Tuesday, March 9, 2010

Business Outside the Box: Mike Hannigan and the Evolving Landscape of Community-Based Philanthropy

Mike Hannigan didn’t set out to change the world, just his community. In the process, though, he has reconceived the dynamic role of philanthropy in the bare-knuckled world of corporate sales.

In 1991, Hannigan and his business partner, Sean Marx, together founded Give Something Back Business Products, an Oakland-based independent office supply company with a unique catch: GSB donates more than half its annual profits to a wide array of community-based charitable organizations.

At first, the concept sounded outlandish to many in the business world, but Give Something Back Business Products rose to become the most successful such company in the western Unites States, and perhaps more impressively, a noted, award-winning trailblazer in the world of corporate giving. Hannigan himself, still president of the company he co-founded, has become a sought-after speaker, lecturer and expert on subjects of philanthropy, sustainability and social responsibility.

Hannigan recently took a little time out of his busy schedule to chat with Business That Cares. All this week, I’ll be profiling Hannigan and Give Something Back Business Products in a four-part exclusive interview. Today we begin with the inception of the company and the nuts and bolts of its unique model:

Q: First of all, thank you so much for taking the time for this.

MIKE HANNIGAN: Oh, no problem. I’ll pander to the press anytime.

Q: Can you start by telling me about your background before starting the company?

MH: Well, I went to college in the early-seventies as a science student. While I was in college I became involved, like so many students back then, in community service social activism. So during my college career, I developed this kind of commitment to spending a certain amount of my time doing community service.
When I graduated from college, I went to graduate school at Berkeley, and then took a job at the Xerox Corporation. And I began this period of time where I had these twin careers. On the one hand, I was making a living in the office products business, achieving various levels of responsibility, and learning more and more stuff about big companies, small companies, startups, mature multinationals, etc. And after hours, I would do my community service work.

And then about 1991, my business partner, Sean Marx, and I decided we wanted to leave the corporate world and do community work, but we didn’t want to make the financial sacrifices people do when they transition into the non-profit world. So we became aware — I became aware, in particular - of the Newman’s Own business model. You know, Newman’s Own spaghetti sauce and popcorn and salad dressing. It was a good choice for the consumer without any kind of financial sacrifice, and there was a big sticker on it that said, “All profits from the sale of this product are donated to charities.” So that showed me that as a consumer, I could make a choice without any kind of sacrifice – financial, or any other quality sacrifices – and achieve this other goal that I would like to achieve, which is to direct some resources back to community service non-profit work.

Hannigan and partner Sean Marx with actor and philanthropist Paul Newman.

So at that point I realized we could do this. We could introduce this same business model, a customer-focused business model, around the office products industry that we were expert in, but do it on behalf of a stakeholder which is the non-profit community, rather than an individual private investor.

So in 1991, we pooled our resources. We had $40,000. And we started out of my house, selling office supplies. And twenty years later, we’re the biggest private office supply company in California. And it’s all based on the business model that business customers are shopping for office products - they want the great price; they want the great service. Whoever offers them that is going to make a profit. All we’ve done is we’ve redirected the profit. Not the payroll, or not the rent, or anything else. We’ve redirected the profit back into the community through our community donation program, which asks our customers and our employees to decide in their communities which are the organizations that are doing the best work and are most deserving. We use the power of the marketplace to take care of customers and earn profit, and then we direct that profit back into the community according to the democratic votes of the people who basically live and work in the community we have contact with.

So it’s a hard-nosed competitive business environment, and we don’t expect to win when we’re not the best choice for our customer, but whoever wins is going to make a profit. All we’ve done is redirected that profit back into the community. And it turns out, of course, that’s just an additional competitive advantage to many consumers. Because our consumers are businesses. They’re not individuals. Their job is to make a good deal for their company. They’re not able to make a sacrifice financially in order to do a social benefit, and so we don’t ask them to do that. What we’re doing is competing on behalf of a different stakeholder, which in our case is the community.

Q: And in a way, you guys are setting such a higher bar for yourself because in addition to being able to donate a large chunk of your profit, you also at the end of the day need to give people lower prices.

MH: Well, so does anyone who wants to win in the office products world. Staples has no problem giving good, low prices and making $1.6 billion in profits last year. We’re competing for those same customers. The customers are demanding the same things from us as they would from Staples, or Office Depot, or any of our competitors. All we’re doing is just we’ve eliminated the stockholder as stakeholder and substituted the community as stakeholder through our profit/distribution program. It’s all based on the power of the market to create wealth. We just distribute that wealth in a way that’s more consistent with most people’s views of how wealth might be distributed in a fairer world.

From its modest beginnings two decades ago in Hannigan’s living room, Give Something Back Business Products has gained incredible traction in the office supply business. Still, many initially viewed its profit-donation model with skepticism. In part two of our interview tomorrow, Hannigan reflects on his efforts to manage perceptions of his new business, and forge a success from his ambitious philanthropic model.