Profiting For a Good Cause

You know him as Cool Hand Luke, Butch Cassidy, and -- last but not least -- the Salad Dressing Guy. But you may not know that actor Paul Newman is also a pioneer in outsourcing. In a good way, of course.

In fact, the Newman's Own business model is a great example of the sometimes strong link between innovation and altruism.

The innovation is that everything Newman's Own markets is made by a third party; all of its quality-assurance and research-and-development is outsourced, too. What's so innovative about that? As Tom Indoe, the company's COO explained in an interview with Reveries: "You see a lot of major companies doing that today, but when Newman's started out ... that degree of outsourcing wasn't done."

I checked in with Tom the other day and he says the concept is still going strong: "Our net profits are equal or better than most food companies," he reports. And, as it says on each and every label of Newman's Own products: "Paul Newman, as sole owner of Newman's Own, donates all his profits and royalties after taxes for educational and charitable purposes." The film star's contributions have totaled more than $150 million over the past 23 years.

Paul Newman may be the most famous example of a certain breed of "social entrepreneur" (or what he likes to call "shameless exploitation in pursuit of the common good") and he certainly has been ahead of his time. As reported by Alan Finder in The New York Times, social entrepreneurs want to "use the skills of the marketplace to solve social problems innovatively." At Harvard, they're actually handing out 20 fellowships to students interested in dedicating their careers to doing well by doing good.

One of those students, 23-year-old Uri Pomerantz is setting up "a non-profit group to create jobs on the West Bank and Gaza by making very small loans." He comments: "Economics is not the full issue or the core issue ... but if you can't solve the economic issues, you are not going to have peace."

In Uri's case, the innovation may have more to do with how he's thinking about the problem than in how he's solving it, per se. He didn't come up with the idea of granting micro-loans; that was the brainchild of Mohammed Yunus, an economist who created a profitable business by making such loans -- in amounts as small as five or ten dollars -- "to enable desperately poor women to expand small businesses in weaving baskets and making pots."

Obviously, conventional lending institutions would never even think of making loans so small -- much less manage to do so profitably -- which is why the Dr. Yunus case study is considered a classic among social entrepreneurs (who are sometimes called "sociopreneurs" for short).

Harvard might also take a look at the case of Bill Moran, founder of the Save-A-Lot grocery store chain, which was recently written up by Janet Adamy in The Wall Street Journal. Bill Moran may not have set out to solve a social problem exactly -- and his concept was really based on a model established by the Aldi Group out of Germany. What he did was open small-format, no-frills stores in low-income neighborhoods where chains like Safeway, Giant and even Trader Joe's refused to go.

What Save-A-Lot customers don't get is fancy merchandising or big-name brands. No bakery or florist, either. The goods are stacked on particleboard shelves or in cardboard boxes. Where typical supermarkets stock some 32,000 items over some 45,000 square-feet, Save-A-Lot (owned by Supervalu) stocks fewer than 2,800 items (e.g., you get two choices of mustard, not 60) over about 16,000 square feet.

That's plenty good enough for its shoppers -- most of whom have household incomes of less than $35,000 and who otherwise would be stuck with limited assortments and above-average prices at neighborhood convenience stores. It's plenty good enough for Save-A-Lot, too, as its "cheap, tiny stores" are "generating higher profits than most grocers," the Journal reports. Save-A-Lot has 1,229 stores in 39 states and plans 65 more this year -- and, according to Goldman Sachs: "Save-A-Lot generated about 25 percent of parent Supervalu's $385.8 million in net revenue last year."

Save-A-Lot's success seems to have also inspired giants like Kraft Foods, General Mills and Procter & Gamble to try something different as well -- the companies are now creating special, low-cost cheese, cereal and coffee, respectively, for Save-A-Lot.

The Save-A-Lot franchise may well prove appealing to a new crop of entrepreneurs -- social or otherwise -- being cultivated by Richard LaMotta, best known as the inventor of the Chipwich and a pioneer in guerilla marketing. Richard became a huge success by slapping some ice cream between a couple of chocolate chip cookies, rolling it in chips and then marketing the confection by selling it from pushcarts along city sidewalks.

The Chipwich story certainly qualifies as one of the all-time great entrepreneurial successes, not only in terms of product innovation (the Chipwich) but also distribution (the pushcarts). More than two decades later, Richard LaMotta is back with yet another innovative approach to both product development and retail distribution -- and this time it's hoped that the profits will not only help students pay their way through school but also give them a hands-on experience at running their own businesses.

Richard says his new enterprise, called eStudentBiz, will "revolutionize consumer products and services marketing." His idea is to recruit thousands of high school and college students to become sales representatives who will earn money for their educations through the retail sales of various products and services.

The bottom line, as Richard explains: "We believe that this network, coupled with eliminating traditional marketing and distribution costs, will help us achieve strong returns while mentoring and promoting motivated high school and college students."

Perhaps the best evidence that "sociopreneurism" is an idea whose time has come is that Wal-Mart is among those trying it out. Some folks may say it's way past the witching hour for Wal-Mart where social responsibility is concerned, but fact is the scourge of environmentalists (among other groups) has opened an experimental "green store" down in McKinney, Texas.

According to Reuters dispatch, Wal-Mart calculates that the store, which, among other things, features a "120-foot wind turbine," as well as "photovoltaic solar panels," will "save enough electricity to power 70 single-family homes for a year." In the men's room, the urinals have no flush handles, which "will save 80,000 gallons of water per year," and "used cooking oil from fried chicken ... will be mixed with motor oil extracted during oil changes and used to heat the store."

Yes, the stores "do cost more to build, but it is hoped that the money saved on heating and cooling, water and even light-bulbs will make up the difference." Whether it works -- in terms of saving money or placating environmentalists -- remains to be seen. But there's no denying that Wal-Mart is using innovation to try to solve a social problem.

And if Wal-Mart can do it, what is stopping others? It would be very interesting indeed to see what would happen if more marketers stopped obsessing over gaining incremental advantages through the analysis of their marketing expenditures and began wrapping their heads around the connection between altruism and innovation and how that leads to a different kind of ROI -- where the "I" stand for innovation and the return is on responsibility.

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