INSIGHTS FOR FOUNDERS

Thank you for reading this issue of the Startup Owl's newsletter, the newly named Insights For Founders. This one is focused on founders at the forefront of social and economic innovation and their impact.

Corporations Chisel the Commonwealth

While, of course, there are shining examples of corporations that make a net contribution to society, many corporate practices detract from the commonwealth and antisocial corporate behavior is daily news.

Interference with the sales of generic drugs is last month's example. GlaxoSmithKline (GSK) was fined 37.6 million ($54.3 million) by UK regulators for anti-competitive conduct that prevented generics versions of its branded antidepressant paroxetine, Seroxat, from entering the market. 

Small beer by comparison with their $3 billion marketing settlement with the US Justice Department and a number of States. In 2012, GSK agreed to plead guilty to criminal charges and pay $3 billion in fines for promoting its best-selling antidepressants for unapproved uses and failing to report safety data about a top diabetes drug. The agreement also includes civil penalties for improper marketing of a half-dozen other drugs.

Corporate Tax Avoiders
Although the C-Suite calls it tax mitigation, many corporations avoid contributing their fair share of tax, given the services they receive 'gratis' from the state. 

The top ten corporate tax avoiders over the six years 2008-13, according to Bernie Sanders, were:
  1. GE (CEO total pay in 2014 $19 million)
  2. Boeing ($23 million)
  3. Verizon ($18 million)
  4. Bank of America ($13 million)
  5. Citigroup ($13 million)
  6. Pfizer ($18 million)
  7. FedEx ($10 million)
  8. Honeywell ($35 million)
  9. Merck ($25 million)
  10. Corning ($13 million)
Several corporations paid effective tax rates as little as 2%. At the same time their CEOs pocketed nearly $200 million in 2014. According to Forbes, not necessarily known for sharing Bernie's views, observes, "The S&P 500 stock index supposedly includes the largest public American companies. It turns out that 28 of them are incorporated in places like Ireland and Switzerland to avoid high US tax rates. These companies sure seem American-except when it comes to paying taxes." Joseph Stieglitz in Rewriting the Rules of the American Economy (just out) says that we should require US corporations to pay 10-15% on global profits.

Corporations Diminish the Commonwealth
Those very companies whose selfishness and tax avoidance will find eventually that the cost of their behavior will have the opposite effect on their bottom line. Paul Polman, Unilever's CEO, acknowledges this, saying, "We are finding out quite rapidly that to be successful long term we have to ask: what do we actually give to society to make it better?"

These few examples of antisocial corporate behavior are but the tip of the iceberg. The externalities that it creates is not sustainable. GE's CEO is is a member of the Business Roundtable, a group that wants to raise the eligibility age for Medicare and Social Security to 70, cut Social Security and veterans' benefits, increase taxes on working families, and cut corporate taxes even further. 

Tax avoiding through several hundred offshore companies, Bank of America's CEO travels extensively in the company's corporate jet. Yet, though the Federal Aviation Administration keeps him safe as he flies, his company does not contribute its fair share, through taxes, to the FAA's $16 billion budget. 

FedEx, as another example of tax avoiders receiving Federal 'welfare', has 43,000 delivery vans that criss-cross the nation on public roads. About 50% of road costs come from general taxes (the other half from gas taxes) that the company expertly avoids.

The Commonwealth Is Confident in Small Business, Not Big
Gallup has been polling public confidence in institutions over many years. Small wonder that big business is at the bottom of the table (only Washington is lower) with a mere 21 percent of the population having a great deal or quite a lot of confidence in the corporates. While, by contrast, small business gains a 67 percent confidence rating from the public (#2 in the table, just behind the Military).
Founders at the Forefront of Fertility

The definition of "to found" is to set up or establish on a firm basis or for enduring existence. Fertility means providing a plant habitat that results in lasting and constant yields of high quality. An enduring existence depends on the ground being fertile.

Founders of new businesses and nonprofits go through the process of determining the components necessary to achieve lasting and consistent yields of high quality: it's called a business model. At the moment of inception, founders of the past were often fixated on how to achieve profitability. While financial viability is vital, leading founders of today are more fixated on how to achieve fertility.

We all talk about "growing the organization". Growing things need fertile ground. In the past, growth has meant the same as scaling. Increasing numbers of founders are showing the new way by recognizing that a sustainable organization is one that seeks growth in quality, more than quantity and does not ignore 'externalities', or consequences of business activity that impact the commonwealth, without affecting business operating costs.

Creating Commonwealth
This new way is in stark contrast to the behavior of companies manifesting antisocial corporate behavior, like improper marketing, or tax avoidance. For instance, according to the Manta-Dell survey in 2014, 12% of small business owners are motivated by giving back to the community, creating commonwealth, as opposed to passing on costs to third-parties.

Negative contributions to society deplete the fertility of the business environment, and are manifestly unethical, even though legal (or in some cases like GSK's, not even legal, it seems). Personal achievement is the biggest motivator for founders. Those founders who solve a problem about which they are passionate, even if the solution doesn't result in wealth, are still thrilled by solving it.

Founders at the forefront are abundant. Guy Kawasaki says, "Great companies start because the founders want to change the world... not make a fast buck." Here are five examples:
  • Coleen Costello co-founded Vital Vio, that makes disinfectant lighting, a breakthrough in nonstop protection for bacteria-sensitive environments, after witnessing her grandmother contract an infection while in hospital.
  • Kimberly Bryant founded Black Girls Code to increase the number of women of color in the digital space by empowering girls of color ages 7 to 17 to become innovators in STEM fields, leaders in their communities, and builders of their own futures through exposure to computer science and technology.
  • Ben Rattray founded Change.org to enable people everywhere to start campaigns, mobilize supporters, and work with decision makers to drive solutions.
  • Jessica Mah founded inDinero to build a company that would stand for helping fellow entrepreneurs. Not only do they offer accounting software, they aim to completely change the way business owners think about their operations, by taking care of all back-office activities.
  • David Lindsay is the co-founder of Oncora Medical, a platform that analyzes big data from cancer treatment centers around the world to predict the most effective treatments for specific cancer cases, something unavailable when his mother was diagnosed with cancer.
Benefit Has Become the Purpose
The five founders I have named represent the hundreds of thousands of other founders round the world, who don't seek to change corporate minds, but by their very existence do just that. Founders like these, have beneficial purpose as their higher goal. 

Business culture is also changing around them. For example, the massively successful B Corporation movement (my own company, Venture Founders, was a founder BCorp), and the spawning of new corporate forms like the Benefit Corporation and the L3C, underscore the massive impact of founders at the forefront. Business has always provided value in terms of supplying customers what they want, employees with jobs and investors with a financial return. However, we are now witnessing a fundamental shift in purpose throughout the business world.

The numerical drivers will remain, simply because they are the means by which we measure results. However that measurement of organizational success is shifting relentlessly from focus on financial results to the achievement of benefit. The Corporate Social Responsibility (CSR) era is being overtaken by a thrust towards business making meaning and beauty, balancing the welfare of all members of the commonwealth.
Beauty
Balance
Benefit
Purpose
People
Planet
Profit
CSR
Machine
Money
Market
Finance

Keep up with the new way: read the magazine Conscious Company, especially this month's interview with Impact Makers founder Michael Pirron, by my former faculty colleague, Lori Hannau.


Thanks for reading. I would appreciate hearing about your own startup dilemmas. 
OutsideInsight provides comments and suggestions on your own business plan in 7 days for $399. Contact me for an initial discussion.

Sincerely,
Will Keyser
Venture Founders LLC

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Venture Founders LLC
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