Pura Vida Partners founder John Sage isn’t satisfied to straddle the line between business and nonprofit. He wants to obliterate the line and is creating new capital instruments and business structures that do it. By creating a working model that shows others how to successfully structure, finance and operate a competitive “for-benefit” nonprofit that yields equally high returns monetarily and socially, John is emerging as a leader in reshaping the social enterprise field.
The New Idea
Pura Vida is a test case for how to create good by using capitalism to empower producers, motivate consumers, inspire business leaders, and serve the poor. Pura Vida Partners, a 501(c)(3) nonprofit organization, launched PuraVida as a wholly-owned fair trade, organic beverage company. Like other fair trade companies, PuraVida targets consumers who want to buy products consistent with their social values, and ensures that producers of its coffee are paid a rate that empowers, rather than exploits. Unlike other such social enterprises, PuraVida operates the nonprofit and the for-profit as a “blended” organization. The staff, messaging, social benefit, and fund raising elements of PuraVida Partners are blended so closely with PuraVida that the company’s growth also provides unrestricted capital to the social benefit organization. His blended bond gave investors a way to make a 6 percent return on their investment that was in-turn donated to a nonprofit of their choice—most often Pura Vida Partners, which funds community development and education projects in Costa Rica, Nicaragua and is expanding into other producing countries such as Ethiopia and Indonesia.
In addition, PuraVida garners resources by tapping into the growing LOHAS (Life Styles of Health And Sustainability) market, estimated at $6 billion today and growing at 16 percent per year. PuraVida is especially attractive to young people and to socially conscious corporations, both of which represent the future of this market because of its values and structure. Indeed, all around the United States, donor communities have spontaneously formed in response to PuraVida’s “meet the grower” events in the U.S. in order to spread the word and help the PuraVida model spread.
There is a prevailing mindset that holds that business and philanthropy are at opposite ends of a spectrum, guided by different motivations, measured by different criteria and ultimately destined to remain apart. There is great pessimism that these sectors cannot be profitably and sustainably blended. Through the success of Pura Vida, John intends to put that notion to rest. The widespread failure to recognize the opportunity for merging the corporate and social sectors deprives the social sector of efficiencies, sustainability and access to funding while it also deprives those in business of the chance to play a meaningful role in creating social good.
The social enterprise “marketplace” is still nascent, limiting the opportunity for practitioners to gather, disseminate key findings and ultimately build a stronger model from a shared foundation. Newman’s Own is one of a handful of social enterprises that exist primarily for charitable purposes; those that do exist are unlikely to spark imitation because they are inherently difficult to replicate (Paul Newman is Paul Newman after all) or their value propositions depend too heavily on the “charitable story” while they under-perform against market requirements of quality and value.
Local rural production areas still suffer from low development and limited resources. Small family farmers grow over 50 percent of the world’s coffee, but typically capture a mere 2 to 4 percent of the retail price of coffee. The exploitation of producers in developing countries is gaining awareness among certain segments of the population due to the work of other fair trade organizations, however, reaching beyond their socially conscious consumers into the business world to show executives and entrepreneurs exactly how they can run a blended operation is not an integral part of their mission.
Finding capital to launch and grow for-profit companies that exist for charitable benefit is exceptionally difficult. Although there are social investors willing to accept “blended returns,” this audience is fragmented, difficult to reach and lacks the proven investment vehicles necessary to deploy investment capital for social good. John Sage works with many social enterprise market stimulators such as Ashoka, Social Venture Network, Social Venture Partners, Investors’ Circle, and the Harvard Business School SE Initiative. Each makes an important contribution, but to date their efforts are fragmented, narrow in focus or largely theoretical in nature. Best practices are not captured, compiled, and aggressively marketed.
John has set out to accomplish three pattern-changing goals by being equally tough-minded and tender-hearted. In order to realize this pattern change, PuraVida must become a market leader in its business category, a high impact nonprofit and an exemplary model that is taught in business schools across the country.
After a slow start wherein John exhausted his personal resources funding annual losses, PuraVida is well on its way to demonstrating an ability to compete vigorously in a crowded, competitive market. PuraVida has become one of the largest independent sellers of certified fair trade, organic coffee in the country. Individual and institutional customers annually consume more than 25 million cups of Pura Vida coffee, often beginning a strong connection to the product, brand and story. Last year, PuraVida’s blended structure and values-driven message of “Great Coffee—Great Cause” opened the doors to powerful national partnerships with leading food distributors such as Sysco, Aramark and Compass. These strategic agreements are propelling PuraVida to new heights, delivering hundreds of new commercial and university accounts in 2005. As PuraVida expands into these markets, the company’s story, mission and model are becoming more widely recognized. Pura Vida is able to carry related organic, fair trade products (e.g. cocoa, tea, chai) while also helping social entrepreneurs use the “Pura Vida template” as a blueprint for their new enterprises.
PuraVida Partners, the nonprofit that owns and operates PuraVida, must perform at the same level. One vital way that PuraVida partners is able to do this is by tackling a major funding hurdle that confronts late-launch stage social entrepreneurs—the need for “growth capital” not just funding. John has pioneered groundbreaking capital strategies for growth and expansion that appeal to both the “head and heart.” They offer investors a way to simultaneously invest in his for-profit and any other nonprofit that the investor cares about through hybrid securities with long-term debt and warranty-like equity options that repay the business investment and the value of the charitable contribution. John also developed innovative strategies for funding asset growth, using investor-secured lines of credit and external capital-leasing pools to purchase major assets.
The nonprofit is also high-performing in its commitment to develop communities in its producers’ regions. John accomplishes this through strict adherence to fair trade practices, running additional education and safety programs in the producer regions and bringing additional donors to invest in nonprofits. The fair trade price paid out to producers, and “the direct market access reduce the devastating effects of the boom and bust cycle on farmers and their organizations. The result is stronger farmers’ cooperatives, independence from exploitative middlemen, and more revenue for social development and environmental conservation programs.” Over 60 percent of Pura Vida’s profits are channeled back into the communities of its coffee producers, where six full-time staff in Costa Rica and Nicaragua deliver nutrition, education, and after-school services to hundreds of at-risk children and their families. With a 100 percent commitment to Fair Trade, Pura Vida will provide more than $250,000 to its growers and their communities in 2005 alone. In addition, Pura Vida uses each marketing initiative, campus location and product purchase as a chance to educate consumers about the importance of fair trade. Pura Vida customers then in-turn make gifts of time and money in support of the company’s charitable mission. In 2004, for example, Pura Vida reported gifts and donations of an additional $200,000.
Although the demands of running a successful, rapidly growing and innovative social enterprise are very high, John believes that PuraVida Partners isn’t a success unless it shares best practices and lessons learned with investors, business students and social enterprise networks. Since its inception six years ago, Pura Vida has been involved in a long-term case study within the Harvard School of Business Social Enterprise Initiative. The case has been annually updated and John has given a lecture to HBS SEI students. Educating investors and investor networks such as Ashoka, Social Venture Partners and the Investors’ Circle obviously works to the benefit of the company, but it also brings John’s new investment instruments to their attention and helps these leading institutions to imagine new possibilities. By utilizing every facet of the company—from capital structure, governance, employee recruitment, product sourcing, to marketing and sales—Pura Vida is on a solid footing to be a leader in the business sector and the citizen sector for years to come.
John Sage was a pioneer in business and philanthropy long before founding Pura Vida coffee. He was a Microsoft executive for five years before leaving to join the management team of the Starwave Corporation. This firm launched well-known commercial Web sites such as ABCNEWS.com, ESPN.com, NFL.com and NBA.com. Years later, on the philanthropic side, he led the development of the long-range strategic plan for Starbucks Foundation that included an earned-income vehicle that made the foundation self-funding.
Raised in Berkeley by activist parents in the 1960s and 1970s, John participated in protest politics, alternative culture, and hippie fashion yet he maintained his love for “the creative and multiplicative powers of business.” As the older of two boys in a middle-class family (his mother was a public school teacher, and his father was a government employee), he worked multiple jobs to help pay his Stanford tuition. As a student, he sold everything from birthday cakes to newspaper ads and symphony tickets to make ends meet. In many cases he started businesses to do so. Throughout, his parents never let him depart from his root values of social justice and citizen responsibility.
A Stanford Graduate, Coro Fellow and Harvard Business School MBA, John is an annual guest lecturer at the Harvard Business School where he is in the sixth year of his long-term case study of Pura Vida and his blended social enterprise practice. The Business School is now developing a Pura Vida “B Case,” focused on the company’s capital funding models and will distribute that case to business schools nationwide.
As a college junior majoring in American Studies, he took a quarter away from campus, traveling by bus throughout the Southern states to volunteer with different legal aid agencies, including the Navajo Legal Services and the Southern Poverty Law Center, where he helped track the activities of the Ku Klux Klan for the center’s Klanwatch project. John graduated with Honors from Stanford, completing his thesis on modern strategies for fighting the KKK and other hate groups.
Having a mutual love for business and social justice and raised to follow his beliefs, John was bound for social entrepreneurship. He could not yield to conventional wisdom that said that he must choose between the corporate and citizen sectors. He drew particular inspiration from Martin Luther King Jr., who showed by his life the necessity of “blending opposites” in order to change the world. “Jesus’ radical example as both servant and savior,” John says, “and his challenge to be at once as ‘wise as serpents’ and as ‘gentle as doves’ led Dr. King to blend powerful strategies such as nonviolent protest with disruptive civil disobedience, despite their seeming incongruity.” In the corporate world, John’s vision to eliminate the deeply entrenched psychological and physical divides between for-profit and nonprofit ventures seems similarly counterintuitive to traditional logic and reality. Pura Vida’s blend of a social organization financed by a business equally as competitive for monetary profits as its nonprofit owner is for social impact, is beginning to yield results John Sage is giving credence to the idea that businesses can be both “tough-minded and tender-hearted” and demonstrating practical ways to leverage capitalism for social gain.