‘Business for good’ is good for business. Research backs up that there is money to be made in ‘purposeful’ business. A study of over 30,000 people from Nielsen in 2014 indicated that 75 percent of millennials and gen Z (65 percent across all age ranges) will pay more for products and services that ‘give back’ to society. New research by Porter Novelli has also shown that 78 percent of Americans believe that companies have a responsibility to have a positive impact on society, while 77 percent have a “stronger emotional connection” to companies which they see to be driven by a social purpose.

In response to this, we are seeing a new wave of entrepreneurs taking up the clear market opportunity with growing numbers adopting the ‘buy-one-give-one’ model of selling a specific good/service and using a portion of the profits to donate a similar goods or service to those in need.

Founded in 2006, by the now B Team Leader Blake Mycoskie, Toms Shoes was one of the first high-profile businesses to utilise the ‘buy-one-give-one’ model. While the business has been a financial success, and there’s no doubt to Blake’s positive intentions, it has not been without criticism. The key issues raised are its ability to put local companies in the countries they give to, out of business and an inability to adequately transform the receiving communities to create an ongoing impact.

The appeal of the buy-one-give-one model has been attributed to people’s tendency to most easily connect with individual stories of distress, rather than inequality or suffering experienced by a large group. Psychological research has discovered that people are likely to donate twice as much when told a story of an individual’s suffering, as they are to help “anonymous millions”.

Interestingly, they’re also less likely to donate to an individual when they’re placed within a broader pattern of inequality or deprivation. Purchases being marketed as “benefiting a child in need” accompanied by supporting imagery of the children being “helped” are likely to succeed, as consumers are granted an easy solution to a simplified, individualised, problem.

Writing at Fast Company, Lauren Janstein and Cinnamon Janzer have called these businesses out for “selling ego boosts disguised as social change, popularised by our ability to craft the appearance of an altruistic persona by placing Toms shoes on our feet, artisanal jewellery made from disenfranchised women around our necks”.

What is the real impact of the buy-one-give-one model?

I believe that companies and purchasers can be a lot more savvy when it comes to understanding the real impact of their decisions.

For example, it’s been highlighted that supplying shoes (or in fact any product) for free could impact the business of a local cobbler, as well as creating issues around consistency of supply when locals come to rely on the business. Andreas Widmer, director of entrepreneurship programmes at Catholic University of America, once bestowed Toms for its approach, but said he has since changed his view. “[Toms founder Blake] Mycoskie has a good heart. But, I have matured to see that following the heart to fight poverty is a terrible idea,” Widmer is quoted as saying. “It pleases you more than it helps anything. To give anything is always a bad idea when you’re trying to fight poverty.”

Research into the model conducted by a group from the University of San Francisco found that while children largely liked the shoes, they were worried by their findings that showed there was little positive impact on their self-esteem. They also found that these children were more likely to feel more reliant on external aid as a way of life.

Regardless of the ins and outs of the effectiveness of giving away a particular product, as Hannah Ritchie of Sustainable Brands writes, at its core, the poverty experienced by recipients of free items isn’t caused by a lack of resources. Rather, it stems from “an ineffective social and economic system that fails to provide the necessary infrastructure for communities to generate resources or wealth for themselves”.

What can we do if we really want to create positive change?

Through The Lever Room, we advocate seeking to understand where the real social or environmental problem lies. Once we understand root causes we can build financially profitable business models for companies and make purchase decisions that solve challenges while having enduring positive impact.

I’m heartened by the range of new business models that have proven to solve critical issues, creating impact for people and planet as well as profit. Themes observed include, but are by no means limited to, those I would describe as:

• ‘Waste to resource’ models which include innovative ways to source materials from recovered waste, creating entirely new products.

• ‘Product as a service’ models where people pay for the service a product provides without the responsibility of repairing, replacing or disposing of it.

• ‘Inclusive sourcing’ models which involve considering impacts beyond core operations. Retooling the supply chain to make a company more inclusive, focusing on supporting the farmer or producer providing the product, not just the volume of the product sourced.

• ‘Collaborative partnerships’ which involve innovative and unexpected collaborative partnerships in order to increase the scale and impact of initiatives.

Finally, it’s worth observing that Toms Shoes is not alone in this and that these insights equally apply to many other companies adopting the ‘buy-one, give-one’ model. For example, the New Zealand for-profit company Eat My Lunch has been criticised for creating a model that doesn’t seek to truly solve the issue. For every lunch bought by a consumer, one is donated to a hungry school kid. The business’ founders have stated that they’re addressing the problem of “hungry kids”, but others have questioned what is done with the profits and pointed out the current model does little to address the bigger systemic issues causing this. Eat My Lunch also attracted criticism for their challenge to politicians to solve the problem of children going hungry by buying a lunch from them, ignoring the much more powerful tools we are able to wield to solve the problems on a deeper level.

In summary to create lasting systemic change, I recommend that we:

1.   Understand the exact nature of the problem, then create fit for-purpose solutions that build economic opportunity for others, not dwindle it. Part of this might include empowering people we seek to help to find their own creative solutions, building value over the long term and increasing self esteem.

2.   Buy products and build companies that create a solution, not a band-aid that risks making the problem worse in the long run.

3.   Explore the myriad of new business models that exist (beyond buy-one-give-one) that can be adopted to give clear outcomes for people, planet and profit.

4.   In our purchase decisions, ask more questions about the real impact of free items on the communities receiving them.

• This was originally published on The Lever Room.