Forced Philanthropy or Social Enterprise

May 14, 2012 • Blog, Philanthropy & Giving • by
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Is a company that gives away profits really a social enterprise? I’m going to go ahead and give you my answer. No.

Philanthropy is at its root about wealth re-distribution. It’s about someone who has resources and giving them, generally, to someone lacking or in need of resources. It is a very noble venture and one that I wholeheartedly believe in. So tell me how a business that engages in this model is something other than philanthropic? So businesses like Project 7 and others that give away a portion of their profits are quite philanthropic. They are giving away hundreds of thousands and millions of dollars. They are good things to have. But let’s not kid ourselves here. Since they are giving away money they are simply forcing their owners and investors to be philanthropic. They are forcing philanthropy and wealth distribution. Maybe it helps distinguish them in the marketplace but I do not see them as true social enterprises.

The true social enterprise is one that creates value or provides services that inherently meet some social good. It is the green energy technology or the micro-franchise business or the for-profit affordable housing provider. Their product is creating value for people and meeting a social need. It is fundamentally different than the other model.

In the philanthropic model the question investors should ask is how little can I give away to still maximize profits? In the second model your investors should be encouraging you to meet your social goal so as to experience increased profits. They are two fundamentally different things in my opinion.

The Good Social Business

February 16, 2012 • Blog, Business, nonprofit, Philanthropy & Giving • by
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Earlier this week I wrote the post, Why I Don’t Like Your Social Business. It turned into one of my most shared and read posts of the last year, in part because I think it struck a nerve with many social entrepreneurs. Many know and can sense that the field has been inundated with bad social businesses, which I rant against in the post.

Today though I’d like to talk about the good social business and the parts necessary for creating one.

1) The best social business is a business!

This might seem odd but I think many social entrepreneurs are people who would have generally joined or started nonprofits but they see this trend and the potential for a continuous and sustainable revenue source, so they start a business. This, in my opinion, is backwards. I think the best social businesses are actually started by people who start businesses but they stumble upon a business model with positive social benefits.

2) The best social business doesn’t rely on charity.

You would think that would be covered by actually being a business, but a surprising number of businesses ask people for investment without giving them upside, return, or equity. This makes the investment a charitable gift without a tax deduction. This creates an environment where bad businesses last too long. In the normal market if you aren’t making money and have no hope of making money, you shut down. The charitable action in the social business world just prolongs the inevitable.

3) The best social business aligns social and financial returns.

This is the crux of the matter. Businesses that are built around giving a portion of their profit or each sale away are really just glorified corporate giving strategies. I think a social business is one that has found a way to align the social and financial returns. If your investors aren’t crying for you to increase social returns so they see an increase in financial ones then I don’t think you have created a social business. If you feel a tension between the financial bottom line and the social bottom line then you have not truly aligned the two.

If you are able to accomplish these three goals I think you’ve probably created a pretty awesome social enterprise. It will be sustainable, impactful, and lasting. If you are meeting a consumer need while addressing a social ill you have truly created something revolutionary. I am sure that many people will disagree with my definition here but I think that if you have not accomplished these three things you are probably just a nonprofit in disguise and you should embrace it already and give your donors the benefit of a tax deduction. You can still sell things as a nonprofit and operate in much the same way as a business.

I think social businesses can be powerful agents of social change but they cannot address every problem and it has become too large of a fad and people are being taken advantage of and good is not truly being accomplished. As I always say, bring a skeptical eye to the social business world and ask yourself are they really a business and are they really accomplishing anything good?

Why I Don’t Like Your Social Business

February 14, 2012 • Beliefs, Blog, Business, nonprofit • by
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I don’t like your “social business” because you aren’t actually a business. You wouldn’t exist unless people donated money to you on Kickstarter and you aren’t even able to give them anything in return, not even a tax deduction. If you have a product people aren’t buying it but you might not even have a discernible product or service that you are offering.

I don’t like your “social business” because you actually aren’t doing much socially. Since you aren’t really a business and aren’t making any money you have nothing to give away and more likely than not your business model isn’t doing any measurable good. You would have been better off pouring your time more directly into the problem you set out to address.

I don’t like your “social business” because you see the “social” and the “business” as being at odds with one another. You steal profits from the one to give to the other. You believe one to be good and one to be a necessary evil. You did not take the time to build into your business model (because you don’t have one) the social side of your business in a way to create harmony between the dual goals.

I don’t like your “social business” because you couldn’t cut it the business world and this is your way to still do something that makes you feel important. Or you think this is trendy or cool or a way to make a fast buck.

Please stop. I just don’t like your “social business.”

That’s not to say I don’t like any social businesses. I like social businesses that are actual businesses. That make money. Have customers and sales. That can operate without charity. They have aligned their social and financial goals so that their shareholders and stakeholders insist that they do more good because that will help the bottom line. They are addressing real needs, both economically and socially. They are meeting a demand that exists naturally. They are not scoring branding points or look to wash their business in charity to trick consumers. There are good social businesses.

But not every problem can be solved with a social business. Lets stop acting like it can.

Not every social business is inherently good because they call themselves a “social business.

Lets stop giving people a pass just because they claim to be a social business.

What is a Social Business?

October 25, 2011 • Beliefs, Blog, Thoughts • by
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Social entrepreneurship. Social business. Mission driven organization. L3C. There are millions of terms floating around trying to get at this idea of a business that creates positive social outcomes.

But, in some sense, is there a business that creates no positive social outcomes?

All businesses generally have employees, therefore combatting unemployment and raising standards of living. All businesses sell products or services that people want, increasing the satisfaction of the consumer (most of the time). One could argue that no organization has done more to increase access to affordable healthcare than Walmart.

I think business, by its very existence, creates positive social outcomes.

So what’s all this talk about social businesses about?

I think it stems from a desire to care about something more than quarterly profits. I think it comes from the hunger to go out and solve problems with business. I think it comes from a frustration that the nonprofit sector cares more about survival than actually addressing issues.

I think that, just as people care about things other than wealth, businesses are realizing that they can as well.

Tee-shirt

Sevenly: Bringing Philanthropy to Ecommerce

July 14, 2011 • Blog, Development, nonprofit, Philanthropy & Giving • by
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Yesterday Mashable highlighted the new online t-shirt store, Sevenly. It’s a simple model, sell a t-shirt designed to raise awareness about a particular non-profit, and then give $7 of every purchase to that non-profit. Their first partnership was with International Justice Mission, and this week’s shirts support World Relief.

It’s probably no surprise to many of you but I love this kind of stuff. I love integrating social causes into business and seeing the market support social causes. Nonprofits need to take this kind of revenue stream seriously and think of creative ways to tap into the market.

This is just another example of how philanthropy is beginning to change. Everyone wants to be a donor. It is not just the wealthy who are giving. The more we can find ways to tap into a broad market the stronger your revenue streams will be.

Of course, these kinds of projects are often limited in scope. IJM for example, only received $6,125 from the sale of Sevenly t-shirts. But I do believe potential is there and that moving forward these kinds of social entrepreneur projects will begin to play a larger role in the revenue streams of nonprofits.

To read the articles from Mashable click here and here.