Below is the transcript of an interview with Generation Hope Founder Nanette Medved Po. The interview will play out in CNBC's latest episode of Managing Asia on 22 June 2018, 5.30PM SG/HK (in APAC) and 23.00 BST time (in EMEA). If you choose to use anything, please attribute to CNBC and Christine Tan.
Christine Tan: So Nanette, you were an award-winning television actress and host. At what point in your career did you get the calling to do good?
Nanette Medved Po: What I saw when I was in my career as an actress was the possibility to leverage my popularity to do that, and so what I found was an avenue to do good. I remember I was in a parade for Christmas promoting a superhero film, and just seeing everybody around.
C: You were the heroine back then right? You played the superhero Darna that everybody in the Philippines is familiar with?
N: Correct, yes, she's very popular. So what happened was that I saw all the young kids and even the older folks just looking at you differently.
C: There was hope in their eyes? They were inspired and awed? You felt you could change things?
N: I thought there must be a way where you could leverage this very positive goodwill and do something good with it, so that was the moment when I decided there might be a way for me to do that. I had witnessed great poverty as I was working here before going to school and travelling around the country. I've witnessed the incredible success that can be had in the business community but I also witnessed how non-profits really struggle and spend a lot of time fund raising - more time than they should be, because they want to focus on impact. And so I thought, "What if we could create a hybrid where you have the discipline of the private sector to generate funds, and then rather than dividend that out to shareholders, use that towards a social good whether it's the environment or in education or in employees, or whatever it is."
C: So how did you stumble upon the idea of selling bottled water?
N: If I had said that I'm going to invest in books or teacher training, only a very small portion of the population would understand how that converts and what the ripple effect is. But everybody understands a building. You go there and you see it, you see it today, you see it tomorrow, you see it next year, it's not going anywhere, so it's something very tangible and I wanted to be able to make a very direct link between this cause and this effect. Classrooms were something the government really needed at the time so there was a nice dovetail between what they wanted to do and what we wanted to do.
C: So 100% of your profits at Hope go towards building these classrooms here in the Philippines. Now, at that time you had all this experience in TV acting, but no experience in business. What was it like getting the idea off the ground? Was it crazy?
N: Yes, that was a challenge. I think people immediately thought she's finally gone off her rocker, she's certifiably crazy. I had no business experience especially in consumer goods and so when I made calls and said I'm coming to pitch something I truly think people thought I was going to come in and do a song and dance. I actually think the people allowed me the audience because they were curious - I mean, what is she going to say?
C: So your celebrity status did help you open doors?
N: Yes, so I leveraged that to be able to kind of get in the door and then hopefully once I get in the door…
C: Win them over?
N: Be able to convince them to roll the dice and take a chance on us, but after which you then need to prove that you can do this and execute well
C: You know selling bottled water is a very competitive cutthroat business. What were your conversations like with the retailers who also carried other brands of water? What did you tell them?
N: We approached big companies, Starbucks, 7-11, those types of people and they were all very encouraging of what we were trying to do and were willing to take this journey with us
C: So you think they were trying to make a difference as well?
N: Well, I think it's rare that businesses like the ones we approached have an opportunity to exercise some sort of good or CSR on a daily basis in their business. It's usually a one-off thought, something like for our anniversary we're going to stage a beach clean-up or whatever it is.
C: So there was an opportunity for them to do something?
N: Yeah, so at the very least they're carrying a product that inherently has a CSR attached to it every day. Our challenge was, now that we've got our foot in the door how do we make sure this makes business sense not just for them but for us, because unless we make money we don't build classrooms.
C: So how exactly do you scout which schools need classrooms?
N: The first step is always that we square up with the Department of Education because they have a list of all the areas around the country that need classrooms. So we always start with that list and then if we have a donor, let's say for example Starbucks, we will then ask them if there's a location they prefer their building to be in or if they prefer to leave it up to us. Once we have a shortlist, our staff then goes only to those locations to vet which schools actually do need classrooms, if they have the land to build.
C: And all the logistics involved?
N: Correct. Because as you know some locations are very difficult to get to so that impacts the cost of building. Once we've vetted the location from that shortlist, we then circle back both to the donor and to the Department of Education to tell them that we've zeroed in one and we're going to start the bidding process because we do need their approval.
C: How much shortage of classrooms is there in this country?
N: The number that they do give to us somewhat unofficially is that there's a gap of about 84,000 classrooms so I don't think we're making too much of a dent. Hahaha.
C: So in a way you're helping the government with the shortage?
N: Correct. We only build in partnership with Department Of Education on their land so that they can run the school after we've turned over the infrastructure. We really are partners with the government here. The structural design is dictated by the Department of Education, so there are specific measurements that we follow, 7 by 9 and all that. Every classroom has its own bathroom, chalkboard, teacher's table and chair, 50 chairs and 2 electric fans so that's the standard that we try to deliver for every classroom.
C: So up to date you've built about 57 classrooms here in the Philippines. How much impact do you think your classrooms have had on children here in the Philippines?
N: Again on a macro level I don't think we've had a lot of impact, but on the individual school level I think the students feel much empowered by the fact that people want to invest in their future. We've had 2 batches of children come through, there's a 3rd batch coming through and they always seem very excited to be in this classroom so we enjoy watching that journey. But I hesitate to be very concrete about the impact that we've made just looking at it in a very short period of time.
C: What's your pipeline looking like when it comes to building classrooms this year?
N: We're planning 33 for the year so far. We're hoping it wraps up towards the end of the year but so far it's our largest number of buildings in the year.
C: So walk me through the process, at what point do you sell enough bottles at a retail store with a retail partner that you say to them "Hey, we get to build a classroom?"
N: We don't get involved with the profits of our partners. So let's say in the case of 7-11, when they buy water from us and then sell it to their customers, the profit from their end is purely theirs and we don't touch it. It's just the profit on our end, on the Hope end.
C: How do you measure that?
N: For Hope in a Bottle we like to peg it at 9, 10% of the cost of the bottle, so maybe around 1 peso. If they can sell half a million bottles its usually equal to 1 classroom. Now, certainly a classroom costs more than 500,000 pesos to build but we try and stick to that number and then Hope makes up the difference because we have sales from smaller partners that we're able to pile in together. So we like the nice round number of half a million and then we just make up the difference and build the classroom. And to your point earlier it really depends on where it is. If it's in an easily accessible location then maybe it's 600,000 but if it's up in the highlands then it goes up to maybe 800,000
C: Most of your classrooms are named after sponsors, for instance this classroom here in Laguna South Manila is named after 7-11. How many retail partners have you signed up so far?
N: We have north of 400
C: 400? How did you manage to sign up so many?
N: I did about half myself and the rest were signed up by the team.
C: Was it daunting, doing it yourself?
N: Yes, it was terrifying and humbling all together. It was scary because given my background, sales was probably not going to be my most comfortable job.
C: But are you comfortable with it now? Does it come as second nature to you?
N: I think it does now. At the beginning I thought of it more as people were trying to do me a favor by buying into this idea but I now realize that this is very much a wonderful project that people like to be a part of and so I don't feel as bad anymore when I come in and say "Hey look I've got this project do you think you might want to come onboard for business for good?" and so I realize now over time that we do add some value and that customers like to work with us
C: How many retail partners are you hoping to sign on in future? Do you have a number in mind?
N: If I can be greedy I'd like them all. But the truth is the objective is not to go out and take over the landscape of the bottled water business. The objective is to make a point and hopefully there will be other businesses who will think about investing in social good through their business, and if somebody comes along and decides they want to do the same thing we're doing and do it better then fantastic, but what we're really trying to do is introduce a model for giving back that's good for everybody.
C: To what extent do your retail partners or your partners and your sponsors do it because of these tax credits?
N: I doubt that the tax credit is a big part of the decision making if only because the impact on their net payable to government isn't impacted that much by it. What they're able to do is, they're not able to take the tax credit off the tax bill but they're able to expense it so the overall impact on a large corporation like Starbucks or Shangri La or whatever is very little. I think the folks that we work with tend to do it because they like the idea that they can conduct business for good every day in their operations which is an unusual value proposition.
C: Do you get people who say no to you?
N: Yes, it's rare..
C: How do you feel?
N: It's fine and I think the reason is because I have been in their shoes before on the corporate side where I know that it needs to make business sense. We were super lucky in the beginning that we approached the kinds of businesses where it made financial sense for them to buy premium water, but as we're starting to saturate that market we have to go into cheaper ones so that we can hopefully scale to the degree of which we haven't been able to so far.
C: So Nanette, we're here at the factory you acquired last year to produce bottled water. You still outsource to 2 production facilities, so what does this latest investment give you?
N: Our volumes are large enough now that we feel like we want to try our hand at manufacturing. I think that as we continue to grow, we'll want to understand how that benefits us, and this gives us a way to test that. It's a small factory so it's not expected to impact our volumes tremendously, but when it's up and running we hope that it will contribute maybe 50,000 cases a month. So we'll still rely on the 2 partners that we currently have which toil for us but this will give us a nice way to test the waters so to speak on manufacturing.
C: You know, producing bottled water is all about economies of scale and margins are razor thin. Just out of curiosity what are your profit margins like?
N: Not great. As you said, water is a commodity and it's a scale business so we're looking at anywhere between 8, 9 and 10% if we're good. So it isn't a great business if we're just looking at profitability, but that's the mechanism we decided to use for this undertaking, and we're sticking with it and so this is what we've come up with.
C: You're actually married to business tycoon Chris Po whose family owns Century Pacific Group. To what extent do you try to leverage on the family's business connections to try and move things for your non-profit organization?
N: That's a good question, we try to make it very clear that Hope is not part of Century because it isn't, it's a separate entity. But I will say that Century is filled with what we like to call Hope Heroes who are professionals who know the consumer goods business well and contribute their time to helping us figure out our growth path. My husband I must say must be the hero of them all because he certainly supports us in many, many ways both with his insight and sometimes making introductions for us which I may not have had in my own network.
C: Has he given you any advice about running a business?
N: Don't!! Haha. But I think we do very different things, for me despite the fact that there are many different things to learn and lots of stress I think that the good things outweigh the bad. So I really love what I do, and perhaps I look at it from a very different lens.
C: Let's talk about some of the early challenges. Right at the start, how tough was it to get the company to start making money?
N: Well, it was tough in that we didn't have our own manufacturing, so we had to negotiate despite the thin margins, and that was further eroded by having to deal with toilers who had to make their own margins as well. The selling-in portion was not difficult I'm happy to say, because a lot of people were very supportive and wanted to be part of this exercise and see if it would work. So it wasn't so much that, it was more of making sure that we could make a little bit of money while we were toiling, and then the second big challenge was then staffing. A lot of great people believed in Hope but it was so fledgling that I think they were afraid of leaving a job that was secure to join a startup, especially something so novel in this market. So it was difficult to find folks at that time to join Hope, but it's a different story now luckily. We're still considered tiny compared to our competitors, so if people had to choose, and I'm sure job security is a big concern, then we're trying to make sure that we give them options in the company.
C: It's been 6 years and you've sold over 13 million bottles of water and built 57 classrooms here in the Philippines. What is your ultimate ambition for Hope, what are your future expansion plans?
N: I don't think we have ultimate ambitions of conquering the bottled water industry. I think our ultimate ambition is to provide proof of concept, hope that other businesses find some inspiration in what we've done and hopefully find their own social good to champion. So that's the ultimate goal for us and if we happen to be able to build many classrooms in the process then wonderful, but we'd really like to provide a new mindset to the business community that the market will reward companies who try to do the right thing.
C: This wall is very special to you?
N: This wall is very special to us because it's a replica of a wall from one of the classrooms we built in Mindanao, and before we arrived at this location, the school had not a single classroom, like none, and even the principal didn't have a place to stay
C: So how were they holding their classes?
N: They were under the trees in the hot sun, so if it rains there's no school and if it's too hot they just have to deal with the heat. When we built this classroom for them there were stories by the foremen who were there saying that the children would come every morning and touch the construction in anticipation of the fact that they would soon have classrooms. We were initially just going to build 1 or 2 classrooms but when we found out the story, we asked them how many they needed and they said they needed 6, so we built all 6 and they were so grateful. These children made the mural and they painted thank you on the wall in 13 dialects, so when we saw it we were really moved. We said "Oh my gosh we have to replicate that, take a photo and put it in our office so that we all feel connected to our mission," and so that's why this wall is so special to us.
C: You know when you build classrooms you touch the lives of children and their families. Is there a moment, a personal encounter you've had, that you saw or that you felt that gave you so much satisfaction?
N: There are quite a few but given that we're in this location I'd like to talk about this one story. So when we came here that day, they had such a big fuss about the turnover and us coming and they were all thanking me personally. They had a big banner on the stage, with "Thank you Nanette Medved Po" and a whole lot of speeches. It was very jarring because it was embarrassing that they thought it was me, but it was a great moment to share the message with them and also to reinforce to myself what we're doing here. So what happened was this, I said to them "I appreciate that you think I've given you a classroom today but I really haven't. I just had the idea but there are half a million nameless, faceless folks out there who made the decision to invest in your future and those are the people that you should be thankful for and the partners who allowed that to be possible." And what that showed me is that we can come together for common good, for a common ground as people to do big important things. And so I felt at that moment that the traditional thinking about charity where 1 person makes the decision to change the lives of 36 kids is very different than 500,000 decisions because the ripple effect of that is bigger.
C: The multiplier effect?
N: Exactly, exactly so I feel like that messaging is really important. In everything we do, we always say there shouldn't be a vanity component to our buildings because the truth is it could be anybody out there who made that decision, and that movement is so much more important than what we do every day in the office.
C: Nonetheless, these children must have given you so many hugs all these years?
N: They did, it truly is wonderful.
C: Do you ever get emotional?
N: I do, and I don't know if it's necessarily a nice thing to say but I try as much as possible not to go because I don't want them to associate me with that generosity. I want them to associate it with all the people who made the decision, and if we build a 100 classrooms, that's 50 million people right, so that's not a small thing. I think it's important that people understand that it's not just the 1% that care and can afford to give. We've tried to democratize the giving process here so that everybody can be involved in nation-building and I think that's the much more important message.
C: As the founder of Hope, is it true you've not collected salary since?
N: Yeah, because I certainly don't think I need a salary. I'm fine, my husband provides wonderfully for us and I don't think it would be right. I think I love what I do, I can afford to not draw salary and so I don't .
C: When it comes to leading change and trying to make a difference, what kind of leader are you trying to be?
N: I think I'm not accustomed to leadership in the traditional sense because the field I was in before didn't necessarily require it. So I think my leadership style is very much evolving and organic, I tend to learn from the people I interact with and it's not necessarily all taipan types, it could be somebody rank and file. So yes, I think I'm growing organically as a leader because when Hope started, it was a very small group and as the group starts to grow my leadership is evolving as the team gets bigger and I'm noticing that leading 20 people is completely different from leading 50, the systems you need in place. And I'm sure as we grow my leadership style will change but it's very organic at the moment, very ad hoc.
C: And finally looking back at your journey using profits from your bottled water business to build classrooms, any advice you would give others on how to build a sustainable social business model?
N: Yeah, I think you need to be able to wear the business hat first before you do anything, because if you do that then you can think about scale. I think philanthropy is wonderful and charity is wonderful but I don't think it's going to create the kind of change long term that we're going to need to see for very big problems whether it's in the education space or the healthcare space or the food space.
C: So you're in a position to contribute and give back?
N: Right, correct, so that's where I think Hope is right now. We have proof of concept but we need to get to the scale wherein we're really making meaningful change and I think that's what we're looking to do
C: Do you think you have that sustainable, scalable business model today for your social venture?
N: I certainly hope so. We ask ourselves that question every day "Is this an idea then that we can scale, is this a system that we can scale," and we do that as we grow out hoping that we're prepared for growth and therefore being able to help in a very big way.
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