Many social enterprises exist to improve the lives of the poor, but if your business requires an endless supply of poor people, it might be time to rethink your strategy.
Award-winning social enterprise TOMS Shoes recently came under fire in a New York Times op-ed for turning its social impact into a marketing ploy that actually encourages poverty rather than alleviating it. TOMS donates a pair of shoes to an impoverished child for every pair it sells--meaning it needs shoeless children to successfully market its product. Columnist Adriana Herrera explains:
Rather than solve the root cause of why children don’t have shoes, Toms has created a business model that actually needs poor children without shoes in order to sell its shoes. … The root cause of poverty in many developing countries is a lack of access to fair-paying, sustainable employment. Imagine the positive impact Toms could have if it were to use every decision in its supply chain to address the causes of poverty.
Herrera herself runs Fashioning Change, a startup dedicated to sustainably-sourced clothing and accessories. TOMS and Fashioning Change both market to conscious consumers - middle class buyers trying to use their purchases to produce a positive social impact. Familiar examples include fair trade and the organic movement, trends that have been criticized for exacerbating economic inequality rather than improving it.
Unlike impact investing, which is often funded by rich angel investors, conscious consumerism allows middle class individuals to make philanthropy part of their daily lives. Unfortunately, the movement remains controversial because companies like TOMS don’t prioritize a lot of things that “normal” social enterprises do. Here are conscious consumerism’s three biggest sins:
1. It doesn’t see poor people as customers. Where innovators like Paul Polak have pioneered affordable products for the world’s poorest, firms like TOMS sell to middle-class consumers in the developed world. They have to donate shoes to make an impact: those poor children couldn’t afford anything on TOMS’ website.
2. It doesn’t address a market failure. Starbucks’ commitment to fair trade may have made headlines, but its farmer loan program makes a more visible impact, allowing folks like Root Capital to back startups that grow agriculture in areas where the market has failed.
3. It ignores the trade-off between profitability and social mission. Conscious consumer jargon is commonly used by profit-maximizing firms like Whole Foods. When these firms post record profits, investors begin expecting all social enterprises to yield similar returns. In reality, social enterprise is usually a high-risk, low-return affair, so if social investors start to expect a market return, they won’t fund it. In fact, that’s already happening.
There’s good news, however. TOMS’ eyewear product line works with local partners to provide vision care, both employing local doctors and significantly improving an individual’s ability to hold a job and earn money. Perhaps this isn’t the best model for improving social good, but it’s a step in the right direction.