Capital Gains and Profit: Our Model of One

With profound thanks to the founders, worker-owners and investors in Equal Exchange (a fair trade co-op) that has pioneered this model over the last 25 years. I originally wrote a verion of this article for Equal Exchange’s 2008 Annual Report (where it appears on page 12.) 

Close to the center of HatchLab’s business model there are two gates. One is open,one is closed,and therein lies a great strength. Most businesses are designed to deliver two financial results: to make profits and to grow in value. They then distribute those gains back to the business’ owners; profits can be returned through dividends and growth in value through increasing share prices, through capital gain.

HatchLab is choosing just one means: we welcome profit and decline capital gain. We have fixed price shares, and we offer a dividend on those shares out of our profits. Let’s dig a little deeper and see what that means. The answer to “How much is a company worth?” can change every few minutes. We’ve all seen the stock market graphs. The answer goes up and down and huge wealth is won or lost on that guesswork and speculation. Hatch has closed that gate. Buy a share in in the Hatch enterprise, and its price is fixed. There is no capital gain, no hope of windfall riches, no ticker symbol to obsess over, no precipitous decline. You can’t trade that share in the stock market for a variable price. You can however seek  to trade it back to Hatch for the price you paid.

One significant simplification is that with no way to get rich, the need to control is also released. In most business models, control allows owners to maximize their return and get the biggest piece of the pie. But if your pie slice is fixed what are you trying to control? That allows us to sell non-voting shares, and keep control with Springboard Innovation, the non-profit that owns the building who founded Hatch, and HatchLab, Inc., and who is driving the mission. But wait, if all our pie slices are fixed, yet Hatch grows, who will the rest of the pie belong to? It will belong to the community. That’s what our Articles on Incorporation say, and our Bylaws were written to enforce it. This is a special kind of freedom; freedom from the temptation to turn every success into cash. It’s freedom to deliver on a mission and create an economy that still creates financial wealth, along with social capital.

Profit however… that’s different… we like profit. We seek to be sustainable and profit gives us the means to invest in new ideas, to cover occasional failure, and to reward employees and investors for their labor and money. Profits, unlike share prices, are measured by auditable standards and demonstrate to others that social enterprises are sustainable.

So while non-profits avoid both gates, and corporations embrace both, HatchLab is following Equal Exchange and choosing a singular path–yes to profit, no to capital gain. As more people seek alternatives to business as usual ,we are expecting company.

A table showing the beauty of one.