Building An Aspirational Business as a Social Entrepreneur
On today’s show, Ed is excited to welcome Dora Lutz of givingspring.com. Dora is the author of the aspirational business, owner of giving spring and the creator of the course business planning for social entrepreneurs at Purdue University. From our earliest days of managing truck drivers through the creation of her second business, Dora has devoted her career to understanding the unique ways businesses can make a positive impact on society and helping leaders accomplish their biggest goals. Dora has worked with small businesses, Fortune 100 companies, non for profits, and even the United Nations Impact 2030 program to leverage built business models that create sustainable revenue sources and incredible social impact.
Enjoy this conversation with Dora Lutz!
1:47 Who is Dora Lutz?
2:41 What is aspirational business, what is a social enterprise?
3:46 Does it matter that I want my social impact to be for philanthropic purposes?
4:39 Does aspirations start from the top down or from the bottom up?
6:20 How do you corral everybody to point them in the same direction and get the buy in?
8:55 How does the business owner get that aspirational vision?
13:02 Does it matter how big the company is for aspirational business to work?
15:08 How do you make everybody authentic to stop authoring other business’s story brand?
17:45 How are the smaller businesses being vetted?
19:38 Does an aspirational business present less risk?
21:39 How do you measure an aspirational business and what are the KPIs for aspirational businesses?
25:06 Was there anything that was glaring that was the common denominator for all these businesses?
28:52 Can an aspirational business be sold and what’s the likelihood that the next buyer is going to be willing to take on the same aspirations of the previous owner?
30:09 What is aspirational?
32:03 Does employee stock ownership plan make better aspirational businesses than just individual?
33:03 How do you deploy a framework to become an aspirational business?
34:59 How do people work with you?
36:30 If you could tell a business owner to do one thing that would change the value of their company or make the greatest impact, what would it be?
Who is Dora Lutz?
Dora is the author of the aspirational business, owner of Giving Spring and the creator of the course business planning for social entrepreneurs at Purdue University.
What is aspirational business, what is a social enterprise?
The difference is just in definition. When we talk about social enterprise, almost anybody you talk to will probably have their own flavor of what that means. Some people think it’s a nonprofit that has earned revenue. So a nonprofit model, that’s finding a way to offset some of their donor requirements. Some people think it’s a benefit Corp or a B Corp. Others think it’s just a business that creates some kind of social impact. I tend to err at the last definition. For me a social enterprise is anything that has a sustainable revenue source, and creates positive impact. That to me is the core definition of a social enterprise.
Does it matter that I want my social impact to be for philanthropic purposes?
I don’t believe it does. And that’s what aspirational business where that comes into play because what I believe is that any for profit can solve a social purpose, many of them are already positioned to do so. So whether you say, I’m creating an impact in the world that reduces poverty, or I’m creating an impact in the world that makes our cities more sustainable. I use the Sustainable Development Goals as a guideline to help people think about what they want that impact to be. But for me, it doesn’t matter what your impact is. And frankly, there’s enough need in the world that we can all choose what’s important to us, and be able to move our businesses and society forward.
Does aspiration start from the top down or from the bottom up?
It could go either way. In my experience, the ones that do it best are the ones that have already had this baked into their lifeblood where the leader kind of has a sense of what they want to do and they’re coming to it with an intention to lead their organization towards something good.
How do you corral everybody to point them in the same direction and get the buy in?
So let me talk about the criteria for aspirational businesses first, because I think that will help lead into that conversation of how to drive buy-in. So in my mind, an aspirational business is different than a given culture, or a philanthropic initiative, which I think, consider what you’ve described. And those are also really important. Those are great opportunities for businesses to give back to their community. But if we’re an aspirational business, it generally means we’re doing five things that create impact to society. So we have a vision of servant-hood, for who we are seeking to serve beyond just our customers, you have to serve your customers, that’s just table stakes. If you don’t serve your customers, you’re not going to make it to next year anyway. So start the conversation there. But who else are you serving? And why? How can you prove that you are making progress towards the service you want to make? How do you create an environment where your employees survive so they’re able to live their best lives? How do you meet all of your ethical and regulatory obligations? And then lastly, how do you tell the story of that within your organization? So if you’ve told a compelling vision about who you are as an organization, and what you stand for, and why it’s important that in my mind, the organization that you choose to support should be a natural extension of that vision.
How does the business owner get that aspirational vision?
There’s actually something called the five phases. It’s really interesting, because usually, when we start talking about this aspirational vision, there are actually phases that CEOs go through to be able to get to the point of having these world changing businesses. Phase one is a CEO who says, “Yeah, someday I want to change the world. But right now, I’m just trying to make payroll.” The second phase, which is what I think you described, which is okay, I’m a leader, I figured out how to create wealth. What am I doing to give back to the community with this wealth that I’ve created? But there are phases that go beyond that. And that’s where I think most people’s definition ends. So if you move to phase three, that you’re saying, “Okay, I figured out how to create wealth, I figured out how to give back to my community now, how am I extending that to my people so that they feel engaged and they feel inspired and purposeful at work?” That is sort of the next level. Then from there, you move into the phase of “Okay, Dora is doing great, but what about Dora’s Mom? How’s she doing? How are we going to take care of Dora’s mom and she ages? And how do we build that in our communities?” And then level five is, “Okay, how do we create everything for everybody?”
The phases might have taken us a little too far off from where we want to go, but I think most employees understand that the business develops through the eyes of the leader. And at some point, the leader begins to abdicate some responsibility as the organization grows. So in the same way, we delegate our essential functions, that’s where the decision making and some of the engagement with employees where that falls in. So I would put it right at that same phase, when you start building your operating systems and engaging different people, that’s when you need to start bringing in additional opinions, perspectives about your community engagement plan.
Does it matter how big the company is for aspirational business to work?
It doesn’t. If you only have two people in your organization and you’re trying to figure out how to build an aspirational business, it’s more challenging, because you have more hats to wear. You have to be thinking about what that vision is, you have to be able to prove that you’re doing what you say. You’ve only got a couple employees; at least, you’re creating a great work life that you want for your employees. You lose less sleep over whether somebody might be making a bad decision, and you have less of a story to tell to your employees. You have to do it all, but you have less to do. If you have more employees, you have more heads, you have more bodies to bring into the equation, but you also have to do all that heavy lifting of communicating it, reiterating it, bringing that culture to life so that everybody believes it. I don’t know that I would say one is easier than the other. I’d say they’re different.
How do you make everybody authentic to stop authoring other business’s story brand?
To me, that’s where the beauty of measurement comes in because to your point, everybody has a story about the business that they want to be. But I believe that consumers and employees are looking more closely now to really look and see if that story is true, not just authentic, but is it actually evidence base? Can you prove to me that you’re doing what you say you’re going to do?
How are the smaller businesses being vetted?
The pillar of, are you communicating what you’re doing effectively is important. But still, even if you are a small business that doesn’t have a huge reporting structure behind you, I think people still want to see evidence that you are truly doing what you say you want to do. So over this year, obviously, diversity and inclusion has become a very important topic. So a lot of people we’re not really maybe prepared to show that they had done the work. And we many people started stepping up and said, “Okay, we have to figure out how to address this.” The ones who fared the best, in my opinion, were the ones who had already done enough that they could show that they had been making progress. And I believe that consumers and employees are not looking for perfection, they’re looking for progress. They want to know that we as leaders are trying; they are not expecting perfection from us.
Does an aspirational business present less risk?
It depends with your risk management background. I come to it from the upside perspective, I look at it and say, you’re leveraging opportunity, because it helps you innovate new products and services, it helps you access new markets, it reduces your costs of employee turnover. It allows you to command premium pricing, because you are deepening your customer loyalty. I look at it from a profitability standpoint.
How do you measure an aspirational business and what are the KPIs for aspirational businesses?
I actually have 18 criteria that I use, I will spare you all 18, but I do have that assessment online. If somebody want it, they can go through and take that assessment. I will tell you about the research that I’ve been working on last year. I took 50 companies from the S&P, randomly selected them. And then I scored them all according to these 18 criteria, based off of publicly available data. So I was just looking at annual reports, I was looking at public documentation, things that I could find. And then I scored them. And then I ran the regression analysis. And I found numbers that made me feel vindicated, which was good. But even I was surprised at how high the numbers were. So businesses that had positive aspirational scores, outperform those that had negative scores by 80% when it came to net income. Return on equity was a 30% swing. I also created just two fake portfolios; I did a portfolio back test of a portfolio with positive scores and one with negative scores. And that actually had an annual return of 12% more when it came to market valuation.
Was there anything that was glaring that was the common denominator for all these businesses?
I said I had 18 criteria, and they were in five categories. When I looked at each of those individually, there was no correlation between any single one of those metrics and financial performance. It was not until you had all five together that it became an actual correlation. What that means to me, and if you think about it, at the end of the day, this is nothing more than an operational excellence model, CEO sets the vision. CEO setting the vision alone does not drive financial performance, the impact metrics, that would be the CFO, that alone does not drive financial performance, everything with HR and creating an environment where your employees thrive, no financial correlation, operations, meeting all your regulatory and ethical obligation, no correlation, marketing and telling that story, no correlation. But when all five of those are working in tandem, that’s where the financial returns happen.
Can an aspirational business be sold and what’s the likelihood that the next buyer is going to be willing to take on the same aspirations of the previous owner?
I think it comes back down to again, the business fundamentals. If you have an aspirational business where you effectively built all the processes, you know that you’ve got something that people understand; you’re basically buying into a culture, that’s plug and play. So people understand the vision, they understand what the organization is seeking to do and they have the decision making tools to continue on, they have the employee loyalty, the customer loyalty, the ethical reputation. Now, I would say though, and I don’t know this, for sure, but my gut would be that if you were looking to buy an aspirational business, and you were planning to shift the vision for how the organization was going to work in the world, that you would need to be prepared to make sure that you were effectively managing that change, because that would be a shift. You need to make sure that you were planning for that through an M&A like you would with everything else.
What is aspirational?
Aspirational to me is you are seeking to serve somebody other than your customers. So we are seeking to serve the bare minimum of a vision or mission statement that is acceptable. We’re seeking to produce the best quality at the lowest price. If you can then think about how and why you’re doing that? You got to know why and then you have to execute on it.
Does employee stock ownership plan make better aspirational businesses than just individual?
The few that come to mind right off the top of my head, tend to be higher performing, because people are so engaged with the mission. I don’t know that I have seen any that I would consider specifically aspirational businesses that are also ESOPs, American waterworks might be the one exception, I’d have to go back and look and see if they are. They were the second highest rated aspirational business that I scored.
How do you deploy a framework to become an aspirational business?
I think a lot of people want to make this work seem harder than it is. This is about incremental progress. So what I will say is, you have to have the vision statement, and some metrics that go along with it, you have to address all your employee issues. So if you have something hanging out that you know is keeping you up at night or maybe you’re concerned because you know you got this thing over here happening, that might be a problem, you have to address all those snakes over the rocks. You have to be willing to look at it. And once you address those, then you can start to think, what’s the next good thing that we could do? And it’s a process of just continuing to grow and develop. You don’t wake up one day and decide you’re going to become an aspirational business. You wake up one day and you start taking progress towards becoming that business. And so it’s working through those five criteria one by one and taking steps to improve your business fundamentals. This could even take up to three years.
How do people work with you?
I have a lot of different options, but at the end of the day, what I will do is help CEOs who say, “I know that I want to consider stakeholder value, I know I want to build an aspirational business, I don’t know where to start,” I can help with coaching. So helping somebody figure out what that would look like. If the culture is already there and they just need to put a little oomph towards helping their team get aligned, then I can do facilitated sessions and help them build those strategies. And if it’s somebody like a newer startup organization that says, “Well, I want to do it, my investment dollars are limited.” I have a lot of online programs that somebody could go work through these curriculums by themselves. And just like EOS, you can have somebody guide you or you can download the resources, and you can just start to work through it.
If you could tell a business owner to do one thing that would change the value of their company or make the greatest impact, what would it be?
I would start to pay attention to the term stakeholder value. This is becoming a new term that a lot of people are using. So this is what the Business Roundtable said that they were going to be paying attention to KPMG’s CEO survey so that 77% of CEOs are going to pay attention to this term. So a lot of people don’t know what it means. The term stakeholder means you’re paying attention to everybody in your ecosystem. Pay attention to how you are treating your employees and creating an environment so they can thrive. Think about how you are providing value and long term relationships with your partners and suppliers. Think about how you’re connecting and telling your story to your consumers. And then finally, think about what role you’re holding in your community. If you’re thinking about all of those groups, you’re ultimately going to also create value for your shareholders.
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