Did you see the three guests of honor who rang the opening bell at Twitter’s debut on the New York Stock Exchange last week?
Twitter chose the three because they represented prominent users of the micro-messaging service. There was Patrick Stewart, the actor of “Star Trek†fame, and Cheryl Fiandaca, the spokeswoman for the Boston Police Department. But the third, a 9-year-old girl in a blue princess dress, was the revolutionary in the group, one who may change the way nonprofits and perhaps even companies, are run.
She is Vivienne Harr. When she was 8, her parents showed her a picture by the photographer Lisa Kristine of two young Nepalese boys hauling huge rocks on their heads down a mountain. The boys were holding hands for comfort. The quarry was filled with child slaves who were forced to undertake this task every day. Vivienne, who often wears princess dresses, started a lemonade stand to raise money to end child slavery with the goal of raising $100,000 by selling lemonade for a year. By day 173, she hit her mark, donating $101,320 to the charity Not for Sale.
Vivienne’s success was spurred by a heart-rending cause, a cute face and a good tagline in the form of “make a stand.†But she would most likely have just been another lemonade stand if not for her father, a social media expert. Eric Harr was president at the time of Resonate Social, and his clients included CBS News and Lexus, among others. He led a media-savvy Twitter campaign that attracted national attention for Vivienne’s cause.
What makes this feel-good story really interesting is what happened next. Instead of moving on, or even forming a nonprofit to continue those goals, Mr. Harr and his wife, as well as Vivienne, formed a business around this cause.
Mr. Harr raised $982,000 in financing and incorporated Make a Stand. He quit his job and is now the chief executive. Make a Stand sells fair-trade, organic lemonade.
But this is not all about profit. The Harrs took advantage of new laws adopted by the State of Washington that created a type of corporate entity called a special purpose corporation, which is intended to earn a profit for shareholders, but can take into account other social constituencies, such as a charity. Armed with venture capital, Vivienne has set out to conquer the lemonade business and end child slavery. Make a Stand will give 5 percent of its revenue to five charities to combat child slavery.
The company makes no profit now, but according to Mr. Harr, when it does, it will consider giving a portion to its cause, too.
If you look at the company’s website or product, there is no doubt that the charitable mission is the sales pitch. Make a Stand may be selling delicious lemonade, but the hook to getting people to buy it and setting the company apart is the worthy cause.
The lemonade sold online at the company’s website has no set price â€" customers are asked to pay what they want. This is pure marketing genius as it also builds on the premise of donating and generosity on which charities thrive. In the words of Mr. Harr, “no one ever pays less†because of the cause. People don’t just want a product these days, they want a cause, and Make a Stand delivers.
Already, 128 stores have agreed to sell Make a Stand’s lemonade, and there are big hopes to go national.
Make a Stand may not just be a new form of charity, but perhaps something else; a transformation of the corporation.
More a third of states have passed some type of legislation allowing for hybrid corporations, companies that do not have shareholder profits as their primary goal. Instead, these companies can be run for social purposes with some of the money going to social and charitable causes.
The idea of these social benefit companies is not a utopian pipe dream. Real companies have now become quasi-profit companies, including most prominently the outdoor clothing retailer Patagonia, which is now a California benefit corporation.
Yet, there are problems with this innovative corporate form. The first of these is determining who the company is going to benefit. Even if there is a clear beneficiary, there could be “greenwashing,†when companies put on a charitable or social face, but the real money flows to the people who run the company. This is a particular issue because disclosure requirements and other standards that typically apply to charitable giving do not always apply to these companies. There is often no third-party monitor to ensure that the benefit corporation actually benefits its causes.
In Make a Stand’s case, it also raises a more difficult issue. If the company is successful and indeed does raise millions in profits to end child slavery, it will also make millions for its founders. This runs counter to the view that people shouldn’t profit unduly from these causes. After all, if Newman’s Own, started by Paul Newman, could raise $370 million as a nonprofit, why should you need a profit for the people who run the company?
This is one of the hottest topics among charities these days, an issue driven by Dan Pallotta’s TED Talk a few years ago. In that talk, Mr. Pallotta argued that charities should not be rewarded for how little they spend on themselves and that it is better to reward the people at these charities for doing good.
The premise of Make a Stand is merging the idea of the quasi-public company that pays its investors and rewards the people who run charities.
Make a Stand may be at the vanguard of a new crop of companies that are charitable but not nonprofits, or even more radically, for-profit but socially motivated. These quasi-companies make money for both a cause and its founders. The hope is that even after splitting profits with investors, Make a Stand and these other companies will still raise more than an ordinary nonprofit. Charitable giving in the United States hovers at 2 percent of gross domestic product, or about $316 billion. There is room to grow.
These new entities can raise more money, but will they be able to avoid the potential problem with this unsupervised form of business and social causes?
When I spoke to Mr. Harr, he acknowledged that the company’s status was “liberating but a little bit complicated†and that he had to “explain it.†He also said that he could “hire epic people who can move mountains and take calculated risks,†like an ad campaign with Twitter.
Mr. Harr emphasized that Make a Stand strove to be as transparent as a nonprofit. The company has a whole section on its website about transparency, along with a promise to publish its financials.
Not only that, but if you speak to Mr. Harr, you get the idea this is not a charity but a start-up like any other in Silicon Valley. The mantra is to increase revenue, which, in the case of Make a Stand, is expected to be more than $2 million next year. The executives, including Mr. Harr, do not take a salary for now. Entrepreneurs do this all the time, but nonprofit executives?
The question is whether Make a Stand uses this new corporate form to succeed and make more than it could for its cause than as a nonprofit. If done right, this could not just raise money to end child slavery, but perhaps create a role model for nonprofits and all types of businesses. Thanks in large part to Twitter.
