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Social Entrepreneurship

The Limits of Buy-One Give-One

Most socially responsible businesses won’t succeed by giving away something for free.

In a New York Times piece last year, an executive from TOMS shoes said that the company is “not in the poverty alleviation business.” When other businesses are claiming that they are changing the world with technologies like photo apps, it was refreshing to hear an executive avoid making a broad, all-encompassing statement about the socio-economic implications of his product. But when we put these businesses in the “social enterprise” box, we expect them to—as Roger L. Martin and Sally Osberg put forth in their seminal article “Social Entrepreneurship: The Case for Definition”—develop a social value proposition that “alleviates the suffering of the targeted group.” If we are not to consider TOMS as a social value proposition for poverty alleviation, then we should see the buy-one-give-one (BOGO) aspect of a business as a form of corporate giving, not a fully integrated component.

It is wrong to assume that the BOGO concept can solve economic inequality, but in the recent SSIR article “Inside the Buy-One Give-One Model,” authors Christopher Marquis and Andrew Park seem to suggest that it can. In fact, the model not only fails to bring about economic prosperity or close income gaps; it also is not a long-term viable business option for new ventures.

Marquis and Park argue that buy-one-give-one models no longer clearly distinguish businesses from each other, which can threaten the long-term sustainability of future ventures, but that it is nevertheless a “viable way to create both commercial and social value” and is a “model of social entrepreneurship that is likely to increase in prevalence and power.” These two statements contradict themselves, and could lead new ventures—ones that perceive the success of the two elephants in the marketplace, TOMS and Warby Parker, as replicable—astray. Ultimately, the BOGO model fails as an instrument to conduct social change and, in many cases, does not reach financial sustainability. When you give away a product for free with every purchase, it’s difficult to be price-competitive—and even harder to pay someone a living wage to make it.

TOMS and Warby Parker didn’t meet with success just by giving something away.

The founders of TOMS and Warby Parker—Blake Mycoskie and Neil Blumenthal, respectively—are legendary storytellers and clever advertising gurus. The Alpargatas-style shoe was growing in popularity in Argentina, and Mycoskie made two smart business decisions. He exposed it to the American marketplace, where people spend a lot more money on apparel, and created a simple, yet powerful, marketing slogan to go along with it. It’s work that even Mad Men protagonist Don Draper would admire. But when AT&T decided to use its marketing power (and dollars) to shine a light on the company and expose the brand to millions of new consumers, it took the company to a new level. It led to endorsement deals...and the rest is history.

Warby Parker is a textbook case in entrepreneurship. In a dorm room (a fancy one at Wharton), a few young men figured out how to cut out the middleman and go straight to the consumer. Once they created a product and sold it for less than the market was used to paying for it, they grew, and along the way, donated to Vision Spring, an organization that donates glasses to people in the developing world.

Marquis and Park say it is valid to question the “social impact” of these BOGO companies. This is true. Instead of addressing systemic problems, these businesses are giving things away for free, and this hinders marketplaces. No one can compete with free—no matter whether they live in a low-GDP country or a high one.

TOMS and Warby Parker have excelled at scaling their businesses, but that does not mean that they know how to solve complex social problems. That said, they now have the potential to help create real, systemic change—for example, by pushing their supply chains to create better economic opportunities for workers.

There’s nothing wrong with being “just” a business.

In the 1980s, Ben and Jerry’s started using the term “linked prosperity” to describe the kind of business it wanted to create. When the owners and founders did well, the front-line workers and everyone in the supply chain did too.

The BOGO model doesn’t focus on supply-chain equality but instead creates a simplistic “cause marketing” arrangement that overlooks the most important part of an equitable business: whether the people who make the products are earning a fair and living wage. A great business sells a product that people want, while giving employees an incentive to do their job well and paying them enough money to live comfortably and without government aid.

When a business uses the social-good component to drive innovation, the actual service or product often suffers. If you tell your friends and family about your new BOGO backpack or soap company, they will all say, “Great idea—that’s a nice thing to do.” But as most seasoned entrepreneurs know, the idea is the easy part; most businesses fail not based on the merit of the idea but because nobody is actually willing to pay for it. To create financial sustainability, the product must be great and competitively priced; from there, a good story just gets people to share it more. In a lot of cases, both BOGO and social enterprise businesses fail to do the first two, so the third becomes inconsequential.

There is a tendency to hold up the big winners as examples of why something works. Just as one percent of the United States owning the majority of wealth doesn’t mean that we have income equality, a few companies finding success with a marketing message does not make for a viable business opportunity—nor does it, as Marquis and Park suggest, provide substantive social or economic value.

I suggest that we stop celebrating companies that don’t talk about the makers and instead work to highlight those that do. Business can connect prosperity down the value chain—as companies like Ben and Jerry’s and Stonyfield Yogurt proved decades ago—and thereby create empowerment rather than charity.

A financially sustainable business that produces products the market is willing to pay for and pays a decent wage to those who make them can do wonders. We need to stop holding up BOGO businesses as something special and lower the percentage of small businesses that fail in their first few years.

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COMMENTS

  • Carrie Dancy's avatar

    BY Carrie Dancy

    ON January 29, 2014 07:43 AM

    A great in depth look at this issue, and the beginning a great conversation of what it will take to cause real change through enterprise.

  • BY Claire Lyons

    ON January 30, 2014 12:29 PM

    Well put Nathan, thank you. Charity can spark and catalyze, of course. Yet it is anything but sustainable. BOGO marketing typically doesn’t have “owner control” of the giving-supply chain - a critical element that ups business risk. Looking forward to more on this conversation.

  • BY Gabriel Brodbar

    ON January 30, 2014 01:26 PM

    There is a world of difference between TOMS’s and WP’s approaches to BOGO. WP’s BOGO partner, Vision Spring, supports local entrepreneurs by helping them manage inventory risk, among other things. Further, WP does not claim to be solving complex social problems. TOMS does, which not only exacerbates the problems, but does a terrible disservice to those they purport to help. I think it’s very important to distinguish between BOGO efforts that disrupt local marketplaces and provoke a cycle of dependence, and those that support the efforts of local entrepreneurs deliver life sustaining products and services through technical assistance and inventory management. TOMS and WP do not belong in the same group when it comes to theory of change or impact. They are very different.

  • BY Howard Brodwin

    ON February 1, 2014 11:05 AM

    Great points here. We’re seeing a similar theme evolving around social enterprises the sports industry, specifically in soccer. There are a few BOGO soccer ball companies, and the mission of providing a free soccer ball to disadvantaged communities abroad is excellent. But there are also a several fair trade soccer/sports ball manufacturers, and the BOGO competitors can have a negative impact on their ability to sell and thereby meet their mission of providing fair wage/working condition employment. No easy answers here, and since this entire space is still evolving, I’m sure we’ll see a shift in how this model can be applied. And as Nathan pointed out, if we can solve the systemic issues and address why a community is impoverished, then everyone wins.

  • BY Mal Warwick

    ON February 1, 2014 01:34 PM

    Nathan Rothstein’s take on the Buy-One-Give-One model is superficial. It’s true that two of the best-known companies pursuing the approach—TOMS and Warby Parker—are engaging in a form of corporate philanthropy. What they give away, while useful, is not intended to bring about social change. But the same isn’t necessarily true about other BOGO companies.

    I can speak with authority about the One World Futbol Project LLC (http://www.oneworldfutbol.com), because I’m one of three partners in the business. We’re a B Corporation, so we do indeed pay a living wage (and more) and we take into account the needs of all our other stakeholders as well. Unlike TOMS, Warby Parker, and many other BOGO enterprises, we actually distribute the very same product to the beneficiaries of our programs as we sell to retail customers. That product—the virtually indestructible One World Futbol—is more than useful to the young people who receive it. Because it enables them to play without fear that the ball will suddenly go flat and become useless, the One World Futbol helps promote health and wellbeing in communities where there may be no other opportunities for organized play. In a great many of these communities, the One World Futbol is employed in “sport for peace and development” programs undertaken by the UN, the national government, or NGOs—programs that teach conflict resolution, gender equity, HIV/AIDS prevention, and other critical subjects and skills. Moreover, the One World Futbol Project is a successful business. Currently, we are midway through a 3-year sponsorship from General Motors, which is footing the bill for us to produce and distribute 1.5 million One World Futbols. But even the balls we sell online at retail under BOGO contribute profits. I’m quite sure we are not the only BOGO company that can demonstrate both social impact and a workable, profitable business model.

  • BY Nathan Rothstein

    ON February 3, 2014 01:13 PM

    Hi Mal- Thanks for reading. I’m not arguing the validity or strength of every product that falls under BOGO. I’m sure that what you are doing is helping the lives of many people, but the fact that GM is sponsoring the production of the balls that you are giving away does not sounds sustainable to me. Could the ‘free’ balls still be distributed if GM didn’t sponsor them? The idea behind the BOGO model is that one purchase can also fund the production of two products: one that you sell to the consumer and one that you give away. My argument is that the ‘giving away’ part of your business is not what makes it successful, and that I think a better way to address systemic issues of poverty is through supply chain empowerment.

  • BY Mal Warwick

    ON February 8, 2014 02:47 PM

    Hello, Nathan,

    Since you’ve taken the trouble to respond to my comment, I’ll reciprocate by answering—and by making a few additional points.

    First of all, I want to make clear that, despite my role in One World Futbol Project LLC, I was NOT writing on behalf of the company either when I wrote my comment or now. In fact, I know that my views on this topic aren’t universally shared by my partners.

    Though you may not have intended it, your lead in the article appears to characterize all social change work as “alleviating poverty.” If there is any BOGO company that is in the business of alleviating poverty, I’ll be very surprised. None of us pretends to do that, as far as I’m aware. But social change is much broader than alleviating poverty. Furthermore, as your recent comment seems to imply, the only way business can foster social change is by “supply chain empowerment.” That’s simply not true. If you read Paul Polak’s and my recent book, “The Business Solution to Poverty,” you’ll understand why. 

    One World Futbol’s work is structured in such a way as to promote social change. We are a mission-driven company, and there isn’t a single person in the business who fails to understand or support that. By working exclusively through existing institutions such as schools, orphanages, and recreation programs, and by partnering with both NGOs and government agencies that work on the community level, we help bring about change in the lives of the children and youth who are the ultimate beneficiaries of our work. We don’t just give away soccer balls to children — an approach that we strongly believe would cause problems, not solve them. Of course, GM’s backing of our work is philanthropic; their sponsorship and subsidies are donations to us, after all, no matter how they may be characterized by GM auditors. But what we do with the money they give us follows a well-designed and well-executed social change strategy. I’m confident that long-term evaluation studies will bear out the wisdom of this approach.

    You argue that “the ‘giving away’ part of your business is not what makes it successful.” On the contrary, it is precisely our adoption of the BOGO model that has attracted virtually all of our revenue despite the unique and compelling nature of the One World Futbol. Some of the balls we give away (admittedly a small proportion at this point) are paid for not by GM but by other buyers. Anyway, who is to say that sponsorship is an illegitimate business model? It’s legal, isn’t it? This is business! And One World Futbol Project LLC is doing just fine, thank you very much!

    Howard Brodwin commented that “soccer ball companies” like One World Futbol are doing a disservice because giving away our product unfairly competes with fair-trade soccer ball companies who are providing fair wages to local employees. If our company were 10 times its size, and those fair trade enterprises were 100 times as large as they are now, that might be a valid argument — but, as Brodwin concedes, “this entire space is still evolving.” In fact, with annual sales of soccer balls worldwide estimated to range between 80 million and 120 million, we’ll be waiting a very long time until the competition among us becomes meaningful. In any case, the unique character of the One World Futbol — that it never needs a pump and is virtually indestructible — sets us apart from those companies. For the young people who benefit from One World Futbols, receiving standard, inflatable soccer balls instead would not be a worthy alternative, not matter how equitably produced.

    In my original comment, I led by saying that your article was superficial. That, I believe, is its most significant flaw. You failed to drill down into the mechanics at work in the operations of the companies you mentioned.

    I agree that giving away shoes is not a social change strategy. It’s simply a form of corporate philanthropy. VisionSpring, the nonprofit set up by Warby Parker, goes about its work in a more thoughtful and substantive way — by encouraging local entrepreneurs and thus fostering social change — but Warby Parker’s role in the process is philanthropic. So far as I can tell, the company simply gives money to the nonprofit. It’s a great thing for them to do, but it’s still philanthropy. If they do more than that, more power to them! I applaud the company’s founders for setting up VisionSpring in the first place, but in doing so they established a separate entity which has to operate independently of the company. That’s the law, as far as I understand it. In both cases, I believe the primary function of the BOGO offer is to boost marketing. However, that is NOT a bad thing. It just is what it is.

    But please don’t lump all BOGO companies together. As the saying goes, God (or the devil) is in the details.

  • Molly Hemstreet's avatar

    BY Molly Hemstreet

    ON February 18, 2014 08:33 AM

    Thanks, Nathan for the conversation around supply chain empowerment. 

    This is a very important concept for my community.  I am from, live and work in Southern Appalachia- in North Carolina.  The Appalachian region is a good example of the history of how wealth has been extracted from our communities leaving persistent and generational poverty.  This story is not unique to our area of the country nor can our community challenges compare to those of the developing world.  However, we are using supply chain/value chain work, specifically in the textile industry, to look at the question of how to we can rebuild livelihoods that are strong and lasting.  The best way we see to build livelihoods is to have work, a voice in the workplace and self-determination around use of profits.  In our heritage industries of furniture and textiles, work is driven by the supply chain and the connections we have to each other.  Traditionally this has been held by large vertically integrated firms, but more and more we are seeing the development of a small firm economy linked by the necessity to build a linked economy.

    From my vantage point, our communities do well when we have work and then we can self-determine our own change.  If businesses can partner with our local firms (which are supply chain specific) to drive work to us, create longevity in partnerships and allow for resources to permeate our communities we find our own power- economically and socially- and we drive the change we want to see in our communities. 

    Although supply chain empowerment work can be complicated, I see it as a true and lasting way to create transformation in communities.  I applaud the companies that undertake the challenge to understand and work to support their supply chains.

    You can learn more about our initiative, the Carolina Textile District at http://www.carolinatextiledistrict.org.

     

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