- Investment funding’s acceptance of “Social” as a viable type of business
- Business Modeling – social vs. regular
Venture capitalists have traditionally funded for-profit businesses with a strong focus on ROI – Return on Investment vs. ROIm – Return on Impact (ROIm will be a forthcoming blog post). To most, the two ROIs are either incompatible or irrelevant. Foundations and other philanthropies have traditionally funded non-profits with a strong focus on the ROIm. Slowly investors are realizing this is an artificial distinction.
- No matter what your business, if it’s not having an impact on the customer in a way that delights the customer, you won’t need to worry for long – thank you Darwinism.
- The number of investors focused on maximizing both ROI and ROIm is increasing. For instance, FSG and New Profit come to mind, with returns some ‘regular’ VCs would love. Accelerators for social enterprises are helping fledging ventures sustainably scale, such as the SE Greenhouse.
- The assumption that you have to be a non-profit to ‘do good’ is slowly becoming arcane. While there are good reasons for some companies to remain non-profits, there is no reason that a socially-impact minded business cannot be for-profit. The corporate designation B-Corp allows a company to blend doing well and doing good in a for-profit structure. Examples include Method Products, Patagonia, Ben & Jerry’s and two of my favorites, Runa and Susty Party.
As an early adopter and co-creator of Alex Osterwalder’s Business Model Canvas (BMC), I use it the most. A Social Business Model Canvas had been created specifically for social ventures, and there is a lot of value to looking at a business from this perspective. The reason I prefer the BMC is its flexibility. You can change the labels on the boxes and use colors to highlight differences. The BMC impels you to think about the sustainability of the business and the compelling value to the customer in a way traditional social businesses haven’t – as a real live business that has to compete for customers’ attention and resources just like everything else – including two of the biggest competitors – “Doing Nothing” and “Good Enough”. Take a look at a canvas for Pencils of Promise. Instead of Revenue, the box is labeled Outcomes & Outputs. Outputs are things like revenue and profit. Outcomes are the difference you make for your customers – the real value you are delivering for them. In the case of Pencils for Promise, both are important – if they are not having the impact they want – changing lives, educating kids, then what are they doing? Doesn't this also apply to any business - ultimately?
While the Social Business Model Canvas has a box for surplus – what you are doing with what’s left over, I posit that’s a question every company has to answer. Any business hopefully has a surplus – at least eventually. If some of that surplus is not reinvested in the company to support, enhance, add to their compelling value proposition, then the shareholders won’t be getting anything back either. Perhaps a social business will choose to reinvest all of it’s surplus directly into the business while a for-profit may choose to give dividends, but that’s not a hard and fast rule for either type of company. Reinvesting a surplus can be in all sorts of resources – equipment, material and perhaps most importantly, people.
This is not an either/or issue – it’s an ‘and’. Hopefully, over time, the distinctions between social and ‘regular’ businesses can fade, because I truly believe, any business of any sort that doesn’t focus on it’s impact on its customers, communities and the world, on it’s ROIm eventually won’t have any ROI anyway.
I believe the distinction between social and non-social business is a false dichotomy. And yet, it’s one we continually want to make. We talk about “social businesses” — those that are mission-led and focused on creating positive social change — and “non-social businesses” — those that focus on revenue and profit. Social entrepreneurs launching ventures may ask themselves if their business models need to be different. Does pursuing a social purpose require something unique to describe and structure your business?
As someone who works with a variety of organizations in my roles as strategy and innovation consultant, venture capitalist, professor, and mentor, this question intrigues to me. To answer it, I evaluated a few years worth of business models created and implemented by clients (usually established, mature businesses), invested companies (early stage), entrepreneurs I’ve mentored, and college students starting new ventures. The results? I found that both social and non-social businesses focused on making sure revenues were greater than costs, either through selling something, raising money or getting grants. The differences were more along traditional business characteristics: virtual vs. physical product or service, B2B vs. B2C, etc.
That said, this initial evidence showed that social businesses focus more on achieving a positive impact in each of the nine business model elements — value proposition, customer segment, channels, relationships, key partners, key activities, key resources, costs and revenues — as well as the whole model. Many of the non-social businesses in my sample also focused on the impact of each element and interestingly, they are very successful businesses (might there be a correlation?).
All businesses are social. All companies have people as customers, employees, and suppliers. At some point, in deciding which supplier to use, in engaging your workforce, and in getting your product into users’ hands, relationships with people matter. Improving these their experiences always improves the outcome for your company.
If a business isn’t providing valuable, meaningful solutions to real customers’ problems or delivering outcomes that both make a positive difference in the customers’ lives and support the company’s mission, the business won’t have to worry about profits or outputs for long. The market has a way of taking care of that.
The historical division between social and non-social business and “purpose” vs. “profits” is artificial and antiquated. Almost exactly two years ago, Michael Porter and Mark Kramer called for a new definition of capitalism — “shared value” — to unify this false choice. I think this is how Adam Smith envisioned capitalism; we just redefined it to serve our purposes. In fact, our financial crisis in part stems from non-social businesses divorcing impact from profit and the outcome will haunt us for a long time.
To further test what I had learned, I turned to business model guru and friend, Alex Osterwalder (I’ve used his Business Model Canvas since 2009 because I believe it’s one of the best methodologies out there). He has vast experience creating business models all over the globe, in almost every industry sector, and he came to the same conclusion: There is no significant difference in the business models themselves. In fact, we agreed that for-profit social businesses are a powerful way to increase impact. For instance, Sun Edison’s business model demonstrates that increasing impact doesn’t decrease profitability. One of Alex’s favorite businesses, PeePoople, is implementing a similar model to provide basic personal sanitation to the 2.6 billion people who don’t have it today. As Alex says, “The most amazing business models are those where profit and impact live in harmony. Business models can be designed where impact doesn’t diminish revenues or profit and vice versa.”
Does this answer the question about needing something different for a social business? I think so and the answer is clearly no. It’s time we stop talking about “social” vs. “non-social” and encourage all entrepreneurs to focus on impact in every element of the business model as well as the whole. We read about companies, like Patagonia, Virgin, Cemex, who profitably and purposefully balance doing well and doing good. If they do it, why can’t you?
There are also some quiet, under the radar companies, like 6th generation family-held Menasha Corp. in Wisconsin’s Fox Valley. The 164-year-old corrugated packaging firm has over $1B in revenue. Despite being in a commodity-driven market, it has experienced seven consecutive years of remarkable growth, even during the recession. Menasha’s plants use heat from the corrugators to warm the buildings; they’ve reduced water usage while increasing production; their culture is collaborative; and their people are active in their communities, serving on school boards, supporting art and music, and having plain old fun in the Muscatine Great River Days boat races. The result is synergistic growth of a company and its communities.
By focusing on each individual business model element and the model’s overall impact to create outputs that support sustainable outcomes, perhaps our social entrepreneurs can help society break down this tired, man-made wall between social and non-social businesses.
This post originally appeared in Harvard Business Review's Scaling Social Impact series.
This guest post is by my dear friend, Brian Sooy, who helped me raise my voice when I started on my own. His voice is powerful. So please read this post and his book, Raise Your Voice: A Cause Manifesto, if you want to change your business...and yourself.
Why It’s Worth Planning and Pushing to Reach your Goals
At age 52, I ran my first half marathon. My friends who are marathon runners said my time of 2:14:34 was respectable. I surpassed my goal by over 15 minutes.
But was it worth it?
Early into the race, not 100 yards from the starting line, a child sat on his father’s shoulders, dressed for the chilly early morning, holding a sign up high. It read:
This seems like a lot of work for a free banana!
Early in the race, I appreciated the humor. 11 miles in, at the beginning of an uphill climb to the finish, I appreciated it even more.
Do you ever ask yourself a similar question in your business? For the entrepreneur, small business=owner, and leaders of any organization, does it seem like a lot of work?
In business, as you lead your team and guide your organization, do you ever ask yourself “Is it worth it?” What are your goals? What is your motivation?
Most importantly: What is your purpose?
I ran with a goal: to complete the race (walking as little as possible), and prove to myself that the destination was proof that I had the strength and courage to finish.
I knew I wouldn’t win, but I ran like I could win. I had trained for 5 months, for two and one half hours of grueling monotony. It was a half marathon, not a sprint. There would only be a dash to the finish for those who paced themselves, with reserved energy for a strong finish.
To my left, on a different part of the course, I watched the elite marathon runners pass me as if they had just started running. Those athletes were completing 26 miles in less time than it would take me to run 13.1 miles. Their destination was the same, but their goals were different. My goal was to finish; their goal was to win.
When you set your own goals, you set yourself free from the expectations others place upon you. When you cast a clear vision and share it with your team, you are free to lead well, and run your race as you see fit.
My purpose in running was for the sense of accomplishment I could have in completing the race, in reaching my goal. My time was good, but it wasn’t great.
After all that training, and preparation, was it worth it?
A few years ago, I realized that while I’ve been moderately successful in business, it wasn’t enough.Success is fleeting, and you have to keep chasing it—like a runner who constantly pushes himself, training harder, to achieve a better time—measured often in mere seconds.
Success is temporary; significance endures. I want to leave a legacy; to do work that matters, to have lasting and meaningful impact in my family, my career, my community. I want to live a life that matters, and make the story of my life a story worth telling.
Near the end of the race I was joined by a friend who has ran many 26-mile marathons, including a one hundred mile ultra marathon. He ran with me for a couple of hundred yards, encouraging me while I continued the uphill climb toward the finish.
His encouragement was enough to spur me on to run the last mile faster than I had ran the previous 12—a full 1:30 minute per mile faster.
I had prepared and trained, I was running strong. My friend recognized it, and reminded me that I could finish strong.
I’d like you to share this perspective with me: to work with purpose, and to seek significance.
Deep down, you know what you're good at. Don't be afraid to run with it and lead with your strengths. Stick to your purpose; stay focused on your goals.
Every day, remind yourself: I’m running my business as if I will win the race. I have prepared, and I will push myself to reach my goals.
Surround yourself with encouragers, who will cheer you on when you feel like you’re the weakest.
We don’t all need to win, but we all need to finish.
You may not win the race, but you will finish strong.
If all you are going to settle for is the equivalent of a free banana, then it won’t be worth it. If you work with a sense of purpose, you’ll achieve significance. If you’re just simply working, you’ll struggle without a sense of purpose.
My last quarter mile was the strongest. I was sore; I was tired. As I crossed the finish line I was handed a medal… and a banana.
It was a lot of work. But it was worth it.
Brian Sooy is the author of the book Raise Your Voice: A Cause Manifesto, (RockBench, 2014), a framework for understanding how an organization's purpose, character, culture, and voice can connect mission and audience more effectively. The 12 strategic, inspirational, relational, and aspirational principles of the Cause Manifesto empower leaders to create purpose-driven culture and communications, share their story more powerfully and effectively, and align their culture and communication strategy to the outcomes they are working to achieve.
Brian is an entrepreneur, design professional, volunteer, donor and nonprofit board member. He is the principal of Aespire, the design and marketing firm that empowers mission-driven organizations to create purpose-driven culture through positioning, design, marketing, and web site development.
"What’s the difference between outputs and outcomes? Some think the question is merely semantics, or that the difference is simple: outputs are extrinsic and outcomes intrinsic. I think otherwise; the difference between outputs and outcomes is more fundamental and profound." Read on.... at Linkedin...