- 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.
The Founder Project is a new type of venture fund run by students investing in students' startups to create a global student startup ecosystem. The founder of Founder Project, Ilan Saks, did a guest post and asked me to return the favor, which I did here. Currently, Founder Project is only in Canada - Montreal & Toronto, but Ilan has plans to expand to the USA... I sure hope so!!!