Keys to Running An Impact-Driven Business

Lessons From Instant Ramen, Chobani & Genentech

This post by Mark Newberg first appeared in Forbes.

Roughly 47 years ago, Milton Friedman made a mistake. Or, more accurately, for most of those 47 years a mistake has been happening to what Milton Friedman said.

In his New York Times Magazine article, “The Social Responsibility of Business is to Increase its Profits,” Friedman never said it was impossible for a business to increase its profits by doing good. He certainly didn’t say that an executive, confronted with an opportunity to improve the value of her business today, should stop in her tracks if that opportunity would also produce a benefit to society. And yet, since September 13, 1970, the shorthand approach to interpreting Friedman has stood at odds with Impact-driven activities all around us.

In its simplest form, Impact is the business-driven intersection of doing good and doing well. It’s a way to merge profit-generation with the purpose of producing a specific benefit to society. When it’s done right, Impact can form the basis of a successful investment fund, the foundation of a strong company, or the impetus for a new initiative within a giant corporation.

The key to successful impact is to apply the kind of rigorous management practices Milton Friedman endorsed. Yet it’s the broad misinterpretation of what Friedman actually said that has led (some) to insist that Impact and profitability are mutually exclusive. But examples of Impact and profitability (whether Impact Investments or Impactful products or practices) are hidden in plain sight, all around us, every single day. Because I was struggling to communicate this reality I decided to start collecting examples as I encountered them. The goal: to prove that Impact can be an integral part of profitable business ventures, a core part of how companies approach growth, and a lens through which we evaluate a whole range of opportunities, from product development to purchasing.

Here are three of my favorites:

Instant Ramen

In post-World War II Japan, hunger was widespread. Food supplies were scarce, jobs were hard to come by, and the nation was far from the economic power it would become. The United States was providing food aid, and doing so in the form of flour, while suggesting that the Japanese people bake bread. Of course, there were at least a couple of problems with that approach. First, bread doesn’t last. It gets stale, it gets moldy, and it’s not well suited to long-term storage. Second, bread isn’t a traditional part of the Japanese diet. So trying to transition a recovering nation to a food staple that’s culturally and logically ill-suited to the task doesn’t make much sense.

Momofuko Ando didn’t think so either. He was determined to help feed the nation by developing a cheap, easy, and long-lasting food staple from the flour shipped in by the US, but in a form that was immediately culturally familiar: noodles. After much experimentation, the instant cup of noodles was born. History credits this creation with nourishing Japan through its recovery. Instant Ramen may be associated with college kids today, but it was born to solve a humanitarian crisis. That’s Impact.

Genentech

In 1976, venture capital was emerging from its infancy. Returns were being chased. Titans were being crowned. Tom Perkins, co-founder of Kleiner Perkins Caulfield & Byers was among the most powerful practitioners of the craft. But there was also a specific problem he wanted to address: the glacial process of creating life-saving medicines.

The team at KPCB realized that a gigantic market opportunity awaited whomever could figure out how to accelerate the time-to-market of new therapeutic medicines. They dispatched Bob Swanson to search for promising research in the Bay Area and he found it, in the University of California lab of Dr. Herbert Boyer.

Boyer was a pioneer geneticist, at the forefront of research into gene splicing. But, for as much potential as the research held, it was still stuck in a lab. KPCB partnered with Boyer to commercialize the technology, something Boyer hadn’t ever considered, saying, “I never set out to create an industry. I just wanted to create something useful.”

Perkins applied his venture capital mindset to the structuring of a company around Boyer’s work. Instead of spending $3 million to build a brand new factory in the hope that Boyer’s process would work, the newly formed company subcontracted different parts of the process to different research laboratories, performing the final steps back at the University of California. The needed investment was slashed to $250,000, dramatically reducing the financial risk in pursuit of life-saving treatments.

Not long after, the risk paid off. A gene was spliced. A human hormone was synthesized. And then human insulin, a life-saving treatment for diabetes. More treatments followed. The company grew. It went public. And in 2006 it was acquired. For $47 billion. Its name? Genentech.

Investing in a major pharmaceutical company today, strictly for the purpose of earning a return on investment, probably wouldn’t qualify as an Impact Investment. But back when KPCB put up its money, and combined with its clear interest in saving lives as a result of its investment, I would call it an Impact Investment. And, as best I can tell, it was one of the earliest (and most financially successful) venture-backed Impact Investments of the modern era. Later, in the documentary “Something Ventured,” Perkins would  remark that, of all the investments he made in his career, he was most proud of Genetech, because of the lives that were saved in the process: “Isn’t it great if you can make money and change the world for the better, at the same time?”

Chobani

In 2005, a dairy plant in Upstate New York was shuttered. In a region that was struggling to stem the tide of economic decline, losing the plant, and the 55 jobs that went with it, could have been precipitous. That the plant was owned by Kraft Foods, a corporate giant with the ability to anchor an economy, seemed to signal an economy on the brink.

Hamdi Ulkaya who, more than a decade prior had come to the United States, from his native Turkey, felt differently. Ever since his early student days in America, Hamdi had been missing the foods of his youth. In particular, Hamdi missed yogurt. But not any yogurt (America had plenty of that). What Hamdi missed was the thick, strained yogurt native to the Mediterranean. By the time the Kraft plant closed, Hamdi was ready for his next challenge and a challenge he found.

Armed with entrepreneurial drive, an American education, and a Small Business Administration loan, Hamdi set out to introduce his adopted country to a taste of the Near-East. He hired a dedicated staff and a culinary master, and decided he’d treat them right. Together, for nearly two years, they experimented with recipes and methods, learning to turn small batches into full-scale production.

In 2007, they launched. A few supermarket clients became several, several became many, and many became thousands. The initial handful of employees in the South Edmeston plant became legion, and it grew clear that Hamdi’s dream had become a reality. He had introduced America to Greek yogurt, and America had welcomed it with open palates. Sales of Greek yogurt soared. And so did the value of Hamdi’s enterprise. A company known today, around the world, as Chobani.

The Chobani story, good-paying jobs in an economically distressed region, is Impactful on its own. Chobani’s product, a generally healthy food that’s driving dietary patterns in the right direction, is Impactful too. But the full story of how Chobani operates, as a $2+ billion dollar enterprise, is even more compelling. Because in 2015, after raising a round of capital, Hamdi did something not often seen: he took 10% of his company and gave it to his employees.

Think about this: from 55 jobs lost to 2,000 (and counting) created, with an intentional desire to create those jobs in a place (and industry) where they were badly needed, making a healthy product, building a brand, and distributing wealth back to the employees who helped create that value. Doing it all with intention, and each decision a core part of how the company’s operations. Hamdi, now a billionaire, embodies much of this generation’s American Dream.

So there you are: three examples, from three different decades, of businesses prospering by addressing the pressing problems of their times. Three examples that couldn’t have happened if it were truly impossible to mix business and benefit. While the definitions of Impact may change over time, and what’s Impactful in one era may not be Impactful in another, that’s OK. It’s a sign of progress that the same problems don’t exist in the same way forever, and that the way of thinking that defines one era doesn’t dictate the approaches of future eras. The point is that we can make things better, and that businesses of all kinds have the opportunity to be better because they focus on making their part of the world a better place. That’s what happens when we realize that Impact is hidden in plain sight, and that what we thought Milton Friedman said, isn’t exactly how he said it.