The Buy Forward Business Case
• Do good things and good things will happen. The only obvious reason is the one mentioned above—people seeing generosity in others generally respond positively. When those who share a cause support each other’s undertakings, both do better.
You’ll still have to work hard and deliver excellence at a fair price. Making Buy Forward commitment is not like turning on a faucet of business, but it can help generate sales by (a) opening doors that might otherwise be closed, and (b) acting as a tie-breaker in your favor in parity selling situations. Anyone who has sold in the trenches knows this covers a lot of ground.
It also gives the leader a deep confidence that the forces of good will are allied in the endeavor. There is no better time than during the stressful days of a startup to tap into the deep belief that good deeds are likely to be rewarded.
Let’s look at the economics of this decision.
Next, consider the “expected value” of your gift. Let’s say for simplicity that an entrepreneur has a 50/50 chance of success. The expected value of his ten percent commitment is an amount that equates to 5% of profits, not 10%. Compare these two scenarios: (a) you give an expected value of 5% and gain my so-called “worst case” of 5%, and (b) you wait until your success materializes and then give 10%. In scenario (a), you have both given a smaller expected value, and gained more than in scenario (b). The “expected value” consideration makes the economic case even more irrefutable. Do your own numbers.
• New paradigm. Some economists have argued against corporate philanthropy on the basis that it amounts to management choosing charitable causes for the shareholders. More appropriately, they assert, management should maximize returns and leave donation decisions to shareholders. Milton Friedman famously argued that it is irresponsible for managers to use shareholder money to make donations. But the Buy Forward model reverses the paradigm. Founding shareholders do make the decision to donate — up front, as part of the company’s charter. Thus the potential for conflict between corporate and shareholder objectives is removed. Goal congruence is in fact strengthened.
• Lastly, and perhaps most importantly, (a) the financial scale of serious poverty around the world is minuscule compared with the value created in corporations each year, and (b) every business without exception was once a new venture. Over the long-run, ever-increasing corporate involvement in philanthropy through Buy Forward commitments has the potential to substantially diminish the problems of poverty and hunger. This is an idea worthy of support. Actually, this is the idea of the tithe, updated to today’s world of commerce.
No rational entrepreneur or investor who fully understands this case would fail to consider it. That doesn’t mean it is easy. It takes faith and courage, but as is the case with all such steps, you’ll be glad you did.
More about Buy Forward
This is yet another way “Buy Forward” creates an appropriate balance with some significant advantages:
1. It gives job-seekers deciding between the worlds of non-profit and for-profit, a third option.
2. There are many great models that integrate business and philanthropy. Each has its pros and cons. For example, Newman’s Own is essentially a non-profit competing in a traditionally for-profit industry. The company has given significant sums to good causes, but in some industries (or if your name isn’t “Paul Newman”) it is difficult to raise capital when 100% of the profits are being given away. Ten percent is more reasonable.