The Limits of Buy-One Give-One

In a New York Times piece last year, an executive from TOMS shoes said that the company is “not in the poverty alleviation business.” When other businesses are claiming that they are changing the world with technologies like photo apps, it was refreshing to hear an executive avoid making a broad, all-encompassing statement about the socio-economic implications of his product. But when we put these businesses in the “social enterprise” box, we expect them to—as Roger L. Martin and Sally Osberg put forth in their seminal article “Social Entrepreneurship: The Case for Definition”—develop a social value proposition that “alleviates the suffering of the targeted group.” If we are not to consider TOMS as a social value proposition for poverty alleviation, then we should see the buy-one-give-one (BOGO) aspect of a business as a form of corporate giving, not a fully integrated component.

It is wrong to assume that the BOGO concept can solve economic inequality, but in the recent SSIR article “Inside the Buy-One Give-One Model,” authors Christopher Marquis and Andrew Park seem to suggest that it can. In fact, the model not only fails to bring about economic prosperity or close income gaps; it also is not a long-term viable business option for new ventures.

Marquis and Park argue that buy-one-give-one models no longer clearly distinguish businesses from each other, which can threaten the long-term sustainability of future ventures, but that it is nevertheless a “viable way to create both commercial and social value” and is a “model of social entrepreneurship that is likely to increase in prevalence and power.” These two statements contradict themselves, and could lead new ventures—ones that perceive the success of the two elephants in the marketplace, TOMS and Warby Parker, as replicable—astray. Ultimately, the BOGO model fails as an instrument to conduct social change and, in many cases, does not reach financial sustainability. When you give away a product for free with every purchase, it’s difficult to be price-competitive—and even harder to pay someone a living wage to make it.

TOMS and Warby Parker didn’t meet with success just by giving something away.

The founders of TOMS and Warby Parker—Blake Mycoskie and Neil Blumenthal, respectively—are legendary storytellers and clever advertising gurus. The Alpargatas-style shoe was growing in popularity in Argentina, and Mycoskie made two smart business decisions. He exposed it to the American marketplace, where people spend a lot more money on apparel, and created a simple, yet powerful, marketing slogan to go along with it. It’s work that even Mad Men protagonist Don Draper would admire. But when AT&T decided to use its marketing power (and dollars) to shine a light on the company and expose the brand to millions of new consumers, it took the company to a new level. It led to endorsement deals...and the rest is history.

Warby Parker is a textbook case in entrepreneurship. In a dorm room (a fancy one at Wharton), a few young men figured out how to cut out the middleman and go straight to the consumer. Once they created a product and sold it for less than the market was used to paying for it, they grew, and along the way, donated to Vision Spring, an organization that donates glasses to people in the developing world.

Marquis and Park say it is valid to question the “social impact” of these BOGO companies. This is true. Instead of addressing systemic problems, these businesses are giving things away for free, and this hinders marketplaces. No one can compete with free—no matter whether they live in a low-GDP country or a high one.

TOMS and Warby Parker have excelled at scaling their businesses, but that does not mean that they know how to solve complex social problems. That said, they now have the potential to help create real, systemic change—for example, by pushing their supply chains to create better economic opportunities for workers.

There’s nothing wrong with being “just” a business.

In the 1980s, Ben and Jerry’s started using the term “linked prosperity” to describe the kind of business it wanted to create. When the owners and founders did well, the front-line workers and everyone in the supply chain did too.

The BOGO model doesn’t focus on supply-chain equality but instead creates a simplistic “cause marketing” arrangement that overlooks the most important part of an equitable business: whether the people who make the products are earning a fair and living wage. A great business sells a product that people want, while giving employees an incentive to do their job well and paying them enough money to live comfortably and without government aid.

When a business uses the social-good component to drive innovation, the actual service or product often suffers. If you tell your friends and family about your new BOGO backpack or soap company, they will all say, “Great idea—that’s a nice thing to do.” But as most seasoned entrepreneurs know, the idea is the easy part; most businesses fail not based on the merit of the idea but because nobody is actually willing to pay for it. To create financial sustainability, the product must be great and competitively priced; from there, a good story just gets people to share it more. In a lot of cases, both BOGO and social enterprise businesses fail to do the first two, so the third becomes inconsequential.

There is a tendency to hold up the big winners as examples of why something works. Just as one percent of the United States owning the majority of wealth doesn’t mean that we have income equality, a few companies finding success with a marketing message does not make for a viable business opportunity—nor does it, as Marquis and Park suggest, provide substantive social or economic value.

I suggest that we stop celebrating companies that don’t talk about the makers and instead work to highlight those that do. Business can connect prosperity down the value chain—as companies like Ben and Jerry’s and Stonyfield Yogurt proved decades ago—and thereby create empowerment rather than charity.

A financially sustainable business that produces products the market is willing to pay for and pays a decent wage to those who make them can do wonders. We need to stop holding up BOGO businesses as something special and lower the percentage of small businesses that fail in their first few years.

Read more stories by Nathan Rothstein.