In case you’ve never heard the term, “Cause Capitalism” is a bit like venture capitalism… except when it isn’t. And here’s why your wellness or fitness business should care about the difference.
What is cause capitalism?
When we talk about venture capitalists, we typically mean investors looking for undiscovered businesses with some risk but a high reward potential. Think about the kind of rich Mr. Moneybags who drop a few million on some software firm started in a silicon valley garage and you’ll get a pretty good picture. Sometimes they’re disparagingly called “vulture capitalists”, because they have been known to look for unsustainable growth, a series of impossible breakthroughs, or a sizeable chunk of the business, all of which put the business itself at risk. If they’re lucky, business owners may see a piece of that action, but at the price of selling their soul. After a while, the business becomes strictly about managing the financials and keeping investors happy.
Cause capitalism, also called benevolent capitalism, capitalism for a cause, capitalism with a conscience, takes the long view — that “doing good” has not only immediate intangible payoffs, but long term positive financial consequences, often by sustaining and supporting small businesses (which account for the bulk of business income in the U.S.), through challenging times and allowing them to grow and repay the investment. Make no mistake: cause capitalists are in it for the money. But it’s not just about the money. Cause capitalists are looking for small businesses focused on things like:
- Curing a disease or improving the lives of people who live with it
- Cleaning up the environment
- Protecting and helping the underprivileged
- Working for positive social change
- Improving people’s health and quality of life
For them, creating a better world is part of the payoff — as it is for many wellness businesses. In this, your business and cause capitalists share a common goal.
These types of companies — whether or not they’re interested in investing in your business — are sometimes classified as “B Corps“, to distinguish them from companies whose sole motive is profit. Your fitness or wellness business may even want to become one.
Your track record matters…
If your fitness or wellness business is just trying to change the world — and you can’t describe in detail how you’re going to make money doing it — don’t kid yourself: right now, you’re either a non-profit using for-profit tax paperwork, or you’re a dreamer.
Good luck with that. Even charities need to explain to donors what they’re doing with the money, or contributions drop off and no good gets done by them.
Cause capitalists look for for-profit businesses that can sustain themselves through a solid operational business model, a sustainable growth plan, and predictable revenue streams. They’ll want to know how your products or services are packaged and delivered, how your business can scale up to new markets and a larger number of customers. They’ll want to know the length of your sales cycle, the nature of your target demographic / psychographic, and how your ideal customers will find you, be attracted to you, and walk through the door or buy something from you online. They’ll want to know the mix of return vs new business, customer retention rates, and satisfaction. They’ll want to know about your web and social presence, reputation, and the depth of your professional network and associations.
If you can answer these questions, your fitness or wellness business should be attractive to ANY investor.
If — as is the case with many wellness businesses — you’re trying to make the world a better place, your business might be an attractive investment to a cause capitalist.
…and so do your dreams
Elon Musk wants to send people to Mars. The whole Tesla thing, Solar City, even SpaceX — are just means to an end. In fact, he didn’t set out to create a rocket company. At first, Musk tried to buy Russian rockets to use to make his space dreams come true. In the end, if it doesn’t provide a source of funds to underwrite a manned mission to Mars, Musk doesn’t want anything to do with it.
Cause capitalists are a bit like that — single-mindedly focused on a mission (doing good in the world) but intensely aware that not nearly as much good can be done if the source of funds is handouts and donations, borrowed equipment, burdensome loans, and credit card debt. So they put their money behind for-profit businesses who share their mission and look like they might succeed.
Sometimes, cause capitalism shows up in the strangest places:
Ted Turner cutting a deal with Yellowstone National Park to protect bison herds from disease, in exchange for a cut of the herd.
- JDRF (Juvenile Diabetes Research Foundation) providing early-stage funding for startup Bigfoot Biomedical, whose efforts are focused on improving the lives of people with type 1 diabetes, not just making a fast buck from them selling overpriced insulin pumps.
- VISA recently invested $1 million in micro-loan leader Kiva, who has to date made over $100 million in micro-loans to small businesses.
- The Cystic Fibrosis Foundation invested in Vertex Pharmaceuticals to support its work toward shared goals of the charity and the for-profit drug company, and it paid off well for both.
These aren’t grants or donations, though — just as your wellness business isn’t a charity. They’re investments, and the investor in each case is looking for both a financial and social payoff. Turner got to replenish and diversify his breeding stock of bison while preserving the herd — for a price. JDRF expects Bigfoot to do well enough that it can eventually support JDRF’s mission with charitable donations larger than its investment. VISA will benefit from the underwriting of a small business loan platform while keeping the operational headaches at arm’s length.
If you’re in business to make the world better, you need to think of your wellness business as a means to an end. Improving blood sugar control for type 2 diabetics. Helping folks lose weight and feel better about themselves. Recapturing lost confidence, health, and fitness thought to be lost since college.
This is the way cause capitalists will see it.
Attracting the right kind of attention
- Look for a shared mission, not just a shared bank account.
When you talk to a potential investor (whether you know it or not at the time), seek out people who believe in what you are doing. If they want to know HOW you are doing it, that’s a good sign they want to help.
- Look for investors who understand the health and wellness industry.
Let’s face it, you can probably get a bank loan to get your business to the next stage. But the bank can’t tell the difference between Mindful Kickboxing or Swimming Yoga and the neighborhood pizza joint or plumber. Each type of business has a different operational model, cash flow, and revenue cycle; some will take longer to show a profit, and others never will. Your bank doesn’t care.
- Don’t overlook non-traditional investors.
Bigfoot biomedical probably wasn’t expecting to hear a response from JDRF. But I’m sure they’re glad they did. Talk to ANYONE who supports your cause, and do what you can to find out how serious the common interest is and how practical it is for both parties to work together.
- Ask for time, attention, resources, ideas… not just money.
Some of the folks who’ve chosen to invest in businesses that make a difference are themselves such businesses. They may have significant insight into ways your wellness business could grow, improve, and make smarter use of resources. Be willing to listen to them and develop the ideas that work best for you both.
Should I work with a cause capitalist?
Whether your fitness or wellness business should work with cause capitalists will depend on a lot about your business — including how much control of your business you want to retain, whether you mind working for their mission when it doesn’t entirely overlap your own, and whether you agree on plans for business growth and profitability. These are questions you should be ready to answer with ANY investor.
However, if you’re willing to partner with another business who sees the potential in yours, shares a good part of your mission, and is willing to help provide funding through the rough spots in exchange for a share of the company or its revenues and profits, it may be time to consider it. If you’re looking to make the world a better place, it wouldn’t hurt to “do good while doing well.”