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.

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To Profit or Not

August 29, 2011 • Blog, Business, nonprofit, Stories • by
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There is only one thing that identifies a non-profit, the inability to distribute net income. That’s it. If a non-profit makes more than it spends it cannot give that excess income to anyone. It must remain in the organization. To help induce people to give money to nonprofits they are given a tax deduction for their gift but in today’s tough economy it is becoming increasingly difficult to attract that capital.

So some non-profits are becoming for-profits.

For example, Forbes reports that the non-profit Couchsurfing, which connects travelers with free places to stay, has changed to a B-Corp and raised $7.6 million in venture capital. That’s right, they left their non-profit status behind and got a nice $7.6 million check.

This does raise the question though, why was Couchsurfing a non-profit to begin with? Or did all of those people that gave to Couchsurfing while they were a non-profit receive a tax-deduction for a gift that later resulted in profit for a for-profit organization? The questions could go on and on.

What we are seeing is a blurring of the lines. Non-profits are becoming for-profits. For-profits are buying non-profits (see GOOD buying Jumo). In a lot of ways I think this is a good thing, social missions are not relegated to the left-over economy of the non-profit world. But it is also an example of innovation moving faster than regulation and the tax implications of this emerging gray space needs to be figured out.

Cutting Dollar

Why Limiting Itemized Deductions Will Be Good for Nonprofits: Pt. 2

July 13, 2011 • Blog, Development, nonprofit, Philanthropy & Giving • by
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William Daroff, vice president for Public Policy and director of the Washington Office of the Jewish Federations of North America, weighed in on the Tax Deduction debate yesterday on the SSIR blog. A couple days ago I wrote how I feel that limiting tax deductions might actually help charities.

Mr. Daroff wrote that 90% of the Jewish Federations‘, and many organizations like it, funding comes from less than 10% of its donors. Generally this 10% is the wealthiest 10% and the most motivated and attune to tax strategies when it comes to their philanthropy. Limiting itemized deductions will certainly hurt and stretch these organizations.

But this raises the question, has it been a healthy thing for such a large part of the social sector to be reliant on such a small portion of the population? I believe the answer is no. Read More…