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Socially Responsible Small Businesses Often Grow Very Large

By Fran Hawthorne

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Organic ingredients can cost nearly twice as much as processed ones. The price of solar and wind energy has dropped but still remains far above coal, oil, and natural gas in most of the U.S. Small business owners are among the most vocal opponents of raising the minimum wage.

Maybe a $16.45 billion behemoth like Starbucks has the spare cash to spend on good deeds like health insurance for its baristas or water-purification in developing countries, but how can a small, struggling startup possibly afford solar energy, organic ingredients, paid family leave, donations to local museums or any of the similar steps that typically define a socially responsible (CSR) business?

Actually, being socially responsible is often easier for small businesses, said Susan Salgado, a co-founder and co-chair of the New York City chapter of Conscious Capitalism, which is a nonprofit that promotes a broad agenda of sustainability, social entrepreneurialism, social responsibility and stakeholder values.

“Small companies are more nimble, so it’s easy to stay more closely attached to your purpose and values,” Salgado said.

Even from a strict dollars-and-cents viewpoint, she added, “there are a lot of small businesses that are actually doing it—even in the restaurant industry where I come from, where margins are incredibly small.”

For starters, there’s a lot of truth to the cliché about “doing well by doing good.” Being socially responsible can also be profitable.

The best-known examples are in the environmental realm. Certainly it’s easy to see how using less energy will reduce a company’s utility bills (while also reducing the planet’s carbon emissions). This can include installing good insulation, using motion sensors to turn off lights automatically and adjusting the thermostat to maintain slightly colder temperatures in winter and warmer in summer.

Other green steps may require a big initial outlay to produce a delayed reward. While the price of compact fluorescent light bulbs is typically about six times higher than traditional incandescent versions, CFLs use 75 percent less energy and last 10 times longer, thus paying for themselves in just a few months.

Some long-term advantages, particularly those involving work-force morale, are more subtle. In addition to health insurance, Starbucks also offers its employees stock options and a 401(k) plan with a matching corporate contribution, and in April [2015] it launched a program to cover full tuition for workers who enroll in Arizona State University’s online undergraduate program. Investors put tremendous pressure on the coffee company to eliminate its health-care benefits after its earnings and stock price began slipping in 2006. To its credit, Starbucks held firm.

One result of this corporate good will: Employee turnover at Starbucks is only about one-third the disastrous triple-digit rate of the rest of the fast-food industry. That saves Starbucks huge amounts of money in hiring and training.

Yes, some ethical steps do cost more than following the standard, mass-market route. However, the good news is that there is a sturdy, and growing, core of consumers willing to pay extra for organic, artisanal, local and union-made goods and for brands that have a CSR reputation. For instance, in a 2005 survey by Ohio State University, 43.1 percent of respondents said they would fork over a 10 percent premium for humanely raised animal products, and 12.4 percent would actually pay 25 percent more.

This cohort shrank during the 2008 recession, of course, but it has since returned. Organic products are probably the category leader. According to the Organic Trade Association, sales of organic food more than tripled over the last decade and jumped 11 percent in 2014, to $35.9 billion.

“In this post-Enron era, with all the lack of trust we have in our politicians and financial institutions, people are looking for these kinds of stories,” said Salgado. “More and more consumers want to do business with companies that are doing good for society.”

Perhaps most important for entrepreneurs, many successful companies have been started precisely to be socially responsible.

Consider Tom’s of Maine. In 1968, an insurance salesman named Tom Chappell got fed up with the corporate world and decided to try selling a nonpolluting laundry detergent. Today, his company is famous for using only natural ingredients in its toothpaste, deodorant and other products, and for giving its workers paid time off to do community service.

Similarly, Burt’s Bees began with a reclusive beekeeper in Maine who sold homemade honey, and expanded into all-natural lip balm, shampoo, soap and body lotions. Another perennial CSR favorite is Ben & Jerry’s Homemade, whose mission statement pledges to sell ice cream and other goods “incorporating wholesome, natural ingredients and promoting business practices that respect the Earth and the Environment.”

All three of these enterprises were so successful that giant multinationals paid hundreds of millions of dollars to acquire them, just to gain a toehold in their natural, worker-friendly, socially responsible—and profitable—niches: Colgate-Palmolive ($100 million for Tom’s), Clorox Company ($913 million for Burt’s Bees), and Unilever ($326 million for Ben & Jerry’s).

Can small businesses afford to be socially responsible?

Few businesses of any size can afford not to be.

This article originally appeared on (© 2015 by Entrepreneur Media, Inc. All rights reserved.

About the Author

image from www.beacon.orgAward-winning journalist Fran Hawthorne has been a writer or editor at Fortune, BusinessWeek, Institutional Investor, and other publications. She is the author of Ethical Chic: The Inside Story of the Companies We Think We Love, and three books on health care and investing, including Inside the FDA and Pension Dumping. She lives with her family in New York City. Follow her on Twitter at @hawthornewriter.