A better business model


Our modern corporate structures are not fit for purpose for the future we face. For profit businesses are still “for profit” as a guiding principle, making their focus myopic. Not for profit entities are only successful when there is no longer a reason for them to exist, making them conflicted actors. We need to find a new model for doing business that is easy to understand and widely applicable. At Chicoa, we’ve spent the last seven years experimenting with what it means to build a business from the group up on the principle of shareholder values maximisation. In this structure of business, we are cultivating shareholder value rather than extracting it. We’ve found that when you try to create abundance rather than hunt down scarcity, it fundamentally changes your decision-making, across the board. It’s a perspective that is, by definition, a multiplier. We believe that it’s a much better model for business. And the really good news: it works.

The founding principle for Chicoa was fairly straightforward: build a farm in the right way in the right place, and an industry will grow around it.

It may seem simple, but the best “radical” ideas sound obvious after the fact. 

Until Muhammad Yunus began lending to groups of poor women in Bangladesh, no one knew how to bank the unbanked. Policymakers were stuck looking for solutions within the existing banking framework, rather than going back to first principles and checking their underlying assumptions. The crucial perspective shifted needed to bank the unbacked was to redefine the credit risk problem away from individual risk to communal risk. 

It may seem subtle and technical, but it’s a powerful example of how an embedded assumption can make a problem appear unsolvable. A single poor woman in Bangladesh was an unacceptable credit risk to a commercial bank. A group of communally-connected women in Bangladesh, who each individually signed surety for their group, turned out to have an excellent credit record. 

Of course, embedded assumptions are also a critical component of human knowledge. When an architect is designing a new building, it would not be useful for them to begin by philosophically questioning the scientific definition of how long a metre is. As long as everyone agrees on what a metre means in practice, the real work can continue.

But the historic reality is that innovation often comes from checking those embedded assumptions. 

And the world of corporate structuring is due for a rethink.

In its time, the limited liability corporation was a technical innovation that fundamentally changed the way we do business. It made it possible to take risks in business without the personal risk of ending up in debtors’ prison and sending the children off to become Oliver Twist.

But we’ve come a long way since Charles Dickens was alive, and all manner of embedded assumptions have crept into the practice of commerce. 

It’s time they were tested. Especially now that we face a certain future of uncertain Climate Change, where even our most ordinary of seasonal assumptions will be wrong.

Impact needs to become a multiplier, not a trade-off

As longtime residents of the Impact Investing world, we’ve seen a lot of retrospective green-washing take place – where an established business tries to bolt on green thinking and social impact to its operations. That’s better than doing nothing, yes – but the options available to those established businesses are limited by the operational inertia that already exists. Impact in that setting is almost always a trade-off decision, not a multiplier.

This is a real risk, because we can already see in real time the complex global effects caused by small changes in temperature. We are facing a compounding set of problems.

To get ahead of them, the future needs positive multipliers from us, not trade-offs. 

We need compounding sets of solutions. 

This is a structural problem. So it made sense to us to start with thinking about how we structured our business. 

With Chicoa, we were able to think about creating the conditions for impact before we even decided to go ahead and build the farm.

In practical terms, this meant that we did not distinguish between a commercial objective and an impact objective in our planning and decision-making: we just presumed that any objective inherently ought to be both. 

Is this too high a standard?

It may seem like a higher standard, but it is not. In the end, it is simply factoring time into our decision-making, which makes for better decision-making.

I say that because a commercial objective that requires an impact trade-off tends only to make commercial sense in the short-term. As you extend out that time horizon, the trade-off makes progressively less sense.

Here’s my real world example: I bought my first house in the middle of winter. By the time summer arrived, the house was overrun with flies, and there was a penetrating smell of dog shit in the back garden. When we went looking for the problem, we found that the former owners’ dogs had been extremely productive in their time. And instead of collecting the excrement, it had been regularly swept into the flower bed against the far wall. It was certainly an easier solution in the short-term. Perhaps someone could argue that the intention was to turn the dung into compost. But by summer, that flowerbed had turned into a festering breeding ground for flies.

The moral of the story: when you plan to leave, you take short-cuts and post-rationalise them; when you plan to stay, you make decisions for the long-term. 

So why don’t we do more long-term planning in business?

Business incentives are misaligned

In the corporate world, choosing long-term benefits is not easy. Most private equity funds invest for the short term. A five to seven year investment horizon is completely standard. That may be a lifetime in finance, but finance works in dog years. Agribusiness, on the other hand, works in tree years. 

There is also a short term survival issue. The long term decision usually pays off in the long term. You may not make it there if you don’t engage in trade-offs.

So there is a short-term incentive hurdle for for-profit business.

But even not-for-profit businesses have an incentive problem.

Their incentive misalignment starts with the fact that an NGO’s reason for existing is the problem that they are solving. Thus, their end goal is to become superfluous. This is not a good structure to attract the ambitious – it is a structure that attracts the idealistic. Idealism without ambition makes for a lot of well-meant conversation. This is the business model of forums, conferences, meaningful engagements, inspirational talks, site visits, well designed reporting models and careful desktop feasibility studies. You get exceptions, but there is an overwhelming representation of experts in non-profits who are well acquainted with the literature and who specialize in assessing the risks and shortcomings of project applications. They are always searching for a solution that has not yet been presented, because this proposal will not work, unfortunately.

Pure impact oriented NGOs may embrace the problem of intergenerational change, but they lack the internal drive of seeking commercial viability. 

This is really the problem of our standard capital structures:

  1. For profit businesses focus on shareholder value maximization in the short term. 
  2. Not for profit businesses focus on stakeholder value concerns with an end in mind but no end in sight. 

The Chicoa Way

The Chicoa approach of insisting that commercial and impact objectives are synonymous turned out to be a hybrid of those two business models. 

We focus on shareholder values maximisation, with the short term in mind but the long term in sight. 

To be clear, this is not actually a new idea – it’s simply a fresh framing of principles that you find throughout our pre-industrial agrarian history. 

Gardeners and farmers are caretakers of ecosystems, which they shape to bring to their full potential.  But they rarely treat the ecosystem as a tool for extracting shareholder value as rapidly as possible. Extraction is an industrial complex. 

When you inject agrarian thinking into industrial efficiency, you get a particularly beautiful model for business. 

The corporate entity becomes a vehicle for propagating shareholder value as opposed to simply extracting it. It remembers to sow in order to reap. We aim to create abundance rather than carve out corners of scarcity. Instead of obsessive rent-seeking, you look for opportunities to build symbiosis. 

This vision may sound idealistic, but we have seen it allow for a better fit with reality. 

The peninsula where we built the farm had no electricity for the first four years that we were there, being about three kilometres away from the nearest connection to the national grid. A pure capitalist stop-gap solution would have been to buy in generators as quickly as possible, because fish farms don’t operate without electricity to run a hatchery and breeding ponds.

None of us liked that solution. Generators need fuel and servicing, and the nearest fuel station was hours away. Tilapia farms that lose power have about 45 minutes before they wipe out their broodstock. We’d have needed significant fuel storage as backup, and dedicated vehicles to source it. Fuel storage is dangerous and therefore highly regulated. Fuel is also valuable, and prone to theft. We would be baking multiple single points of failure into our operating process before a single fish even arrived at the farm.

We opted instead to put our hatchery into the lake, and see if we could find a way to mirror nature’s nurture without electricity. Instead of subjecting female tilapia to having their eggs stripped and placing the eggs in incubation tanks, we left the eggs to be incubated in their mothers’ mouths. We developed fry collection methods for after the fry had hatched rather than before. While we did all this, our initial order of hatchery tanks sat onshore, gently collecting dust in the heat. 

When we eventually raised the funds to erect the pylons and buy a transformer, we never dusted the tanks off. 

We operate in an environment where electricity is erratic at best. We could have mitigated the risk with generators. Because we leaned into the environment rather than seeking to control it, we removed electricity risk from the equation. 

Of course, we have other risks in its place. We think they’re worth it.

But the point is that this solution did not come from an efficiency drive. It came from a kind of ecological logic. 

It’s the same kind of thinking as when a gardener plants drought resistant plants in an arid climate, rather than trying to fight the weather and grow an English garden of roses because that’s what people do in England where they have beautiful English gardens. 

There is so much that cannot be controlled in the business environment. It just makes sense to us that you ought to align with it rather than mitigate it. That’s what gives your business resilience.

This is what it feels like to be a multiplier

When you start the journey of building a business, you have a lot of choices about how to deploy your skills, time and energy. As you start making those choices, however, you are increasingly locked in to the path that you are on. 

The electricity example also demonstrates this well. If we had embraced generators as our short term fix, we would have built systems around fuel procurement and storage. That risk would have been the topic of due diligences and regulatory visits. We would have looked for cheaper, safer and more efficient ways to store fuel. We would have looked at alternative energy sources and battery saving packs. We would have invested in more efficient heating devices and reticulation pumps for the hatchery and breeding ponds. 

Just think of the time, energy and skill that would have been devoted to finding long-term solutions for that short-term solution.

Because we didn’t have to do that, we spent time finding a long term solution to the skills gap that we faced. We did the hard work of training people that lived near us, rather than hiring in expensive expatriate skills. And then having to build those unlocal workers local accommodation. Over-reliance on imported skills is another short term fix in need of a long term solution. 

Time and again, we watched the long-term decision pay off sooner than expected. It made us make more of them. 

I have a suspicion about why it turned out that way: it’s because we made so many long term decisions. When you make one long term decision, there’s a lot that can wrong. But when every decision is a long term decision, there’s a lot that can go right.

It’s just like planting seedlings in a garden. If you just plant one, the odds are that something will eat it – and even if it survives, the garden will look sparse and unattractive. So, obviously, you must sow many seeds. 

That is what is required for business to multiply: value propagation at scale.

It’s just so obvious.

And if you think it can’t work, then we are proof that it can. 

Because if we could test this out on a remote, undeveloped and uninhabited peninsula, without electricity or even a road to reach it, in one of the poorest districts of one of the poorest countries in the world, a country that ranked 146th (just below war-torn Syria) in the “Ease of Doing Business” Index back in 2013 when we first started trying to raise funding for the project, then it is certainly workable. So there’s that.

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