Entrepreneurs see Encinitas as model of ‘for-benefit’ business

Once the self-proclaimed Flower Capital of the World, Encinitas is attracting a new crop of companies.

Known as “for-benefit” businesses, they aim to turn a profit and give back to the community. Benefit corporations, one type of for-benefit business, even have an obligation under California law to follow through on social and environmental goals.

Entrepreneurs and city leaders met July 2 at the Leichtag Foundation property in Encinitas to talk about how the city can become a national model for this movement. The goal isn’t a pipe dream.

Leaders during a recent summit called Growing the Impact Economy — convened by the White House, Stanford University and others — identified Encinitas as a potential pilot community in the for-benefit sector, according to meeting organizers.

If selected, Encinitas would be eligible for federal support, and local for-benefit businesses could tap into national networks of investors.

“You walk in the streets, you see the venues, you meet the people, and there’s just something in the air here about moving toward a more sustainable way of organizing the economy and society,” said Heerad Sabeti, an organizer with Growing the Impact Economy who visited Encinitas last week to gauge the city’s potential in the for-benefit sector.

Sabeti, also an entrepreneur and adviser to the Center for International Business Education, said companies are increasingly taking up social causes, nonprofits are developing sustainable business models and governments are embracing market-driven approaches. With lines blurring, what’s emerged is for-benefit businesses, also called the “fourth sector,” he added.

Sabeti said tax laws are changing to encourage the fourth sector, but in some ways it’s still “the Wild West.”

In a fourth-sector milestone, Patagonia was the first registered benefit corporation in 2012.

That means Patagonia, which has a store in Cardiff, rewrote its bylaws to include tangible social and environmental goals. Under benefit corporation rules, Patagonia must confirm it’s pursuing these ends every year by publishing an independently verified report.

Patagonia has stated it filed as a benefit corporation to lock in its socially minded mission. Alternatively, many traditional companies face pressure or have a fiduciary duty to put shareholder value above all else.

Sabeti said going the fourth-sector route can also make sense from a profit standpoint, since much research shows consumers prefer companies involved in social good.

Resident Andrew Hewitt organized the meeting to gain community support for making Encinitas a fourth-sector model.

“Encinitas was a community encouraged for consideration,” Hewitt said of the Growing the Impact Economy summit. “And it is really up to our community if we step into that opportunity.”

His pitch was warmly received from the 40 or so entrepreneurs and city leaders in attendance. Most agreed to meet on a regular basis to nurture the local movement (the next meeting date and location weren’t available by press time).

Hewitt listed other benefits to being named a pilot community. Encinitas would be featured in a White House-backed playbook for communities interested in fourth-sector development. And the nonprofit State of the USA would develop metrics to gauge the city’s progress in supporting for-benefit businesses.

An email inquiring how many model communities will be named and when was not answered by press time.

Hewitt created GameChangers 500, a list profiling the top for-benefit companies. He recalled during the meeting that he began searching for a city two years ago where he could champion the fourth sector. Encinitas, with a number of socially conscious businesses and an environmentally minded populace, fit the bill.

Raj Lahoti, the CEO of DMV.org, told the crowd during introductions that he relocated his company to Encinitas two years ago to pursue a triple-bottom line, which means prioritizing not only profit, but also positive environmental and social impacts. He’s also the managing director of For Benefit Ventures, which invests in such companies.

“I want to grow this ecosystem,” Lahoti said.

Anthony Zolezzi is a nationally known entrepreneur and also an operating partner at Pegasus Capital Advisors, which focuses on launching health products and companies. Zolezzi said he’d like to lend a hand to the local movement.

Robert Styler moved to Encinitas a mere day before the meeting. He’s the co-founder of Powur Solar, a b-corp, not to be confused with benefit corporation.

The nonprofit B Lab awards the b-corp status. To earn it, companies must complete an in-depth questionnaire — with supporting paperwork — that offers points for conserving utilities, paying employees fairly, volunteering in the community and helping the planet in other ways.

“What I liked about Encinitas is that people want to change the world, but they’re very grounded in how they want to do it,” Styler said. “It’s not just this hippie feel of ‘Oh, go with the flow.’ It’s more ‘Here’s the business plan, here’s the structure.’”

Companies don’t necessarily have to be a b-corp or benefit corporation to fit the for-benefit mold. San Francisco’s Recology, a traditional for-profit company featured in GameChangers 500, collects and processes municipal solid waste, reclaiming materials otherwise destined for the landfill.

But for a socially conscious entrepreneur, there are downsides to picking for-profit or nonprofit, fourth-sector advocates say. Going for-profit often means that social goals take a back seat, while nonprofits are limited in their ability to raise capital.

Advocates say national tax laws should be rewritten to allow for a happy medium.

Thora Guthrie, executive director of Encinitas 101 Main Street, said Encinitas seems ripe for the fourth sector.

“I really look forward to learning more,” she said.