Businesses aren’t always known for their social consciousness. But with the changing times and the call for sustainability comes the need for socially conscious startups. In this episode, Ben Baker teams up with Graham Boyd, the founder of Evolutesix. Graham helps us explore the changing landscape of the business world and shares his approach towards building a better business model. Learn more about Graham and his vision for a better world.
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Creating Socially Conscious Startups With Graham Boyd
[00:00:25] I have got a special guest from across the pond in Belgium. This is my first guest from Belgium, which I’m very excited about. Graham Boyd is the author of Rebuild: the Economy, Leadership, and You. He and I are going to be talking about creating socially conscious startups. Graham, welcome to the show.
[00:00:50] Thank you, Ben. It is grand to be with you and I’m looking forward to our conversation.
[00:00:57] You and I have had probably a half dozen conversations over Zoom. I’m not sure exactly when you and I met. We met through mutual friends in the environmental community. We hit it off. I love what you are doing. I love the direction that you are going. I love the fact that people are sitting there going, “There are people plus purpose equals profit.”
It’s not about the profit anymore. It’s not about how quickly you can get to that $1 billion evaluation. You can become that next unicorn. It’s what are we doing along the way? There are some great conversations that we can have about it. Before we start, why don’t you let people know a little bit more about you, where you came from, where you are, and then we will get into everything we need to talk about?
[00:01:56] I have had quite a long journey to get to where I am now. I was born in Africa, grew up in South Africa during the apartheid era of South Africa, and that has shaped a lot of who I am and why I’m doing what I’m doing. My first career was in Physics research and that took me from South Africa to Germany, where I did my PhD in Italy and Japan, where I worked in universities as a researcher.
Then I left academia, moved over to Procter & Gamble in Belgium and worked in P&G as a manager, both in Belgium and in China, where the part that I enjoyed the most was developing new products and even more exciting developing new categories where there were not any existing products. I left P&G in 2007, looking at where climate change was heading.
Having lived through in Beijing the first SARS Coronavirus outbreak and came to the conclusion that we were at the beginning of a complete epochal change driven by climate change, destruction of the biosphere, leading to things like SARS Coronavirus and all of that. Also, trying to do something inside P&G is very difficult to a large extent, driven by the quarterly expectations of institutional investors.
I left P&G saying, “I’m seeing clearly what’s happening and everything that we are trying to do in the world to address this triple bottom line, fair trade, corporate social responsibility, or whatever we are trying, it’s not solving the problem at best. It’s slowing things down and slowing things down might be making it worse because it’s giving us the impression that we are solving the problem when we are not solving the problem.” I left several years ago now saying, “I’m going to put time into figuring out where are the root causes of the problem and what can we do to solve them.”
[00:04:29] Let’s get into your time at P&G. It’s interesting going from academia to P&G. It’s a completely different shift, going from being a researcher to getting into P&G. Let’s talk about P&G and what did you see inside P&G. What were the frustrations that you were feeling within P&G that led you to this realizing that what was being done was not a moving the needle, solving the problem and enabling you to see an outcome that you wanted to see? What took you through the P&G model and out the other side?
[00:05:11] I will begin by highlighting a couple of the things that I absolutely loved about P&G and still admire about P&G. P&G has a lot of good people in it who genuinely want to make the world a better place. It’s one of the few companies in the world that promotes from within. Many senior managers in P&G rarely understand what they are managing because they used to do the job themselves 5 to 20 years previously. That’s something that I admire and we need to retain things like that. Part of what I’m doing now is inspired by those qualities of companies like P&G.
I found more and more of a challenge with a number of times where we were taking decisions driven largely by the need to deliver smooth returns to the investors to hit the quarterly forecasts. To primarily meet the needs of the investors rather than fulfill P&G’s purpose at its deepest level. The purpose is to improve the lives of the world’s consumers.
At its deepest level, that has to extend forward for the next seven generations of consumers. It’s not enough to improve somebody’s life in a way that is at the expense of the lives of their children, their grandchildren, etc. For me, that is the handicap that P&G is suffering and it’s not P&G’s fault. It’s because of the system we were embedded in where investors have all of the governance, power over the large decisions of the company and where the myth that the company exists to provide returns to investors has become the dominant story of what a company is for.
[00:07:41] That’s a challenge. The keyword that came out of that is systemic. I don’t see this as a P&G problem. I see this as a problem with large corporations worldwide because people are far more beholden to shareholders than to the actual customers and the employees themselves. Those are the people that are driving decisions based on profit margin. What did we do this month? What did we do this quarter? Where are we in terms of profit loss statements and being able to make margin calls?
Those are the decisions being made based on that rather than what is good for the company itself. What is good for the people that you serve? It feels that the shareholders get the lion’s share of the attention because we are more interested in Wall Street and the world stock exchanges than the people who are buying the product at the end of the day. That systemic problem is nothing new. How do we shift that? It is ingrained into large corporations worldwide that we focus on monthly, quarterly, and annual stock prices.
[00:09:08] That was the question that triggered me that I started diving into several years ago is to explore that. First of all, this is such a systemic problem that extends from a brand new startup that has incorporated all the way through to the oldest and largest companies on the planet. It is systemic across the entire Western business model.
At the heart of it is a whole bunch of myths about what a company is and what it’s for. Many of these are not true. For example, we often treat a company as property. We buy and sell companies, but companies are incorporated as a person if you look at company law. Many of the writings by things like the Financial Conduct Authority in the UK simply refer to persons with no distinction between a human person and a non-human person. It’s anything that has personhood in law.It's not enough to improve somebody's life today in a way that is at the expense of the lives of their children, or their grandchildren. Click To Tweet
It struck me that there are two halves that are deep systemic causes to this issue, and they are two hearts of the same coin. The one half is we declare the company to be a person, but we set up the governance in such a way that we can take decisions as if the company was a thing, a non-person thing that you can buy and sell, like my fountain pen. That is very much akin to slavery.
That was my first realization of when we behave as if the company was a thing that we can buy and sell, what we are buying and selling is all of the people and relationships that are closely attached to the company. Be it the staff, suppliers or customers and then extending onto that, everything in the natural world that is linked to the company is being sold together with the company. I realized that this is one of the deepest systemic root causes of many of the ills we are facing.
The other half of what I realized when I went back to South Africa is there is a parallel between the systemic nature of apartheid and how we incorporate companies. In apartheid, if you happen to be lucky enough to be born with white skin, you got all of the voting rights. All of the power to govern the country, hence the power to decide what happens to the country and what happens to the wealth generated.
Similarly, when we incorporate a company, if you happen to be the stakeholder group with money to invest, you get all of the voting rights control of what happens to the company and control of the wealth generated. It’s this that enables you to treat the company as property and led me to the point that if we truly want to build a society that works for all of the people in society and we want that society to work with nature, recognizing that it’s the biosphere that provides everything that we need to live and to run a viable society and to run viable businesses. Then we need to recognize that corporate governance requires two sides to be right for the destination we want to get to for the outcomes we want.
I remind everybody the standard saying in business is that the outcomes you are getting are the perfect consequence of your strategy. The strategy you are executing is designed to deliver the outcomes you are getting. If you don’t like the outcomes, you would better figure out what strategy you are following and change the strategy.
That’s what’s driving us. The outcomes we are getting for most of humanity are not what we need and for the biosphere, it’s absolutely not what it needs. The two sides of governance that we have to address, one of them is the governance process. How do we take decisions in shareholder meetings? The other and almost all of the focus up until now has been the governance process.
Values-based leadership, corporate social responsibility, etc. Even much of the B Corp focus is more on the process of governance. The missing ingredient in many cases is who has what power or who has the right to engage in governance? What power do they have to defend that right? That’s the bit that is missing and that was at the heart of why apartheid could not work in a nation like South Africa.
Apartheid excludes from any engagement in governance, 95% of the population. Almost all of the key stakeholder groups in South Africa were denied and excluded from any engagement in governing the country. This is the same thing. If we want to build healthy companies for society and nature, we need to include representatives of all of those stakeholder groups in the governance process.
[00:15:38] There’s a difference between privately and publicly held corporations. In a publicly held corporation, could you not argue that the governance is being created because I own stock and because I own stock, I have voting rights and I have the ability. You have limited voting rights and you have limited ability, but you as a shareholder have the right to do this.
I’m playing devil’s advocate at the moment. We have these 21 to 23-year-old founders who are not building companies to do something with it. They are building companies for an exit strategy. If you talk to a lot of young founders, they are building companies for an exit strategy. They are looking at this as, “This a commodity to be bought and sold.” It’s not about the people within the company or the product itself. It’s that they are looking at this as a commodity that they can turn around and either sell to a larger corporation or be able to take public.
It is strictly, how do we make this into a 10X to 50X profit margin for the work that I do? Isn’t that inherently the problem is that we have raised a generation to believe that the true success of a company is not building a company for generations. Rather, we are building a company to be able to be bought and sold within a matter of 18 to 48 months.
[00:17:43] The strategy you are following is perfectly designed for the outcomes you are getting. If we look at the climate and social challenges that we are facing, the outcomes we are getting are not working. What you are describing is the peak consequence of all of the assumptions we have been making about what businesses are for and how to build a business.
This idea of companies are things to buy and sell and you figure out how can we add as much value as we can to this thing, so we can sell it at the highest increase in value versus when we bought it. There’s value in that. We need to retain the value in that and we need to regain what we need to build a world that works for everybody.
The value in that is it’s right for entrepreneurs to have a lot of focus on growing the value of the company. It’s right if an entrepreneur or an investor has invested themselves or their money into growing the business that they have an exit strategy that enables them to get that money back plus an appropriate risk premium.
All of that is right. The question that we are addressing is, how can these businesses lead to a world that works where instead of in essence, what much of businesses are doing is acting as an exchange mechanism to exchange natural capital into financial capital? Much of the money that businesses are making is rarely making money. It’s more saying, “I have a $100 in my right pocket and €100 in my left pocket. I’m going to make money by exchanging my €100 for dollars.
That does not make money. It’s an exchange mechanism. Equally, if I have so much natural capital in the form of an old-growth forest, and I chop the forest down to make furniture and sell the furniture. Much of the money that the furniture company would appear to be making on the stock market is not generating wealth. It’s not capital gain. It’s an exchange mechanism from natural capital to financial capital.We need to recognize that corporate governance requires two sides to be right for the destination we want to get to for the outcomes we want. Click To Tweet
We are saying this is a way of building companies that recognize the investment of all different types of capital. It gives an appropriate balance of voting and governance rights to representatives of all of the capital, which is then a way of ensuring that the growth in any specific capital is not being done at the long-term expense of any of the other capitals.
[00:21:17] From what we understand from our conversations, you are looking at creating businesses with more of a co-op-based mentality, Procter & Gamble model where there are multiple companies within an entity itself. An entity would have multiple companies and those companies would be able to trade amongst themselves in order to be able to be far more ecologically, environmentally and socially responsible because of the nature of how they engage, interact, make decisions, etc.
To my readers, I’m making a leap of faith trying to bring all this together. What I want to do is I want to get there because it’s understanding how does this model work because we still need profits and build stuff. We still need to exchange making trees into furniture to be able to sell furniture. That still needs to happen because we still need furniture. If it’s not trees as a natural resource, it’s going to be some other natural resource that is going to be transferred into trees.
My question to you is, what do you believe is the business model that is going to allow for better decision making that is not based solely on the stock market, VCs and that whole mechanism that is going to allow corporations to be able to make better more long-term decisions? Be able to think in generational wealth instead of wealth over the next several month’s situations?
[00:23:14] One of the things that I have recognized and I have a bit of a background in things like reliability engineering Six-Sigma. The standard thing there is you look at any process. Where are you wasting in the process? I have recognized that the way that business operates is very wasteful and much of the waste is happening at the interface between businesses.
Our way of incorporating eliminates much of that waste. We are eliminating waste. We have more resources available to generate financial profit and be regenerative or net positive in terms of natural capital and human capital. The way it works, as you were saying, companies like Procter& Gamble or like the cooperative ecosystem of MONDRAGON are anti-fragile because the different business units often react counter-cyclically as the world around them changes.
If you are a P&G employee, it does not matter where the fabric and home care or beauty care is paying your wage that year. You still have a job. It’s the same thing here by building companies the way that we are describing. The companies, even though they are not independent startups, form a much deeper trusted network that can truly leverage network effects.
This is missing in the typical VC portfolio. The companies in the portfolio have such weak systemic connectivity that the network effects are negligible or absolutely zero. Whereas we build networks of startups where the network effects are strong. The whole investment in this ecosystem of startups pays off financially or better than a typical portfolio. The startups are net positive regenerative because we are eliminating waste and leveraging network effects.
[00:25:45] From what I’m understanding is from the model, there is one company that is an overarching circle around a variety of different startups. There are 30 different startups within this company model. Those different startups are all owned by the company as an entire ecosystem of companies.
Therefore, people have the ability to sit there and say, “If company X is struggling a little bit this month, then company Y is picking up the slack and therefore, the entire ecosystem is going to do better. We are having managerial troubles in one of our companies. We can bring expertise from one of the other companies into that company on a limited basis to be able to shore up the brain trust.” Is that what you are saying when you are talking about the waste? It’s being able to leverage the knowledge, the expertise and the value of the entities as a whole as the variety of different startups to make the company better?
[00:26:55] Everything you have said is absolutely how it works. This ecosystem network effects that you can eliminate the waste, leverage the network effects up to one small nuance that I will put in, but this is a critically important nuance. One of the areas of wastage in a large company like Procter & Gamble is all of the layers of management, the top-down control, all of that.
In this approach, it’s not that the umbrella company owns all of these startups inside it in a controlling sense. It’s far more than the umbrella company provides a platform to facilitate networking and provides the investment. Each company itself is completely free at any point to decide not to use the platform, to leave the platform and simply engage as it wishes.
Equally, once the company as a whole can’t be sold, the investor shares in the company are freely tradable. The company could, for example, elect to buy its investor shares back from the holding company, the holding company might decide to sell the investor shares to another holding company. It’s designed to have the best of a multinational like Procter& Gamble with different business units, projects and brands and the best of a portfolio of completely independent startups. In a way where you can profit depending on the business context, you are in from the advantages of both sides of the game.
[00:28:59] In order to be able to run a company like that, you are probably going to need outside capital. If we are talking about 20 to 100 startups within this ecosystem, that’s an enormous amount of capital that needs to be created. That capital is going to have to come from somewhere quite arguably from the VC market or from other places. There is going to be that cyclical thing of the VCs going well, “I have given you $5.8 million. What have you done for me lately?” How do we keep this bottle from sliding back into the state of affairs when the outside investors’ mentality is such of, “What have you done for me lately?”
[00:29:52] That’s where we do some key things that the VC model has difficulty doing. The first thing from the investor perspective, the closest to what we are doing would be an evergreen fund and validation of what we are doing is that the Y Combinator has shifted its focus into an evergreen investing approach rather than a fund with a fixed cycle time. That’s the first step or part of the answer.
The second thing to think about is the VC model at the moment, the limited partners put their money in and they get their money out at the end of the fund cycle. As a limited partner, your money is locked away for ten years. If you have a liquidity crisis, you may not be able to get at anywhere near the real value that your investment has in that fund.The way that most businesses operate is very wasteful, and much of the waste is happening at the interface between businesses. Click To Tweet
With this approach, because it’s, in essence, an evergreen fund that will be listed on a private stock exchange until we are big enough for a full IPO, you can exit whenever you want as a limited partner by simply selling all or some of your shares on the stock market. The limited partners get benefits of flexibility. The other benefit they get is in terms of one of the costs for a typical VC fund is the cost of deal flow and the cost of due diligence.
With our approach, because we are with the companies that we create in our Startup Factory from day one, the cost of due diligence is a negligible increment on the cost of delivering the programs and working with the startups from the beginning. We are not coming in after the startup is there and trying to shine a light into the dark corners and figure out the surprises they are trying to hide from us. There are no surprises because we have co-created the startup from day one. Gain for the investors, we are eliminating that inefficiency, which gives the investors at least the potential for more investment growth.
[00:32:32] I understand that, but my question goes back to you have a VC or investor community that is looking for a return on their investment. Typically they have had a very deep hand in the decision-making of the companies based on the fact that I gave you $5 million. I want to see it on the board. I need to have a certain amount of voting shares. I need to have a certain amount of things.
How do we keep this model from sliding back into that mentality when you have a community that is not looking to sit there and say, “I’m not used to not having decision making when I’m giving you my money. I’m not used to not being heard because I’m giving you my money. Why should I give you $5 million if I don’t have some limited amount of control?”
[00:33:37] That’s a question that we could spend an entire interview on because there are multiple facets, but a couple of key points. First of all, that’s part of our mix for investors who want to get involved. Those investors are invited to be part of the Startup Factory cohorts to be part of the advisory group that is providing a level of input into the whole program.
Those actively involved investors will get a higher level of voting rights than those who have no interest in being actively involved, who simply want to be passive investors like, for example, a pension fund. If I think of a typical VC fund, it’s the VCs that are directly involved in the startups, getting a seat on the board and so on. It’s not that common for the limited partners that are backing the VC fund to be directly involved in the startups.
The investors that we are looking for are limited partner investors. We will be doing most of that engagement with the individual companies inside what we are doing. This gives us a way of meeting the needs of different kinds of investors where they are. Those who want to be investors as limited partners like a large pension fund want to put $100 million into our investment fund as passive investors. They are absolutely welcome and we will take care of all of the engagement with the startups that we are involved with.
At the other end of the spectrum, let’s say an angel investor wants to put in $1 million into the holding company and they want to be actively engaged. They will then join our startup mentoring team or whatever, and they may well be involved in 1 or 3 of the companies in a more formal sense as a seat on the board. The difference will be they are not sitting there representing themselves. They are part of the investment mentoring team of the holding company as a whole.
They are there not to take care of that one company but to improve the returns across the entire ecosystem because their million dollars has gone into the holding company. From there across into all of the companies in the ecosystem, not just the one. Another way of thinking of this is that this is a way of getting the high level of returns that you would get from a good alpha strategy investment and the long-term low-risk guarantee of returns that you would get from a good beta strategy investment.
[00:37:26] We could talk about this for another hour, but we will leave it there because if people need to know more about this, they should get in touch with you and talk about it on an individual basis. There is a lot of information here and a lot of interesting things. What’s the best way for people to get in touch with you and the Startup Factory?
[00:37:48] The best way to get in touch with me is you could reach out to me on Twitter as @GrahamBoydPHD or on LinkedIn as Graham Boyd PhD. You can email me at Graham@Evolutesix.com. Those are the primary ways of reaching out to me and you can find more about me on my personal website which is Graham-Boyd.biz.
[00:38:24] Last question before I let you go and this is something I ask everybody. When you leave a meeting and get your car and drive away, what’s the one thing you want people to think about you when you are not in the room?
[00:38:41]I would say that the one thing I want people to think about me is this is somebody who is doing everything he can to solve the biggest problems that humanity is facing and building a business by solving those problems.
[00:39:08] You have lofty and wonderful goals. May you get there and may you achieve all your dreams. Thank you for being such an amazing guest. I can’t wait to share this with everybody. Readers, please reshare this with anybody you think is going to find this valuable.
[00:39:25] Thank you, Ben. I very much appreciate all the time you spent with me and thank you to everybody who’s reading this. I hope it has been good for you.
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About Graham Boyd
Experienced entrepreneur and consultant leading businesses to become deliberately developmental and self-governing with a FairShares Commons incorporation.
Recently completed transforming an international non-profit into 3 for-profits, and now growing a company making it easy for businesses and leaders to continuously adapt themselves, to rise to the adaptive challenges they are facing. Giving them the capacity to find new options to previously intractable challenges.
As CEO, managing director, start-up founder and investor, business unit manager, and physicist; working for VC/PE, for CEOs and for myself, I have led traditional and self-managed organizations; in multi-nationals and start-ups; through phases of growth, turn-around and new category or new business development. Most often recognized for disruptive innovation; strategy creation and execution; high-performance organization and people development. Using the latest approaches, such as Holacracy, Sociocracy, Deliberately Developmental Organisations, Requisite Organisation design, Spiral Dynamics, Integral Theory and the Cognitive-Developmental Framework.
Read my new book “Rebuild: the Economy, Leadership, and You — a toolkit for builders of a better world” available now from an online retailer near you.