Fast or Frivolous 2018: How consumer brands are evolving, accelerating and evaporating

The Backstory

Fast or Frivolous? How consumer brands are evolving, accelerating and evaporating, our flagship report from 2017, charted the rapid changes—but also continuity—that the internet brought to the consumer economy. Before the internet, the playbook for consumer brands remained largely static, with incremental improvements such as catalogs, but the digital revolution gave rise to a new flurry of activity and distribution methods. Thanks to a the digital point of entry, which requires much less capital and resources, the number of brands flowered exponentially.

But even though the landscape changed, the fundamental process of doing “good business” did not. The maxims, “don’t spend more than you make,” and, “don’t grow too fast,” should have continued to guide consumer brands, but many batted these adages away as antiquated and no longer relevant to their digitally-native philosophies, particularly given the abundant influx of venture capital funneled to digital brands, totaling billions of dollars—a level of financing that legacy brands did not raise. Subsequently, many digitally-native brands grew too fast and spent too much—some have since shuttered, while many others struggle to stand out, stay afloat or find suitable exits that make money for everyone involved in the business.

2018 has been one of the more transformational years in the consumer economy, largely affirming the path Fast or Frivolous 2017 anticipated brands to follow. First, while the rise of new digitally-native brands has not slowed, more are diversifying their channels into offline spaces. Witnessing this return to traditional avenues, we saw the peak of digitization in 2017, and that increasingly, digitally-native businesses are returning to the multi-channel sales strategy that brands have always used, in which ecommerce, retail and wholesale all play a role. As more traditional brands devote greater attention to selling direct-to-consumer as opposed to wholesale and offline retail, multi-channel businesses will grow more uniform, regardless of whether a brand started online or offline.

This report is both a follow-up of Fast or Frivolous 2017—a continued exploration of what the brands featured in the original report have faced over the course of the past year—and now an ongoing annual survey of the consumer brand landscape.

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Altruistic commerce or commercial altruism? The benefits and limitations of philanthrocapitalism

In today’s hyper-globalized and -politicized world, more consumer product companies are seeking to align with initiatives that ameliorate society and the world, either at inception or later in their life cycle. Whether environmental sustainability, social justice or technological democratization, for-profit companies incorporate elements of the nonprofit world into their business models—at least on paper.

But regardless of the sincerity and impact of their socially-minded missions, for-profit companies are inherently driven to generate as much revenue and profit as possible, at the expense of everything else. This report questions the sincerity and effectiveness of their social missions, outlining the inevitable tradeoffs that for-profit companies make in order to both run their businesses and give back to society.

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The hypocrisy of philanthropy: Warren Buffett and Jeff Bezos’ great fortunes and delayed charity

Published in 1889, Andrew Carnegie’s essay, “The Gospel of Wealth” claimed that economic inequality was “the price of progress” and therefore unavoidable. He urged the wealthy to donate their fortunes, endowing institutions that that would aid “those who desire to rise” such as universities, public libraries, and music halls. Seeing these types of endowments as transcendent from mere charity given their intention to uplift society, many entrepreneurs continue see “The Gospel of Wealth” as the ultimate playbook for modern philanthropy. In 2010, Bill Gates, Warren Buffett, Michael Bloomberg and others led and debuted a contemporary manifesto called “The Giving Pledge,” which promises most of the signatories’ wealth to philanthropy.

Giridharadas’ book points out some of the contradictions in this line of thought. “The winners of our age must be challenged to do more good. But never, ever tell them to do less harm,” he writes. Though for-profit companies as diverse as Walmart, McKinsey & Company and Facebook may tout a mission to “change the world,” their continued prioritization on generating revenue—and the effects that come with it in the short term—can overshadow their ability to generate “economic value in a way that also produces value for society by addressing its challenges” in the long run.

In other words, charity doesn’t make up for poor business practices that hurt other people, the economy or the environment. When for-profit companies decide to give back only after amassing great wealth, they inherently maintain their position at the top of the socioeconomic ladder, even if their donations help address societal inequality. It’s equally important to questions the intentions behind a for-profit company’s altruistic endeavors and how the history of a business aligns with its charity. Even if Carnegie’s name is attached to various educational and social institutions, from Carnegie Mellon University to Carnegie Endowment for International Peace, his business practices had a darker side, particularly when it came to his anti-union policy.

Buffett made a fortune endorsing fast food, but turned to philanthropy late in the game.

The “Doing Good” Index: Education, Social justice, Socioeconomic

Warren Buffett’s holding company Berkshire Hathaway has grown to be Coca Cola’s biggest shareholder since the eighties, when it first invested $1 billion in the beverage company. Since then, Coca Cola’s value has more than tripled and the company is now worth $16.5 billion. Berkshire Hathaway’s portfolio also includes banks, insurers, manufacturing companies and railroads, but it also holds a distinct number of unhealthy and fast food-related companies beyond Coca Cola: Wrigley, Heinz, Dairy Queen and See’s Candy (Buffett owns the latter two). Since Buffett acquired See’s Candy in 1972 for $25 million, sales have risen from $30 million to $400 million in 2014.

Buffett has built a cult of personality around his “everyman” lifestyle which features both Cherry Coke and McDonald’s—notoriously, his wife puts out either $2.61, $2.95, or $3.17 in exact change each morning, depending on what Buffett plans to order from McDonald’s for breakfast. Buffett is also continuously profiled as one of the most charitable billionaires. However, much of his business history has prioritized “giving people what they want,” rather than innovating, in addition to profiting off the promotion of an unhealthy lifestyle. Though Buffett once lauded the cigarette business to fellow investor John Gutfreund—“it costs a penny to make. Sell it for a dollar. It’s addictive. And there’s fantastic brand loyalty”—he personally saw owning a tobacco company as a burden. But candy—also cheap to make and hard to resist—is not much different.

For years, Buffett thought that society would benefit more from letting his money pile up before donating it. Though this brought him a good deal of criticism, the “godfather of compound interest” believed that he would have the biggest impact by managing his money until his death, and then giving it away to charity.

However, Buffett’s first wife’s premature passing in 2004 and other considerations led him to announce plans to donate 85% of his wealth—about $37.4 billion—in Berkshire Hathaway stock to the Bill & Melinda Gates Foundation and other philanthropies starting in 2006 in annual installments. This promise was reinforced by Buffett’s signature to “The Giving Pledge” four years later; the year-to-year schedule for the donations also helped crystallize Buffett’s desire to forge a long-term investment in society rather than giving away a large lump sum. In July 2018, Buffett again made headlines after donating $3.4 billion in his annual gift of Berkshire Hathaway shares to the Bill & Melinda Gates Foundation, and to four foundations run by his family members (an education-focused charity named after his late wife Susan (scholarships to college students in Nebraska); Sherwood Foundation chaired by their daughter (social justice in Nebraska); Howard G. Buffett Foundation (international poverty), led by his son; NoVo Foundation, run by his youngest son Peter and his wife Jennifer (international collaboration, partnership). Including this latest donation, Buffett has given a total of $31 billion to these organizations—and more to others.

However, Buffett’s contributions to a high-sugar, high-fat and high-cholesterol lifestyle have not inspired him to donate to any obesity, heart disease or diabetes initiatives (recently he has considered a joint venture with J.P. Morgan Chase and Amazon to alleviate high cost and bureaucracy of U.S. healthcare system). It’s possible he may have to confront this reality increasingly as time goes on, particularly as Coca Cola is now struggling with declining sales for its sugary drinks, pointing to a shift in consumer opinion.

Bezos became the richest man in the world without paying sufficient attention to Amazon’s global impact.

The “Doing Good” Index: Consumer, Education, Socioeconomic

Jeff Bezos reached a financial zenith this year, garnering a fortune of $167 billion (as of September 2018) and becoming the wealthiest man in the world. But for years, Bezos’ lack of philanthropy—he has donated $68 million since 2000, about 0.04% of his fortune—has been sharply derided.

Critique has only been aggravated by reports on the company’s mistreatment of employees, particularly in Amazon’s warehouses, whether in the form of crushing unionization, low wages, surveillance or repressive noncompete clauses. The company’s impact also extends far beyond the workplace; opening Amazon fulfillment centers lowers the wages of other warehouses in that area, for example, wielding massive influence over entire city economies.

In May 2018, activists in Seattle lobbied their city council to pass a “head tax” on companies in the city that make more than $20 million in revenue. This singled out Amazon to advocate that the company fund municipal projects like affordable housing and homelessness. But after Amazon threatened to scale back its business in Seattle, the council repealed the tax plan.

Traditionally, the more most for-profit companies make, the greater their contribution to society in the form of taxes. They also bolster the economy and GDP by selling products, which raises the standard of living in their country. And, as these companies grow, they provide employment to more people. Amazon, however, most recently came under fire for the zero federal corporate income tax dollars the company paid in 2017, despite its $5.6 billion in profits and $177.9 billion in revenue. In terms of bolstering economies and living standards, Amazon has established new fulfillment centers in numerous municipalities, bringing in an influx of business and employment, but typically tries, and often succeeds in receiving tax breaks. Since 2014, Ohio has granted more than $125 million in tax breaks and cash grants to Amazon for new warehouses. While this has brought vast new employment opportunities to Ohio, more than 10% of Amazon employees in the state rely on the Supplemental Nutrition Assistance Program (SNAP) to purchase groceries (a governmental program funded by tax revenue).

While there has been little transparency on how Amazon is imploring states around the U.S. to bid for the location of its second headquarters (HQ2) since it announced the plan in September 2017, publicly available proposals point to massive tax credits and other financial incentives that states are offering to win the vote. The new headquarters, however, will drastically alter city life, inflating housing prices and pricing out long-term residents. Amazon’s profitability only exacerbates concerns among consumers and local and federal government officials alike, as this wealth has been achieved in large part by investing huge sums in operations and expansions that have continuously reduced prices for Amazon’s customers, only made possible thanks to Amazon’s cheap labor force.

In the past, Bezos has said that “the only way [he] can see to deploy this much financial resource is by converting [his] Amazon winnings into space travel,” referring to his aerospace company, Blue Origin, which he funds with $1 billion each year via the sale of Amazon stock. With Blue Origin, his long-term goal is to build infrastructure for future space entrepreneurs, parallel to how USPS and FedEx gave Bezos the delivery infrastructure to build Amazon. But in June 2017, facing prolonged criticism, Bezos decided to crowdsource ideas on Twitter for a philanthropic strategy that “would stand more at the intersection of urgent need and lasting impact.”

As Amazon’s employee base grows—it nearly doubled in size between 2015 and 2018, largely a result of the Whole Foods acquisition—and it continues to expand its empire, Amazon will be increasingly responsible for all of the people and places it touches with its global supply chain. Though criticism about Bezos’ lack of humanitarianism signals that the public expects a certain level of philanthropy from corporations, it’s important to judge donations with a critical eye when they are made. In September 2018, Bezos announced that he and his wife were putting $2 billion into a philanthropic fund, the Bezos Day One Fund, which will support existing nonprofits focused on alleviating homelessness and broadening access to preschool education. But the fund leaves open many unanswered questions about how the organization will be structured and how it will work with nonprofits in the space. It won’t be a 501(c)(3)—a nonprofit organization that invests in public initiatives and must disclose financial information publicly—as Bezos has already alluded to investing in both public and private initiatives. It will likely be a limited liability company (LLC), allowing Bezos to invest in both private and public initiatives without a public commitment to transparency. But regardless of how the money is used, it does not clean up Amazon’s record. As The Information points out that, “At its worst, charity is said to distract us from the root causes of need. That is, lack of access to well-paid work”—something inextricable from Amazon’s rise and continued domination as an ecommerce platform.


For-profits versus non-profits and the rise of philanthrocapitalism

Today’s rise in for-profit social enterprises diverges from the traditional path consume product companies have taken to “do good”: philanthropy. Traditional philanthropy is distinct (and criticized) for its timeline; it occurs only after great wealth is accumulated rather than as a company grows. With mounting expectations that for-profit companies will do more throughout their life cycle than simply sell products and make money, traditional philanthropy is increasingly seen as working backwards, when for-profit companies should be “doing good” every step of the way, i.e. paying it forward.

More entrepreneurs are now pivoting to a new model of charity called philanthrocapitalism, which folds philanthropy into for-profit business practices. Philanthrocapitalism views capitalism itself as philanthropic because it powers innovation and creates products that improve life, offered at increasingly lower prices. More entrepreneurs are embracing philanthrocapitalism today, guided by the impulse to control where their capital goes; instead of contributing to charity, they use the capital to accelerate economic development. The idea, according to Michael Porter and Mark Kramer, founders of The Center for Effective Philanthropy, is that “businesses acting as business, not as charitable donors, are the most powerful force for addressing the pressing issues we face.” Still, critics point out that philanthrocapitalism takes dangerous steps in privatizing social policy.

The line between for-profit and non-profit companies appears to be blurring more than ever before as buzzwords like “transparency” and “corporate social responsibility” continue to circulate. B Corps, for instance, are for-profit companies “certified by the nonprofit B Lab as voluntarily meeting higher standards of transparency, accountability, and performance.” But as as for-profits take on elements of nonprofits, it’s all the more important to question the intentions and potential impact of any philanthropic donation and any social initiative attached to a for-profit business. Investigating how for-profit companies balance generating revenue and fulfilling a public good helps to elucidate the level of authenticity in a business’ purported social mission.

Intentions and caveats behind for-profit altruism

Though their actions may be guided by the impulse to generate as much revenue as possible, for-profit companies don’t exist in a vacuum. Their decisions and actions, whether within the company, throughout its supply chain, or in the hands of shoppers, have wide-reaching and reverberating effects on employees, consumers, society and the planet. Though it is in a company’s best moral interest to reduce its carbon footprint, provide broad employment benefits, stand for equal rights and create products that improve life without causing detriment, there may not be a financial incentive to do so, especially in the short-term. For-profit companies also are legally bound to make money for their shareholders—a task that has nothing to do with society at large.

At the same time, consumers are demanding more than ever that companies behave transparently about their internal corporate culture and dynamics, their environmental sustainability efforts and ethical sourcing, and their attention to socially-minded projects, whether or not this mission intertwines with or exists outside of the business’ fiduciary health.

This trend is particularly strong among the newer crop of digitally-native brands, from Warby Parker, whose Buy a Pair, Give a Pair program offers affordable glasses and operates a training program for basic eye exams—to Bulletin, a startup retailer that gives digital-first, female-led brands accessible shelf space, hosts events to empower women, and sends 10% of all profits directly to Planned Parenthood of New York City. As consumer perception increases in importance—a survey from 2014 found that only 24% of respondents said they trust the federal government to “do what is right”—companies may be more incentivized to self-regulate and proactively address public issues. If anything, doing so may ensure that more customers open their wallets.

An investigation into for-profit companies that take on a social mission unveils two main ways of “doing good”:

  1. Companies do it as they grow (as they climb the mountain).
  2. Companies (and their leaders) do it after accruing a large amount of wealth (once they have reached the mountain’s summit).

Because there are so many avenues to give back to society, each company establishes at least an implicit hierarchy of “doing good,” determined by their founders and leaders; one may claim that amassing great revenues and then donating millions to charity later on is the most effective form of philanthropy while another may decide it’s more efficient to start giving from day one. In each situation, there are tradeoffs to make based on how the company applies resources to a public good versus pours revenue back into its product business, at what point in a company’s life cycle it decides to give back, and how much giving back affects sales. Any given social initiative may mix and match from a variety of benefits, whether socioeconomic, environmental, technological, societal, educational, etc.

Despite the intentions behind altruism, it always comes with caveats. For for-profit companies, it’s always a risk—alignment with a particular issue can hurt a business, even lop off a section of its customer base. For-profit companies that take on a social agenda are not immune to criticism, no matter what cause they endorse or how they give back. Some critics also decry these companies as hypocritical, masquerading a nonprofit ethos when they still exist to make a profit, and then producing self-aggrandizing advertisements.

Anand Giridharadas, author of “Winners Take All: The Elite Charade of Changing the World,” calls it “fake change”—“change the powerful can tolerate. It’s the shoes or socks or tote bag you bought which promised to change the world. It’s that one awesome charter school—not equally funded public schools for all… It is impact investing—not the closing of the carried-interest loophole.”

Not only are donations often only small cuts out of a for-profit company’s revenue, but the very existence of some of these companies has also resulted in or exacerbated many of the problems they seek to address through altruistic means. Given endemic issues with charity and other forms of humanitarianism—fields that cannot, unfortunately, escape corruption—there’s logic to the argument that both nonprofit and for-profit companies alike might be able to “give back” more effectively simply by improving their own business practices. For for-profits, this may mean paying employees higher wages or reducing carbon emissions in their supply chain. For non-profits, it comes in the form of refusing tainted funds from figures or entities that are incongruent with their mission, or pouring the maximum donations into their public programs. In 2014, for example, a joint investigation by NPR and ProPublica found that the Red Cross’ overhead expenses were much higher than it professed.