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.

Evidence Based Philanthropy

December 19, 2011 • Blog, Philanthropy & Giving • by
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The Philanthropy 2173 named “Evidence Based” one of their buzzwords of 2011. (Read the post here) I think this is a good choice. I believe that a level of academic rigor can and should be applied to the social sector, especially given the fundamental distortion found in the sector. It plays itself out in that those who receive the service and those who fund them are two people who will most likely never meet. You can read more of my thoughts on that here.

As nonprofit practitioners, we must work to ensure that our organizations are offering programming and services that are backed by research, measured for effectiveness, and creating the impacts we set out to create while minimizing unintended consequences. Of course, numbers and data isn’t everything. There are some things that will be impossible to apply the evidence based methodology to. It is important then, to work with people who know how to decipher what can and cannot be measured.

If your organization is interested in addressing these issues contact me and I’ll be happy to discuss what Means Well Does Good can do for you.

How To Spot A Bargain in Philanthropy

December 8, 2011 • Blog, Philanthropy & Giving • by
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What makes something a bargain in the philanthropic world? Last week, Dean Karlan wrote a post on the Freakonomics blog entitled, Bargain Hunting for Charities. He wrote,

Gosh that sounds so stingy. When we are charitable, we don’t want to be cheap. This is our moment of giving, of generosity, not bah-humbugness. Alas, that is exactly what we should be. If we go to a restaurant for chicken wings, what would you think of the following prices:

  • 4 chicken wings: $8
  • 6 chicken wings: $8
  • 8 chicken wings: $8

Which would you opt for (assuming more is always better)? Naturally, it shouldn’t require much thought. So why not apply this to charity?

Karlan then goes on to highlight GiveWell, a great organization that does some very innovative work in studying nonprofit institutions and makes recommendations about excellent charities. There are a couple of similar organizations, but GiveWell seems to be the most robust. Unfortunately, many of these resources are vastly under-utilized when it comes to an individual’s giving, with only 1 in 10 donors utilizing such resources at all.

I love Karlan’s premise but I’d like to take it one step further, because the issue isn’t really that we go to the same restaurant and are shown the same price for different quantity wings. It’s more like different restaurants offering a burger at different prices. In that case we don’t always go for the cheapest. I’m not going to eat a burger at McDonald’s when I can go to Kuma’s Corner.

As donors we shouldn’t be focused solely on quantity but quality as well. We trade off those things in our consumer purchases all the time, and the same thing can occur in our philanthropic choices as well. A focus solely on quantity leads to ever decreasing overhead which does not always lead to the best quality (think low overhead, large transaction chains like McDonald’s). Quality and quantity are not positively correlated, but they don’t have a negative correlation either. Just because something is more expensive does not make it better.

As we approach our philanthropic decisions let’s think about quantity and quality. Also, check out resources like GivingWell. They help you make good giving decisions.

WaterForward: An Experiment in Social Giving

October 31, 2011 • Blog, Development, nonprofit, Philanthropy & Giving, video • by
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It’s long been known that, for some, the motivation to give to a cause is that others will know about it. That’s why everything from buildings to hallways to benches are named after donors and its why we tweet and Facebook our favorite causes. The innovative water provider charity:water is bringing this tradition into the 21st century with WaterForward.

The idea is simple. Someone pays $10 to get you into the WaterForward book which can be viewed online and will be printed after every million members. You get a message that you’ve been placed in the book and you are asked to pay it forward by buying a spot for your friends for $10. They will then be invited to do the same. The only way to get into the book is for someone to buy your spot (though initially there are some other ways to get invited).

I think it is a tremendous way to raise awareness and money at the same time while literally making your fans your development team. This is something that charity:water has always excelled at.

After a quick perusal of the book its hard to tell how well it is catching on but often times these social movements need to reach a tipping point and when they do they’re unstoppable.

To learn more about WaterForward read this article from FastCompany and watch the video below.

 

 

How WaterForward works. from charity: water on Vimeo.