Pivoting to a Non-Profit Model
For the past month, since Covid-19 hit in earnest, Boloco has operated essentially as a non-profit organization. The knowledge that our business, like so many others, was barely hanging on and had no clear future ahead could not deter the enthusiasm and gratitude we felt for the opportunity to get closer to our mission than ever: to positively impact the lives and futures of our people and communities through bold and inspired food and practices.
This past Tuesday night, we delivered the last of 9,778 donated #FeedTheFrontline meals and a few minutes later we closed the last of our eight restaurants. For the first time in 23 years, other than a few holidays each year, all operations came to a halt for at least the next 2 weeks. The sun was setting, and it was a remarkably peaceful moment for me… no chaos as one might expect, no loud ambulances, no stretchers. Just a beautiful sky and a half dozen grateful people – the four DHMC employees who were receiving the food, and Tim Altares and I for having the privilege to put thousands of dollars of donations to work.
A month ago, on the morning of March 25, I didn’t see how Boloco could keep any of our restaurants open for even another 48 hours. In the video I sent out to our customers, I shared my truth, what we had tried and what had not worked, and expectation of closing. On that day, there were not yet details of government relief, and Boloco was coming out of the annual New England winter months where the company loses money from mid-November to mid-March.
To make matters worse, what cash we did have was levied unexpectedly by the IRS on March 17 bringing me, as majority owner, literally to my knees. The timing was quite unfortunate. The incredible thing about this crisis is that millions of people who can afford to (and even those who can’t!) are rallying around countless causes and efforts that support frontline workers, those in need, struggling businesses, and so much more. That day, March 25, Boloco was the unexpected beneficiary of that generosity, and from hundreds of donors quickly raised over $30,000 (eventually over $60,000) which allowed us to keep 2 restaurants open for 4 weeks just to make good on those donations. The Boloco team was quickly back in action in the days following the March 25 outreach.
Our non-profit model was simple… provide one meal for every $5 donated which allowed us to pay for the food and the basic labor associated with producing each meal. It also allowed people to know their donations were being stretched to as many people as possible. Zero fat on that $5 number. Each day still had its challenges, and yet, it felt as though we were doing the most important work we’ve ever done. In the midst of a crisis, there was fulfillment and at times even joy as our relatively tiny business delivered happiness and nourishment to so many thousands of people working the front lines or simply in need.
When the PPP loan came through on April 14, we finally had a path to survival for at least a few more months. With the donation dollars almost expended, we shuttered operations in Boston on April 17 and in NH on April 22. When we re-open, we still have over 2,000 meals to deliver to complete the purpose of the donations, and that will be an important momentum-builder as society slowly moves towards a “new normal”.
I haven’t been able to get the non-profit model out of my head these past few days. Why had making no money but delivering so much good, even while the business was facing what at one point seemed like certain and near-term failure, felt so fulfilling? Why was I prouder of our team than even our most successful years of the past, when we were making good money and doing right by our community? I’ve pondered this a lot in recent days. I have some answers and possible solutions to this conflict of mine in mind, but still half-baked, not ready to share. I had a few conversations recently with friends and business leaders about some of the challenges associated with pure-play capitalism and the restaurant business. Anyone who knows me has heard me rant (and yes, here I go again) about the poor treatment of workers in thousands of workplaces. With a few notable exceptions, the restaurant business has been unable to demonstrate the ability to remain investor-grade profitable and at the same time take care of the people it employs in a way that serves their lives and futures in any meaningful, sustainable manner. Too many restaurant operators (not all, so please don’t attack this if you are one of the exceptions) have little compassion for the real challenges their employees face, and still argue that paying a livable wage and providing real benefits is not something hard-working full-time employees necessarily deserve.
I’ve said this many times… if a business can’t afford to provide those basics, it is not deserving of being called a business or even being in business. You either aren’t good enough to attract enough customers at the right price, you chose poor real estate, you paid too much for good real estate, your competition is clobbering you, among many other reasons. To compensate for those weaknesses by so heavily relying on a business’s legal right in this country to underpay its employees as a key lever to remain profitable, provide returns to investors, and claim success when the bulk of the humans rowing the oars are continuing to struggle and fail is inexcusable today and will, I can imagine, in the coming decades, be considered criminal. The visual of that scene in Twelve Years a Slave where Solomon has to tiptoe for hours with a rope around his neck comes to mind as so many of us knowingly carry on while we, even today, put millions in positions where they are just barely hanging on. Right in front of our very eyes. “True history books water down the truth of the evil fucks that lived hundreds of years ago,” wrote one commenter on Youtube about this scene. I can envision a day where many of our actions today will make our grandkids’ grandkids wonder about the “evil fucks” who worshipped orthodox capitalism in the twentieth and early twenty-first centuries.
To be clear, Boloco won’t become a non-profit anytime soon. Some of the very few shareholders I have left are probably ashamed of what I’m writing here, and will encourage me to go start a non-profit if it brings me and those around me so much joy. If that’s the case, I am sorry. But the truth is most of us who are “owners” have benefited greatly from the massive divide that separates the few haves and growing number of have-nots…and as far as I can tell, the structure and philosophy of unchecked capitalism continues to encourage this divide, if not expand it.
I decided to set this aside for 24 hours and come back to it also had a couple of conversations with my Dad – he used to have senior positions at P&G and Disney, and despite my misgivings about including family in this business, he and my mom have been strong financial supporters of Boloco since the beginning. Not surprisingly, what I wrote above led to some observations and questions and a possible course of action.
1. My Dad agrees with me that there is a dangerous and still widening divide between the advantaged and the disadvantaged. Far too many people are living on or below the margin of economic sustainability. It is a major issue in our nation, made even more evident by Covid-19. We must address it.
2. Boloco has been a leader in running a business that respects its consumers, workers and supports the community. It practices the highest level of safety and uses highest quality ingredients for its products It has paid it workers typically about 10-15% more (JSP Note: more like 20% for most of our existence) per hour than its competitors. This has put strong downward pressure on margins. Boloco provides health care. Boloco offers free English language lessons. It supports the community including what is described in the note above. It is a B-Corp. Still, the income requires many employees to work a second job. How do we face this challenge? How could we do more and still have a viable sustaining business with consumers?
3. At the foundation, a non-profit business is no different than a for-profit business in that both have to deliver enough revenue (earned and/or donated) to cover the cost of day to day operations and investment for the future needed to sustain the business.
Fundamental to the success of both will be three things:
- A product, service and experience of sufficient quality, attractiveness and relevance so it will attract and build loyalty among a group of consumers/guests/donors willing to render sufficient revenue that the organization is viable with the cost structure attached to it;
- A financial model which matches costs to revenue so sustainability is achieved.
- Continued innovation in the appeal of the product and service and operating efficiency.
- Beyond anything Boloco can do directly, there is very important support for relatively disadvantaged people that can and should come from affordable health care for all and free tuition for continued education
- What can be done in the context of the relevant restaurant industry to increase employee income while retaining pricing that is sufficiently competitive to retain/build consumer loyalty?
- To what extent will Boloco’s superior social responsibility including its much stonier support for its employees lead consumers to be willing to pay a premium price? By how much?
- To what extent would the same factors lead some suppliers and landlords to accept lower prices to help achieve a financial model is viable?
So What Might be a Practical Course of Action?
- Decide what higher salary strikes the balance of being significantly higher and yet plausible with a possibly achievable financial mode.
- Simply to illustrate on a general and hypothetical level>-Take hourly salary up 33%, from $15-20 per hour. Roughy an increase in annual income from $30K to $40K.-This adds roughly 10 margin points to this cost element. -Which presents the question of how to cover the 10 points..What % might we pick by premium pricing—3-5%? On a $6.00 an increase of perhaps 30 cents…What % might we pick up by having suppliers and landlords provide lower costs—3-4%…What % might we pick up through lower labor costs due to efficiency which workers would hopefully by more eager to work know they were key to sustaining the model.
Obviously, a lot of big questions?
One urgent element we should pursue right now is lowering landlord and supplier charges based on the current reality (lower sales) and the survivable financial model. Once things settle dow, we could look at how test the full revenue/cost/social responsibithy model we want to achieve.