David Brodwin is a cofounder and board member of American Sustainable Business Council. Follow him on Twitter at @davidbrodwin.
Businesses that combine profit-making, social benefit and environmental stewardship are beginning to transform the economy. Last week, this column explored the strategies that these companies use to deliver social value while turning a profit.
But how can these businesses scale up to meet the huge national challenges that confront America?
One crucial factor helping so-called for-benefit businesses grow is the emergence of regional clusters, which are groups of for-benefit businesses concentrated in a metropolitan area or larger region. In turn, regional clusters benefit from backbone organizations that coordinate resources, technical assistance, networking and policy engagement.
The power of regional business clusters has long been recognized. Many important industries concentrate geographically, for example in Silicon Valley, Hollywood, Wall Street and Bangalore. Clusters attract talent and promote the rapid spread of innovation. They support specialized infrastructure to meet the legal, financial, human resources and operations needs that are unique to each industry. Once clusters get going, they tend to sustain themselves. But they are hard to start: millions of dollars have been spent without success in attempts to duplicate Silicon Valley.
A recent conference at Harvard – Growing the Impact Economy – explored how cluster-based development can promote for-benefit businesses. It's difficult – and it can be lonely – to get a for-benefit off the ground without a network and a support system. These businesses need different kinds of funding, different legal structures, different marketing and different approaches to government engagement. Such businesses are often viewed skeptically at first by investors who are not yet familiar with them.
Once a cluster gets established, however, the entrepreneur's challenge gets easier. A healthy ecosystem to support for-benefit businesses begins to emerge. Local attorneys master the special entity structures needed. Investors learn how to appraise impact investing opportunities. Foundations learn to engage in program-related investments that bring a for-profit component alongside a charitable component. And policy makers at all levels learn how to update regulations so for-benefit businesses can deliver value more quickly.
Unfortunately it can take years for a regional cluster to develop if it's not actively nurtured and supported. So-called "backbone organizations" are needed to provide the nurturing, because few individual business owners have the time to organize regional networks.
The Business Alliance for Local Living Economies is the largest U.S. based backbone organization, with more than 80 local networks that promote regional development of for-benefit and other locally-connected businesses. Each network is led by someone whose "aim is to actively connect networks of pioneering innovators for learning, collaboration, and support," says Michelle Long, the alliance's executive director.
BALLE believes that civic leaders should not waste time and resources trying to attract a big corporation to move in. Rather, they should focus on the "sparks of the emerging future" that are already present in the region. "Find and connect them. If you only know one, go take her to coffee and she'll tell you two more… build from there," says Long. BALLE's annual conference, described by Business Week as "A Davos for Main Street", will convene June 12-14 in Buffalo, N.Y.
Examples abound of how these regional networks share best practices and promote innovation. In Grand Rapids, for example, restaurateurs achieved breakthrough reductions in their environmental foot print by promoting the use of locally-grown food. One organization, Essence Restaurant Group, led the way by building relationships with local farmers and supporting the creation of a local distribution system. Once a local distribution system was established, other businesses began to use it. In addition to helping restaurants, " the new distribution system created a viable market for small-scale farms to produce heirloom, organic and chemical free products ," according to Elissa Hilary of Local First in Grand Rapids, Michigan.
Another service of backbone organizations – like conventional trade organizations – is to build consumer awareness. They can promote principles of sustainability and encourage customers to consider the policies and supply chain practices of the businesses they patronize. For example, once the public had become accustomed to thinking about environmental impact, an artisanal beer-maker, Brewery Vivant, was able to challenge the perception that quality beer must come in bottles rather than cans. They explained to consumers the environmental benefits of cans over bottles (less weight, less energy and lower carbon footprint). This change both helped the environment and reduced Brewery Vivant's operating costs. Other local brewers have since made the switch.
As clusters develop in more cities and regions around the U.S., we can expect the growth of for-benefit businesses to increase. This locally-rooted entrepreneurship will create jobs while building more vibrant and diverse local economies that can better resist the next downturn when it comes. It's a development we should all welcome.