The B Corp is a new type of corporation for a new type of entrepreneur, the social entrepreneur, who creates business models that benefit society, the environment, employees, customers and investors. These social entrepreneurs increasingly demand that business serve both shareholders and society, considering the impact of their decisions on multiple stakeholders rather than maintaining a singular focus on short-term maximization of financial profits.
Whether your purpose is social or environmental… or both, it will likely have an impact on your financial bottom line.
Many people assume that all social enterprises are forgoing some profitability in their pursuit of purpose. That’s not necessarily true. In some business models there is a positive correlation between profit and purpose such that the more good you do, the more you see your profits increase.
For example, consider M-KOPA, a solar company with a mission of providing low-income, off-the-grid households a clean supply of electricity. They offer a solar home system that allows families to light their home, run small appliances or charge their mobile phones. Furthermore, they’ve figured out a way to structure the payment of this system in such a way to make it affordable for their target demographic. M-KOPA has connected more than 375,000 homes in Kenya, Tanzania and Uganda to solar power with over 550 new homes being added every day.
So, in M-KOPA’s case, the more solar systems they sell, the more they are achieving their social and environmental missions, but also the more profit they are making.
This type of business model, where the more good you do, the more money you make is called a Profit-Purpose Alignment business model.
However, many social enterprises find the opposite to be true. In their business model there is a negative correlation between profit and purpose such that the more good you do, the more you see your profits decrease.
For instance Warby Parker is an eyewear company that distributes a pair of eyeglasses for every pair it sells to its customers. Their purpose is to bring vision to the developing world.
But, by distributing one pair for every pair sold, they are cutting into their profit margin on each pair and therefore negatively impacting their profitability. They could be even more profitable if they didn’t achieve their purpose.
This type of business model, where the more good you do, the less money you make is called a Profit-Purpose Tension business model.
The B Corp is a legal structure designed specifically for these Profit-Purpose Tension business models. If your company is in a Profit-Purpose Tension business model, the B Corp is a good legal structure for you because it preserves the purpose of the company.
If you are in a Profit-Purpose Alignment business, there isn’t as much pressure to cut corners on purpose if it’s driving profitability. So the B Corp is not as necessary. However many companies in this model still choose to become a B Corp for other reasons including internal management and perceptions among customers.