James Rhee is a highschool trainer, turned non-public fairness investor, turned CEO/entrepreneur, turned motion builder. Deeply formed by his life expertise because the son of immigrant Korean caregivers, James led the much-acclaimed reinvention of the corporate Ashley Stewart, with a singular concentrate on human relationships and neighborhood. He’s now on a quest to marry kindness and math to form a extra sustainable type of capitalism.
James is a newly elected member of Ashoka’s Entrepreneur-to-Entrepreneur Community, which brings collectively high-impact entrepreneurs from the enterprise sector with the world’s strongest social entrepreneurs at Ashoka. We lately spoke about what he’s discovered and what’s subsequent.
Konstanze Frischen: James, you’re not shy in stating your ambition: Your most up-to-date enterprise is a motion that goals to form the way forward for capitalism. You name it purple helicopter. Earlier than we get into particulars—why did you select this title?
James Rhee: Once I was 5 years outdated, I used to be in a public-school kindergarten, and at some point my good friend’s father and his siblings got here in and gifted me a bit toy purple helicopter. At first, I didn’t perceive why, and it took me a very long time to appreciate it was as a result of I had been sharing my lunch with my good friend. He usually got here to highschool with out lunch, nevertheless it by no means dawned on me that what I did was one thing worthy of an award or a prize. However through the years, that story actually caught with me. It’s a quite simple story of humanity and collective wellbeing.
Frischen: The toy helicopter as an expression of an act of kindness—how does that relate to your endeavor to alter how our monetary techniques work?
Rhee: Sadly, the world of economic capital has co-opted the phrase capital. However there are many different types of capital. Within the story of this purple helicopter, all of those acts—me sharing lunch, them gifting me the toy—had just about zero financial bearing, solely the precise buy was measured by GDP. However these acts created a number of optimistic externalities, a number of wellbeing. So the purple helicopter is a reminder that techniques of economic capital are a part of a broader system of humanity. The measurement of capitalism now’s way more centered on outcomes than on the way you create these outcomes. That “how” is captured within the social techniques, which each influence and are impacted by financial exercise.
Frischen: You discuss kindness as a key technique. That sounds nearly “smooth.”
Rhee: Kindness shouldn’t be the identical as “good.” It is not phrases. Kindness is motion. It’s totally intentional. It is relentless. It’s the muse of mutualism. If correctly achieved, it is a collection of actions that enter you right into a social compact with somebody. It’s a transcendent, human idea that was a lot debated by the eighteenth-century Enlightenment thinkers.
Frischen: How did this method manifest in your work with the clothes retailer Ashley Stewart?
Rhee: Ashley Stewart, to me, is a metaphor. It’s an organization that predominantly served and employed probably the most susceptible teams in the US. Black girls, plus-sized, with low to average earnings. Sadly, in our society, our techniques will not be designed for this lady to thrive. And this firm, that served and employed this demographic…no one understood it. Or cared to. The corporate had zero credit score, no Wi-Fi. I begged folks for funding, however no one was prepared. The markets advised me that this firm was value extra lifeless than alive. However I believed it was lovely, and significant. To me, Ashley Stewart wasn’t actually within the enterprise of promoting garments. It was a spot of belonging, of neighborhood, of emotional and bodily security. It performed an important position in its communities. And the most effective half was that it was in a for-profit automobile. So all these individuals who wouldn’t give us a penny, they normatively and actually stated: We don’t suppose that this firm, the entire relationships it fosters, the non-financial, optimistic influence it has for these girls in these communities, that any of that has any worth. However I knew they had been flawed.
Frischen: And so within the absence of considerable funding, you tapped into the sources you had in entrance of you, which had been the folks.
Rhee: Yeah. It was actually unlearning every little thing that I discovered at Wall Road, and doing a greater job distinguishing information from knowledge. I acknowledged that there is different types of capital, that there’s social capital. That it is okay to speak about humanity and generosity and kindness and love in any context, together with in a enterprise setting. I usually give it some thought like a lemonade stand, which is a enterprise the place cash is exchanged for a product, nevertheless it’s additionally deeply rooted within the neighborhood it operates in. So I introduced in these non-market values, and stated: “Why cannot we’ve these social-norm values in right here in the event that they’re amplified with the sophistication of a for-profit enterprise? Why would not we do this?”
Frischen: You additionally took onerous steps. You shut down the C-suite, you invested in expertise, you improved the operations, you shut down some areas. However you listened rigorously to the staff, their knowledge and their expertise. Would you say that mattered most?
Rhee: Sure, crucial factor was that I listened, and that I stated to the staff: “I’m not right here to alter you or remodel you. In every little thing you do, I see management, I see nice values. So let’s begin with that. Let’s unleash what’s already right here.” As a result of what I noticed in these neighborhoods with these shops was that lemonade stand. It is not capitalism divorced from civic society. It is a type of economics that reinforces the values that you just need to have in a democracy, as an alternative of destroying them.
Frischen: Inside three years, Ashley Stewart went from twenty years of shedding cash to turning a $20 million revenue…
Rhee: …and to a nine-figure enterprise valuation!
Frischen: That’s spectacular. We talked in regards to the significance of kindness in that achievement—however you your self say you need to “mix kindness with math.” How does math think about?
Rhee: Earlier than I get to the main points, crucial factor is perspective change, which ends up in habits change. As a collective, we do a poor job instructing younger folks about issues like ethics, philosophy, and kindness, to not point out accounting, finance, and cash. If and once we do train them these disciplines, we don’t join them in a systemic method. We train them with an grownup thoughts, which has been conditioned to suppose compartmentally. Thus, while you do find out about monetary issues, it’s like, you need to put on this persona and you need to kill and be aggressive and consider solely monetary wealth maximization. We’re not normalizing the language of cash and enmeshing it in a broader compact with humanity.
Frischen: That is proper. There’s a dichotomy there.
Rhee: Precisely. In order that’s what I’m attempting to alter. And from a finance and accounting perspective, we have to change what we take a look at. In our society, notably within the U.S., we’re obsessive about move, not inventory. We concentrate on the earnings assertion, on income and revenue, and maximizing that. It’s fairly straightforward to try this in a free-money setting. We don’t take a look at the stability sheet and questions like: How did you fund it, how did you get that cash, what had been the unmeasured outcomes of how you probably did it? So we have to begin specializing in stability sheet management, not earnings assertion management.
Frischen: What does that appear like?
Rhee: Proper now, we’re not measuring all of the optimistic and unfavorable externalities which are created by your habits, by the way you become profitable. Most of those externalities, good and dangerous, will not be captured on an organization’s stability sheet, per the “guidelines.” As an alternative, they’re despatched off to the general public. It is a tax on society that nobody is measuring. So with Ashley Stewart, I attempted to measure these items.
Frischen: Are you able to give us an instance?
Rhee: Take employees’ compensation. Once I lastly scrounged collectively the cash to stop Ashley Stewart from liquidating, I nearly had to surrender as a result of I couldn’t get employees’ compensation insurance coverage. Nobody would insure the corporate as a result of for twenty-something years, the outcomes had been horrible. So I begged and received a coverage, and our claims ended up declining 90% to 99% and stayed there. We busted the actuarial tables. For employees’ comp, when the incidents are excessive, there’s usually two causes. First, there’s dangerous operations, which ends up in bodily damage. But it surely’s additionally psychological and emotional. It’s a marker that individuals are not feeling good about working for you or the corporate. So when our claims had been declining, it confirmed kindness, manifested in actually good operations. Everybody “profited.”
Frischen: How did that manifest in accounting phrases?
Rhee: I made myself accountable to employees’ comp. I reported on it. We put it on an artificial stability sheet. However as an alternative of taking a look at it as a legal responsibility, I checked out it as an asset. To me, it was a marker of the goodwill of how we had been doing with our colleagues. So when the employees’ comp incidents decline, you probably have it in your stability sheet, your legal responsibility is shrinking, which suggests your fairness must be growing. Which is manifested in your premium coming down. And people financial savings, I paid them out, within the type of folks working fewer hours, as a result of that’s what folks stated they needed. In different phrases: We took a collective habits, and we turned it right into a collective asset, after which we shared that asset communally. We gave the staff the company and stated: It’s our collective actions, it’s our asset, we’ve earned it. That sounds refined and small, nevertheless it’s not. That is basic habits change, the place you are unleashing leaders. And you are taking ideas which are extra just like barter and a social compact economic system, and introducing them into how a “free market enterprise” operates.
Frischen: Tremendous fascinating. So it begins with seeing otherwise, and results in accounting otherwise.
Rhee: I do know it sounds so easy, however let’s begin by saying that most individuals don’t need to get up and go to this place known as work and never be handled as an individual anymore. Let’s take a look at the humanity. But it surely’s onerous, as a result of, let’s face it, all of the caregiving industries—senior dwelling, public schooling, something taking good care of susceptible folks—the place you create a number of optimistic externalities for society, these are the industries most below siege these previous couple of years. All these individuals who do that work with out expectation of being paid the truthful financial worth for the optimistic externalities they create, they do it as a result of they care. However now they’re quitting as a result of what they’re coping with is an excessive amount of. And that finally ends up being a tax on society. Society’s paying for it, we’re all paying for it. And so it is all a suggestions loop, proper? It is all one big open loop. And I’ve determined to begin on simply web page one of many loop, as a result of it is not linear. That is the troubling factor, proper, with non-linear issues. It is like, the place do you begin? And for me, it sounds easy, however I am saying: Can we simply begin with a perspective on what kindness means? After which apply the maths to measure it in a extra accountable approach?
This interview was edited for size and readability. You possibly can study extra about James Rhee’s philosophy right here and discover his bio right here. You possibly can learn extra about Ashoka’s Entrepreneur-to-Entrepreneur Community right here.