Within the world of social enterprise, there’s a subsect of organizations that help incubate and scale social ventures. These entities, from veterans Ashoka and Echoing Green to young buck Unreasonable Institute, play varying roles of investor, connector, teacher and trend-chronicler of a rising-star sector.
To look beyond the magazine gloss and speculation and get a macro perspective on social enterprise in the United States, I spoke with Lara Galinsky, Echoing Green‘s senior vice president. Lara joined the organization seven years ago after directing program development for Do Something.
Lara spoke about a visible shift in the backgrounds, ages and experiences of social entrepreneurs and a pop in hybrid business models. These figures are taken from a recent survey of 300 Echoing Green semi-finalists from the past four years.
- Social entrepreneurs are getting younger. In 2009 70% of Echoing Green’s semifinalist pool was under 35 years of age.
- Increasingly, more social entrepreneurs are coming from business, and less from the nonprofit sector. From 2008 to 2010, there was a 13% increase in semifinalists who had worked in the for-profit sector or had been self-employed (49% of the pool). During this same period, semifinalists coming from the nonprofit sector decreased by 15%.
..
Lara points to several possible reasons. Business is moving beyond CSR to double and triple bottom-line ventures, B Corps and purpose-driven businesses like TOMS Shoes. The millennial generation’s expectation that businesses contribute to social change is accelerating this shift. [click to continue…]
I’m not the first to make the case that crowdsourced social good contests should retreat quickly into the night.
- They’re inefficient at creating change;
- Their current popularity has diminished the value they bring to companies and brands;
- Consumers are fed up with them (how many vote-for-me solicitations do you get a week that make you feel more like a brand pusher than a change agent?); and
- For the money and hoopla they involve, they should accomplish more than marketing the company and channeling money to (often unvetted and under-qualified) projects.
Whether you agree or not, the next question is, What’s the alternative?
First, it’s helpful to understand what these contests do offer. They’re big and loud. They attract participants, voters, supporters, media and millions of tweets, blogs and Facebook likes. Through this lens, they do provide bang for their buck. And they only require what many companies excel at–assembling the resources to design and run a colorful marketing campaign and to write checks to the winners. Deep-root partnerships, familiarization with target communities and evaluation and reporting on the awarded funds aren’t required.
So the new question becomes What’s an alternative that can offer companies the same level of virality and visibility without skimping on substance?
Looking for an alternative campaign format is too myopic. Instead, companies should look at a broader level of engagement that supports social responsibility as a business (not just a marketing) strategy. Admittedly, this sounds obvious, but how can companies do this and still get their marketing kick?
I suggest that companies focus on developing long-term partnership that support a social enterprise abroad. Transferring energies from internal competitions to external investments* allows companies to explore and develop for new markets (BoP populations offer significant market opportunities), test new products, improve resource efficiency and ensure ethical supply lines. Even thought these partnerships take place outside of the United States, companies still have ample opportunity to relay their work with these communities to American consumers.
P&G’s Children’s Safe Drinking Water program, led by P&G employee Dr. Greg Allgood, is a strong example of a corporate initiative focused on external impact that’s successfully connected American consumers to its work in developing communities. An education portal and upcoming social media campaign to fund clean drinking water for its partner communities and veteran organizations tackling this cause are two storytelling mechanisms.
*This post is the current culmination of several conversations I’ve had with leaders in social enterprise and CSR over the past few weeks, as well as Tim Ogden’s evocative article, in which he talks about external investment vs. internal competitions.
What do you think? Maybe I’m biting off something too big to chew, but there’s something bigger and better than crowdsourced contests that needs to be wrestled down.
The offer:
As part of a publicity push for its carbon-neutral ENVIRONMENT Papers line, Neenah Paper launched a sweepstakes to win an eco-trip for two to the Osa Peninsula in Costa Rica and a chance to ”go hard core and experience conservation in the heart of some of nature’s most fragile environments.” The lucky winner is promised the “opportunity to help make the world a better place.” Just your contact details are required to enter.
Neenah is also awarding three $100 gift certificates to randomly chosen participants who take a five-question quiz “designed to test their environmental awareness.”
The glitch:
I can almost hear the light bulbs flicker as marketing conceived the contest. From some height, a trip to an eco-resort connotes care for the environment. The winner’s tour of Neenah’s joint reforestation project to preserve old-growth forests will underscore the company’s commitment to sustainability. And bases will be covered with the purchase of carbon credits to offset trip emissions.
But the train derailed when Neenah’s marketing team split marketing from mission. Because the trip is a publicity ploy dressed in hemp, it has a lot of holes.
Some holes are more superficial; I don’t equate a resort stay to going “hard core” and there’s no explaination of what the “oppportunity to make the world a better place” means for the winner (a carbon-neutral jeep ride through the forest doesn’t cut it). While other holes indicate lack of an authentic commitment to environmental preservation. Most notably, although the contest announcement and microsite are the perfect opportunity for Neenah to talk about its preservation work, there’s no mention beyond the project’s name and partners. I want to know how is Neenah helping preserve this area? What’s the project’s specific goal? How is Neenah evaluating and reporting success?
Finally, the quiz that’s “designed to test environmental awareness,” focuses only on the environmental qualities of Neenah’s ENVIRONMENT paper. That’s not environmental awareness, it’s product knowledge.
What I would do if I ran Neenah’s marketing team:
- Offer more. Instead of paying for two random individuals to stay in a resort, I would offer a group of influencers–students–the chance to compete for the trip by creating awareness campaigns, fundraisers or school projects in support of conservation. Once in Costa Rica (and downgraded to more rustic accommodations) the group of high school or college students would physically contribute to the project, observing firsthand the fragility of the endangered environment. [click to continue…]
Mechai Viravaidya didn’t start out as a social entrepreneur. He began as a businessman with a freshly granted MBA who realized his country’s situation–Thailand–would never grow economically if its population explosion couldn’t be tamed. Mechai’s understanding that economic development was ultimately tied to population control led him to create the Population Community Development Association (ironically, the PDA). His ability to combine economic and social goals in a shroud of humor gave it impact.
Since its founding in 1974, the PDA has helped Thailand achieve one of the fastest fertility declines in recent history. Annual population growth dropped from 3.3% in 1974 to 0.8% in 2000 and the average number of children per family fell from nearly seven to fewer than two.
So how did he do it? Mechai brings a business perspective to the task; he’s not a doctor or public health expert. He operates PDA as a hybrid social venture, financing its work through other social business ventures. And he’s a brilliant marketer who took a risk more often seen with privately held companies than with government- or institutionally funded nonprofits. To destigmatize sex and planning family he held condom-blowing contests and Miss Condom beauty pageants and offered condoms in place of dinner mints at his Cabbages and Condom restaurant chain. The approach was so culturally powerful that the condom became known as a “mechai.”
What can we learn from Dr. Condom?
- Sometimes the biggest impact–economic and social–means forgoing the immediate problem and tackling its roots challenge;
- Irreverence and humor can achieve a lot;
- Systemic social challenges can be tackled with a hybrid approach and needn’t rely entirely on government and institutional funding; and
- There’s a (hybrid) business model in large social challenges.
Note:
Mechai went on to work for the prevention of HIV/AIDS and other sexually transmitted diseases in fifty countries.
Photo credit: Pornchai Kittiwongsakul/AFP-Getty Images
I’m wrapping up Social Business Venture week with a look at funding options for the breed of businesses that generate profits but exist primarily to fulfill a social need. The legal structure of your business should take into account how you plan to operate and earn revenue. Neither of these decisions can be taken lightly and I’ve not tried to cover them, but to present a snapshot of funding options.
The two social businesses I’ve profiled this week, World Centric and Better World Books, have taken different approaches to funding, self funding and organic growth through sales and an SBA loan then venture funding, respectively. Both Aseem Das and David Murphy talk about how they made these decisions in our interviews.
~
Foundations
If your for-profit venture is a Low-profit Limited Liability Company (L3C), you can apply to foundations for program-related investing funds (PRIs). As an L3C, you can ask for a loan at little or no interest and structure more convenient payback terms than a bank would allow.
Angels and Venture Capitalists
There’s a growing crop of investors looking for social as well as financial returns. Many of these investors expect market-rate returns on their investment. The financial viability of your enterprise is just as important as it would be to the most socially misanthropic funder, but social venture capitalists might be willing to wait longer for a return on their investment. An intended secondary benefit to working with an angel or VC is the guidance and support they give your business. Good Capital’s Kevin Jones’ close involvement helping shape Better World Books’ model is terrific example.
Banks
Community development banks make loans to companies with community development or social missions through earmarked federally backed funds. ShoreBank supports environmental and mission driven ventures with loans, lines of credit and other services. Billing itself as planet-smart banking, The New Resource Bank has services geared to sustainable and environmental businesses.
The Small Business Administration (SBA) is a federal government agency that supports small businesses. It doesn’t directly make loans but acts as a guarantor on the bank loan. David Murphy used an SBA loan to grow Better World Books’ operations and prove its model before taking venture funding.
Self Funding, Friends and Family
The personal pressure of accepting funding from family and friends is high. An upside, however, is that you’ll likely be extremely disciplined with how you spend it.
Additional resources:
15 Social Venture Capital Firms You Should Know About
10 More Social Venture Capital Firms You Told Me About
The Best Kept Secret to Social Venture Funding?
Image credit: blog.entrepreneur.com
In this 7-minute clip, Better World Books President and CEO David Murphy talks about the company’s fiduciary commitment to its nonprofit literacy partners and how it received funding, initially with an SBA loan and later through Good Capital, a social investment firm. Right-click and download for the MP3.
Audio clip: Adobe Flash Player (version 9 or above) is required to play this audio clip. Download the latest version here. You also need to have JavaScript enabled in your browser.
Distributing books Tanzania, 2006. (L to R) Michael Retzer, then-U.S. Ambassador to Tanzania; Pat Plonski, Executive Director of Books for Africa; David Murphy, President and CEO, Better World Books (Courtesy of Better World Books)
Better World Books has several rare characteristics. It’s a for-profit social venture with a true triple-bottom line. It gives stock options to its nonprofit literacy partners. And it’s received $4 million in equity investment in a round led by Good Capital.
Better World Books collects and sells used books online to fund literacy initiatives worldwide through its five nonprofit partners, Books for Africa, Room to Read, Worldfund, the National Center for Family Literacy, and Invisible Children. Books are shipped carbon neutral with offsets from Carbonfund.org, and those that don’t sell are kept out of landfills through a certified recycling program. Today, Better World Books collects tens of thousands of books per day, given to the company by college students, libraries and other individuals.
The company promises 8-10% of its revenues, not profits, to its literacy partners. President and CEO David Murphy explains that Better World Books makes a fiduciary commitment to its partners so that when a book sells “it’s a liability on our balance sheet, regardless of whether we make money or we don’t.” [click to continue…]
If you want the real story from a successful for-profit social entrepreneur, click the player to listen to Aseem Das talk about founding and transforming World Centric. Prefer MP3? Right-click and download.
Audio clip: Adobe Flash Player (version 9 or above) is required to play this audio clip. Download the latest version here. You also need to have JavaScript enabled in your browser.
World Centric evolved from a nonprofit to a nonprofit with a revenue-earning component to a for-profit social enterprise. Today, World Centric makes fully compostable household products including utensils, plates and cups. You can find the brand in Whole Foods and Cost Plus World Markets and when you take out from your sustainable deli. It’s a profitable company rooted in a strong social mission. It’s a terrific story to profile this week on Cause Capitalism as I’ve been focusing on social business ventures.
Aseem Das founded World Centric as a nonprofit organization with “a mission to reduce economic injustice and environmental degradation through education and community networks.” He knew he didn’t want to take the rote nonprofit funding approach–donor solictitations and grant proposals–so he looked around for a revenue stream that was aligned with World Centric’s mission. He dismissed mattress recycling and wind energy in favor of selling fair trade and compostable products online. [click to continue…]
A social business venture packs a lot of punch. If you care strongly about mission and impact but don’t want to solicit donors and institutional funding, it might be the right model for your work.
By definition, this type of enterprise generates profits, which are reinvested into the business to advance the cause and sustain the company financially. The business exists to ameliorate a social or environmental concern, not to maximize profits. It sounds Eden-like, but it’s still a living breathing thing, which incurs challenges and benefits. Let’s take a quick look at some.
Challenges
- Dual priorities. (At times) it will be difficult to balance your company’s social mission and financial sustainability. Unavoidably, they’ll sometimes clash.
- Succession can be tough. Conceiving and building a social business venture often takes someone with strong leadership qualities and personal vision, which can make succession hard. Philip Rosedale is the charismatic founder of Linden Lab. His leadership style gave employees the option to vote on his dismissal every quarter. Eventually, they voted that he wasn’t adding as much value to the company as was needed, so he left–only to return eight months later to lead again.
- Replication. Traditionally, social businesses have been harder to replicate than mainstream businesses. If you set up a venture to meet social and financial needs, it’s going to have a very specific structure and approach that fits the sector, country, funding, culture and laws where it operates. Another threat to replication is the relative limited funding options for social business.
Benefits
- Society can relate. Consumers, investors and employees can relate to a social venture more than to a leveraged nonprofit or hybrid nonprofit because capitalism is still at play. A social business is a more attractive partner, supplier or investment. This type of venture can solicit capital (something a nonprofit hybrid or leverage nonprofit can’t do).
- Iconoclast potential. We admire social impact organizations that are financially self-sustaining. And we admire entrepreneurs who’ve found innovative ways to use business for good. Just look at Muhammad Yunus.
Tomorrow, I’ll profile an expanding social business in California that you’ve likely never heard of. But, I’d love to hear from you! What companies and entrepreneurs should be sharing their stories and experiences here?
In full disclosure, I sometimes feel I’m splitting hairs when I try to isolate different types of social enterprises–I’m about to rename this site the Mobius Trip. So weigh in or push back.
I’m refocusing on the crux of cause capitalism: building a business to drive social (or environmental) change because I believe that the force of capitalism can be used to solve many of the problems we face and because it’s in companies’ best business interest to do so.
I see cause capitalism is a continuum with CSR and cause-related initiatives (like PRODUCT(RED)) at one end and non-profit social enterprise at the other (like Living Goods). In the middle of the spectrum is the social business venture (which I frequently call purpose-driven business).
sdfdgfdffd
A social business venture:
- Is specifically conceived and structured to drive social change;
- Generates profits but doesn’t prioritize maximizing earnings for shareholders. Instead, profits are invested in the population or cause the enterprise serves and reinvested into the business; and
- Attracts investors looking for both financial and social returns. This structure (as opposed to a non-profit social enterprise or hybrid social venture) gives the company greater financing and scaling opportunities because it can assume debt and equity. [click to continue…]
Click the player to listen to our conversation. Prefer MP3? Right-click and download.
Audio clip: Adobe Flash Player (version 9 or above) is required to play this audio clip. Download the latest version here. You also need to have JavaScript enabled in your browser.
After he left Amazon (“one of the hardest, scariest and best decisions” he’s made in his life) Kushal Chakrabarti knew he would start a company. He’d done well at Amazon, helping to improve its product recommendation engine, and felt he could either build a business that made a lot of money or create an organization that helped a lot of people. It was a decision, but likely not a serious dilemma for Kushal who’s motto is create meaning or die trying.
Kushal fixed on education and on a challenge that’s resulted from successfully giving more children access to education: what to do after secondary school. He explains that there’s an entire generation of kids who’ve finished high school and want professional training or a college education. In most developing countries, loans for college or vocational school simply don’t exist.
So with co-founder Brett Witt, Kushal created Vittana, a nonprofit social enterprise that brings student loans to developing countries through person-to-person micro-lending. He compares it to setting up a “mini Sally Maes” in the five countries in which Vittana now operates–Nicaragua, Peru, Paraguay, Vietnam and Mongolia. [click to continue…]
I created Cause Capitalism to show you how to grow your business by incorporating a social mission. 
