How to Start a B Corporation and Achieve Certification

How to Start a B Corporation and Achieve Certification

It started with a disastrous investor meeting. 

My co-founder and I were developing a safety wearable that could emit an audible alarm and get help in case of an emergency. At that point, it was little more than an idea and a rough prototype, but we had compelling market research and a solid strategy. We’d been accepted into a prestigious accelerator program called DreamIt, which, among many other benefits, gave us the opportunity to pitch to potential investors.

This particular meeting was one of those where you knew it was flowing. The presentation was tight, the investors were enthusiastically engaged, nodding their heads up-and-down throughout. It felt like great synergy. Until it all fell apart.

My co-founder, Yasmine Mustafa, is the one who had the idea for the company. She’s always had a passion for championing the underserved and coming up with ideas that can make a difference in the world. When she first pitched me on the idea, I thought it was terrific and stepped out of retirement to join her to build the company. We had a very focused mission: help save lives and empower women.

Toward the end of what seemed like this shoo-in investor meeting, Yasmine excused herself to use the restroom. At which point the two investors, both male, turned to me (a middle-aged white male) and said, “We’d invest if you were the CEO.”

Mission alignment

The mission of the company meant a lot to us. We wanted to build an organization that could truly impact many people. So there was no way we would align ourselves with partners, suppliers or investors who didn’t share our values. Being a woman-led, women-empowerment company was core to our identity.

While we couldn’t directly control the regrettably all-too-common gender and race inequity in venture investing, we could choose how we would run our company and the basis by which we made decisions. And when we learned about the B-corporation movement and its focus on socially responsible businesses, it seemed to make perfect sense for us.

Although at that point we had a lot to learn about B-corporations.

B-corp misconceptions

My first misconception was that mostly non-profits certified as B-corps. I was completely wrong. In fact, only for-profit companies are eligible to become a B-corp. I also thought that only established companies, not startups, could get certified. Again, wrong. I also wondered if any recognizable companies had chosen to pursue certification. Turns out Ben & Jerry’s, Patagonia, Kickstarter, Etsy, and Warby Parker are all B-corps – companies I know quite well.

Finally, I assumed the certification process would be painful, requiring a lot of time and energy. In fact, the B Labs folks (the people behind the certification process) bend over backward working with companies to help them through the process. 

You don’t need a specific social mission or a drive to help the planet. All that matters is that you care about your employees, your customers and you’d like to make an impact in some way.

Certification isn’t a once-and-done sort of thing. The process itself leads companies to identify areas where they are doing well and opportunities for improvement. And it’s ongoing. Like all good business practices, you track how you’re doing and how you can continually get better.

Once you are certified, it’s like a badge of honor. It’s a public pledge that you stand for something bigger than maximizing shareholder return. And that certification attracts positive attention from potential new employees, partners and customers.

What a B-corp is and isn’t

There’s been some confusion as to what a B-corp is. For starters, it’s not a legal structure. Your company can be an S-corporation, LLC, or a traditional C-corporation and obtain B-corp certification. You can also be a benefit corporation and become B-corp certified.

B-corporation is an official certification that your company meets high standards of performance, transparency and accountability for your employees, customers, communities and the environment. It’s like a Good Housekeeping seal of approval. 

A lot of people confuse a B-corp (which, again, is a certification) with a benefit corporation (which is a corporate legal structure.) Unlike a traditional C-corp, with its primary concern of maximizing shareholder return, a benefit corporation is a for-profit entity that also focuses on making a positive impact on society, workers, the community and the environment. So, for example, a benefit corporation might make a strategic decision that is good for the environment yet might not be beneficial in the short-term profit interests of the shareholders.

How to certify a startup as a B Corp

One of the requirements for obtaining B Corp certification is that your company must have been in business for at least one year. For new startups that want to pursue certification as a way to signal to potential investors, employees, and customers that they’re on track toward certifying as a B-corp, there is what’s known as a pending B-corp.

Pending B-corp is a status you can hold for one year as you build your company and develop your infrastructure toward eventual formal B certification. This is the approach we started with. To achieve pending status, there are four steps.

Step 1: Complete the impact assessment 

The impact assessment is a series of questions that you answer across areas such as governance, employees, community and environment. An example question is: “Does the company have a formal process to share financial information (except salary info) with its full-time employees?”

For many questions, there are typically a list of potential answers, not just a simple yes or no. The nuance helps identify where across a particular spectrum you might stand. Based on each answer, you get a certain score.

For many startups, you may not know the answer to some questions since you haven’t been in business long enough. You answer them prospectively, as you envision your company to be a year or so from now. 

It takes 30  minutes to do an initial quick pass through the impact assessment. If you want to go deep and spend time digging into each question, it will take a couple of hours.  After completing the assessment, your score will show you where you stand toward your goal of achieving B-corp certification. 

For the pending B-corp status, there is no minimum score required. However, knowing where you stand will help you develop your company processes and policies as you work toward formal certification.

Step 2: Amend your legal documents (or company structure)

You can either change your company legal structure to a benefit corp, or you can keep your existing structure and simply add some language to your operating agreement that clarifies what considering the best interests of the company means. 

Step 3: Sign the term sheet & pay $500 fee

The term sheet specifies the terms under which the pending certification is valid. This includes a limit of 12 months, following which you need to apply for formal certification. And you pay a $500 fee. 

Step 4: Sign the Declaration of interdependence

The declaration of interdependence is a document stating your commitment to building a purpose-driven company, which essentially is reaffirming your choice to become B-corp certified. Once you do that, you get to use the certified B-corporation pending logo throughout your communications.

The benefits of a pending B-corp

Was it worth getting the pending certification before going through the full, formal B-corp process? We received the pending status in September 2015. We then launched our crowdfunding campaign on Indiegogo one month later. 

Our target was $40,000 in sales for a one-month campaign. We ended up surpassing $300,000. And while there’s no way to say for certain how much being a pending B-corp contributed, we feel it helped lend credibility to our mission to impact the world.

As we recruited software developers and hardware engineers to join the team, we wanted people who were aligned with our mission. Being a pending B-corporation definitely helped in those efforts. By highlighting our commitment to a particular set of values, we were able to attract people who shared similar beliefs.

Steps for becoming a B-corp

Fast forward one year later.

The formal certification process was pretty much the same. Retake the impact assessment, sign the term sheet and pay the fee, which for us was $1,000 (the annual certification fee is a function of sales.) 

As I mentioned above, the assessment gets into all areas of the business including

  • Governance: the way the company is managed
  • Workers: how employees are treated
  • Community impact: job creation, D&I, civic engagement, etc.
  • Environmental impact: the ecological sustainability of the company
  • Impact business models: serving in-need populations, giving programs, education, etc. 

So we had work to do looking at where our scores could be improved and what changes we could make in processes and policies that could get us over the finish line.

 

The impact of a B-corp certification

While there is some work involved in achieving certification, the effort is directed toward systems and processes that positively impact lives. 

If you choose to pursue certification, you’ll be in very good company. And I wish you much success on your journey.

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