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The Rise of Indie Capitalism
updated: Feb 15, 2014, 4:00 PM

By Kathleen Sharp


Bici Centro Executive Director Ed France, left, and board member Robert Caiza, right, man the bike shop at 506 E. Haley St. (Jenny Hirsohn)

When college student Paul J. Lynch was shooting a film in the Gaza Strip a decade ago, the U.S. had just invaded Iraq and young people like him were witnessing and participating in protests about the dark side of globalization. "We were dodging tanks and gunfire, and it really opened my eyes," he said.

Today, Lynch is in much friendlier territory, hugging the shore in Santa Barbara and filming a different sort of revolution. As a 35-year-old and owner of Cage Free Productions, a strategy and production firm, Lynch is helping Channel Islands Outfitters co-owner Garrett Kababik film his story about how CIO is everything but a global force.

What do these two men in common? Both have taken the unorthodox step of registering their companies as certified B Corporations.

The certified B Corp. is a new designation tailor-made for entrepreneurs who want to improve their communities while turning a profit. As such, B Corps. are helping to redefine the idea of business success. "The idea is to use business to serve a public good," says Lynch.

To understand this movement, let's look at the first 14 years of this millennium. The average middle-class worker suffered three big, manmade setbacks. First, the dot-com bubble shattered the illusion of infallible Silicon Valley genius and an ever-rising stock market. In short order, the War on Terror started ringing up its trillions-of-dollars tab. Then came the financial collapse of 2008 and the ensuing Great Recession, powered by Wall Street greed, reckless-to-predatory bank lending, irresponsible regulators and gullible- to-gluttonous homebuyers. We were left with a $700-billion, taxpayer-funded bank bailout and mounting home foreclosures even as corporate profits soared to record highs.

While cries that "the system is broken" have been around since the '60s, Katie Kerr, a spokeswoman for B Lab, the certifying firm that spearheaded the B Corp. wave, says the crash left a wide swath of people feeling like they had reached a tipping point. "You can't have a successful life if your co-workers can't subsist on their wages or if your community is dying," says Kerr.

Many believe that is what's happening now. Since the recession, the national economy has lost more than $12 trillion; about 94 million Americans have teetered on the brink of or fallen into poverty at one point or another. In Santa Barbara, bankruptcies, foreclosures and unemployment rose so high that Rolling Stone magazine, in June 2012, featured the city's homelessness issue as emblematic of America's shrinking middle class.

Some local business owners are trying to reconfigure the future. For example, the number of certified B Corps. has grown from zero in 2006 to six in the South Coast region. Nationally, there are at least 705 Benefit Corporations-a legal company structure for businesses that positively impact society and the environment-operating in more than 20 states. Anecdotal evidence suggests that co-ops in Santa Barbara are growing, and nationally, co-ops sales have tripled since 2006 to almost $700 billion a year. Around the U.S., DIY bicycle stores/collectives are proliferating, and then there are the 80 businesses in Santa Barbara County that have been certified "green," just in the past five years.

Driving much of this growth are the 80 million Americans who were born roughly between 1980 and 2000. Many in the millennial generation came of age bearing scars from the Great Recession-and remain shell- shocked from wide-scale institutional failure, distrustful of big business, burdened with debt and bereft of well-paying jobs.

As a result, these people are less likely than their predecessors to buy now, pay later-and they certainly aren't buying new cars and homes according to numerous studies, including a recent report from the Governance Lab at New York University. They may be frugal, but they are civic-minded and want to be engaged in changing things for the better in their personal lives and careers. After interviewing scores of people over the past two years, I've found that many millennials are trying to turn their disillusionment into a new vision by exploring the places where entrepreneurship intersects with social responsibility.

This new wave of entrepreneurs is leaving behind the old economic structures and erecting new ones, incorporating their need for financial stability with a yearning for a better, more meaningful life. I call this trend "indie capitalism." And here are some of Santa Barbara's trend leaders.

On a warm, windy day in early January, Channel Islands Outfitters CEO Garrett Kababik is dressed for success in shorts, a T-shirt and flip-flops. Kababik is at his "office" at Goleta Beach near the trailer that serves as CIO's Paddle Sports Center. "I've always appreciated the outdoors," he says, as waves murmur in the background and his big dog snuffles next to him.

Kababik, 33, arrived here a decade ago. He landed a job and took people on kayak adventures to the Channel Islands and its sea caves, an experience that often transformed their lives. Over the years, he learned the business and watched it grow.

Until 2008, things were going well enough that the firm felt secure in taking on debt to buy new equipment. Then, the financial crisis hit, banks failed and capital dried up. Businesses began laying off employees in order to save money and/or to appease shareholders.

Kababik's company was not immune. He decided to hit the trail, literally. He spent six months hiking the Appalachian Tail and thinking about how corporations wreak havoc on people.

When Kababik returned to Santa Barbara, he reconnected with friends Fraser Kersey and Johnny Dresser. By now, 2010, the owner of the kayak tour and rental company Kababik used to work for wanted to sell. Kababik was interested. He had a recreation management degree from the University of New Hampshire. Kersey had a finance degree from Cal State Long Beach and Dresser had served in the U.S. Navy for eight years. All three had read about "ethical" businesses, "impact investment" and other ways of starting socially responsible ventures. Kababik says the three friends decided to focus on "people, plants and profits." As it turns out, a new corporate structure customized to fit their ideals was already taking shape, under the radar and some 3,000 miles away. B Lab, a nonprofit based in Wayne, Penn., saw a demand for companies that wanted to stitch social responsibility into their genes.

Lots of companies claim they're responsible, but B Lab started measuring those claims, auditing firms that want to be rated on environmental and social contributions. To undergo B Lab's test, business owners must answer questions about how their firms treat employees, care for the environment and give back to their communities. When CIO claims that it used recycled materials, B Lab asks for the firm's policy statement along with purchase receipts for the recycled materials. You say you keep your money local? Prove that you deposit with a local bank.

If a firm passes B Lab's standards of social and environmental performance, it can become a certified B Corp. That sticker indicates an "ethical business," a label that appeals to a growing number of consumers, especially millennials, who are more inclined to support companies attempting to do some good in the world.

It turns out that California is leading the B Corp. charge and has more certified entities than any other state in the nation: 199 compared to 87 in Delaware and 62 in New York. "California is a very vibrant entrepreneurial area," says Kerr, B Lab's spokesperson.

The San Francisco Bay area is home to about 60 percent of B Corps., while Southern California-based firms account for the rest. "Central California is a little sleepy but the more a community learns about B Corps., the more of them we see," adds Andy Fyfe, a community developer for B Labs. "It's interesting that communities that already have a lot of collaborations and partnerships are those that tend to have a lot of registered B Corps."

Doing good as a typical registered S-Corp. is tricky. By law, the sole purpose of the traditional American business is to maximize shareholder profit. But if a company like Channel Island Outfitters wants to save the ocean, its six shareholders could, theoretically, sue the company for failing to place profits before the planet.

"It was a real dilemma," Kababik admits.


Garrett Kababik is the CEO of Channel Islands Outfitters. (Jenny Hirsohn)

A Benefit Corp., however, is a different corporate entity. Its owners have a broader fiduciary duty than just making money for shareholders; therefore, they're protected from certain lawsuits. By 2011, many states were already passing laws that established Benefit Corps. California passed its own Benefit Corp. law effective in January 2012.

Excerpt provided by Mission And State. Read the full article on MissionAndState.org

 

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