Feature of the Week

July 20, 2014 11:51 pm

The social entrepreneur with a disarming business model

Entreprenor Peter Thum in the Flat Iron District in New York©Pascal Perich

Peter Thum sees promise in his venture

Peter Thum was on a business trip to Kenya for Starbucks, his then employer, in June 2008, when he first noticed the skinny children with AK-47s strapped across their chests.

The following year he married, left his job and moved to New York, but was haunted by the images of the child soldiers. He returned to Africa – this time to Burundi and Rwanda – and began researching ways to take the weapons out of circulation. “Burundi was just recovering from a civil war and kids were able to buy AK-47s for as little as $50 or $100. It seemed to be a problem worth doing something about.”

Later that year Mr Thum co-founded the social venture Fonderie 47, which transforms AK-47s into high-end jewellery and watches. Sales from Fonderie 47 have funded the destruction of more than 35,000 assault rifles in African conflict zones. Each piece of jewellery is made from gunmetal and bears the serial number of a weapon Fonderie 47 helped destroy. “It’s not about making trinkets. It’s about making something so beautiful that people disbelieve its origins,” he says.

Mr Thum, 46, is no stranger to social entrepreneurship. He is the founder of Ethos Water, the bottled water company now owned by Starbucks, that supports water relief in the developing world. He has also recently launched another social venture, Liberty United, which makes jewellery out of illegal weapons.

Mr Thum is motivated by what he calls “orphan problems” – problems that others “feel a sense of futility about and a sense of hopelessness”. He sees promise in his version of social entrepreneurship, which involves “using business as the vehicle” to come up with “different kinds of solutions that can have a significant impact”.

Mr Thum grew up in Claremont, California. At that time he knew hardly anyone who worked in business. “I had no context for it,” he says. After a short stint at Siemens he worked for five years for E & J Gallo, the winery. Eventually Mr Thum realised he wanted to start a business. Although he was unsure what form it would take he recognised he would need to brush up on his finance skills.

An MBA was in order. He opted for Kellogg at Northwestern University, “because [he] liked the feel of the place”. He learnt a lot, particularly in his entrepreneurial finance class. “It exposed me to how and why people raise money in different ways for different ventures and helped me understand how different entrepreneurs and investors estimate the value of opportunities.”

Kellogg also taught him the value of teamwork. The school focused on teamwork as part of learning he says, with students working together in teams on cases. . “This was a useful part of a business school and has been valuable since,” he says.

While he has no regrets about his education, he says an MBA is not a necessary credential for every would-be entrepreneur.

“Business school provides you with training wheels, but you can never learn enough and prepare enough for what it’s like to run a company,” he says. “When you’re running a business, you wake up every day and face some big new problem that’s different from yesterday’s big problem.”

His career as a social entrepreneur began to take root in 2001. While working in McKinsey’s London office, he was assigned to a project in South Africa. It was the first time he had witnessed such grinding poverty. He was struck by the lack of clean drinking water and that most development organisations were not “talking about water as an issue connected to hunger”.

That summer he wrote a business plan for Ethos – an “overarching consumer brand” selling multiple goods. Ethos would charge a premium and the proceeds would be used to finance solutions to big global problems.

Mr Thum left McKinsey in 2002 and returned to the US. He tried to raise money from foundations, venture capitalists and angel investors for his Ethos plan, but no one was interested. “The people I was talking to couldn’t understand how it was going to work. It became clear I would have to make the product.”

He was living off his savings and had a meagre budget for production. His goal was to appeal to the style-conscious Evian-drinking crowd so the right packaging was paramount.

A friend-of-a-friend from Gallo designed the label for free and Mr Thum bought a truckload full of clear bottles at a discount. He enlisted his Kellogg business school roommate, Jonathan Greenblatt, then a vice-president at a software company, to be his partner. They drove a borrowed station wagon to deliver the natural spring water to coffee shops and independent grocery stores.

In those years Ethos was not profitable, it made donations to water relief programmes from revenue. But Mr Thum was determined. The first break came in 2003 when Whole Foods, the upmarket grocer, began selling Ethos water. Two years later Starbucks bought Ethos for $8m. For every bottle sold, Starbucks contributes five cents to the Ethos Water Fund. To date, it has provided more than $7m in grants for water, sanitation and hygiene education programmes in emerging countries.

Mr Thum’s newest venture, Liberty United, came at the suggestion of his wife, the actress Cara Buono. The company recycles illegal guns and bullets donated by US police departments into jewellery. Liberty United donates between 20-25 per cent of its sales to fund non-profit programmes dedicated to reducing gun violence. “It’s a model that works,” adds Mr Thum.

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