continue to behave in accordance with the values and standards that you’ve set. It’s a constant calibration to balance all of the things that are important to us. For example, some other values that have gotten us to where we are today are an ownership mentality, a sense of resourcefulness, and a sense of being hungry and tenacious. As you grow, there is a danger that you will become complacent. When we were a five-person organization, if I didn’t meet my quota, if I could not sell that last $100 order, there was a possibility that I would not meet payroll. It was about survival, and guess what? Survival is a big motivator. Today, if a team member sells another $100 or even $100,000 of product, it might be harder to notice it on our top line or bottom line. However, it is imperative that the team never thinks that way — to never think about the totality of our accomplishments being so overwhelming that there is no need to focus on individual accomplishments.

to me and said that they want to be an entrepreneur, I would say, “That’s awesome! You can be whatever you want to be, just give it the very best you can.” What I don’t want to do is force them to go into business, or to be doctors, or to be artists, or to be soccer players, or push them in a particular direction. I want them to just discover what gives them meaning. I certainly want them to be good human beings who care about leaving this world better than the way they found it, both because I think it is our responsibility as human beings but also because I think that is the way you find meaning in life. People who are purposeful tend to be more satisfied with their journeys than people who are just focused on making money, because that is an empty pursuit that eventually makes you question why you are doing what you are doing. But if you find a purpose — whatever that purpose may be — as long as you are pursuing that purpose, then you’re finding purpose.

“We want to make sure that as we are reaching new heights, we never lose sight of what’s important to us.” It is crucial to honor the individual team member who brings in a $100 order and treat them as if they are the world and they mean everything to you, because it is their passion and their fervor that, in the aggregate, is going to define your company five years from now. If you lose that, if you just start saying, “All right, it’s just another $100 order, I don’t need to take it too seriously,” that is the moment where mediocrity starts slipping into your culture and is what is going to get you in trouble in five to ten years. If one of your children came to you and said they wanted to be an entrepreneur, what advice would you have for them? DL: My kids are very young, so I wonder if they even know what the word entrepreneur means, but if one of them came

What advice do you have for missiondriven entrepreneurs on how to scale a mission-driven company? DL: Read my book! Seriously, that’s the best advice I can give, because I wrote my book [Do the KIND Thing] primarily for that audience. But the number one thing is to make sure that you understand yourself and your mission really well, and that you can define your purpose and your enterprise’s purpose. Whether it’s for-profit or not-only-forprofit or nonprofit, understand what your unique value proposition is and why you’re going to win, and make sure that you focus on delivering that and only that. Don’t try to be too many things to too many people. Don’t try to expand too quickly and do too many things, because most likely you will fail if you don’t focus.

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CONTROVERSY WITH THE FDA

+ +

On March 17, 2015, the Food and Drug Administration (FDA) sent a letter to KIND saying the company had violated labeling rules for using the word “healthy” on packaging. According to FDA guidelines, the term “healthy” cannot be used on products that have more than 1 gram of saturated fat. Foods such as salmon and avocados are not considered “healthy” under these guidelines. Despite mounting research pointing toward an association between increased nut consumption and reduced risk of major diseases, nuts are not considered “healthy” by the FDA due to the dietary guidelines for fat content. On December 1, 2015, KIND officially filed a citizen petition to urge the FDA to update its regulations regarding the use of the word “healthy,” which were developed more than 20 years ago.

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Do you believe that in the future all businesses will have a social or environmental mission built in? Will conscious business practices become the new normal for capitalism? DL: I think social enterprises will continue their ascendance, but it’s not going to be because consumers are clamoring for it but because employees are clamoring for it. The younger generations, especially, are beginning to demand that the work they do improves the state of our world. It’s fascinating for me to see how young people graduating today don’t purely care about making money, but search for meaningful work environments. I think that there will be more and more enterprises that are going to provide that type of environment. But I also think it’s been somewhat overplayed. I don’t think people primarily choose products or services based on a company’s social mission. They choose a product or service because it provides the best fit for their needs. In the case of a product like ours, people care about quality and taste and nutrition before they care about our social commitment to make the world better. The other reason why I think this transition is going to happen is because our society is going to have no option but to try to tackle some of the gigantic challenges that we face by relying on the private sector and market forces, because the power of market-based solutions is that they’re scalable and self-sustainable. Not every social ill can be tackled by relying on market forces, but when you can authentically address a social challenge by relying to some degree on market mechanisms, the solution is bound to scale faster and sustain itself longer. On the other hand, there are going to be lots of companies like ours that are obsessed with the quality of their products. There are a lot of companies whose mission is to make a best-in-class gadget, and they are not going to solve malaria or inspire kindness or fight extremism, but they are excellent at doing what they do. I

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don’t think that every company needs to have a social mission for it to be a great company. That said, no company should be a jerk — there should be basic standards — but I don’t think it’s necessary for every company to be pushing the envelope to redefine capitalism. It’s not for everybody, and I think that’s OK as long as people are authentic. Of course, what gives me meaning is to try to have fun creating these new models for business, but I have a lot of friends who work at amazing companies that don’t have a stated social mission and are doing great things. I think that’s completely fine. Did you seek out mission-aligned investors for KIND? What advice do you have for other entrepreneurs thinking about bringing on investors? DL: I think my situation is a little different from the advice that I would give. When I was just getting started, I was just surviving, so nobody wanted to give me any money. The people who did give me money were a couple of friends who believed in me. Their $25,000 investment became many, many millions of dollars. They were not professional investors or socially conscious investors — they were just my friends. We gained some momentum and I ended up building KIND by myself for many, many years because I didn’t know any better. By the time KIND took off and I brought in investors, KIND was already on a very strong trajectory and our values were very clear, and I was a controlling shareholder. When I decided to seek outside investment, I just looked for the best-in-class investor — I didn’t want jerks. I actually walked away from a negotiation with a prospective investor who was supposed to be best-in-class, but I found their values and their ethics to be questionable. I thought they were renegotiating the deal with me at the last minute and that I would not be able to trust them, so I walked away.

FOOD & AGRICULTURE

4 KEY LEADERSHIP INSIGHTS

BE SELF-CRITICAL

I am naturally self-critical, and after every talk I give, after big events happen or big decisions are made, I consult with my team members and ask, “What could I have done better? What did I do wrong?” I really push them for feedback on everything because I am just wired that way after so many years of doing it.

When I brought in my first investor, VMG Partners, they were not particularly socially conscious. They were good people, they have good ethics, and they were respectful, but they didn’t have any experience with socially conscious investments. But they are very good at what they do. I told them about our values and that they were non-negotiable; this is what I do and this is what the company is about. I explained that there is a value to the business in the loyalty we create through our values but, to be clear, we practice kindness because we care about it and because it’s a part of who we are, and they were fine with it. Because we grew so much, there was never any tension. The investors didn’t care that they were investing in this extra stuff because they couldn’t deconstruct the business and say that the socially conscious stuff that we do is not adding economic value. They would have been silly to make such an argument because they were getting incredible returns. We will never know if they would have been such an awesome and understanding group if we had struggled and performed badly. I think, all in all, if I were advising somebody, I would encourage them to search for someone who is a best-in-class investor who can help them with the business more effectively than anybody else, and

who also cares about the social mission and supports the company’s purpose. You need to clarify up front what is not negotiable and find investors who understand that, but you also need people who know what they are doing. I’m a big believer that the type of money you bring in should be strategically smart money and include people who are going to help you run your business better. When you’re looking at companies to invest in yourself, what criteria or filters do you use? DL: The number one criterion is that the company is comprised of good people who I enjoy working with, who are hungry and driven, who work really hard, and who know how to listen and take feedback so they can grow personally and professionally. A very close second is that the product or service has proven itself to really be something new. I don’t invest in copycat brands that are just trying to copy the leader and do something that’s already been done. Too often there is a lack of creative thinking, where people just jump on the bandwagon and say, “Somebody did well with coconut water, so now let’s do the 20th coconut water brand!” I just don’t understand why people do that. The likelihood of those brands succeeding is so low because the leaders

WORK WITH A COACH

EXPAND AND CONTRACT LEADERSHIP STYLES

I started working with a coach. I’ve had many mentors in my life who have taught me so much on so many different topics, but this person is helping me with leadership skills and learning how to manage and lead a team of people who have far more experience than I do.

I’ve learned how to expand and contract my leadership and presence to the needs of the moment. When things are going really well, I demand more from my team. I don’t let us rest on our laurels. When we have a setback, I’m more understanding and more supportive. You can’t always have the same approach. If you’re winning, you should push your team to go harder, to go even higher, and to challenge themselves more. If you’re having a setback, that’s when you say, “Hey, you did your best, don’t worry about it, let’s just keep going.” Sometimes you need to really insert yourself, and sometimes you need to step out, bite your tongue, and even let people make mistakes.

STAY FOCUSED

Stay focused. If you’re great at being creative, you need to be aware that that strength can also be your Achilles’ heel. If you overwhelm the system with your ideas and creativity, you might paralyze your entire team and end up pursuing way too many initiatives and achieving nothing of real substance. Grit without strategy may end up wasting a lot of time and energy and resources. You may have all the energy in the world, but if you don’t have discipline to stay focused and a strategy on how to win, you may end up wasting a lot of energy.

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have already been established for that particular category and the consumers know that. I focus on differentiated propositions where people are creating something new and innovative. If it’s not really elevating the category and doing something differentiated, I stay away from them. Of course, social purpose is a very big plus, but it’s not a requirement for an investment. Ethical behavior is important. I wouldn’t invest in a tobacco company, but I also wouldn’t invest in a candy company, because those things don’t interest me. For me, it’s about health and wellness. So in that sense, I guess I do have filters, but only because they lead me to good business opportunities and I just don’t connect to those other things. I only invest in companies with products that I would consume and that I would care about. I would be very hesitant about any company that tries to inject a social mission into what they do. I find those types of things to be quite disingenuous. A social mission has to be some-

thing that gives the entrepreneur a purpose and is the reason why the entrepreneur is creating the venture. The mission needs to be really authentic in order for it to be additive to the experience and to the enterprise. Otherwise, it is just a gimmick. What are your thoughts about your legacy and the future of KIND? DL: What I’m most excited about doing is transforming KIND from a company that people are very passionate about and a brand with products that they love into a movement that people feel they are a part of. I want to transform KIND into a community that makes all of us better, where people feel emotionally connected to us. We’re not just creating great products that fit with people’s lifestyles of health and wellness. We’re not becoming a daily part of people’s lives just because we’re nourishing their bodies. We’re also doing so many interesting things on how to nourish our souls and our minds by discovering how kindness can

be more of a state of mind and can be more front-of-mind in all our communities. We’re helping those who truly need it most and building an unprecedented community. By triggering so much impact, we will redefine social enterprises and show that you really can meld the social and the business. My team and I control the overwhelming majority of shares in the company, so we can do whatever we want. We can prioritize social change as we continue growing. But, in pursuing this mission, I don’t forget that the reason people are buying our products is because they taste delicious and they’re healthful. As we continue growing, we need to remember that. Even though what excites me is the social aspect, it does not mean that we’ll only focus on that, because then we will fail. We need to continue delivering high-quality, nutritionally rich, delicious products that people want to make part of their daily lives, and that they want to eat in the morning, afternoon, and evening. Photos: KIND

“I think social enterprises will continue their ascendance, but it’s not going to be because consumers are clamoring for it but because employees are clamoring for it.” JANUARY / FEBRUARY 2016 | CONSCIOUS COMPANY MAGAZINE

FOOD & AGRICULTURE

SCALING SUSTAINABLE

FARMING

ONE MAN’S JOURNEY OF TURNING HIS FAMILY’S FACTORY FARM INTO GEORGIA’S LARGEST ORGANIC OPERATION WHITE OAK PASTURES AT A GLANCE Location: Bluffton, GA Founded: 1866 Employees: 120 2014 Sales: $28 million In Short: Besides being Georgia’s largest USDA-certified organic farm and a leading producer of grass-fed beef, White Oak Pastures is the only farm in the US with federally approved slaughterhouses for both poultry and mammals that were designed by acclaimed livestock handling systems designer Dr. Temple Grandin 62

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Will Harris at White Oak Pastures

Nestled in the farmland of southwest Georgia is White Oak Pastures, a 150-year-old, multi-generational, 2,500acre family farm. In the last half of the 20th century, this family operation was turned into a monoculture factory farm that produced antibiotic-laden beef as fast and as cheaply as possible. However, in the mid-’90s, Will Harris, the fourth-generation steward of the farm, gradually awakened to the idea that converting the farm back to the way his great-grandfather ran it — with animal welfare and environmental stewardship prioritized — might be the best way to differentiate himself in the market and truly scale the farm’s operations. Since then, Harris and his family have done everything from implementing Savory Institute principles to having animal behavior specialist Dr. Temple Grandin design slaughterhouses (or abattoirs) on-site, all in the name of sustainability and animal well-being. The results have been astounding. The farm’s revenues have increased from $500,000 to $28 million, the operation has become the largest organic farm in the state of Georgia, and Harris and his family have been recognized as prime examples of how to bring sustainable farming to scale. We spoke with Harris about this journey.

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FOOD & AGRICULTURE Can you talk about the history of White Oak Pastures? Will Harris: My daughters are the fifth generation on this farm. We will celebrate 150 years of living on the same piece of land next year. My great-greatgrandfather came here in 1866, so 2016 will make it 150 years of continuous farming by the same family on the same piece of property. Our family story kind of tracks agricultural history in this country. My great-grandfather and grandfather farmed the land in a way that was environmentally sustainable, with a high level of animal welfare because your land and your animals were your treasures, your wealth. My father’s generation was the one that industrialized, commoditized, and centralized agriculture in this country, beginning right after the end of World War II. He reduced it to a monoculture of only cattle. We were a spoke in the wheel of “big beef,” and he was very successful financially. That whole revolution was very, very effective — wildly successful — in doing what it set out to do. It caused meat to be abundant and cheap, obscenely cheap, and safe, from the perspective that you wouldn’t get an acute illness from eating it. I graduated from the University of Georgia in 1972, majoring in animal science, and then I came home to help my father run the farm in the same way. In fact, I helped him take it even further down the road to being a factory farm, and I farmed that way for about 20 years. By the mid-’90s, I was coming to resent the excesses of that production system. About that time, I started reading about consumers who wanted meat that was raised with higher levels of animal welfare and environmental sustainability and I thought I could do that. So I set about changing the farm. We didn’t set out to make such sweeping change, but we did. Between the early 2000s and today, we went from three minimum-wage employees to about 120 employees. We also went from about half a million in sales to about $28 million in sales.

GRASS-FED grass•fed, (adj.) The USDA defines grass-fed as “ruminant animals fed solely on grass and forage from weaning to harvest with no confinement during the growing season.” The American Grassfed Association (AGA) defines grass-fed animals as “those that have eaten nothing but grass and forage from weaning to harvest, have not been raised in confinement, and have never been fed antibiotics or growth hormones.”

Was there a specific moment when you realized that you wanted to transition to a more sustainable way of farming, or was it more of a gradual awakening as a result of the kinds of things you were reading? WH: It was definitely a gradual awakening, rather than an epiphany. But I do remember loading about 100, 500-pound calves into a double-decker trailer, knowing that they were going to be on that trailer for about 30 hours with no food, water, or rest, with the ones on top urinating and defecating on the ones on the bottom, and thinking, “I just need to do something different. This is not the way I want to do this.”

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FOOD & AGRICULTURE

“What gives me the most joy in this world is having stewardship over this land and these animals, and working every day with my family to improve that system — that organism.”

What were the largest hurdles you faced when you were trying to transition to this more sustainable way of farming? WH: There were several, but the financial risk was the worst. We climbed a steep learning curve to learn how to raise cattle differently, and then to add other species to the farm, and then to vertically integrate. We faced the hurdles that every other businessman faces when gearing up, such as hiring and training employees and putting systems into place. But all those things were enjoyable in their own way. The hard part was the financial risk. Between 2004 and 2012, we borrowed over $7 million to build infrastructure. We built a USDAinspected red-meat abattoir, or slaughterhouse, a USDA-inspected poultry abattoir, an egg processing center, a vegetable processing center, cabins on the farm for tourism, a restaurant on the farm for guests, and a store. We went from raising one species of animal, cattle, to pasture-raising five red-meat species and five poultry species, as well as pastured eggs and organic vegetables, and to running 64

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a large number of small ancillary businesses that on their own would never be able to support themselves but that work in the organism we call White Oak Pastures. I think of it as an organism; certainly not a factory, not even a farm — it’s an organism.

Do you think if you had continued with business as usual that you would have experienced the same growth that you have, and that you would have reached the $28 million in annual revenue that you have now?

Is there anything you know now that you wish you had known during that transitional time?

WH: No, we were pretty capped-out before. We would still be maybe a half million dollars per year company. But the best thing that this has done for me is bring two of my daughters and their spouses home to the farm. I have three daughters, and I can almost guarantee you that they would not have come back to the farm if I were still just an industrial cattleman. When I switched to this kinder and gentler agriculture, they came home. That’s been a great joy to me.

WH: Well, if I’d known how difficult it was going to be, I probably wouldn’t have done it! [laughter] But I’m glad I did it when I was naïve and exuberant. But the risk was very painful. And by the way, when I was an industrial cattleman, we made money every year. I never did not make money. I never did not pay taxes in a year. When I made these changes, I hemorrhaged money for several years. I learned that nothing I build is big enough. I learned that every project takes more time and more money than I thought. I learned that every new product takes longer to bring to market than I thought. I had all those joyous learning experiences.

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What advice would you have for anyone who’s farming right now and thinking about turning their farm into a more sustainable “organism,” as you describe it? WH: I would recommend, first, find a way to go to a farm that has already done it, one that you want to emulate, and go work on that farm for at least a year. Some people might think

FOOD & AGRICULTURE that they can’t take a year out of their life to go work for someone else, but I can assure you that you’ll save time in the long run by not reinventing the wheel and by not making all the same mistakes yourself. Tell us about the project with Temple Grandin, and building these more humane abattoirs on-site. What did that project look like and what was the inspiration behind it? WH: Dr. Grandin, as you probably know, is autistic and she has a gift — she sees the world differently than you and I. She sees the world through the eyes of an animal, so she recognizes things that would be frightening or problematic for animals and she designs ways of managing those things. She’s great to work with. Unfortunately, I think she’s been taken advantage of in recent years. She has helped contribute to the design of some very large meat companies’ abattoirs, and I think she did this because she wants to make those animals’ lives a little bit better. Those companies are handling millions of animals, so if she can improve their lives just a little bit, she’s accomplished something. But when she helps those companies, they will say that their design is “approved” by Temple Grandin, and I think that they’re using her to greenwash their products a bit. I don’t think it’s any sort of adverse reflection on her, but I think some of that has happened. That said, the inspiration for getting her to do this was to offer my animals the most humane slaughter we possibly could. They are making the ultimate sacrifice, and they’re not doing it voluntarily, and it’s just the right thing to do to make it as non-stressful as it possibly can be. What are your thoughts on the current state of food and the agricultural system? WH: Those of us who have been farming since the end of World War II — and that includes my father’s generation and my generation — have designed a food production system that is incredibly efficient. It makes food obscenely cheap and abundant, but it has dire, unintended consequences.

Those unintended consequences impact the welfare of animals, the degradation of our soils, our environmental sustainability, and the decline of the rural economy of the United States. It probably has also had some effect on things like nutrient density and nutrition, food safety, and other areas, but those are not my areas of expertise. I have anecdotal beliefs about these things, but I’m a farmer, not a nutritionist, not a doctor, not a dietitian. So, I hold my comments back on everything except animal welfare, environmental sustainability, and rural impoverishment. As a farmer, what are your thoughts on the future of the food system? Are there any trends that you’re seeing, or do you think it will be just more of the same as we go forward? WH: I think that the sophisticated consumers have studied the food production system and have made some decisions regarding environmental sustainability and animal welfare, and how people on the farm are treated, both the farm workers and the farm owners. And that impacts the way they make purchases. A percentage of consumers are willing to pay a little more if they feel that those problems that I mentioned — animal welfare, sustainability, and fairness — are addressed. I think it’s a small percentage of consumers who care, but it’s a growing percentage. You talk about the Whole Foods shopper versus the Wal-Mart shopper. There are a lot more Wal-Mart shoppers than there are Whole Foods shoppers, but I think that there’s a growing enlightenment. The way I raise food is a niche, but I think it’s a growing niche. You didn’t ask about problems, but I’ll say that my greatest problem or nemesis is the large multinational food companies that use words to confuse consumers and make it appear that they raise their food in the same way that I raise my food. We call that greenwashing, and it’s the greatest threat to a really sweeping movement. Every time a big food company — not by changing their procedures, but by changing the words they use to describe their procedures — makes

Partnership With The Savory Institute In November 2015, White Oak Pastures officially became recognized as a Savory Institute Hub. The Savory Institute is an international nonprofit in Boulder, CO that is based on a Holistic Management approach developed by Allan Savory 40 years ago to facilitate large-scale restoration of the world’s grasslands. The Savory Institute approach helps farmers and ranchers develop a nature-based, holistic grazing system to manage herds of domestic livestock to mimic wild herds and heal the land in the process. White Oak Pastures will now serve as an official Hub for the Southeast US for training, education, and consulting on the Savory Institute approach.

a consumer believe that they do things the same way we do things, it devalues what I’m doing. It makes it economically very hard for me compete. Do you have a specific example of this type of greenwashing? What should consumers look out for when they’re shopping? WH: There are hundreds of examples that I could use, but I don’t want these guys coming after me. These are big multinational food companies that have their own legal staffs. So, I would say that consumers need to educate themselves, educate themselves, and educate themselves, so that they will be less likely to be tricked. What gives you the most joy in this world? WH: What gives me the most joy in this world is having stewardship over this land and these animals, and working every day with my family to improve that system — that organism. Photos: Angie Mosier

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FOOD & AGRICULTURE

ETHICS AT SCALE

HOW A TEXAS FARM HAS GROWN TO BECOME THE LARGEST PASTURE-RAISED EGG COMPANY IN THE COUNTRY In 2007, after a long entrepreneurial career, Matt O’Hayer and his wife Catherine Stewart decided to embark on their next adventure — egg farming. With a small tract of land in Austin, Texas, the couple rescued a handful of chickens to start their journey. The first two chickens that the couple rescued had been saved from a caged-hen egg production facility. When O’Hayer took the birds out of their cage and placed them on the beautiful pasture of their new farm, the birds didn’t move. They had been confined in a cage their entire lives and had lost the ability to walk, spread their wings, perch, or behave as chickens normally would. The O’Hayers had made the decision to raise their birds in the most humane way possible, with plenty of room — 108 square feet per bird, to be exact — and under organic guidelines, but seeing the plight of these two birds only strengthened their resolve. In short, they endeavored to produce ethical food that was the antithesis of factory-farmed, caged-hen egg production facilities. Since then, the small operation, now called Vital Farms, has brought more than 100 other family-owned farms into their enterprise and has become the largest producer of pasture-raised eggs in the United States. We spoke with Matt O’Hayer about scaling his company, the benefits of the stakeholder model, and the overall landscape of the food industry.

VITAL FARMS AT A GLANCE Location: Austin, TX Founded: 2007 Employees: 60 Structure: Privately held 2014 Sales: $28.7 million Recognition: Number one on Inc. Magazine’s list of fastest growing food and beverage companies in America in 2012 and number two in 2013. Five-time Inc. 5000 honoree Fun Fact: Vital Farms works with more than 100 family-owned farms In short: Vital Farms is the largest supplier of pasture-raised eggs in the country 66

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Can you talk to us about the inspiration behind Vital Farms? Matt O’Hayer: Over the years, I’ve run a bunch of different companies — I’m a serial entrepreneur. About eight years ago I was with a friend of mine on a trip and we were talking about what he felt was a new era in egg farming: pasture-raising. From that conversation, I started thinking about a way to sustainably do egg production on a national basis using the pasture-raised method, where the welfare of the hen is paramount and where the birds are out on pasture, consuming that pasture as part of their diet. Would it be possible to do that on a national basis, where you actually had farms around the country producing under certain guidelines to ensure the health and welfare of the birds while producing a safe and fantastically delicious product? I started crafting a plan around that question. We started with one farm in Austin, Texas. We started with 20 chickens, then 1,000, and then 4,000. After we got customers for all those eggs, we started looking for another farm. We added family farms that would follow our prescribed method, and we started with a couple pages of guidelines — now we have scores of pages of guidelines with a lot of detail. We have more than 60 farms around the United States that follow our exact guidelines, from California to Georgia. I’d had a number of companies throughout my life.

“Our farmers make more money taking care of FOOD & AGRICULTURE 6,000 birds on their farm than they would have made on a farm with 50,000 or 60,000 birds.”

Farmers that sell pasture-raised eggs to Vital Farms

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VITAL FARMS’ INVERTED FRANCHISE MODEL Each family-owned farm produces eggs from happy hens. Most of the farms are certified organic, they follow the Food and Drug Administration’s egg rules, and the US Department of Agriculture audits their farm.

FAMILY-OWNED FARMS

VITAL FARMS PROVIDES • Premium payments for highquality eggs • Egg washing and processing facility • Consistent branding • Guidelines for farmers to follow • Access to distributors to get eggs to retail locations • Customer relationships

FAMILY-OWNED FARMS PROVIDE • Pasture-raised eggs produced under Vital Farms’ guidelines • Land stewardship

VITAL FARMS

RETAIL LOCATIONS

VS. TRADITIONAL FRANCHISE MODEL

FRANCHISOR PROVIDES • Branding • Raw materials and products • Quality control guidelines • Processes for a consistent customer experience

FRANCHISOR

FRANCHISEE

FRANCHISEE PROVIDES • Payment to license intellectual property of franchisor • Retail locations • Customer relationships • Sales of products

FOOD & AGRICULTURE

I read John Mackey’s essay on conscious capitalism on the Whole Foods website back in 2007. That essay, which described the stakeholder model and setting up a company with a deeper purpose, informed and shaped the way I set up our farms. I decided that all my attempts to focus on bottom lines hadn’t given me the results I really wanted out of a company that I was going to be running. The stakeholder model and John’s take on conscious capitalism made a tremendous amount of sense, both practically and spiritually. I’m first and foremost an entrepreneur, and I have been my entire life. It’s what I love to do. It’s my joy. Working in a growing business feels great. It’s like going on vacation; it’s what I love doing. So doing it in a way that focused on the stakeholders, as opposed to the bottom line, made a lot of sense. We set up Vital Farms completely around the conscious capitalism market model. I

think that has indirectly been one of the biggest reasons for our success. How do you ensure you’re maintaining the core integrity of your own personal values and the business values in the face of such tremendous growth? MO: We are growing very fast, but more important than growth is doing it right. Taking care of our stakeholders is paramount to what we do. It’s in the fabric of our company. We talk about it all the time. We have a weekly management meeting with all my managers and then we have what we call the “C-crew” meeting — the CFO, COO, CEO. If an issue needs more input in those meetings, we bring all the stakeholders into it. We discuss the effect and impact on various stakeholders. It informs just about every major decision we make as a company. We won’t work with a product that

doesn’t meet our deeper purpose as a company, which in our case is bringing ethically produced food to the table. If it’s not ethically produced food, we don’t want anything to do with it. As we grow and expand, there’s possibly a future beyond eggs, but I’m always concerned with the ethics of what we do, and it really does impact every decision we make. Are there any other components that have been key to your success, or to your growth and scale? MO: You can do everything right in terms of running your business, but if your timing is wrong, you can be out of luck. Timing is important. I think we were very fortunate to start Vital Farms in the middle of the recession, which I think is a great time to start a business. For the last seven years, the economy has been great. More importantly though, the

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FOOD & AGRICULTURE

TOP 3 PIECES OF ADVICE FOR MISSION-DRIVEN ENTREPRENEURS

UNDERSTAND THE STAKEHOLDER MODEL

The first thing I would do is give the entrepreneur a copy of “Conscious Capitalism” by John Mackey and Raj Sisodia. I think it’s a great primer for anyone who wants to get started in business. I think the stakeholder model ought to be taught in all schools; it would have saved me a ton of grief in my life if I had understood this concept when I started my first business at 20 years old. It would have made me a much better CEO.

THE BOTTOM LINE IS STILL CRITICAL

food movement in America has started, and people want to know where their food is coming from. People have started to pay attention and ask questions. Do they really want to eat eggs from birds that have been tortured their entire lives in a cage? Do they really want to eat a bird that’s been fed garbage? A battery chicken is fed a chemically-made feed: 80 percent of their diet is corn. People want food that tastes great. They’re really focused on what Michael Pollan says, which is “pay more, eat less.” Instead of having half a dozen eggs scrambled up for breakfast, how about one delicious egg? An egg is made up of what a bird eats. Eggs from chickens that are out on pasture look different, and they taste different. So the foodie movement in America has been very helpful in the development of Vital Farms. In the same vein, California’s Proposition 2 [a ballot initiative that, among other things, now requires egg-laying hens to be able to lie down, stand up, fully extend their wings, and turn

I find a lot of entrepreneurs who want to make a difference, but I have to say, “Understand that if you’re not making a profit, you’re not sustainable. You’re not going to be here next month or next year.” You need to focus on the bottom line as well as on the other stakeholders. Make sure you understand that you’ve got to have your investors/shareholders/bottom line — which I look at all together — taken care of, as well as thinking about the environment or how you’re going to change the world. That balance is really necessary.

DO YOU KNOW YOUR EGGS? PASTURE-RAISED

• • • • • •

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108 sq ft per hen Outdoor living Free to roam and forage Access to sunshine and fresh air Beaks never trimmed Of 300 No antibiotics million laying hens in US Cage-free 2.9%

MORE NUTRITIOUS • • • •

7X Beta Carotene 4X Vitamin D 2X Omega 3 1.6X Vitamin A

Pastured 0.1%

Caged Hens 94%

Organic* 2.9%

WORK HARD

Once they understand the first two points, then to me it’s all about work. It’s about effort. It’s about putting energy in to get the job done. Don’t give up. “The harder I work, the luckier I get,” is the great old adage, and it’s true in business.

around] has had huge benefits to us as a company because it has created a focus on animal welfare. It was enacted January 1, 2015, but the fact that it was voted on in California and has been in the news constantly for the last four or five years focused people’s attention on where their eggs came from: cages. A lot of people didn’t realize that 90 percent of eggs in the United States came from chickens that were stuck in cages with up to half a dozen other chickens, unable to stand up or spread their wings their entire lives. The passage of Proposition 2 in California brought that to consumers’ attention. We’ve been lucky from a timing standpoint that all these things are happening at the same time. Then there’s the issue of the government discussing dietary cholesterol not being as bad for you as people thought it was. Eggs have had a boost from that as well. So I think timing, which is in some part luck, has had a lot to do with our success.

*Organic here is free-range by USDA standards

CAGED

• 1/2 sq ft per hen • Hens confined to cages

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CAGE-FREE

• 1 sq ft per hen • No outdoor access

FREE-RANGE

• 2 sq ft per hen • Limited outdoor access

CORN/SOY-BASED FEED • BEAKS TRIMMED MAY USE ANTIBIOTICS • LIMITED OR NO DIRECT SUNLIGHT

FOOD & AGRICULTURE

Can you tell us more about your stakeholder model? MO: When it comes to growth, our company has to satisfy all of our stakeholders. We pay a living wage to our crew members: $30,000 a year for full-time employees. That’s $13 per hour plus a guaranteed minimum amount of overtime if they need it. For someone in our industry, that is pretty much unheard of. This is farming and food prep — a world of underpaid and undocumented workers. But we really take care of our crew members because it is part of our ethos. The vendors, our farmers, the hens — they are all part of our stakeholder model. Our farmers make more money taking care of 6,000 birds on their farm than they would have made on a farm with 50,000 or 60,000 birds. We have farm techs that go in and listen to these farmers, sometimes as much as once a week, to support them.

Not just to make sure they’re doing what we want them to do, but also to help them become more profitable as a farmer. We’ve got investors in the company, but they are here for the long haul and they love what they do. They invest in the company not just for the bottom line, but because we’re doing something that is changing the way people think about food in a real, positive way. In the communities we’re involved in, and the farms we care for in those communities, we don’t spray any chemicals on the pastures. We treat our pastures organically. Most of them are certified organic, and the ones that aren’t don’t allow any chemicals, fertilizers, pesticides, or herbicides on the pasture where the birds are. We don’t use any antibiotics in our feed. That isn’t just about the eggs our customers eat; it’s about the runoff that goes into the creek that ends up in the

river that ends up in the ocean. It all has an impact on what we’re about. What qualities do you look for in an investor before you let them invest in Vital Farms? MO: Good question. There are private equity firms that only invest in companies that will make a positive impact on the environment and society. This is called “impact capital,” and it’s the only capital we source for our company today. We hired an investment banking company to help us raise money several years back, and they brought us firms that met that criteria. We vet investors, and they understand what we’re about from the get-go. They understand we’re about the stakeholder model. We’re not going to make decisions just based on them — decisions need to be balanced for all stakeholders.

“A lot of people didn’t realize that 90 percent of eggs in the United States came from chickens that were stuck in cages with up to half a dozen other chickens, unable to stand up or spread their wings their entire lives.”

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FOOD & AGRICULTURE

Vital Farms’ Founder Matt O’Hayer (right)

“People have started to pay attention and ask questions. Do they really want to eat eggs from birds that have been tortured their entire lives in a cage?” What is giving you hope for the future? MO: The fact that people are starting to care about what they eat and what they’re putting into their bodies. We went through a really terrible spell in American food consumption from the end of World War II to the birth of the organic movement and the passage of the early organic laws in the 1990s to today. When I grew up, TV dinners were very popular. The can opener was the

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most-used kitchen appliance. I can’t remember the last time I opened a can in my kitchen. It’s so refreshing to see that people really care. This is branching out into other areas, like animal welfare. There are bills and legislation across the country on things like cages for hens and gestation pens for pigs. It’s a really amazing movement when you think about it: we are actually caring about what we eat and how it’s produced. That gives me tremendous hope that we’re heading in that direction.

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Also, the fact that there are movements like conscious capitalism happening today, which was unheard of a few years ago [gives me hope]. Business schools used to be all about how you could maximize shareholder return, and that was it. It’s interesting to me, as an American entrepreneur, that we’re broadening out to not just focus on the bottom line, but on other stakeholders. That really gives me the most hope. Photos: Vital Farms

BUILDING THE BUSINESS

SURVIVING YOUR OWN SUCCESS: 7 THINGS YOU NEED TO KNOW TO PREPARE FOR SCALING YOUR BUSINESS BY GERRY VALENTINE A few weeks ago, I had coffee with a friend and got some bad news: his company is in serious trouble. The investors have ousted the CEO, the company has had massive layoffs, and the future looks very bleak. A lot of people were surprised because not long ago things were going very well. The company has a really innovative product, an impressive and socially responsible mission, and a track record of success. It seemed poised for rapid scaling. But there have been some troubling signs for the last couple of years. As the company grew, its product quality started to suffer, and there were persistent delays in the supply chain. It added staff to meet demand, but many employees seemed confused and directionless. Then, the sales that had been growing so rapidly started declining just as quickly. Worst of all, as the pressure increased, many of the company’s leaders became overwhelmed — essentially they were deer in headlights. They were not able to inspire confidence, and company-wide morale collapsed. My friend’s company has fallen into a very common trap for growing businesses: despite early success, the company was not prepared to scale. All entrepreneurs dream of runaway success — that time when they start seeing exponential growth and seem destined to be the next Twitter, Amazon, or Uber. For socially responsible businesses the allure is even greater. Reaching significant scale not only brings financial reward, but it also means we can have significantly more positive impact on the world. It allows us to make a difference at scale. However, failing to put the right measures in place might mean that your company will not survive its own success. Here are seven critical things that, in my experience, companies need to do in order to scale successfully. Most should be done during the early years so the company is prepared for growth.

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ESTABLISH REPEATABLE AND SCALABLE PROCESSES

Examine the key processes in your business: things like producing your product, servicing customers, managing finances, etc. Do they run smoothly, or are there frequent disruptions? Do your employees understand what to do at every step, or is there uncertainty? In the very early stages of a business, uncertainty is normal, flexibility is critical, and you need to fight a lot of fires. However, as the business grows, firefighting becomes crippling. Look for opportunities to create repeatable processes, understand how scalable your processes are, and clarify any uncertainty among your team members.

PLAN FOR SCALE

As your company builds momentum, making changes becomes more difficult and requires more lead time. That is why effective business planning is critical. Unfortunately, planning is sometimes seen as the “castor oil” of business: it isn’t pleasant, but it’s for the best. That is because many planning processes are far too complex and not well suited to growing entrepreneurial businesses. When done right, however, planning actually frees you up. It unlocks your creativity, helps you anticipate the future, and lets you respond quickly to the unexpected — precisely the things you need as you build momentum and scale. For a lightweight and powerful planning tool, see my article “Conscious Business Planning” in Issue 4 of CONSCIOUS COMPANY, and available online.

PRESERVE INNOVATION

Conscious companies are highly innovative by nature, and if you are seeing rapid growth, your innovation is probably a big part of that success. However, as

BUILDING THE BUSINESS companies put in the structure needed for scale — repeatable processes, planning, additional personnel, etc. — they risk losing their innovative edge. Leaders can maintain an innovative environment by instilling a few key practices: • Encourage your people to continue challenging the status quo and experimenting, even when you have demanding growth goals. • Create a culture of tolerance for failure (transform failure into a learning opportunity), because good experimentation means there will be failure. • Make sure employees have the downtime to innovate: breakthrough ideas tend to happen when people have the opportunity to step back and think creatively.

EXPAND YOUR TALENT POOL AND INVITE NEW IDEAS

Teams that have worked together in the early stages of the company often develop close relationships. That is a very good thing and is often a key part of early success. However, these tight-knit relationships become a liability if the company is unwelcoming of outside talent, different perspectives, or new ideas. Observe how easily new people are accepted into the company. Watch to see if ideas offered by newcomers are valued and evaluated or dismissed out of hand. If you see a problem, it is your responsibility to set a clear expectation that you value new ideas and talent.

CAREFULLY CURATE YOUR CULTURE

Katie Wallace, the assistant director of sustainability at New Belgium Brewing, has a great saying: “Culture is curated, not dictated.” She is absolutely right, because company culture cannot be tightly controlled or “managed.” Cultures typically evolve

slowly over time. However, culture is critically important because it helps define how our stakeholders — customers, employees, the communities we work in, and others — experience the company. Listening and observing are often the most important tools for curating culture, especially when preparing to scale your business. Take the time to carefully observe your culture. Ask employees how they would describe your culture. Note both positive and negative aspects, and think about the steps you can take to curate the culture over the long term.

CHAMPION YOUR MISSION

In many ways, your mission is the foundation of your company. Alignment around the mission is critical for motivating your team and operating effectively. However, as you add new people and face more complex demands, it is easy for the mission to get lost in the day-to-day demands. As your company scales, it is critical for leaders to continually champion the mission, and to do so more strongly than in the past. This ensures that the organization remains dedicated to its core purpose.

In a lot of ways, leadership is the art of listening. Many successful leaders will say their most important lesson was to listen more and speak less. Good listening makes you more strategic and a better problem-solver, and it allows you to get the best from your people. Coincidentally, good listening is also a powerful tool for motivation. Leading a rapidly growing company also requires keen selfawareness — so that you are aware of your strengths and weaknesses — and the courage to seek help with your weaknesses. Finally, it is critical for leaders in rapidly growing companies to remember that they are always under a microscope: employees are constantly looking to leaders for signals about what is expected, how to conduct themselves, and what is valued at the company. Leaders must have the emotional intelligence to defuse difficult situations and remain mindful of what they say and do. They must always be able to manage their emotions for the benefit of the company and their employees.

THE EVOLVING DEMANDS ON LEADERSHIP

Leaders in growing companies are often caught off guard by how rapidly the demands they face evolve. In fact, everything I have explained thus far is actually a leadership challenge and an example of evolving demands. The tough thing about leadership in a growing company is that there is no job description. Simply put, it is your responsibility to deliver whatever your company and your people need from you. There are, however, three foundational skills that tend to help leaders meet the challenge: listening, self-awareness, and high emotional intelligence.

Gerry Valentine is the founder of Vision Executive Coaching. He helps build companies that work, and that work for all — supporting profit, people, and the planet. Gerry focuses on business strategy, innovation, and leadership. He has 30 years of experience with multiple Fortune 100 companies, an MBA from NYU, and a BS from Cornell University. Connect with Gerry on Twitter @gerryval or by email at gerry@VisionExecutiveCoaching.com.

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BUILDING THE BUSINESS

9 TIPS TO GROW YOUR “SELF” WHILE YOU GROW YOUR COMPANY

BY FLIP BROWN

et me guess: you didn’t start or get into a socially responsible business to play it safe, take the easy route, or have a guaranteed return on your time and financial investment. No, my hunch is that your passion to help create a better world for us all has driven you to create a compelling vision, take audacious risks to implement it, and dedicate incredible amounts of energy toward your goals. This all sounds good in theory, but many of us fry ourselves to a crisp trying to make it all happen. We end up on a hamster wheel of being too busy to stop and figure out why we constantly feel too busy. For those of us on the leading edge, being mission-driven is truly a double-edged sword. We want the ability to slice through challenges, chop large obstacles into digestible chunks, and cut away the unnecessary hassles. Yet at the same time, we often continue working long after we’re dull, don’t recognize the self-inflicted nicks and cuts we’ve made, and don’t take reasonable breaks to keep ourselves and our tools sharp. How does one maintain a sense of meaning, fulfillment, and balance while doing the fulltilt business boogie? Here are some of my favorite tips, tools, and techniques:

REMEMBER THAT WHAT YOU DO IS NOT WHO YOU ARE

Your business role is a part of your identity, not the whole enchilada. Cultivate a rich life outside of work so you can be a vibrant human while you are at work.

HAVE A GOOD TALK WITH YOURSELF ABOUT HOW YOU TALK TO YOUR “SELF”

You can’t possibly get it all done (right?), so give yourself permission to do the best you can do, and don’t beat yourself up for not achieving self-imposed perfection. Practice radical self-acceptance while you continuously develop your potential.

EXPECT THAT VIRTUALLY EVERY DAY WILL HAVE SOME AMOUNT OF THE UNEXPECTED

Don’t get bent out of shape because the universe didn’t follow your personal plan for the day. As the famous song goes, “Ride with the tide and go with the flow.”

“How do you celebrate this delicious opportunity to be alive and in a business that is a force for good?”

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BUILDING THE BUSINESS

EMOTIONAL REACTIVITY IS A TEACHER

Yes, it’s amazing how many people have the capacity to push our buttons, but our opportunity in these situations is to learn how to move through conflict while staying compassionate and connected.

LESS IS OFTEN MORE

Set good limits and boundaries around negative relationships, technology time-sucks, and “urgent, but not important” tasks. Take breaks every day, invest in real face-time (not FaceTime) relationships, and experience a digital detox periodically.

MAKE AND KEEP APPOINTMENTS WITH THE ONE PERSON WHO NEEDS IT THE MOST: YOU

You honor your commitments to others, right? Put an hour of focused project time in the group calendar, which means you don’t check email or voicemail for that period. Leave the office for a “Systems Enhancement Session” (the gym), or take a halfday hike every month to restore your purpose and clarity. Your work and your team will be better for it.

IF YOU’RE NOT PART OF A BUSINESS CULTURE THAT WORKS, WORK ON IT

Have the courageous principle- and values-centered conversations that you need to in order to bring respect and results into difficult situations. Get better tools and coaching if you need it.

CALL ON YOUR TRIBE

These are trusted collaborators who honestly support and challenge you, even when it may be outside their (or your) comfort zone. Have appropriate professional vulnerability so you can grow from what you don’t know — yet.

GO DEEP

Ask yourself and your closest circle: how does your work connect you with service and spirit? How are you getting out of your own way so others can find theirs? What are the best practices to move through the business day with insight, grace, and humility? How do you celebrate this delicious opportunity to be alive and in a business that is a force for good? There are no definitive answers, just an ongoing process. In the end, you are truly the only one responsible for your own happiness and balance, especially when work feels as if it is all-consuming. We are some of the fortunate ones who get to live to work, instead of just working to live. Keeping a balanced perspective takes effort at times, but it is a better way to experience life and work than simply being “swept along.” If you bring conscious intent, create consistency around best practices, and operate from your center, you will have deeper connections with your “self,” the amazing diversity of others, and our precious planet. It’s more fun, too!

“

We are some of the fortunate ones who get to live to work, instead of just working to live.

Flip Brown is the founder and owner of Business Culture Consultants, a Burlington, Vermont-based” Certified B Corp that assists individuals and organizations experience more meaning, fulfillment, and results. He has a background as a furniture maker, ski industry executive, psychologist, nonprofit program director, and musician. He is the author of “Balanced Effectiveness at Work: How to Enjoy the Fruits of Your Labor Without Driving Yourself Nuts.” He loves his job. CONSCIOUS COMPANY MAGAZINE

JANUARY / FEBRUARY 2016

BUILDING THE BUSINESS

SUCCESS STRATEGIES:

SOCIAL MEDIA FOR CONSCIOUS BRANDS BY JULIE URLAUB

IS SOCIAL MEDIA A FAD? A TREND? Some might argue that this is the case. Then again, there are those who would argue that purpose-driven companies and sustainability-minded organizations are trends too!

Convincing naysayers has never been a winning strategy, but forward-thinking leadership has. Brands and executives harnessing the power of social media communication are helping consumers make sense of conscious brands. They are inviting others to the dialogue to discover how purposedriven brands are creating real value through programs in sustainability, corporate social responsibility (CSR), philanthropy, and volunteering. In essence, companies like Unilever, TOMS Shoes, and Recyclebank — as well as many leading executives — are building trust through social channels. They’re building trust that business is a force for good and, in the process, they are growing their businesses too. You might think social media marketing only benefits large organizations. Hardly! According to Social Media Examiner’s 2015 Social Media Marketing Industry Report, small businesses are the leading beneficiaries of social media marketing. In fact, some of the critical goals of business-to-business (B2B) branding via social media include building better relationships with

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stakeholders, attracting prospective customers and compressing sales cycles, monitoring competitive positioning, establishing thought leadership, and building brand awareness and preference among decision-makers. All in all, the great thing about social media marketing is that it is not exclusive to large

WHAT ARE YOUR BUSINESS GOALS?

Many embark on their social media journey without taking into account proper goal-setting. Activity on social channels does not necessarily equate to business results, sales, and growth.

“There is not a one-size-fits-all approach for social media marketing and engagement; however, a smart social business plan will be the roadmap to engaging at all levels of inﬂuence.” organizations. Social media sites such as Twitter, Facebook, Pinterest, LinkedIn, and Google+ are available to businesses of all sizes. The key to success? Having a strategy. Granted, there is not a onesize-fits-all approach for social media marketing and engagement; however, a smart social business plan will be the roadmap to engaging at all levels of influence. Begin by asking these questions:

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How do you envision social media marketing supporting your overall business objectives? What is your main goal with social media? Is it to increase website or blog traffic? To promote a product or service? To communicate and engage an audience in topics that align with your brand? A best practice is to identify your business objectives and combine those with a social media marketing strategy that delivers results to both.

BUILDING THE BUSINESS

“A social media marketing strategy, when executed successfully, can be a powerful vehicle to build your brand, communicate with stakeholders, drive business growth, and contribute to positive change.”

WHO ARE YOU?

While the various social media channels offer brand expression in different formats, including video, pictures, and text, it’s critical to maintain a consistent brand voice across all channels. When creating social media accounts, take into consideration the right “brand voice.” This is especially the case for executives acting as brand ambassadors for sustainability and CSR programs. Proper co-branding of your company and its employees is important, and employees often make the best brand advocates. In fact, Edelman reports that the public finds employee advocates to be 200 percent more trustworthy than CEOs. On average, 92 percent of an employee’s Twitter network will be new exposure for the brand. Also, brand messages are re-shared 24 times more frequently when distributed by employees versus by a company. Branding matters.

WHAT DO YOUR STAKEHOLDERS CARE ABOUT?

How do they like to get their information? Social media users expect to see frequent, concrete, shareable content that includes case studies and projects in action, answers to stakeholders’ questions, videos, news, and updates on initiatives. This means that stakeholders are not interested in grand claims and general strategy overviews; they prefer concrete examples of how strategies are translated into everyday action and evidence of how companies are addressing major environmental and social impacts. The best social

engagement is sharing what appeals to the heart and mind. Craft your messaging by asking what metaphors and images are most likely to appeal to your stakeholders. Inquire as to what is more important to your different stakeholder groups: numbers and logic or enthusiasm and inspiration? These guiding questions will help shape the content of your status updates, as well as identify which social platforms are best for your brand.

HOW IS YOUR SOCIAL MEDIA MARKETING GROWING YOUR BUSINESS?

Social media marketing isn’t a stand-alone marketing activity; it’s effectiveness is best when integrated into PR and marketing programs. True, social media can amplify the success of content marketing and PR initiatives by exposing content and placements to a broad audience, but how do you know if it is contributing to the growth of your business? Establish appropriate metrics to define social media success for your business. Align metrics to corporate goals. A top-down approach to metric selection provides corporate alignment and helps prioritize metrics. The key is to strike a balance between strategic-level and operational-level metrics. Also, be sure to select the right mix of metrics; for instance, a dashboard may include a multitude of key performance indicators that you measure. It is important to include metrics that actually matter and are aligned to your internal stakeholders’ needs for ongoing support. Social media engagement can be a powerful way to cultivate value

around your brand and grow your business. But here’s the caveat: Without a social media strategy that supports your business goals, your marketing efforts — and your results — will be scattered. A social media marketing strategy, when executed successfully, can be a powerful vehicle to build your brand, communicate with stakeholders, drive business growth, and contribute to positive change. It is time to start developing a social media strategy that will help you grow your business in 2016.

Julie Urlaub is founder and managing partner of Taiga Company. Leveraging 15 years of business development, marketing, and communications expertise in the energy, medical, and information technology industries, Julie now consults and advises clients on purpose-driven stakeholder communications in the social space. Julie leverages a BA in Political Science from Indiana University of Pennsylvania and IT studies from Southern Methodist University to meet the social, technological, environmental business objectives of Taiga’s clients. taigacompany.com; @TaigaCompany

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BUILDING THE BUSINESS

THE GREAT DEBATE

CHOOSING A STRUCTURE FOR YOUR SOCIAL VENTURE BY RYAN SHAENING POKRASSO

Social entrepreneurs are disruptive to both nonprofit and for-profit structures. By pursuing self-sustainable (i.e., revenue-generating) models, they challenge traditional thinking in the nonprofit world, and by solving social issues, they also challenge the traditional for-profit model. This often leaves entrepreneurs wondering what structure would be best for their venture. The choice to set up your venture as a for-profit, nonprofit, or some hybrid of the two largely depends on (1) your anticipated sources of funding and (2) your planned activities. Before making this important decision on how to structure your venture, you may want to take the following considerations into account.

FOR-PROFIT CONSIDERATIONS

NONPROFIT CONSIDERATIONS There are various kinds of nonprofits, but the most common is a nonprofit that seeks tax-exempt status through Section 501(c)(3) of the Internal Revenue Code. This type of nonprofit is the focus here.

ADVANTAGES

DISADVANTAGES

ADVANTAGES

DISADVANTAGES

Able to Take Equity Investments. For-profit companies have the flexibility to bring in investors ranging from friends and family to institutional investors seeking a piece of the pie. Equity investors can provide the necessary capital, expertise, and an expanded network to help scale the impact of your venture.

Limited Ability to Receive Grants, and No Tax Deduction to Donors. One big drawback of for-profit companies is that they are not generally eligible to receive foundation and government grants (with some exceptions). This stems from the fact that for-profit companies cannot offer tax deductions to donors, whereas non-profits can.

Able to Receive Grants and Offer Tax Deduction to Donors. Donations to 501(c)(3) organizations are tax-deductible. Thus, 501(c)(3) nonprofits are among the largest recipients of government and foundation grants as well as individual donations. The ability to attract this type of funding is an important factor for businesses operating in a field with significant opportunities for grants, such as education or healthcare.

Limit on Revenue Generation. To summarize a complex and often misunderstood topic, a nonprofit can in fact sell products or services. However, if those sales are unrelated to the purpose for which the nonprofit received tax exemption, those aspects of the organization’s activities will be subject to tax. If the unrelated revenue is too substantial, the nonprofit risks losing its taxexempt status.

No Limits on Revenue Generation. Unlike a nonprofit, there is no limit on a for-profit company’s ability to generate revenue by providing goods and services.

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Taxes. To state the most obvious disadvantage, forprofit companies must pay taxes.

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Taxes. Nonprofit organizations can receive tax-exempt status, thereby eliminating the necessity of paying taxes.

No Ability to Take Equity Investments. Because a nonprofit does not have “owners” in the same sense that forprofit companies do, there is no equity to dish out. This means you would not be able to bring on equity investors, which eliminates a significant source of funding.

BUILDING THE BUSINESS

HYBRID STRUCTURE: BOTH A FOR-PROFIT AND A NONPROFIT As we have seen, there are obvious limitations, as well as opportunities, associated with forming as purely a forprofit or purely a nonprofit. Therefore, it may make sense for some social entrepreneurs to pursue a combination of the two by forming both a for-profit and a nonprofit to serve the holistic needs of the organization.

ADVANTAGES Flexible Funding. Creating a hybrid structure allows access to grants and donations, as well as the ability to take on equity investors. No Limit on RevenueGenerating Activities. As long as revenue-generating activities are carried out under the for-profit umbrella, there is no limit on generating revenue through the sale of goods and services.

DISADVANTAGES Complicated Structure and Legal Issues. The tricky thing about these hybrid structures is how they are structured (and it is imperative that they are structured properly). The biggest concern with operating a hybrid structure is that you absolutely cannot exploit your nonprofit’s taxexempt status to provide an improper “private benefit” to the for-profit business. Additionally, when operating under a hybrid structure you have to run two distinct organizations, each of which must follow all formalities associated with running either type of entity.

Ryan Shaening Pokrasso is an attorney who founded Elevate Law & Strategy in the San Francisco Bay Area to assist entrepreneurs using business as a tool for social change and environmental stewardship. Ryan advises for-profit and nonprofit businesses as general counsel on matters ranging from entity formation and financing to intellectual property.

HOW HYBRID STRUCTURES WORK: When it comes to creating a hybrid structure for your venture, there are two options:

1 PARENT-SUBSIDIARY. The first hybrid structure option is to have the for-profit be a subsidiary owned (in whole or in part) by the nonprofit. To do this, the nonprofit has to qualify as a “public charity,” which means that it must get most of its funding from public sources in order to satisfy the public support requirement. Note that you cannot have a for-profit own a nonprofit because there is no private ownership in a nonprofit.

2 BROTHER-SISTER. You can also have the nonprofit and for-profit be entirely separate entities that work together. Under either structure, as a general rule, money can flow from the for-profit to the nonprofit, but not from the nonprofit to the for-profit (except as specified below). The for-profit entity can donate money to the nonprofit (lowering its tax liability by up to 10 percent of its net income), but because all assets of a nonprofit must be permanently dedicated to charitable causes, a nonprofit cannot give away its funds to the for-profit. However, the nonprofit can purchase goods and services from the for-profit at reasonable rates as long as the proper formalities are followed. For example, when a nonprofit purchases a for-profit’s services, the board of the nonprofit must be fully informed of the terms of the purchase (which must be at or below market rate), and none of the board members with an interest in the for-profit may participate in the board’s decision to approve the transaction. For this reason, the board of the nonprofit must not be identical to the group of decision-makers in the for-profit. While the hybrid structure is sometimes tricky to navigate, it can offer social entrepreneurs the best of both worlds: the advantages of both nonprofit and for-profit organizations. No matter which structure you choose, it is important to understand the advantages and disadvantages of each option and make thoughtful decisions to set up your venture in a way that serves your unique goals.

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INNOVATION & DESIGN

Redesigning Sustainability Consulting HOW ELLIOT HOFFMAN AND REV REVOLUTIONIZED THE CONSULTING MODEL TO INCLUDE BUSINESSES OF ALL SIZES

REV AT A GLANCE Location: San Francisco, CA Founded: 2010 Employees: 60 Structure: Privately held Impact: Has worked with more than 250 companies, with an average cost savings of more than $300,000 per company REV CEO & Co-Founder Elliot Hoffman

Elliot Hoﬀman has been working in the sustainable business industry for more than 40 years. In 1974, he and his wife Gail Horvath founded Just Desserts bakery, which became a model for demonstrating that sustainable practices and community engagement were good for business and also able to make impactful, positive change. Hoffman’s journey continued with the nonprofit Business Leaders for Sensible Priorities, the business advocacy group New Voice of Business, and now REV, a company he co-founded that provides sustainability education and training to companies of all sizes. Together, Hoffman’s experience and REV’s cutting-edge model for sustainability consulting have had tremendous results. We sat down with Hoffman to discuss everything from designing new consulting models to the need for disparate groups to come together in the sustainable business community. 84

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INNOVATION & DESIGN

THE REV

sustainability circle

Traditional consulting is often cost-prohibitive for small to midsized enterprises. REV redesigned the “business as usual” consulting model to create a program that is affordable and practical for businesses of all sizes.

1 Day-Long Workshop A Month

10 Businesses

One-On-One Coaching + On-Site Meetings

Curriculum

Covering strategic, tactical, and behavioral approaches, along with assistance from experts in lighting, HVAC, water, waste, metrics, and branding

Action Plan

Participants develop implementable, customized five-year Sustainability Action Plans

6 Months

{

2 Participants Each

REV Sustainability Circle

For an in-depth look at a Sustainability Circle® in action, please see Jay Harris’ article on page 89 CONSCIOUS COMPANY MAGAZINE

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INNOVATION & DESIGN

Can you tell us about your transition from Just Desserts to REV? Elliot Hoffman: After Just Desserts, I got involved with Ben [Cohen] from Ben and Jerry’s, and we did Business Leaders for Sensible Priorities for a while, which Ben founded. It was really about mobilizing the power of business to move money from the military to kids and social needs, which was a great thing to do. We worked on

our kids — are screwed. This is probably the largest opportunity human beings have ever had to really change the whole energy systems and the whole economic paradigm.” We continued to get these large business organizations to sign on, and then we got the Committee on Jobs — CEOs from the 30 largest corporations in San Francisco — to all sign on. I went to the president of the Public Utilities Commission, Michael Peevey,

takes time. We launched our first two beta circles in 2010, which blew my mind. Then, in 2011 or 2012, I said to our team at the time, “Knocking on one door after the other to have them come and sit in these circles is no way to scale a business. It’s been great because we’ve learned a lot, but now we need to think of the right channel to scale.”

“I believe more deeply than ever that young people ought to really think about, and meditate on, what they are called to do in this lifetime. What would give you real, deep meaning in life? Then follow it and go create it.”

that for a couple of years. In the end, I decided it was important work, but for me, engaging businesses has far more power than moving money from one pocket to the other — especially during the Bush years. We were at a board meeting and I said, “It feels like we’re shooting wooden arrows at a battleship; it’s just not going to happen.” Basically, I said to Ben that I wanted to create a new organization called New Voice of Business, which would be an NGO that would gather the voices of businesspeople — not just CEOs, but everybody. It would be about creating a business voice that was for positive public policy. A counter-voice to the US Chamber of Commerce, if you will. So, in 2004, we actually did that, and we were asked to engage with the California Solar Initiative to see if we could help. At the time, it was a $1.8 billion, 10-year rebate program to put 500,000 solar installations up in California. Basically, it was stuck in the [California] Assembly and wasn’t going anywhere; I was asked to engage. I contacted the San Francisco Chamber of Commerce and the Bay Area Council and got 10 major business organizations to engage with us by saying, “Look, climate change is real. If we don’t do something, we — and

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and said, “Mike, business wants this. Here are signatures from 200 CEOs of small, midsized, and very large companies, including one conservative Republican.” Mike said, “Elliot, this is fantastic. We should put more money into it.” I said, “You’re right — let’s make it $5 billion.” He said, “Great, let’s make it $3.5 billion.” And that is how this became the largest solar-power initiative in the history of the United States, and it still is. When businesspeople speak up for positive things, it can seriously move the needle. I really believe in business. I believe business can be a real power and a force for positive change. I joined the board of Presidio Graduate School back in 2004 or 2005 and got very engaged with the students and faculty. At some point, I decided to design a business to bring the benefits of sustainability to small and midsized enterprises in a way that was affordable, accessible, impactful, and very scalable. This was not about a nice little consulting gig; this was about creating something that could eventually have the power to help move the world. Why else are we here? That was probably 2009. We took a year to design it — creating a model

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How did you develop the model for this? If there were a 20-year-old who had a great idea to change the world, what would you recommend in terms of creating a model to explore it? EH: First, I listed out a number of criteria that were important to me to bake into this model. It needed to be affordable. What does that mean for a small or midsized company? I hadn’t quite defined that yet, but I had a range in mind. I wanted it to be very profitable. I wanted it to be very inspiring. I wanted it to make a real difference for companies and people. I wanted people who work at REV to be paid very well, and there was something about a shared model. I really started playing with numbers and asking a lot of questions. First I said, “OK, so how do you make this affordable?” I knew that the one-on-one consulting model wouldn’t work for a small or midsized company. What would it look like if we had eight companies come together and they each paid their own certain amount of money to do this in a group? So I kept doing iteration after iteration, and then I just said, “OK, let’s give it a try,” after about a year. It was amazing. When we saw the results these organizations got from

INNOVATION & DESIGN

“I really deeply believe that there is no reason why every human being can’t be engaged in something that gives them meaning and purpose in life. It cannot be about maximization of short-term profitability for a few; that is what’s killing the planet.”

the first program, I knew we had something. For the next group, I was having brunch with Mark and Gaye Quinn and I told them what I was doing. Gaye asked if I would have a cup of coffee with her and the CEO of the San Leandro Chamber of Commerce, which then turned into having lunch with the mayor, who said, “We think this is so important for our community and for our smaller businesses that the city of San Leandro is willing to cover 50 percent of your fee for any San Leandro business that goes through your program.” So, we had what we call a “Circle Preview” where we invited businesses to have a conversation and ask questions about the program. There was one guy in there — Joe Santana, vice president of operations for Mi Rancho Tortilla Factory — who asked great questions and was a total skeptic. He said, “Look, this is going to cost me money. I just have to make a return on the investment.” We went back and forth, and after talking to the owners of the company, Joe finally told me they were in. Within three months, Joe Santana and Mi Rancho were the poster children for this program. It blew his mind and mine too; we had no clue that the results that we could achieve in such a short period of time would be so stunning. As a small, 80-person company, they saved $165,000 from the bottom line with zero capital expenditures, just by looking at specific parts of their operations. The city of San Leandro also offered to cover 50 percent of the cost for any company that did energy efficiency improvements as a result of the program. So, Joe and Mi Rancho decided to do a lighting retrofit as well. Their

total investment in this entire program, including the $3,000 fee and $14,000 of their investments in the lighting, was $17,000. They dropped $210,000 a year from the company’s bottom line. That is a payback of 29 days with a 1,300 percent ROI, and that was just the second circle that we had ever done, which was in 2010. That $210,000 in savings was an outof-the-park home run at the time. Now that number is below average for the program; our average savings is closer to $315,000. So what do you think is driving the success of the program? Why hasn’t anyone else figured out the secret sauce? EH: I believe the success so far is a combination of things. First, there is a great group of people at REV and the results we are producing are phenomenal. Second, I would like to believe that this is the direction the world is moving in. It has to. But I’ll also reverse the question and ask, why isn’t it moving faster? I’m really baffled by the lack of uptake in the whole field. Why are people just going about their day-to-day lives when we are facing truly existential issues, from climate and energy to water? Why is it that we’re not engaging much more quickly? And on the other side of the coin, why aren’t we acting on the reality that the solutions to these challenges are enormous opportunities for a better world and a better economy? What do you think are the critical elements to actually shifting that paradigm within an industry?

EH: I once had a conversation with a senior-level person in our federal government, and I asked, “What is it going to take to get people on board, to awaken people to the nature of these times, both the challenges and the opportunities?” He just looked down and said, “You know, I’m sorry, but it’s fear or catastrophe.” I said, “I’m sorry. I just can’t accept that. We have to be able to inspire people. We have to be able to show them what’s out there from a positive point of view. It will be a sad day if it has to be fear and catastrophe.” So I don’t know if it’s going to be fear and catastrophe, or if we can inspire people to move, or perhaps some combination of those two that will get people to take action. Many people and organizations, for-profit and nonprofit, are part of this. But we need to begin to see ourselves as members of the same movement. We need to demonstrate that to policymakers. This goes back to why it’s so important that companies like ours are quite profitable, because I believe business is absolutely vital to making this shift. Policymakers and others listen to business, and right now they hear mostly from the US Chamber of Commerce, the American Enterprise Institute, and the Club for Growth, which is ready to club us over the head, right? This movement and its individuals need to speak out to their elected officials and to their companies. What advice do you have for mission-driven entrepreneurs who are just breaking into this? EH: I believe more deeply than ever that young people ought to really think

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INNOVATION & DESIGN

about, and meditate on, what they are called to do in this lifetime. What would give you real, deep meaning in life? Then, follow it and go create it. It’s not about being an entrepreneur. There’s no 11th Commandment that says, “Thou shalt own thine own business,” right? That’s not part of the deal. It’s great for some, but I also applaud and hold up as models those we call intrapreneurs. I think intrapreneurs can have an impact in a large entity. What I do as an entrepreneur and what you do as an intrapreneur are both very important. So wherever it is you land — whether it is your own business or somebody else’s — whatever you do, don’t go there and just march time, because then you’re dying. Do whatever’s going to really bring you joy, happiness, meaning, and fulfillment, because it is there. I really deeply believe that there is no reason why every human being can’t be engaged in something that gives them meaning and purpose in life. It cannot be about maximization of short-term profitability for a few; that is what’s killing the planet. Some people take those kinds of statements and say, “Well, you are against capitalism.” You know that’s bullshit. It’s really the way we do capitalism that is destroying the planet. It is designed — unintentionally, I believe — to destroy life, but it can also be used to enhance the well-being of all life. I have no doubt about that.

REV Sustainability Circle participants

Sustainability Circle participants during an interactive exercise

What is giving you hope?

REV coaches Scott Bowman, Ellen Kappes, and Michael Lindsay

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EH: What gives me hope is that more and more people are waking up to all this stuff we’re talking about. I also know that the forces of “business as usual” are extremely powerful, and they will do whatever they have to do to keep this new paradigm from emerging. We have to show up as a movement, and we have to do whatever we can as individuals, too. When I see my own kids, who know what’s going on, they’re fearless. There is no whining. They’re like, “We’re in there kicking ass as best we can.” I love the idea of Boomers, Gen Xers, and Millennials working together as a movement to show up and make this happen. Photos: REV

INNOVATION & DESIGN

Revving Petaluma:

SUSTAINABILITY CIRCLES IN ACTION

etaluma, California, population 59,000, was once known as “the egg capital of the world,” and decades later it was briefly dubbed “Telecom Valley.” Today it retains some agrarian roots, but the town’s mixed economy of technology, craft, food, and agriculture is facing 21st-century dilemmas: a city budget that hasn’t fully recovered from the recession, a four-year drought, and bottomline pressures on its businesses and government, coming in part from booming, high-tech San Francisco, an hour south. In the context of many attentiondemanding priorities, how and where does sustainability fit in? Last fall, I visited the city’s first REV Sustainability Circle to find out. A few months before, five local companies belonging to national and regional brands plus three public institutions had signed up for the REV Sustainability Circle process, each committing $3,500 and two people to once-a-month, all-day peer circle meetings for six months, plus homework in between meetings. The REV curriculum included sessions with experts on energy efficiency, water use and waste reduction, responsible procurement, and metrics, and would take the participants through the steps of crafting “Sustainability Action Plans,” selling the plans internally, and then setting them into motion. Critically, the REV promise to participants was about more than doing right by the environment. By implementing comprehensive sustainability plans, they were told they would save their organizations money and help their businesses compete.

BY JAY HARRIS Circle participants included Lagunitas Brewing Company, Traditional Medicinals, and Straus Family Creamery, which are established regional and national brands. They are important players in the Petaluma economy, but in the grand scheme of American industry they are midsized enterprises: companies with between 100 and 500 employees. In the urgent effort to fight climate change, that makes their work with REV especially significant. According to the US Census Bureau, there were 141,358 such companies nationwide in 2010, and collectively they represent a hard-to-know but significant percentage of energy consumption and greenhouse gas emissions. But unlike larger corporations, few small and midsized businesses can afford staff whose primary work centers on environmental impact, and there’s the rub: How do these companies find their way onto the sustainability track? Many cash-strapped municipal governments and their agencies — responsible for light, heat, cooling, procurement, and water for large public enterprises — are caught in a similar bind. REV’s Sustainability Circles seem to offer a way forward, with dividends for the companies and government as well as the environment. Susan Hopp, one of REV’s energetic coaches for the Petaluma circle, said the effectiveness of the circle process rests on three Cs: content, collaboration, and communication. Content is the expertise and ideas brought into the monthly gatherings. Collaboration grows directly from the peer circle experience: the circles build bonds and local support networks among the people responsible for

sustainability in their organizations — relationships intended to long outlast the six-month REV curriculum. And in REV parlance, communication covers a lot of ground, from articulating clear action plans with metrics and projections of financial returns, to strategies for organizational buyin, to communicating goals and accomplishments, to customers and suppliers. Alexandra Fox, sustainability manager of Straus Family Creamery, said the process helped turn sincere, but vague, aspirations into specific goals with timelines, and helped turn “one-off ideas into a holistic plan.” The circle participants gather for their graduation day in a windowless conference room, taking spots around a square of tables facing a screen displaying PowerPoint slides. The setting is out of “Dilbert,” but the atmosphere in the room skews highschool reunion. People greet each other as old friends, and energy is high. The team from Santa Rosa Junior College said they framed their detailed plan — covering facilities, transport, procurement, and even the student garden — within the strategic goal of creating a culture of sustainability, “so that it’s just muscle memory.” “We’ve started to look at our whole campus in a different way,” Jane Saldaña-Talley, vice president of SRJC Petaluma, told me. The Straus Family Creamery plan included 19 initiatives, ranging from new yogurt cups that use 50 percent less plastic to an ambitious 100 percent water recapture goal to “poopto-power” methane digesters. The Amy’s Kitchen plan elevated sustainability to the level of the

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INNOVATION & DESIGN

“Altruism, camaraderie, and detailed, sharp-penciled plans have converged to make ambitious goals seem, in this moment, anyway, very achievable.” company’s other top business priorities: quality, safety, and profitability. The Amy’s Kitchen team recruited an internal group of 10 sustainability advisors from across the company to guide work in five areas, including the “activation” of employees’ embedded environmental values. With its parks, streets, transit, police and fire departments, a substantial vehicle fleet, community centers, and a municipal airport, the city of Petaluma found many opportunities for cost-saving investments. Their replacement of 4,000 lightbulbs with LEDs, for example, will require an initial investment of $1.75 million but will save $145,000 annually in energy costs. Their “biomass to biofuel” waste-toenergy initiative should produce the equivalent of 150,000 gallons of diesel fuel per year. And a new city policy mandating electric vehicle charging stations in new private developments will build the infrastructure to support greener habits. The Petaluma team sees the city’s plan as part of a broader strategy to attract and retain sustainable businesses. In order to lead by example, sustainability metrics such as kilowatthours reduced, recycled water delivered, solid waste diverted from landfills, and more, will be added to the city’s annual report. The team from Petaluma City Schools was blunt about their primary motive: saving money. Their plan included reducing water and electricity use by 30 percent each over the next four years and bringing solid waste “close to zero.” 90

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They estimated “cost avoidance” of $1.4 million over that period. As important as the money is to the cash-strapped school system, the deeper cultural mission of the schools wasn’t overlooked. “We have a responsibility to teach our children,” Renee Semik, principal of Petaluma Junior High, told the group. “They’re our future leaders in sustainability.” At 4 p.m., just before their presentation, the Lagunitas Brewing Company team brought out their beer. With taglines like “ruthlessly delicious IPA” and “lager like you like it,” they furthered the social aspect of this social-serious occasion. Eppa Rixey and Kyle Salzberger conceded that due to their rapid growth, everyone in the company is stretched, and they’ve kept the sustainability team small to conserve people’s time. Their detailed plan covered every aspect of operations, from solar roofs to paper towels and low-flow toilets. Their “awesome goals” included producing zero waste by 2030, 100 percent renewable power by 2026, and moving 80 percent of their shipments to rail by 2025. Adoption of new water-treatment technology in the water-intensive brewing process is projected to save 22 million gallons of water a year in parched California. Their financial analysis said that a $17 million investment, primarily in water treatment and solar, will net annual cost savings of $5 million. Rixey, strategic planning manager at Lagunitas, told the group, “We’re stoked!” Indeed, as circle participants moved

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outside for photos in the bright afternoon sun, it seemed like everyone was stoked. Altruism, camaraderie, and detailed, sharp-penciled plans have converged to make ambitious goals seem, in this moment, anyway, very achievable. And is that human energy — the essential juice for turning these plans into measurable progress — sustainable? If it is, the connections from the circle will be the flywheel. “This is family,” Jamie King of the Petaluma schools told the REV Circle. “Call me anytime.” Photos: REV

Jay Harris is best known for his career as a publisher and media consultant — he’s helped build such indy media stalwarts as Mother Jones and The Hightower Lowdown – but lately he’s been indulging his inner journalist. With national politics as gummed up as they are, Jay is especially interested in writing stories that show the power of markets and enterprise to drive desperately needed change.

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CONSCIOUS PLACE A SON’S REFLECTIONS ON HIS FATHER’S LEGACY OF BRINGING CONSCIOUS CAPITALISM TO REAL ESTATE DEVELOPMENT Trademark Property Company Founder Terry Montesi

BY JOHN MONTESI

t is easy to assume that real estate development and conscious business practices cannot go hand in hand. Somehow, an entire generation got it in their heads that anyone building new things on undeveloped land must not be conscious of the negative impact that new construction can have on the environment and the socioeconomic sphere surrounding it. This line of thinking hinges on the idea that all developers are transaction-hungry land-grabbers who don’t care about the planet or the people who live on it. It even spawned a notorious acronym, NIMBY, for the phrase “Not in My Backyard,” which describes the antidevelopment sentiment of post-hippies everywhere. The realities of growth and progress mean that urban land will inevitably be developed or redeveloped to best suit the community’s needs. Not everyone who is in a position to develop that land is interested in stewardship and creating a positive impact for all stakeholders. But, like any industry, real estate development has plenty of people who are interested in finding

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the intersection of passion and profit, of positive impact and financial viability. Trademark Property Company is one such company. Founder Terry Montesi and his partners have long sought to create a company culture that embodies their personal principles. From peoplefirst purpose statements to multiple charitable initiatives, Trademark has long been a company that seeks to do more than make a profit. That purpose statement, by the way — “To be extraordinary stewards, enhance communities, and enrich lives” — will be important later in this article. Montesi realized long ago that it was possible to make a difference in ways other than writing checks to charities. In Trademark’s case, making a difference means using the might of capitalism to expediently enact real change in the communities it partners with. Not only are the amenities offered at its properties of higher quality than those in the majority of nearby public spaces, the private sector operates at a swift pace, free of bureaucracy and funding constraints.

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Public art, immaculately maintained lawns and gardens, and carefully selected businesses that foster a sense of inclusive community are but a few of the many parts that contribute to a truly exceptional whole. Between their first developments that had a few people-first amenities and the upcoming ultimate expression of those conscious principals in the built environment — Conscious Place — is a story filled with learning experiences and collaboration between some of the greatest minds in conscious business practices.

THE BIRTH OF CONSCIOUS PLACE The pivotal moment in the story of Trademark and Conscious Place was joining the then-fledgling collective of socially entrepreneurial thinkers and disruptors known as Conscious Capitalism. According to Montesi, “Before we learned about Conscious Capitalism seven years ago, we already had a purpose statement, our guiding principles, and an idea that we wanted to do more, but once we met Conscious Capitalism, we started putting words around it and getting enmeshed in the culture and refined the idea of doing unique things at our places and as a company.” The Conscious Capitalism summit events helped Trademark refine its understanding and vision for how to enact the social change it believes in through its primary business activity. Montesi recounts, “The more conscious principles we built into our projects, the more we realized we really were enhancing communities and enriching lives. All these amazing brands spoke at the Conscious Capitalism Summit, and they talked about the magic happening either inside of their offices or inside the four walls of their specific retail places, but nobody was talking about physical, large-scale expressions of consciousness. So at one of the summits, I went up to [Whole Foods Market Co-CEO] Walter Robb and told him I had some ideas about conscious places. A few months later, we had a meeting. I had four pieces of paper

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and the first one was nothing but our purpose statement, and Walter just stared at it. I thought, ‘Oh no, he’s going to bust my chops,’ but he said, ‘That is a great purpose statement. We talk about supporting communities; you’re enriching them. We need to do better.’” That meeting would fundamentally alter and dramatically accelerate Trademark’s trajectory toward building places that embody all of the values that conscious businesses expound. A partnership with Whole Foods and the idea for Conscious Place were born. Of that meeting, Walter Robb said, “To give Terry credit, he came to the Conscious Capitalism conferences and listened to all this talk and said, ‘OK, I’ve got to think about how that might apply to our business.’ And so he came up with this whole idea for creating

the first-ever shopping center that’s based on these broader, stakeholderinclusive principles.” Just as building a shopping center from the ground up doesn’t happen overnight, creating a set of essential principals that influence the way a brand conducts business and builds large-scale structures takes time and collaboration. Often, projects with great intentions forget to ask their intended users for input. This is true of public and private endeavors alike, and the results can often miss the mark. Trademark strove to ensure that its Conscious Place project did just the opposite. The company made collaborating with community members a key tenet of its project. When asked what brings consciousness to a place from day one, Montesi explained, “An inclusive listening

process. Most developers hire an architect, go to a community, look at a piece of land, and arrive as knowers. We don’t want to be knowers; we want to be learners. How can you meet your stakeholders’ needs if you think you already know the answers instead of asking the stakeholders and being good listeners?”

THE FIRST CONSCIOUS PLACE BREAKS GROUND Development of the first ground-up Conscious Place, known as Waterside, is currently underway in Trademark’s hometown of Fort Worth, Texas. There are dozens of unique initiatives and amenities being pioneered at Waterside that will also find their way into future Trademark projects. Each

“The more conscious principles we built into our projects, the more we realized we really were enhancing communities and enriching lives.”

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“Like any industry, real estate development has plenty of people who are interested in finding the intersection of passion and profit, of positive impact and financial viability.”

project will be unique, but the blank slate and stunning property situated along the Trinity River and shaded by a grove of heritage oak trees is poised to set the bar high. Trademark’s commitment to the local and the artisan means that plenty of opportunities will be available for local florists and chefs to peddle their wares alongside Girl Scouts and national retail mainstays like Whole Foods and REI. Microrestaurant sites allow new chefs to quickly begin serving local fare, while a community pavilion can be reserved for free by any group in order to provide a safe, high-quality meeting place for clubs, birthday parties, and scout troops who want to sell cookies. From interactive art that can be used as playground toys for

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children to bocce courts for parents, the first ground-up Conscious Place overtly focuses on human interaction, recreation, and leisure while providing a wealth of inspiration and amenities that benefit all members of the surrounding community. Waterside is unique in the way it has integrally involved individual retailers whose beliefs align with Trademark’s. Whole Foods is building a rainwater collection system on its roof and has incorporated the collection cistern prominently in its design. REI is rolling out a canoe and kayak rental program tailored to the section of the Trinity River adjacent to the property. Features like an additional mile of trail connecting to existing infrastructure, outdoor exercise circuits, shade structures, and bicycle work stations

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further the sense that Waterside is a paradigm-shifting combination of privately funded community amenities and world-class shopping and dining. From solar charging stations for cellphones and electric cars to inspirational quotes and digital video boards that alternate between inspiring content and community information centers, to free Wi-Fi and filtered drinking water, Conscious Place is all about allowing people to recharge in tranquil spaces without denying them the modern amenities that paying customers expect at high-quality establishments. The key difference is that all non-retail amenities are completely free to users, which makes it possible to reap the benefits of the development without purchasing a thing. With sustainable features like rainwater reclamation and solar panels featured prominently throughout the project, Waterside will offset its ecological impact while educating visitors about the conservation that’s possible with today’s technology. Trademark also hired innovation and design specialist Cassie King to work full-time helping the company constantly push the envelope of conscious, innovative thinking in a very innovation-averse industry. King helps ensure that there is a high level of artful cohesion between the built and natural environments; for example, that planters and signage harmonize with native trees and grasses to create an environment that is far greater than the sum of its parts. She explains, “The way that I describe it to people is that I’m creating spaces and experiences that make people want to come back and want to shop, but really, it’s to come back and visit spaces again.” When asked about her role within an industry historically known for prioritizing efficient transactions, King explained, “It’s the chicken or the egg: do you get the lease first, or do you have the amenities before

INNOVATION & DESIGN the lease? It’s different with a lot of different companies and their respective processes. A brand like Warby Parker, for example, is all about having the right vibe, the cool factor surrounding its store — the trees, the benches, the public art — that’s the only way it will come.” More retailers are following suit, limiting their brick-and-mortar expansions to locations that bring their aesthetic and values beyond the store’s four walls or Instagram accounts. In addition to the art of the structural details, Trademark commissioned legendary Texas artist Bob “Daddy-O” Wade to design public art installations based on found objects from the former structures situated on the site. It was important to Trademark that the property’s past life as the General Dynamics/Lockheed Martin Recreation Association site would not simply be swept under the rug as it transformed into Waterside. That commitment to public art adds another dimension to the Conscious Place, which aims to educate and inspire visitors.

The Business Case Conscious Capitalism is about more than spreading positive feelings at the workplace and building beautiful projects that look good in brochures. Trademark believes that Conscious Place can bring the good vibes and pervasive optimism felt at Conscious Capitalism summits to a wider audience by demonstrating what it means to have a level playing field for all stakeholders. Community members, investors, and Trademark all see increased benefits from conscious business practices. This goes beyond the whimsical, tranquil experience for the visitor; bringing innovative design and thinking to the retail shopping experience can also increase competitive advantage and staying power in the age of fleeting moments and endlessly refreshable newsfeeds. In an era characterized by instant delivery of virtually anything with the push of a button, retail shopping is experiencing heavy pressure to innovate and differentiate itself from its online counterparts. Walter Robb noted, “We’re looking to try new things

with the built environment. Today it’s all about the customer’s experience; the customer is in charge. Through technology, the customer picks what they want, when they want it, and our job is to build something that serves that in different ways. So it’s going to require a lot more creativity to create built environments that are going to meet that sort of test.” Trademark has been acutely aware of the impact that the Internet has had on retail centers. Montesi explains, “With the onslaught of e-commerce in the last 10 years, people are becoming more picky about where they spend their time — both their leisure time and their shopping time. And if you don’t give them something that really enriches their life, is interesting, and connects with them emotionally, then they’ll just sit at home on the computer and buy. Brand-building and long-term connection with your customer are all about building places that invest much more in the customer experience and amenities and ultimately will make our places much more successful.” That success is essential to the conscious company seeking to generate a true paradigm shift. Proving that putting people first is a profitable business model will generate change that reaches well beyond one company. Success is critical in every business endeavor, but it can be measured differently. Fiscal success is proven on spreadsheets, but the intangible success of building a place that truly enriches the lives it touches can only

be experienced by visiting it. Shopping and leisure are inexorably linked, and the purpose-built Conscious Place takes that several steps further. Whole Foods, Trademark, and several other industry insiders have collaborated to build a place that they sincerely believe can be a successful public space and a profitable project. The mission of the Conscious Place is to inspire, educate, and engage with all stakeholders in each project, and as more are built, the potential impact extends far beyond the realm of real estate. Trademark has proven that conscious business practices are feasible and repeatable on a large scale, and by creating built embodiments of on-paper ideals, it inspires others to act on their ideals, too. Photos: Trademark Property Company

John is a writer based in Austin, Texas. He enjoys covering the intersection between passionate pursuits and profit in a broad range of fields. When he isn’t writing, he’s riding bikes, which leads to lots of confusion thanks to his Texas accent.

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LAUNCHPAD FOR A SUSTAINABLE FASHION INDUSTRY:

SHANNON WHITEHEAD’S FACTORY45

BY CHET VAN WERT

s an adjunct marketing professor teaching graduate students, I routinely ask my students how many are interested in starting their own businesses. The number has grown steadily and is now consistently about 75 percent of every class. What’s the outlook for these would-be entrepreneurs? In the tech industry, it’s better than the accepted wisdom, which suggests that the overwhelming majority will fail. As management guru Peter Drucker observed, “Entrepreneurship is ‘risky’ mainly because so few of the so-called entrepreneurs know what they are doing.” The little secret of the tech world is that an entire industry has

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evolved to supply that knowledge to entrepreneurs, along with a complete starter kit of tools and components — in the process, vastly increasing their odds of success. The tech startup toolbox includes classes, networking, mentorship programs, shared workspaces, and all kinds of funding options, not to mention thousands of off-the-shelf software and hardware components that can be used to assemble new product prototypes quickly and easily. It happens every weekend at 48-hour hackathons on hundreds of college campuses. Many teams produce working products in the course of a weekend. And if these products hint

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at commercial potential, testing the market via one or more app stores couldn’t be easier.

WHAT ABOUT SUSTAINABLE BUSINESS ENTREPRENEURS? Now, try to start a new fashion business using the underdeveloped supply chain and distribution system for sustainable and ethical apparel. If you want to actually produce and sell a sustainably made garment, you’ll find that almost no roadmap or infrastructure exists to give you an edge. Shannon Whitehead set out to improve the odds for sustainable business founders.

INNOVATION & DESIGN “I started by asking, ‘Why isn’t it easier for entrepreneurs to get a sustainable fashion product designed, manufactured, and sold?’” Whitehead said. “Why isn’t it easier to manufacture in the United States? How can we make sewn-apparel production a more approachable process, so people don’t feel the need to outsource overseas?” Enter Factory45, the accelerator program that Whitehead developed

Whitehead explained, “In what’s left of the textile belt in America, you have mostly older men who have been running the sewn manufacturing industry since before offshoring in the ’90s, before most of their business went overseas. There’s very little trust left, which is entirely understandable, but which makes it hard to break into the industry. Kristin and I came along with a new kind of product and

NOT FAILING FAST ENOUGH Two and a half years is not what the startup gurus have in mind when they encourage entrepreneurs to “fail fast.” The idea is to get a goodenough product to market quickly and let consumers vote with their wallets. Then, if the market likes it, you can mold your product in response to market feedback. Failing fast is accepted wisdom

“The accelerator is a key component of the launch infrastructure that our economy needs in order to grow sustainable businesses.” and launched in the spring of 2014 for entrepreneurs in the sustainable fashion space. Her insights into the needs of entrepreneurs grew directly out of her own two-and-a-half-year odyssey to launch a sustainable fashion brand, {r}evolution apparel, with a partner.

A LONG, STRANGE TRIP Whitehead and her former business partner, Kristin Glenn, met while traveling on extended backpacking adventures in Southeast Asia and Australia. They shared a vision for a garment that could be configured to play many roles in a female backpacker’s limited wardrobe. Back in the US in 2010, they set out to make their idea a reality. Having witnessed the social and environmental messes created by the fashion supply chain in Asia and Central America, they were committed to manufacturing their garment using ethical labor practices and environmentally sound production methods. The partners’ search for sympathetic craftspeople, sustainably grown fibers, USbased, environmentally friendly manufacturers, and targeted distribution channels was met with indifference, closed doors, and far too many unanswered calls and emails.

vision for our company, and it was hard to convince anyone that what we were doing could be of value to them.” Two and a half years later, their product, the Versalette, finally came to market and quickly sold out its first production run. During those 30 months, Whitehead and Glenn learned more than they could have imagined about the business of funding, designing, sourcing, manufacturing, and marketing a sustainable fashion product. And they had a profitable business with six-figure revenue — a great start.

for tech startups, but the secret is that it’s made possible by the startup toolkit and the fully developed support ecosystem at their disposal. An important link in this ecosystem is the accelerator — an organization that provides entrepreneurs with all of these goodies in exchange for a small stake in the startup company. Unfortunately, accelerators for sustainable businesses are few and far between [see page 24 for our list of leading ones in the space], and the established technology accelerators are not branching out to new industries. A recent study of

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Y Combinator, a prominent Silicon Valley accelerator, found that of the 255 total graduates in the years 2012 to 2014, only 19 (or 7 percent) were developing sustainable technologies and services.

THE LIGHTBULB MOMENT “The ‘lightbulb’ for this idea came on gradually,” Whitehead said. “Kristin and I amicably parted ways. She started her own brand, and I consulted on projects for both startups and established brands. In that process, I realized that I really liked working with startups, but they couldn’t afford traditional consulting fees.” Taking a page from the tech world’s approach, the idea that took shape was to develop her own accelerator, but with some

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fundamental differences. “I believe that the venture capital (VC) system for the technology industry is, in some ways, fundamentally flawed,” Whitehead said. “To the small percentage of startups that get VC funding, they say, ‘Here’s a few million dollars, go start a company.’ Although many of these entrepreneurs will have passed through some kind of proofof-concept phase with angel or bootstrapped investment, many don’t yet have any customers or traction. I looked at that model and thought, ‘Why are these companies raising all this money without even proving a market need first?’ “I also looked at online learning platforms, like Coursera and Skillshare. They lay out the content and give you resources to learn, but there’s no accountability or

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mentorship. I looked at both of these approaches and flipped them on their heads to create a new model. “My thought process in creating Factory45 was this: You can bootstrap a company with $5,000 if you allocate $3,000 to an accelerator program, like mine, and save $2,000 for samples, patterns, and other preproduction expenses. Then you can launch with a successful Kickstarter campaign, which will repay your investment in Factory45 and fund your first production run.” While it might be easy for tech entrepreneurs to hand over 7 percent of their new venture to Y Combinator for needed resources and advice, Factory45 asks for $500/month for six months — not a lot in the business world, but hard-won savings for Whitehead’s mostly young entrepreneurs.

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“People see the industry changing. We’re no longer saying that it’s going to change one day, because it’s changing right now. It’s happening.” “Starting a new company, let alone a sustainable apparel company, is one of the hardest things you can possibly do,” Whitehead said. “The entrepreneur needs to have skin in the game. It needs to hurt a little bit. It needs to feel like, ‘I’m putting my $3,000 on the line and I’m going to make something of that.’ Otherwise, what stops them from giving up?”

LAUNCHPAD FOR A SUSTAINABLE INDUSTRY Factory45 offers a six-month program built around a custom online classroom. The curriculum, resources, and industry contacts are accessible to each student to work at his or her own pace. Each incoming class meets biweekly, and Whitehead is available every day for one-on-one coaching. She takes her mentor role very seriously: “I’m not in the business of just taking your money and saying, ‘Good luck, have fun, go start a company.’ I need to be invested and responsible as well. So I’m available every single day for six months, as

much as the entrepreneur needs me.” By the time they graduate, Factory45’s entrepreneurs have become knowledgeable businesspeople, with sustainable fabrics and materials available to source, sew shops in the US ready to partner, and a viable plan for going to market. They have navigated all the challenges involved in planning a product launch and negotiating and working with suppliers, and are ready to market and distribute a product. To date, every Factory45er who launched with a Kickstarter campaign has been successful, with each one raising $19,000 or more. As a result, they have each pre-sold several hundred units of their product to their first customers and have had enough capital to fund their first production run. At that point, they are ready to either continue bootstrapping their company’s growth or approach investors with a proven business. The accelerator is a key component of the launch infrastructure that our economy needs in order to grow sustainable businesses. Whitehead is training entrepreneurs to be more

successful, and Factory45 is getting them to market much faster than if they followed in the footsteps of {r}evolution apparel’s two-and-a-halfyear, do-it-yourself odyssey. “People see the industry changing,” Whitehead said. “We’re no longer saying that it’s going to change one day, because it’s changing right now. It’s happening.” Factory45 is enabling and accelerating that change. On a higher level, it’s a catalyst driving the growth of a more robust launch infrastructure that will support sustainable business entrepreneurs not just in fashion, but across industries. It’s a launchpad for Photos: Factory45 a new economy.

Chet Van Wert is a marketer who works with companies adapting to radical change: digital disruption, media transformation, and the clean economy revolution. He focuses on the challenges of marketing sustainable businesses to consumers across the “50 shades of green” spectrum at www.NextBestPractices.com and www.GreenerDailyLife.com

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FINANCE

CLOSING THE FINANCING GAP

FOR MISSION-DRIVEN BUSINESSES

ounded in 1936 as the Rudolf Steiner Foundation, San Francisco-based RSF Social Finance is a nonprofit financial organization dedicated to transforming the way the world works with money. RSF’s mission is to transform the often complex, opaque, short-term focused, and anonymous nature of the financial system into a world where financial transactions are direct, transparent, personal, and based on long-term relationships. No small task. At the helm of this effort stands Don Shaffer, who has been president and CEO since 2007. We sat down with Shaffer at his office in the Presidio to discuss shifting the paradigm of the financial industry and what companies typically need to scale successfully.

RSF SOCIAL FINANCE AT A GLANCE Location: San Francisco, CA Founded: 1936 Employees: 35+ Structure: Nonprofit Clients: 1,700+ Impact: $275 million+ in loans and over $130 million in grants have been made since 1984 In short: Financial services organization, including a social investment fund and a program related investing fund, that provides low-interest loans and grants to for-profit and nonprofit institutions that serve a social or environmental purpose

How did you develop the three focus areas that RSF typically concentrates its investments on? Don Shaffer: We focus on food and agriculture, education and the arts, and ecological stewardship. These came directly out of the work that Rudolf Steiner did in the early 20th century in Eastern Europe. He was a philosopher, scientist, and all around Renaissance person. The brand-name things that Rudolf Steiner brought to the world are Waldorf education and biodynamic agriculture, but he also made contributions to architecture and economics. The founders of RSF read his lectures on economics from 1922.

Just as a biodynamic farmer looks at his or her farm and soil in a holistic way, or as a Waldorf schoolteacher looks at his or her students and school in a holistic way, we’re trying to look at money in a more holistic way. How do you assess the impact that you can expect from an organization when you are deciding whether or not to invest? What are your criteria for your investments? DS: We lend money to both for-profits and nonprofits. Our portfolio consists of a $100 million loan fund, which is our primary vehicle for putting money out in the world. Half of the social

enterprises we lend to are for-profits and half are nonprofits. The primary thing we’re looking for across the board is, do these organizations have a social or environmental purpose as their primary reason for being, such that they would not be in business but for the environmental or social issues that they’re helping to address? We use the B Impact Assessment Survey as one way to determine and benchmark an organization and its practices. But in addition to that, we have a much more qualitative, relationship-oriented methodology that we’ve developed over 30 years that looks at the intention of the management group and the business.

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That’s the very first thing that we look at. A business that we’re looking at may be phenomenally profitable and any bank would want to lend to it, but we don’t even look at it until after we’ve looked at the social or environmental piece. And it can’t be something simple like using organic ingredients. What we’re looking for is a holistic commitment to harnessing business as a force for good. We’re looking at whether the business is an advocate for change, for example, and not just that it’s doing something that happens to coincide with a positive trend in the marketplace. What is the rationale behind dedicating half of your portfolio to for-profits and half to nonprofits? Are the terms of the loans the same for each type of organization? DS: It wasn’t until 10 years ago that we started actively making loans to for-profits. In the early 2000s we sensed that there was a growing number of values-aligned business enterprises that we also wanted to lend money to. We’ve gone from 100 percent nonprofits to 50 percent nonprofits only in the last 10 years. In not-so-distant future, I think that more of our funds will be going to forprofits than nonprofits. The terms of the loans do differ. We make mortgage loans or construction loans to nonprofits such as schools. These are asset-backed loans, and so they typically have five-year terms and the non-profits typically get the lowest base interest rates that we offer. For the for-profits, we’re more often doing lines of credit, accounts receivable financing, or inventory financing, all with rolling one-year terms. They pay our base interest rate plus some kind of risk premium based on how risky we think the loan is. Can you explain RSF’s business model? DS: We have approximately 1,700 investors in our loan fund and they expect to receive their money back plus a relatively small return. Historically the return has been 3 to 4 percent, but

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right now it’s lower because interest rates are lower. People think of it like a bank CD because you can put your money here and take all or a part of it back out every three months. So it’s fairly liquid in that respect, and it’s very low risk – we have 100 percent repayment rates to our investors in the last 31 years and we intend to keep that up. We use the funds that are invested by the investors to make loans to about 90 borrowers. Our loans

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are between $250,000 and $5 million, with an average around $800,000. Our special sauce is that we do a very good job at assessing risk so that we can make sure we get our investors’ money back. We also do a good job at being catalytic in the sense that many of the organizations that we fund would not be able to get a bank loan because they’re either too early-stage or they’re too hard to understand. For example, when Revolution Foods came

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to us for a loan, I don’t think anyone else in the Western Hemisphere would have made a loan to them at that time, because it was just a little too early and it was just a little too hard to understand the business model. And now of course the company has done phenomenally well and is backed by a very large bank. That’s a common story for us. Does RSF only make loans or do you make equity investments as well? DS: Our core competency is direct lending. On occasion we make direct equity investments but not out of the same pool of funds. We also have funds that are philanthropic in nature. In many ways we’re kind of like a bank and a foundation combined, but the large majority of what we do is just lend money. What sort of trends are you seeing in impact investing? DS: Certainly the advent and advancement of B Corps has been a huge trend that we’re fans of because it allows people to know the standards by which a social or environmental purpose organization is working. I think that on the investment side there are many, many more socially conscious investors who want to go beyond just removing certain stocks from their public equities portfolio and want to do more direct investing in social enterprises. It’s a very exciting time. I don’t see it as a fad — I think it’s a long-term trend that could eventually change how markets operate in general. What’s concerning you most about the traditional finance system right now? DS: I have lots of concerns about the traditional finance system, so I’ll have to do the short version. Rampant short-termism is a big problem. The domination of the capital markets by a handful of gigantic banks is a problem. The opaque nature of the banks’ business models is a problem — they prefer that most

people not ask too many questions about how they make money. Of course, another big problem is that those banks have many, many shareholders who want the banks to do well. It’s this perverse thing where we’re all complicit in the big banks getting bigger because we own shares of their stock and want them to do well, and meanwhile they’re out there systematically crushing all the small guys. The good news is that more people are asking more questions. Just as the local food movement has encouraged a lot more transparency and encouraged people to ask where their food comes from and what the ecological conditions are like, people are now starting to look at capital and where they get their funds for their business as a fundamental ingredient in their business. We’re seeing more companies coming to us saying that they’d like to be to part of the RSF community because they really don’t believe in Bank of America or Citigroup, for example. They want their funds to be aligned with their business values in the same way that their organic, fair trade ingredients are. How do we shift the paradigm within the financial industry to avoid these sorts of problems? DS: One way is through crowdfunding. There are now ways for both accredited and non-accredited investors to get involved with financing inspiring social enterprises in their regions. If you’re interested in making a direct investment in an organic food company in your region, there are more ways to do that today than there ever were before. I’m not a big believer that top-down policy change is going to be effective. Real changes are going to come from the grassroots awareness and consciousness shift that is happening right now. The way for those changes to happen fast and in the most lasting way is for people to actually get involved with direct investments or direct loans. Even if it’s a small

3 TIPS FOR MISSION-DRIVEN ENTREPRENEURS

BE TENACIOUSLY PERSISTENT

TAKE TIME TO FIND ALLIES

BE OK WITH A NON-LINEAR PATH

For aspiring social entrepreneurs, I think that tenacious persistence is the most important thing. There will be all kinds of rollercoasters that you’re going to ride in the early stages of the organization, so you just have to be mentally and spiritually prepared to overcome them and bring as much creativity to them as you possibly can.

Finding allies and peers, who may or may not have a direct stake in the outcome of your enterprise, is critical for support and for new ideas, even though you’ll feel like you don’t have time for it.

There is a lot of pressure in our culture to have a linear career path. I’ve had a very non-linear career path and I would urge entrepreneurs who are trying to do good with their business to feel that that is OK and not to be apologetic about not having a linear career path. Having diﬀerent types of experiences and learning adds to your resiliency as an entrepreneur and gives you a much wider lens.

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amount, $100, $500, or $1,000, there are ways to do that today that you couldnâ&#x20AC;&#x2122;t do 10 years ago, which is really exciting. Can you tell us a story of one of RSFâ&#x20AC;&#x2122;s investments that really sticks out to you and epitomizes what RSF does? DS: Common Market Philadelphia is the first one that comes to my mind. Haile Johnston and Tatiana GarciaGranados are two social entrepreneurs in Philadelphia who started a local and organic food distribution business because they sensed that small family farms in the Philadelphia area were not able to find a reliable market beyond farmers markets and the people who support CSAs [community supported agriculture]. Perhaps more importantly, they sensed a huge need for healthy and nutritious food, particularly in the inner-city areas in Philly at schools and hospitals.

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Common Market has had a classic David and Goliath story. It had to go up against much bigger entrenched distributors just to get a toehold in with the big institutional buyers. It has done a phenomenal job, and now Common Market owns a building in North Philly and has created something called the Philly Good Food Lab, which is supporting sustainable agriculture enterprises throughout the whole greaterPhiladelphia area. It will soon be opening a Common Market Atlanta, and it is helping literally hundreds of other entrepreneurs who are starting food hubs and local organic food distribution businesses in other parts of the country. I think that there are about nine levels of impact and transformation that Common Market is creating, and the fact that we were able to help it using several different kinds of funding, none of which it could have gotten in one place from another investor, is really satisfying.

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When did RSF step in, and how did the capital you deployed help Common Market grow? DS: We made a $130,000 line of credit available to the company, before anyone else would have done that. That line of credit has since tripled. Eventually, the company outgrew its warehouse and it really needed a building. There was a building in North Philly available, and it really took a team effort to help the company make that purchase. Several foundations provided partial loan guarantees that enabled us to get comfortable with the risk so we could make the loan. We also provided technical assistance by helping the founders broker the deal for buying a milliondollar building. We provide a lot of technical assistance to the companies and organizations we work with, because many of them are light in the area of finance and are not used

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RSF Social Finance client Viva Farms

“Many of these investors want to have a direct connection with their investments and feel that their investments are having social and environmental benefits, as opposed to just being less bad. I think this is going to have tectonic eﬀects in the market.” to figuring out how to structure a million-dollar purchase with a loan; they’re used to figuring out how to get really good, healthy, nutritious local organic food from point A to point B. So we really have a multipronged story of impact and the ways that we help companies grow. What advice do you have on making sure that the mission and vision stay with a company as the company grows and scales? DS: You really have to interview your funding partners in a much more rigorous way than I think most entrepreneurs do. Sometimes you’re in that position — and I’ve been t here — where you’re desperate for funds and you’ll say whatever you feel like you need to say in order to secure those funds from whomever you can. I understand that pressure, but the way you need to look at it is that you’re interviewing them as much as they’re

interviewing you. You absolutely have to make sure that there’s really strong alignment between your intentions and their intentions. I can’t tell you how many times I’ve seen the funding process happen too quickly, and not enough of a relationship gets established and then sometime down the line there are a lot of problems and emotional turmoil because it turns out that your funder had a little different idea of what was going to happen. What have you learned from failure, either personally or professionally, that has served you well in your career? DS: The key thing about failure is to do an honest post-mortem. Failure is not necessarily a badge of honor that is going to help you succeed next time. But if you can really dig into the parts of the failure that had to do with you as a human being and figure out what

you need to learn and how to learn it, and if you make a plan and find some mentors rather than rushing out again and trying to be a hero, then failure is valuable. What is giving you hope for the future? DS: I think there are an increasing quantity and quality of social entrepreneurs who are harnessing the power of business to good, and thankfully there are an increasing number of investors who want to fund them. Many of these investors want to have a direct connection with their investments and feel that their investments are having social and environmental benefits, as opposed to just being less bad. I think this is going to have tectonic effects in the market. I think within a generation, nearly all companies will be Benefit Corporations or something equivalent.$ Photos: RSF Social Finance

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HOW TO TAKE ON INVESTORS AND KEEP YOUR VALUES

BY DAVID BRODWIN

or mission-driven businesses, growth is both a blessing and a curse. It’s a blessing because growth can magnify both the social and financial return. But it’s a curse because growth usually creates a need for more capital, and bringing in new capital, if not done right, can put the mission at risk. Investors willing to risk large amounts of capital to help a business expand expect a high return on their investment, and often don’t care much about the social mission. Once they own a major share of stock, the temptation is strong to cut back on the social mission in order to boost the financial bottom line. That’s why we see very few triple-bottom-line businesses grow to become large, publicly traded corporations. Fortunately, there are now a growing number of options that management teams can use to protect the company’s mission while taking in more capital.

FINDING MISSIONALIGNED INVESTORS There are strategies that companies can use to find investors who are committed to the mission and avoid investors who seek only a financial return. Crowdfunding is one such strategy that has made significant progress and will likely continue to grow, providing a way to attract investors who share the company’s mission. New rules are enabling the crowdfunding industry to move past the Kickstarter style of donation- or reward-based fundraising to take in investments that provide a financial return. Recent US Securities and Exchange Commission rules now allow companies to raise up to $50 million in some cases. The organization I co-founded, the American Sustainable Business Council, was instrumental in helping

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key policymakers craft legislation to safely unleash the power of crowdfunding at the national level. We are now working in California to build support for legislation that enables crowdfunding rules for agricultural and renewable energy enterprises in particular. Another way to find investors who share the mission is to turn employees into owners. Giving workers ownership of a company through stock or a cooperative ownership structure can preserve the mission of a business and enable it to successfully pursue its environmental and social interests. Companies like New Belgium Brewing and Dansko have found that employee ownership has strengthened their companies’ bottom lines while protecting their missions. “We want to be our stakeholders’ favorite shoe company by adhering to high business

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standards and practices,” said Dansko CEO Mandy Cabot. “Being 100-percent ESOP [Employee Stock Ownership Plan structure] ensures that our original goal remains intact without sacrificing our key values or diminishing business growth.” The co-op structure provides another way to expand ownership. Today’s co-ops range from purchasing collectives to giant multinationals. In the US, more than 29,000 co-ops provide more than two million jobs. Michael Peck, a longtime booster of co-ops and a co-founder of 1worker1vote.org, points out that beyond the value of protecting a company’s mission, “any formula that includes broad-based worker ownership and participation has proven more successful during economic downturns.”

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“Giving workers ownership of a company through stock or a cooperative ownership structure can preserve the mission of a business and enable it to successfully pursue its environmental and social interests.”

payment would be 3 to 6 percent of revenue, and would continue until the investor is paid back, including an agreed-to profit. This approach provides a solid, riskadjusted return for investors without enabling them to undercut the social mission of the company.

USING ENTITY STRUCTURE TO PROTECT THE MISSION Alongside the strategies just described, companies are increasingly relying on the legal structure of certified Benefit Corporations (B Corps) to protect the company’s mission when seeking capital or going public. For example, Etsy, an online marketplace largely for artisanal and craft manufacturers, went public last April but kept its status as a certified B Corp, which provided a defense against investor pressure to sacrifice its social mission in pursuit of greater financial returns. Likewise, Seventh Generation tapped private equity to grow from less than $10 million in sales in 2000 to over $150 million in 2010. According to former CEO Jeffrey Hollender, “In no way did those investors ever interfere with the company’s product quality or ingredients, our 10-percent-of-profits giving program, or our environmental activism.” But, he also said, “When they invested, they did sign on to company values, and of course we were also one of the first B Corps certified by B Lab.” In the end, no matter what investment strategy a mission-oriented entrepreneur chooses, she should choose her investors carefully — “more carefully than your employees,” said Hollender. By seeking the right investors, designing the right exit strategies, and taking advantage of Benefit Corporation legal status, a social entrepreneur can protect the mission as the company grows — and even as it moves to scale.

NEW INNOVATIONS IN EXIT STRATEGIES It’s great if you can get all the capital you need from investors who share a deep commitment to the social mission, but new exit strategies enable mission-driven companies to work with investors who care primarily about the financial return. These alternative approaches don’t require financial investors to be committed to the mission, and also keep them at arm’s length so they can’t compromise that mission. The core idea here is to pay investors an attractive, risk-adjusted rate of return in the form of cash payments from the business instead of an IPO or corporate sale. The nominal rate of return is less than an IPO would provide, but the risk is lower because the payments start sooner and the rate of return is guaranteed. There’s typically a cap on the percentage of revenue that can be taken out of the operation to pay investors, but the payout continues over time until the promised return has been paid. One example is a business that pays the investor a small percentage royalty of net sales every quarter. This

David Brodwin is vice president and cofounder of the American Sustainable Business Council (ASBC). ASBC advocates for policy change and informs business owners and the public about the need and opportunities for building a vibrant, sustainable economy. Through its national member network, it represents more than 200,000 businesses and more than 325,000 entrepreneurs, executives, managers, and investors from a wide range of industries. Learn more at www.asbcouncil.org.

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IMPACT INVESTING:

WHAT WILL IT TAKE TO GET TO SCALE? BY FRAN SEEGULL

he world is rapidly changing. Global population has reached 7.3 billion and is predicted to increase to 9 billion by 2050. Eighty percent of the world lives on less than $10 a day. There is pervasively poor access to good jobs, healthcare, education, and housing. Dwindling natural resources, increasing drought and climate-related natural disasters, and insufficient access to energy and sanitation are omnipresent. In order to meet the demand of a fast-growing population, food production must increase by 70 percent.

The status quo of how capital is currently deployed can no longer support this changing world. Philanthropy and government aid are insufficient to solve the world’s most intractable social and environmental issues. There is mistrust of the capital markets, with their myopic focus on quarterly returns rather than longterm value creation. Impact investing represents a paradigm shift, allocating capital for measurable social and environmental impact as well as financial returns. It focuses on maximizing stakeholder value rather than concentrating exclusively on shareholder value. Impact investing in the US totals $6.5 trillion, a fraction of the $43 trillion of all US assets under management. The vast majority of impact assets are invested in the public markets through socially responsible investing (SRI) and environmental, social, and governance investing (ESG) strategies. Deep impact investing — investing

in privately held impact ventures and funds — represents just $60 billion worldwide. Impact ventures focus on job creation, financial inclusion, sustainable agriculture, health, education, housing, energy, water, and sanitation. What will it take to create greater growth in impact investing across asset classes? First, let’s look at the key players in the impact-investing landscape and take stock of current activity and hurdles, both real and perceived.

IMPACT INVESTING’S KEY PLAYERS

IMPACT INVESTORS Impact investors range from individual investors (retail or high net-worth) to institutional investors (foundations, pension funds,

$43 TRILLION

$6.5 TRILLION

The total amount of US assets under management

The total amount of US assets committed to impact investing

university endowments, etc.). Highnet-worth investors have been leading the deep impact investing charge. Through angel investment groups such as Toniic and Investors’ Circle and peer networks like the 100% Impact Network and The ImPact, the deep impact investment movement has been growing. Increasingly, there are deep impact options for retail investors, including offerings from the Calvert Foundation, ImpactAssets, The Nature Conservancy, and RSF Social Finance. Some progressive foundations — including the Ford Foundation, the MacArthur Foundation, and the F.B. Heron Foundation — have led the institutional movement in impact investing. University endowments are moving into the field too, motivated by increasing pressure from students and alumni to divest from fossil fuels and similar areas. Pension funds CalPERS and CalSTRS have been participating in values-based investing mainly, but not exclusively,

$6O BILLION The total amount of US assets committed to deep impact investing

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through the public markets. However, the majority of institutional investors have been held back from impact investing by perceived financial tradeoffs and justifiable concerns about fiduciary duty.

INTERMEDIARIES Major financial intermediaries such as Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Merrill Lynch have launched impact-investing initiatives. These institutions are motivated by client demand and a projected $40 trillion wealth transfer to women and Millennials over the next 30 to 40 years, three-quarters of whom seek to invest with impact. There are also impact intermediaries like Big Path Capital and Enclude, which specialize in investing in pure plays (companies that focus on a particular product or activity instead of various interests).

FUNDS AND PRODUCTS As the industry matures, impact fund managers are starting to raise larger funds based on their financial and impact track records. For instance, DBL Investors closed a third, $400 million venture fund in June 2015. Incumbent asset managers like BlackRock and Bain Capital are launching public and private impact-investment products, respectively.

PUBLIC AND PRIVATE IMPACT COMPANIES Public and private impact companies are driving demand for impact capital in varying ways. Public companies have observed that progressive ESG practices correlate with stronger financial performance, less stock volatility, decreased cost of capital, and less employee turnover. Investors are taking note of companies that are gaining such competitive advantages. Private impact ventures raise both

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debt and equity capital in order to grow. But fundraising can often be challenging, as the supply and demand for capital are weakly connected at times. We hear from investors that the absorptive capacity for private capital is too small and that there are insufficient exit options from impact investments.

ENABLING FUNCTIONS Finally, there are enabling functions such as government policy, corporate structures, and impact metrics, measurement, and reporting. Programs and policies such as community development finance institutions (CDFIs) and the Community Reinvestment Act (CRA) have catalyzed capital into private impact investments. Benefit Corporations (a corporate legal structure that mandates fiduciaries to focus on stakeholder value) are legal in 31 states. B Lab has certified nearly 1,500 such companies worldwide. Impact metrics, measurement, and reporting mechanisms, including the Global Impact Investing Network’s IRIS catalog, the Global Impact Investing Ratings System (GIIRS), and the Sustainability Accounting Standards Board (SASB), are in an ongoing state of development, adoption, and proliferation.

SOCIALLY RESPONSIBLE INVESTING (SRI): Investing in public companies and funds that screen out the so-called “sin stocks,” including tobacco, firearms, and alcohol

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) INVESTING: Investing in public companies and funds that strive to have beneficial environmental, social, and governance eﬀects

DEEP IMPACT INVESTING: Investing in private companies and funds where impact is central to the business model and is both measured and reported

WHAT WILL IT TAKE TO SCALE IMPACT INVESTING?

INTERMEDIARY ENGAGEMENT

The impact-investing movement is growing across asset classes, even though there are a number of barriers to scaling. Innovation in the public and private capital markets is essential to meaningfully increasing the flow of impact capital. Until increased flow is achieved, impact investing will just nibble around the edges of true growth. The great news is that the impactinvesting ecosystem is connected — for each change made by one set of actors, there is a compounding effect across the entire stage. Such change is afoot.

Large financial institutions have started their impact-investing initiatives mainly by placing ESG funds on their platforms. This is strong progress, but in order for these organizations to facilitate deep impact investing, they will need to accommodate smaller private debt and equity funds that have traditionally lacked access to mainstream platforms. Financial firms must evolve their criteria in order to accommodate smaller-sized impact funds while not compromising due diligence.

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BUSINESS MODEL FOR DEEP IMPACT INVESTING While deep impact exposure can be achieved through investments in private debt and equity funds, many investors seek to place capital with individual impact ventures. The challenges there, however, are deal sourcing, due diligence, and transaction costs, making it labor-intensive and expensive to construct deep impact portfolios. The development of impact-deal platforms and groups that syndicate investment in individual deals and funds could make the creation of deep impact portfolios more efficient.

FUND AND PRODUCT INNOVATION In order for impact fund managers and product developers to scale impact investing, innovation is essential, including the development of funds and products designed to be distributed through wealth advisor platforms and solving for how to cost-effectively layer investment, government, and foundation capital into creative structures that work for all stakeholders.

FINANCIAL RETURNS DATA Recent studies by the University of Oxford, Morgan Stanley, Cambridge Associates, and the Global Impact Investing Network concluded that impact investments in the public markets and in venture capital can perform as well as, and in many instances better than, their traditional cohorts. The truth is that there is a spectrum of financial returns in impact investing, but as these studies indicate, market rate returns may be achieved.

INVESTMENT READINESS Private companies’ lack of readiness is a current barrier to capital flows. The Center for the Advancement of Social Entrepreneurship at Duke University has developed one potential solution in “Smart Impact Capital”: a set of online modules that will help impactentrepreneurs prepare to absorb capital. To get to scale, we also need more innovative and flexible layering of capital. More foundations should offer both grants and investment capital to help emerging-market entrepreneurs bridge the so-called “Pioneer Gap,” thereby helping to reduce risk and scale impact ventures.

EXIT INNOVATION Exit innovations beyond acquisition are needed. Creative exit strategies in early practice and development include facilitating revenue rights, buyout/buyback rights, demand dividends, and working with businessdevelopment companies.

Employee Retirement Income Security Act (ERISA) to take impact factors into account when making investments, without jeopardizing their fiduciary duty. In October 2015, the Securities and Exchange Commission passed rules to implement Title III of the JOBS Act, which allows equity crowdfunding from unaccredited investors. These landmark policies are game-changers for impact investing. In the words of F.B. Heron Foundation President Clara Miller, “All investing is impact investing.” The impact may be positive or negative, but how we invest matters deeply. We must align our investment portfolios with our values. Innovation and education throughout the impact-investing landscape must occur in order to scale the field and create the change we seek. $ Disclaimer: Investments cited in this article are neither endorsements nor investment recommendations. This article is intended only to provide information and analysis about the range and types of impact investments in the marketplace. Please seek the advice of a wealth advisor before making any investment.

EVOLUTION OF METRICS Clear, uniform, and transparent impact metrics, measurements, and usage of industry standards (including those mentioned above) will help drive greater interest and demand from investors. Further development is needed in impact verification and auditing, which has a strong start with GIIRS.

CATALYTIC GOVERNMENT POLICY Recent policy changes may catalyze significant capital entering impact investments from institutional and retail investors. Internal Revenue Service and Department of Labor guidelines allow foundations and pension funds regulated by the

Fran Seegull is chief investment officer at ImpactAssets, a nonprofit investment firm seeking to increase the ﬂow of capital to impact investing. She oversees impact product development for the firm and heads investment management for The Giving Fund, an impact investing donoradvised fund. Seegull is adjunct professor of entrepreneurship at the Lloyd Greif Center for Entrepreneurial Studies at the University of Southern California’s Marshall School of Business. Connect on Twitter with @franseegull.

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PARTING THOUGHT... “THE ONLY WAY THAT WE CAN LIVE, IS IF WE GROW. THE ONLY WAY THAT WE CAN GROW IS IF WE CHANGE. THE ONLY WAY THAT WE CAN CHANGE IS IF WE LEARN. THE ONLY WAY WE CAN LEARN IS IF WE ARE EXPOSED. AND THE ONLY WAY THAT WE CAN BECOME EXPOSED IS IF WE THROW OURSELVES OUT INTO THE OPEN. DO IT. THROW YOURSELF.”

- C. JOYBELL C.

Photo: Jay Mantri