For many organizations having one or two anchor customers is the most important factor facilitating growth. Some start with an anchor customer already in place, while others are able to secure an anchor early on. Regardless, very few would have achieved strong rates of growth and expansion without these large purchasers of goods and services.
Anchor customers also benefit from their relationships with social enterprises. The social mission acts as a competitive advantage in attracting public sector agencies and large, multi-national corporations. For private corporations, partnering with social enterprises demonstrates its philanthropic commitment to investing in the local community. For the public sector agencies, social enterprises provide a concrete product or service while simultaneously addressing other costly social problems, such as unemployment and recidivism.
Anchor customers fall into three main groups:
- Private sector anchors. Private sector anchors are interested in the product or service, but also the larger mission of the organization, generally because it aligns with their own goals for social justice and community impact.
- Public sector anchors. These anchors work with social enterprises both to obtain needed goods and services and because they are meeting broader public sector goals, such as reducing recidivism or meeting mandates for engaging contractors that employ people with disabilities.
- Internal anchors. Internal anchors are less common, but occur when the major purchaser of goods or services exists within the structure of the larger institution in which the social enterprise is housed.
Private Sector Anchors
Of all the organizations we studied, Greyston Bakery most clearly illustrates the power of a strong anchor customer. The bakery started in the mid-1980s producing high quality hand-made cakes and pies to New York City restaurants. In 1988, Greyston founder Roshi Bernie Glassman was introduced to Ben Cohen of Ben & Jerry’s ice cream, which led to an order of brownies initially intended to create ice cream sandwiches. When the first shipment arrived, the brownies were stuck together and unusable for their intended purpose. Instead, Ben & Jerry’s broke them into pieces and, in the process, created a new ice cream flavor—Chocolate Fudge Brownie, which became one of its best sellers. Greyston continued to provide Ben & Jerry’s with brownies, and the partnership enabled them to grow and mature, buying the machinery needed to scale up operations. As another values-led business, Ben & Jerry’s was an ideal partner for Greyston and the two grew together.
While the relationship with Ben & Jerry’s has been critical to its growth, Greyston did not take the ice cream company’s business for granted. It used the foundation Ben & Jerry’s provided to create a state-of-the-art bakery that has allowed them to produce a high-quality product at a competitive price. Having a competitive product proved critical when Ben & Jerry’s was bought by Unilever. While at first the buyout did not affect Greyston’s work with Ben & Jerry’s, over time the relationship with Unilever turned out to be a huge asset. In 2009, Unilever unveiled its Sustainable Living Plan designed to reduce the environmental impact and improve the labor practices of the companies in its global portfolio. Greyston had already been working to improve its own supply chain with these factors in mind, and as a result, Unilever began highlighting Greyston as a model for how the company would like other businesses in its portfolio to operate. Mike Brady, Greyston’s CEO, was invited to participate in a series of TED Talks coordinated by Unilever to publicize Greyston’s work. The benefit for Unilever was Greyston’s alignment with its larger social goals, and Greyston benefits from the positive publicity that comes with the relationship.
Similarly, the Women’s Bean Project’s (WBP) new relationship with Walmart has been mutually beneficial. In March 2013, WBP became part of Walmart’s Empowering Women Together (EWT) initiative, which includes a commitment to source $20 billion from women-owned businesses for their U.S. stores over five years. The relationship has enabled WBP to improve its infrastructure and become a drop-ship vendor, which means it ships directly to online consumers from its own warehouse. Having drop-ship status allowed Walmart to add more of WBP’s products to the Walmart.com website. The relationship also led to increased publicity for WBP. It was featured as Walmart’s North American model in an Oxford University case study about the Empowering Women Together Initiative; Tamra Ryan, the CEO, has been interviewed several times in Fast Company magazine; and WBP has been featured in an advertisement at the U.S. Chamber of Commerce Social Responsibility Awards. This publicity increases WBP’s visibility and benefits Walmart, by being seen as a large corporation that supports small businesses working to improve lives.
Evergreen Cooperatives is unique in that it was conceived as an anchor-based strategy from the very beginning. The Greater University Circle (GUC) Initiative, a partnership between the Cleveland Foundation and the city’s leading anchor institutions, was established to address disinvestment in some of Cleveland’s poorest neighborhoods. As an incubator of worker-owned cooperatives, Evergreen was created as part of GUC’s larger goal of creating jobs and building wealth for neighborhood residents. The businesses developed under the Evergreen umbrella—including a laundry, construction firm, and a hydroponic greenhouse —provide goods and services that the anchor institutions purchase. Across the three businesses, approximately one-third of the revenue comes from contracts with the GUC anchor institutions, including Cleveland Clinic, Case Western Reserve University, and University Hospitals Case Medical Center.
Public Sector Anchors
Public sector anchors provide much of the same support to social enterprises as private sector anchors, although the reasons for initiating these relationships are somewhat different. In the case of both Human Technologies Corporation (HT) and Nobis Works, working with these organizations helps anchor customers procure goods non-competitively (and therefore more efficiently) through the Javits-Wagner-O’Day Act, which provides for the purchase of certain supplies and services from non-profits employing people with disabilities. It also helps the federal government address the problem of high unemployment in disabled populations generally. In the case of CEO, state government benefits both from the services the work crews provide as well as the savings incurred from reduced recidivism among their participants.
These mandates notwithstanding, maintaining a relationship with public sector customers requires a quality product, as it does with private sector customers. HT, for example, was able to secure a long-term relationship with the U.S. Forest Service because it went above and beyond the scope of the contract to improve the uniforms it was contracted to deliver directly. According to a customer at the Forest Service, “HT put all hands on deck, addressed every single complaint, and eventually changed the whole thing top to bottom. In the end we got better uniforms, better quality, and better pricing.”
For CEO, anchor customers have been the primary driver of expansion. In CEO’s 20-year history, these customers have always been government agencies—the Internal Service Fund in New York and CalTrans in California. These are ideal customers because they can provide large, long-term contracts and have an institutional commitment/obligation to providing public benefit. CEO also places an emphasis on real, consistent, and meaningful work. If the work does not provide concrete value to the customer, the relationship will not last.
CEO also has the added benefit to government of addressing a critical social problem by employing people recently released from prison. Thus, the criminal justice system also views CEO as an asset. CEO first began working directly with the criminal justice system in the 1990s in partnership with an innovative Parole Commissioner and the State Budget Department in New York. This partnership formed the model CEO has used since. When CEO makes a decision to expand, a local criminal justice partner is an integral piece of the puzzle. The current policy environment in criminal justice, especially in California, leads CEO staff to believe there is a great deal of room for growth. In coming years, California counties will be shifting more offenders toward services and probation rather than jail, with a parallel growth in mass supervision.
Only two of the social enterprises we studied—Bank of America and Goodwill Central Texas—have internal anchors. Bank of America Support Services Division (Support Services) has an integrated business relationship with Bank of America. The division exists to provide back office and logistics support to the larger corporation. The department does not work with outside clients, but would not exist if it could not provide cost-saving, high-quality services to internal clients, including a number of large divisions, most notably home mortgages.
MBNA’s former CEO, Charles Cawley, created Support Services in 1990 in order to employ a friend’s son with a disability. The first three employees—the friend’s son and two others—were hired and placed into competitive roles at the bank. Support Services was created shortly thereafter, but was not built like a business. In subsequent years Cawley decided how many new workers to add and Support Services grew to over 200 employees. It was not until Bank of America’s acquisition of MNBA in 2006 that the executive team was provided the opportunity to think about Support Services more strategically.
When Bank of America acquired MBNA in 2006 it would have been easy for Support Services to disappear. Instead, the Support Services leadership team was challenged to integrate the division into Bank of America not as a “charity case,” but as a valuable line of business. Prior to the acquisition, individuals were first hired into Support Services before leadership would go looking for work in order to keep them busy. Mark Feinour, executive of Support Services, refers to the model as “trying to put a square peg in a round hole.” Bank of America flipped that model and looked for appropriate work before hiring people. As a result, Support Services has become an efficient and cost-effective business.
Goodwill Central Texas is unique in that its retail stores serve as an anchor. While the customer is essentially the general public, the national Goodwill brand makes its stores a reliable source of income in both good and bad economic conditions. Upon joining Goodwill, CEO Jerry Davis improved and expanded existing stores as a way to increase revenue for the organization. Over the last few decades, GCT has consistently generated over a third of its revenue from retail sales, giving the organization financial stability and the flexibility to pursue new lines of business.
GCT used its retail stores to expand into computer refurbishing and recycling. Starting in 1997, the organization was receiving donations of old computers, and because of local environmental ordinances, was unable to throw out what it could not sell. Instead, GCT decided to turn the operation into a training program. Clients would disassemble the donated computers, put them back together to be in working order, and sell them through a store dedicated to refurbished computers. The store brought national attention to GCT, and in 2004, the organization partnered with Dell to create a program called ReConnect. The program has since expanded to a national partnership with Goodwill Industries International and operates in 1,900 Goodwill stores nationwide – diverting 96 million pounds of e-waste and creating 250 green jobs. Internally, GCT has expanded the program and generates $1.5M in sales. GCT staff provides consulting services across the country and globe replicating the model.
Rather than evolving over time, like other pathways, anchor customers were generally secured early in the history of the social enterprises and/or directly preceded expansion and replication. The case studies reveal some key findings about the important role of anchor customers in providing a foundation and launching pad for social enterprise:
First, a quality product is necessary, but the social mission provides leverage. Maintaining and building a relationship with an anchor customer requires developing a quality product or service and offering a competitive price. However, the social mission of these companies often benefits anchor customers as well, providing a competitive advantage to social enterprise. Being associated with a social enterprise can give large corporations positive publicity on a local or national level. For public sector anchors, the benefit often takes the form of a positive social externality that results in cost offsets, such as higher levels of employment and lower levels of recidivism.
Second, diversification is critical. Relying on a few anchor customers over the long run may limit growth and exposes the business to risk if the anchor customer gets bought out, scales back operations, or goes out of business. Not surprisingly, the two largest social enterprises profiled in this report—Goodwill Central Texas and Human Technologies Corporation—also have the most diversified customer bases.