“Business-based solutions are
more sustainable and empowering
than aid or a handout.”
Part Two: Chapter 12
Open New Markets
By Craig Kielburger
Think outside the box store
Many great athletes are restless and unhappy in retirement, unable to replace the thrill and adulation they knew as stars. Earvin “Magic” Johnson had a national collegiate title, five NBA championship rings, and an Olympic gold medal on his résumé when he quit pro sports. Regular life seemed destined to be dull by comparison. But unlike so many of his contemporaries, Johnson had a social mission, which drove him to find his footing off the court after he retired in 1996. Diagnosed with HIV in 1991, he launched The Magic Johnson Foundation to finance HIV/AIDS awareness campaigns, prevention, testing, and treatment. By announcing his positive status at a time when few understood HIV/AIDS, Johnson likely did more to combat the stigma surrounding the disease than any public awareness campaign at the time. His foundation also tackled the education gap in America, offering Internet access, computer training, and college scholarships to underprivileged students. It was Johnson's involvement with the urban poor—his understanding of inner-city America—that led him straight to a business opportunity that everyone else had strolled right past. Having grown up in a poor but hardworking family in the economically depressed city of Lansing, Michigan, Johnson knew there was opportunity where others would never bother to look.
See more on the impact of his announcement in this archived news clip of Magic. Click for video.
In the early 1990s, entertainment businesses like theaters and restaurants were less than plentiful in U.S. inner-city neighborhoods, a general term for impoverished areas populated largely by minorities. In most cases, the inner city lies at the urban center of major cities. Los Angeles had South Central, Chicago had the South Side, and New York had Harlem. At the time, urban and mostly minority residents seeking dinner and a movie had to head for the suburbs. “African Americans had no retail opportunities, nowhere to take their families to have a sit-down meal, to socialize, and to have a good time,” Johnson once told me. There was an economic side effect: skills training, jobs, and economic growth accrued in other, wealthier neighborhoods. And so the inner cities stayed poor. But Magic saw an opportunity to make money and do good at the same time.
Johnson courted Loews Cineplex Entertainment to partner on a multiplex in South Central L.A., romancing them with research. He told them that a quarter of U.S. moviegoers were African American, even though few of their neighborhoods had theaters.1 What's more, he said, theaters in the inner city would be cheaper to run since the cost per square foot would be about half of what it was in the well-heeled suburbs.2 And African American and Hispanic communities could easily drive future business expansion, since they accounted for more than two-thirds of the country's population growth.3 In hindsight, Johnson was far ahead of his time. A more recent Nielsen study found that America's African American population is an economic force, with a buying power of $1 trillion that is forecast to increase. As a demographic, black shoppers are also bigger consumers of media, on average, than the general population.4
Loews had the foresight to heed Johnson. The partnership opened two theaters, first in the Crenshaw district in south L.A., then Harlem, New York. For a time, they were among the chain's most profitable venues, with concession sales soaring higher than in other regions. Johnson pointed out, anecdotally, that suburban moviegoers were more likely to grab a bite at a restaurant before the show, while inner-city populations, partly from lack of options, preferred to grab a hot dog from the concession stand (good for the theater, since that hot dog has a high-profit margin).
Magic Johnson's Postseason Stats
“When you talk about disposable income, minorities have it. Don't look at it like you did 20 years ago. Things have changed a lot. A lot of you were scared off before, but today it has changed. You will make money in urban America.”
— Magic Johnson
Net worth: US$500 million
Even though he was an NBA legend, he was new to business. Johnson started at the bottom, cold-calling L.A. Lakers' season ticket holders to share news of his new ambitions.
Ka-ching: In 2010, Starbucks acquired Johnson's shares in his inner-city coffee shops, ending a 12-year partnership. The same year, he sold his stake in the LA Lakers; he made a combined US$100 million on both deals.What now: The Magic Johnson Enterprises portfolio includes stakes in the Los Angeles Dodgers, Hero Ventures, and Vibe Holdings. Johnson also launched a billion-dollar infrastructure fund in 2015 aimed at tackling the lack of diversity in tech, and in February 2017 was named President of Basketball Operations for a team he knows a bit about: the L.A. Lakers.
Sources: Business Insider, L.A. Times, Wall Street Journal
Heads started to turn in corporate America, including that of Starbucks CEO Howard Schultz. Magic Johnson Enterprises helped facilitate the launch of seven Starbucks coffee shops in new neighborhoods, where the twin-tailed sirens drew big business. Magic proudly recalled that he suggested a few tweaks to the menu, and to the atmosphere, for these inner-city coffee shops. Scones were replaced with pound cake and peach cobbler. Melodic jazz was switched out for R&B. The partnership grew to include 105 locations, and the expansion lured other brands to the area. Johnson launched a similar partnership with the restaurant chain T.G.I. Friday's5 and the electronics retailer, Best Buy. It was the business equivalent of a slam-dunk. These ventures didn't just bring entertainment to inner city areas, but jobs and opportunity. Urban dollars were no longer seeping out to the suburbs. Magic Johnson kept funds circulating in areas where they were desperately needed.
In recent years, Magic Johnson Enterprises has divested from many of its early entertainment-based ventures. However, the impact on communities has been significant. Johnson's Starbucks franchises alone created more than 2,100 jobs and paid an estimated $29.8 million in wages and benefits from 1998 until they were sold in 2010.6 Johnson estimates that among all his current businesses, he employs over 30,000 workers from minority communities.7
Therein lies his magic: Johnson filled both a social void and a market void in one fell swoop. He solved a social issue with a business plan and tapped into an underserved market, flawlessly blending purpose and profit. Johnson's genius, in part, was recognizing the pent-up demand in disadvantaged neighbourhoods and adapting to the market accordingly, partnering with established franchises but offering his intimate local knowledge. He also nurtured his new market, taking into account its unique challenges. Charitable work and other community programs were organized in conjunction with his businesses.
Johnson tells me that all his companies offer more comprehensive training programs for staff than franchises in other areas, which enhances loyalty and retention in places where the lure of gang culture and street crime is rife. And it creates “the best brand ambassadors,” he says. “They'll go out and tell a hundred people, ‘I work for Magic. You better come see me, man.’” Employees know Johnson isn't just their boss; he's a pillar of their community. By investing in the region that's keeping him in business, Johnson is perpetuating his own success. He achieved his purpose, and banked a sizeable profit. With $18 million in earnings in 2015, Johnson continues to hold a place among the 10 richest former professional athletes in the world.8
He continues to give back. The Magic Johnson Foundation has now celebrated its 20th anniversary. Among the foundation's achievements is a mobile HIV testing van, which has clocked over 100,000 miles and provided free HIV tests to more than 60,000 people in communities with limited access to medical care. The Foundation also hosts health fairs to help educate people about HIV prevention and to provide testing. It hosts job fairs and offers a scholarship program targeted at minority college prospects coming from urban environments.
Magic is also a regular at WE Day. See his magic on stage: Click for video.
Selling to disadvantaged communities can often be a means of social and economic empowerment. Poor communities can be uplifted by the sale of productive or healthy options that are otherwise unavailable. In inner-city America, it was family-friendly entertainment. In other regions across North America, there are food deserts with scant fresh fruits and vegetables due to a lack of grocery stores or farmers' markets, contributing to an obesity epidemic and other health concerns. Done right, an entry into these markets brings increased choice, opportunity, competition, and a chance to increase quality of life in those communities. Business-based solutions are more sustainable and empowering than aid or a handout, which is finite and can create dependency.
Hidden market prospects exist globally. In his landmark book, The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits, business professor C.K. Prahalad laid out the money-making opportunities that come with appealing to the world's four billion poorest people. The world's poorest socioeconomic group is also the largest, and the most neglected by the market.
The Emerging Markets11
The Future is Here
 In 2014, the OECD estimated that the population in emerging markets made up 85 percent of the world's population. |
 The OECD estimates that the global population will increase by an additional 1.6 billion by 2034, and about 95 percent of growth will occur in developing countries. |
Some multinationals heeded this advice, including Unilever and Procter & Gamble (P&G); both companies reach out to customers living on less than $4 a day. For the bottom billion demographic, the cost of a single tube of toothpaste might eat up an entire day's wages; many basic hygiene products are unattainable. Reducing the size of the product can slash its price, making smaller doses more affordable, so Unilever and P&G downsized package sizes for detergent, toothpaste, soap bars and shampoo, all priced under the equivalent of 10 cents USD.12,13
Selling packets means the communities aren't dependent on aid. Awareness campaigns convince consumers that the products have value. For example, enabling better handwashing habits saves millions of lives every year and is especially important in preventing illness in children in the developing world. The U.S. Centers for Disease Control and Prevention (CDC) estimates that 1.8 million children under the age of five die each year from diarrhea and pneumonia diseases. Handwashing reduces those numbers by 25 to 35 percent.14
Making the small packets of soap available quite simply saved lives, and increased sales along the way. In Vietnam, Unilever's Lifebuoy's handwashing campaign increased domestic soap sales by 29 percent.15 In the village of Thesgora, India, the handwashing program reduced incidents of diarrhea among children, from 36 percent to just 5 percent. Before the program, the village had one of the highest rates of the disease in the country.16
Social Entrepreneur Seeks Investors17
Have an idea? Need funding or an investment? Connect with the following groups:
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Investors' Circle is an early-stage impact investment network that favors startups with an American presence |
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Put Your Money Where Your Mouth/Meaning Is Company (PYMWYMIC) is a European community of funders |
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Go Beyond is a traditional network of angel investors that lists social impact among its five priorities |
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Toniic is a global community of impact investors |
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Impact Assets showcases 50 impact investment fund managers each year |
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Cause Capitalism lists 15 social venture capital firms worth knowing about |
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Impact Space is a database of more than 2,000 impact investors, searchable by objective and location |
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The GIIN's Investors' Council lists 50 leading impact investors |
Where Would You Invest?18
 Rate of Gross Domestic Product (GDP) growth by 2020: In emerging markets, 5 percent. |
 Rate of Gross Domestic Product (GDP) growth by 2020: In developed markets, 2 percent. |
 Projected percentage of global GDP in emerging markets: 37 percent by 2020. |
 Projected percentage of global GDP in emerging markets: 66 percent by 2050. |
 Biggest players: India and China will represent 50 percent of that global GDP by 2050. |
 The middle class: By 2050, India and China will add more than one billion people to the middle class, representing 41 percent of global middle-class consumption. |
These companies created inroads into poor, rural areas, creating customers by establishing partnerships and building up local capacity. In Unilever's case, local female entrepreneurs act as partners, training with the company to become beauty consultants and product experts—from Vietnam to Pakistan to Egypt, and all over the world. Even impoverished communities can be revenue generating for companies willing to make the right investments.
Don't neglect underserved markets, at home or abroad. Somewhere, potential customers are being ignored.
A Market-Based Response to a Life or Death Crisis
It's not just basketball legends and big multinationals who can use social innovation to break into new markets. Aspiring entrepreneurs and startups can find a launch pad by rethinking their target markets, narrowing their focus on underserved communities.
In the mid-2000s, Ashifi Gogo, a Ghanian-born electrical engineer living and studying in New Hampshire, developed a labeling system to help consumers identify the origin of their purchases. When a shopper picked up a product with his label, they could scratch the tag to reveal an ID number. Entering that number online would reveal where and how the product was made, and whether or not it was a fraudulent knock-off.
“As a company founded in 1857, we remain steadfast to our guiding principles of embracing change, evolving to meet the needs of our customers and giving back to the communities in which we operate. These core values are essential to our firm's longevity, especially in today's highly competitive global marketplace.”
—Hartley Richardson, President and CEO of James Richardson & Sons
Gogo launched a startup called Sproxil, and began to pitch to various sectors, including the organic food industry. He was certain he'd found a niche with middle-class shoppers who were worried about whether their bananas had been sprayed with pesticides, or their tomato was genetically modified. He was sure high-end shoppers would want to know about the origin of their produce. But he found no takers in specialty foods.
The idea didn't gain traction until 2008, when Gogo read about a health crisis in Nigeria. Eighty-four babies had died after ingesting what their mothers thought was brand-name teething syrup. Investigations found the syrup laced with diethylene glycol, an industrial solvent commonly used in antifreeze and brake fluid; counterfeiters use it instead of harmless glycerin because it's a cheap substitute with a similar consistency. And to a baby, the toxic chemical tastes just as sweet. Parents hoping to ease their babies' pain gave them a medicine that instead caused fever, vomiting, and kidney and liver damage and attacked the central nervous system, causing paralysis, labored breathing, then death.19 The tragedy in Nigeria was only one incident, symptomatic of a widespread problem.
Across the developing world, people afflicted with malaria, tuberculosis, HIV/AIDS, and many other less-serious health problems, face a terrible game of roulette every time they walk into a local pharmacy. Counterfeiters have descended on the lucrative pharmaceuticals market, hawking medicine that is ineffective, diluted, and even toxic. As many as 700,000 people die each year from phoney tuberculosis and malaria drugs alone.20
Gogo abandoned his produce plan and approached Merck and GlaxoSmithKline with an idea to help expose fraudulent medicine. In 2010, the two pharmaceutical giants began attaching Sproxil's label to their products in Nigeria. Consumers could scratch the label and text the revealed number to Sproxil, which would instantly verify whether the product was real medicine. Pharmaceutical companies readily paid for the service; it promised to squeeze fraudsters out of the market, which would naturally increase their own share of it, build brand credibility, and save lives. The service has since expanded across Africa and India. Just three years after its launch, consumers had requested more than five million drug verifications.21
It's a bit more involved than this. For all of the details, watch Gogo's TEDx talk here: Click for video.
There's a tendency to view activities like improving hygiene, reducing poverty, and saving lives as solely the jurisdiction of governments and charities. But a market-based solution has the power to be self-sustaining. It's worth remembering that some of the most innovative global antipoverty measures today, like Muhammad Yunus' Grameen Bank, are built on business models that bring enterprise to regions that typically receive only aid, not business propositions. The best form of charity is safe, sustainable employment. The observation that every crisis is an opportunity has become something of a cliché. But that doesn't mean it's not true. Problems facing communities—be it inner-city Los Angeles or remote rural Bangladesh—can present a business opportunity to crack open lucrative new markets that your competitors are avoiding, provide profit with purpose, and better the world in the process.
If you're really interested in microfinance, watch Yunus' TEDx talk here.: Click for video.