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.

Tapping Into Entrepreneurship

November 22, 2011 • Blog, Leadership, nonprofit • by
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A recent Philantopic blog by long-time nonprofit activist and scholar Mark Rosenman entitled, Do We Really Need 12 Million New Nonprofits? grabbed my attention yesterday. Rosenman quoted a Civic Ventures Study that showed 12 million baby boomers are interested in starting their own social venture or nonprofit over the next 5 to 10 years. Setting aside the fact that survey results are next to useless when it comes to asking people about hypothetical future behavior, what the study does show is an increasing interest in social entrepreneurship of all stripes.

Rosenman believes that this entrepreneurship will hurt the sector.

“Why do I find this aspiration so distressing? I worry that the addition of millions of new nonprofit and social enterprises — on top of the million or so incorporated charities and foundations already registered with the IRS — will make it more rather than less likely that we continue to view and treat critical societal issues as if they were fragmented and unrelated. And that means less effort to bring about the broad-based changes needed in our social, political, and economic institutions.”

While I too believe that we have way too many nonprofits in America and that there should be a pretty large scale re-structuring, I don’t think a lack of entrepreneurship is the answer. We need innovative and inspiring ideas and we need them to grow and spread. I agree with Rosenman in that we don’t need every Tom, Dick, and Harry starting a nonprofit because they feel like it, but we do need existing nonprofits to tap into this entrepreneurial spirit.

There is no question that we are becoming an increasingly entrepreneurial nation. More and more people are starting their own businesses, entering the “creative class“, and viewing themselves as a product that they sell to various organizations. These people want to move quickly, lead with autonomy, and tackle problems in innovative ways. It’s what makes them entrepreneurs. But not all entrepreneurs need to start their own organizations, they just need to find existing ones that let them loose and tap into their entrepreneurial spirit.

The nonprofit sector however, is notoriously anti-entrepreneurial. When every decision needs board approval, the entrepreneurs will leave in frustration. When movement and momentum are constantly being slowed by organizational processes, the entrepreneur won’t stay. Of course not all nonprofits have these overly-structured systems, but many do.

It will be vital to addressing our current challenges for the bureaucratic systems often found in the social sector to be left behind. It is exciting that 12 million people want to direct their entrepreneurial passions towards social problems and as a sector, we must be ready to welcome them with open arms.

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.

Overhead Is Not The Enemy

September 9, 2011 • Beliefs, Blog, Leadership, nonprofit • by
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I was out last night with some people working to bring a social entrepreneurship conference to Chicago and during the discussion one of the offhandedly made a comment deriding overhead in non-profits. Unfortunately overhead has come to mean waste when really that should not be the case.

Overhead is not the enemy, inefficiency is.

All organizations, including for-profit companies have overhead but they are forced to use that overhead efficiently, maximizing the return on that investment. For example, what if Apple had to cap salaries at $100,000? Would they be able to retain the talent necessary to succeed? What if every dollar pumped into R&D had to show immediate ROI?

Overhead can actually increase the effectiveness of the programming and if an organization increased overhead a little, they might actually be able to do more with the fewer resources going into the field. Yet, non-profits have been forced to compete on overhead numbers and it is hurting the end result, impact.