The Motley Fool recently had an opportunity to chat with social entrepreneur Peter Thum. Thum is the founder of Ethos Water, which was sold to Starbucks in 2005. He also co-founded Fonderie 47, an organization that takes assault rifles from war zones and turns them into jewelry, and Liberty United, which takes illegal guns from U.S. cities and turns them into jewelry, with the proceeds from both funding programs to reduce gun violence.
Our full chat with Thum, found below, touches on topics including Ethos Water and its sale to Starbucks, the role of purpose in a company's success, his advice for new entrepreneurs, and the inspiration behind starting Fonderie 47 and Liberty United.
The Motley Fool: You left McKinsey in 2002 to start Ethos Water. What was your inspiration for Ethos and why?
Peter Thum: In 2000, I was in working on a consulting project in South Africa. As the work progressed I traveled around the country and worked with and among very poor people. I met many people who lacked access to clean water. I did some research and found that over a billion people lacked clean water and more than twice as many didn't have access to basic sanitation, a decent toilet. These experiences left me wanting to do something about this global problem.
The next project that I worked on was for a soft drink company. I was working on their bottled water business and saw that many consumers were buying expensive water brands that were only different because of their source. I decided that there was the potential to create a bottled water brand that could help raise awareness and funding for safe water programs from this consumer segment. I wrote the business plan, left McKinsey and moved to New York to start the company in 2002.
TMF: In 2005, Starbucks purchased Ethos. How did this deal come about?
Thum: We began working to get Starbucks as a customer in the spring of 2004. Over the next year we met with executives from their strategy, corporate social responsibility, marketing, and consumer products departments. They showed some interest, but it didn't go anywhere. Then, after the Omidyars [philanthropists Pierre and Pamela] invested in Ethos, they asked what else we needed and I asked them to introduce me to Howard Schultz.
This took a few months, but we eventually met with him and pitched him on supplying them with our water. He was very positive and the meetings continued and then about four months later they came to us and said that they had decided that they wanted to buy the brand rather than have us as a vendor.
TMF: How did Ethos change once it was acquired by Starbucks?
Thum: The volumes grew from thousands of cases to nearly a million cases a year. This made the brand immediately profitable. Starbucks increased the donation per bottle by about two times. Over the next year they changed the packaging as well.
TMF: You worked at Starbucks from 2005 to 2008. What was it like to work there?
Thum: It was exciting. I got to make the brand that I had started in my apartment in London become a national and then a multinational brand -- obviously through Starbucks.
TMF: From A to F, how would you grade corporate America when it comes to serving all stakeholders -- customers, employees, shareholders, vendors, and the world?
Thum: Publicly traded companies are really built to serve shareholders. The best competitors in an industry will get an "A" in this category, based on whether they are delivering the results that the shareholders hoped for when they bought the stock. All other stakeholder considerations are subordinate and are managed to optimize the operation to deliver on their strategy and related objectives. If the companies get A grades by serving these other groups it is because it is competitively expedient.
TMF: What companies in America are serving all of their stakeholders in the best ways possible?
Thum: Wow, I'm not an equities analyst, so I looked at the top 25 list on your website. I love using Google products and I think that they have fundamentally changed the way that the world works and made people's lives better in important ways.
I would probably think more about the importance of sectors than about individual publicly traded companies. It is good if companies are working hard to not do damage, or reduce negative impacts, as they serve their customers, but that's not really enough for us to survive the next century if everyone in China and India and frankly everywhere else in the world is going to consume, or strive to consume, at the same level as people living in the U.S. For example, we love driving and doing other things that consume lots of energy, and we Americans love eating too much, etc. So, companies that can win the future will invent engines that have zero greenhouse gas emissions, foods that make our taste buds deliriously happy but don't give us diabetes, and so forth. If a company currently makes its money optimizing a business that relies on such emissions, or on selling sugary foods and drinks, this kind of innovation is hard to champion.
TMF: How important is a business's purpose to success?
Thum: Critical. And I think that is true in most important human endeavors.
TMF: Do you think companies have a responsibility to give back in a way that's driven by their purpose?
Thum: I would use the word "opportunity," and I think that this opportunity can be very helpful to companies if they do it well.
TMF: What advice can you give to entrepreneurs who are thinking about starting a business, especially social entrepreneurs?
Thum: Pursue your idea as soon as you can. Make your product and try to sell it to someone. If it works, you're in business and you can iterate; if it doesn't you can figure out why and try again.
TMF: Tell us about Fonderie 47 and Liberty United.
Thum: While working on a set of water projects in Africa for Ethos Water in 2008, I met men and boys armed with AK-47s. It was clear to me that this was a big and complex problem, but it was also very different from other development issues. The solution had to inspire people to believe that something positive could come from something as negative as guns. So I decided that we had to turn the gun into something inspiring.
We launched Fonderie 47 in 2009 to help reduce the number and impact of small arms in Africa. When we launched the company I knew that we would have to inspire people to help the cause beyond the sense that this issue was an impossible one to tackle.
We take confiscated AK-47 rifles from the Democratic Republic of Congo, which we literally deconstructed and brought back to the United States in our suitcases, and work with high-end jewelry, art, and watch designers to transform the weapons. Proceeds from the sales of these items fund disarmament in Africa, and to date we have removed and destroyed over 34,000 rifles.
In the fall of 2012, my wife Cara urged me to expand our work to reduce gun violence in the U.S. We both had been touched by the effects of gun violence -- a friend of mine from college was shot and killed about 20 years ago, and Cara, who grew up in the Bronx, was younger than 10 the first time she saw someone shot. Gun violence is an unacceptable problem that is begging for Americans to step up and act.
In spring 2013 we launched Liberty United, which takes guns and bullet casings collected in American cities, melts them down, and turns them into rings, bracelets, and necklaces. The weapons are sourced from local law enforcement from our partner cities. Proceeds from the sales of each piece go to nonprofit groups in these cities working to reduce gun violence. Right now, we partner with Philadelphia, Syracuse, and Newburgh, N.Y.
We currently have two jewelry collections available created by well-known designers Philip Crangi and Pamela Love. All of our products are made in America and each piece bears the serial number of an illegal weapon that we have taken out of circulation. Prices for the pieces range from $85 to $1,545 and can be purchased on www.libertyunited.com.
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