Is Social Responsibility a Viable Start-Up Business Model?

Much has been written about the emergence and growing popularity of corporate social responsibility (CSR). This phenomenon has created "Impact Investors" who are seeking out companies that are intentionally designed to both make a profit and provide a measurable and accountable social good.

This trend can pose questions for entrepreneurs:

Is social responsibility a smart and viable business model? Can it achieve key goals like establishing a social good-focused MVP (minimum viable product), then attract customers, demonstrate traction in the marketplace, and ultimately help raise venture capital?

Can “doing good” translate to “doing well” and even help create a blockbuster company or so-called “unicorn” – a business worth $ 1 billion or more – on paper at least?

Turns out that using social responsibility as a business model can cut both ways, resulting in either failure or great success.

For example, this approach has not worked for SodaStream, an Israeli company that sells machines that turn tap water into sparkling soda using recyclable CO2 cartridges, designed and marketed with a special emphasis on sustainability.

Its soda machines have been marketed as being an “active green product.” This means consumers can reducing their carbon footprints every time they make a soda or sparkling water using it, versus buying canned / bottled beverage from the likes of Coke or Pepsi.

The company seemed destined for greater success when they hired former Nike executive and Harvard MBA Dan Birnbaum as CEO in 2007. Later, the company issued a highly successful IPO in 2010, raising over $109 million, becoming a darling of Wall Street. SodaStream enjoyed huge growth success in Europe, with significant household penetration in countries like Sweden.

In 2014 SodaStream tried to jump-start its business in the US by way of an expensive and splashy Super Bowl Ad. It featured saucy Hollywood superstar Scarlett Johansson, emphasizing an environmentally friendly message.

Unfortunately this Super Bowl ad did not work, in fact it bombed. The message did not resonate with US consumers, and failed to motivate people to buy SodaStream machines. Sales tumbled in the US by 40% last year.

Since then the company has retrenched, repositioning the brand to accent “stream,” with a new tagline Water Made Exciting. "I don't think we have it figured out yet" Mr. Birnbaum was recently quoted. "We're not perfect, but we're on the right path." He may be more than a little overly-optimistic. 

On-going take-over rumors by the likes of Pepsi have failed to materialize. The NY Times business section front page just featured a story on the woes of SodaStream, as well as their plan to introduce new fruit flavors and a litany of other new products for later this year in an attempt to halt their business misfortunes.

It appears that institutional investors and analysts do not share Mr. Birnbaum's view that the company is on the right track. The company's stock hit a new 52 week low this week. Listed on NASDAQ, SodaStream's shares have lost more than half their value in the last 12 months, which translates into $ 48.3 million in market cap that has simply vaporized.

The flip side of CSR as a success story is Burt’s Bees, which developed into a near billion-dollar "unicorn" after Clorox acquired the company back in 2007 for cash. 

Burt's Bees, an American personal care products company that describes itself as an “Earth Friendly, Natural Personal Care Company,” makes products for  health, beauty, and personal hygiene.

In 1984 Burt Shavitz, a beekeeper in Maine, met a 33-year-old single mother Roxanne Quimby, as she was hitchhiking to the post office in rural Dexter, Maine.

Roxanne offered to help Burt tend his bees, and the two hooked up both in romance and business and shortly thereafter they founded Burt’s Bees. The company became famous for its beeswax lip balm, lotions, soaps and shampoos. Its packaging, and eco-friendly marketing set it apart in the crowded health and beauty-aids market. (The bearded man on their packages is modeled after Mr. Shavitz.)

By 2007 the company made nearly 200 products for facial and body skin care, lip care, hair care, baby care, men’s grooming, and outdoor remedies. They were distributed in nearly 30,000 retail outlets including grocery stores and drug store chains across North America, UK,  Hong Kong and Taiwan.

From 2000 to 2007 sales soared from $23 million to $164 million at the privately-held company, far outpacing competitors as consumers moved towards products that promised organic and environmental benefits – the DNA of a socially-responsible company like Burt’s Bees.

Funny, it doesn't look like a unicorn.

Clorox saw a big opportunity in the market for “green products” (reflecting a socially responsible approach to life and business) and therefore was highly motivated to pay nearly $1 billion for Burt’s Bees. This was a bold move for a company best known for selling bleach, and strong smelling cleaning products. As stated on the Clorox website today: Burt’s Bees’ ultimate goal is to be the “greenest personal care company on earth.”

It appears that Clorox is reaping big growth and profits from its investment in Burt’s Bees, as the brand has become one of the crown jewel in the company’s product diversification strategy. Clorox shares have jumped + 77% since 2007, with Burt's Bees playing a big part in the company's "2020 Strategy" to drive long-term profitable growth in new categories, channels and countries.

Both companies are worth examining for start-ups considering the use of social responsibility as the core value proposition.

If social responsibility is to be used as a business model it should align with what consumers are looking for in terms of products and/or services, offer a compelling brand message and deliver a great user experience. This alignment is usually helpful in achieve key business objectives – like customer engagement and sales traction, which in turn feeds profitable growth.

This business formula is always music to the ears of the venture capital community, and may even conjure up dreams of the mythical unicorn for potential investors.