Category Archives: Small Businesses

Does Impact Investment Signal a Paradigm Shift?

There is a fundamental shift in how some are approaching business and philanthropy. Whether you call it impact investing, philanthrocapitalism, or social business, these emerging practices have the potential to be a paradigm shift in our economic landscape. Or do they?

Amy Bell, Executive Director and Head of Principal Investments for JPMorgan’s Social Finance business unit, writes that “impact investing is the deployment of capital with an expectation of financial return, where the success of the investment is also contingent upon achieving a stated social or environmental goal.”

Massive amounts of capital are being “deployed” as Bell describes it. JPMorgan Chase alone has allocated more than $50 million. Goldman Sachs invested $10 million for the US’s first social impact bond. The list goes on.

Is this just a continuation and expansion of corporate social responsibility or is this a deeper change? For decades (if not centuries) nonprofits have encouraged the corporate sector to give back. Nonprofits argue that corporations themselves are economically sustained in many ways because of nonprofits: low-wage workers access discounted healthcare at community clinics and pay reduced-rate tuition at their children’s preschool; higher paid workers are recruited with promises of an area’s operas, cultural life, private schools, and hospitals; and any employee can access a community’s religious services, clean beaches, summer camps, and more.

Eventually, corporations began to catch on and, in large numbers, began partnering with nonprofits through sponsorships, grants and, eventually, cause marketing. Corporations realized that cause marketing could increase sales, increase employee engagement, and could have a positive impact on the community as well. Well-crafted relationships between corporations and nonprofits can lead to very good things for all involved.

But impact investment seems to go a step further. By investing capital in projects through organizations – many of which are for-profit – that create social good and at the same time provide a financial return on investment, impact investing has the potential to fundamentally change the donor’s experience. It completely shakes our business vs. philanthropy mindset. Impact investing says, “We can do both at the same time.” And the underlying assumption is that if we can do both, we should.

But can we do both? In some cases yes. Bell offers the example of Wilmar Flowers. JPMorgan Chase has invested capital in this African-based business with the expectations that Wilmar will grow from purchasing from 3,000 to more than 5,000 African-based small farms, affecting more than 250,000 households. It’s not clear how this arrangement differs from a typical business loan except that, in this case, the business might have previously been considered too high risk. Given Africa’s shaky economic performance, investments like this could be a very positive move towards economic development.

Bell writes that at JPMorgan Chase, “We have increasingly sought to bring the full resources of the firm to bear on these issues over the last several years.” She later writes, “By marrying the expertise within our traditional banking businesses with the financial and philanthropic tools we have available, we are excited about the potential to increase our positive impact and to redefine how we all think about returns.”

There is a delicate balance between maximizing social good and maximizing profit. Imagine walking a tightrope with a barbell in your hand. If one side drops too low, the whole act could fall. If the profit weight is too heavy, the social good is compromised. If the social good weight is too heavy, the lack of financial return may scare future investors. Both goals must be held at equilibrium.

And in some case, we cannot and should not do both. In the wake of 9-11, hundreds of thousands of people were stranded on Manhattan Island. Fear and panic was everywhere. Local fishermen and those with boats self-organized to give people rides to the mainland. 500,000 civilians were rescued in less than nine hours. It was the largest sea evacuation in history. This voluntary organization was completely spontaneous. There was a tremendous return on investment for those who contributed their time and resources, but it was not a financial return.

Is impact investing an emerging paradigm shift? Probably. In fact, there may come a time when the public expects all businesses to operate with a social mission. That day may come sooner rather than later. But the 9-11 boat lift teaches us that the opposite is not necessarily true. Not all social missions can offer financial ROI.

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Nonprofit or For-profit? – NPQ Newswire

I’m intrigued by the social enterprise movement, if we dare call it that. In my recent Nonprofit Quarterly Newswire I look at the choice one social entrepreneur had to make.

As ThinkImpact grew, its founder, Saul Garlick, had to make a tough decision: remain a nonprofit, or change to a for-profit model? To do so, he had to consider some key elements: ownership, transparency, and profits.

Read my Nonprofit Quarterly Newswire by clicking here.

Unpaid Interns May Be Too Expensive – NPQ Newswire

Summer interns: We love them and we hate them. But do we have to pay them? That is a question much debated. Most recently, that debate has been taken up by a federal judge in Manhattan, who ruled in June that Fox Searchlight had broken minimum wage laws using unpaid interns on the set of Black Swan. This ruling, which may or may not be overturned upon appeal, signals that the legal and financial risk of unpaid interns may be greater than previously considered.

Read my newswire to discover why: http://www.nonprofitquarterly.org/policysocial-context/22569-unpaid-interns-may-be-too-expensive.html

Social Enterprise Meets Flipping Boston?!

Unable to sleep this week, I’ve taken to watching Flipping Boston and Flipping Vegas. These shows chronicle the process of entrepreneurs who flip distressed houses. Over the course of a few weeks, the houses transform from dilapidated shacks to pristine palace-like homes. And, of course, the entrepreneurs make a nice profit.

As I watch this, I have to ask. . . Is flipping houses a social enterprise?

Is flipping houses a social enterprise?

Is flipping houses a social enterprise?

In a nutshell, the criteria for social enterprise are:

  1. Profit motive
  2. Social mission
  3. Results/impact oriented

Technically, “House Flippers” would qualify. They have a profit motive (cha-ching!). They offer a social good (improved home prices, neighborhood beautification). And they have clear, measurable results (increased value of house and neighborhood).

But if we consider them social entrepreneurs, shouldn’t we consider all business as such? After all, the addition of any job to the economy is a welcome — and much needed — social benefit.

Yet many might take offense to thinking of “House Flippers” as social entrepreneurs. In some ways, so would I.

Something is clearly missing in our definition of social enterprise and it has to do with #2: Social Mission.

In the case of my late night TV shows, the social good is there. The neighborhood looks better. Property values increase for all residents.  The construction provides job opportunities. However, the social good is a byproduct of the profit motive. The entrepreneurs don’t (presumably) start out with the goal in mind to add value to anything other than their own pocket books.

I think we hold (or at least want to hold) social enterprise and social entrepreneurs to a higher standard. But how do we do this?

  • Should the social mission be more, less, or equally important to the profit motive?
  • Should the intended beneficiaries be consulted?
  • Should the entrepreneurs do market research regarding the need they attempt to fulfill?
  • Should the entrepreneurs do market research into other organizations attempting to meet the need both locally and across the country?

These are the kinds of questions I ask myself every day.

Our current definition of social enterprise needs to stretch enough to encompass the moral and ethical implications of doing good. Yet stretching the definition is not as easy as it looks.

3 Lessons from the Peace Corps

This week is National Peace Corps Week and many of the world’s Peace Corps Volunteers (PCVs) and returned volunteers (RPCVs) are sharing their stories. This past week was also a special week for my campus: USD hosted the international AshokaU conference for Changemakers. I had the opportunity to attend the TEDx event on Friday night where social entrepreneurs and education “futurists” shared their stories.  This woman sold chickens, killed and plucked on demand, out of her home.

In honor of both of these events, I thought I’d share the lessons I learned about changemaking from my time as a Peace Corps Volunteer in the Dominican Republic. I spent 2002 – 2004 as a Community Economic Development Volunteer in a little town called Sabaneta in the state of Santiago Rodriguez. My primary project was to create a business education training program for women with microfinance loans. I also worked with a local nonprofit organization to open a community-based preschool for low-income children.

During this time, I learned:

1) Go where you’re wanted, not just where you’re needed. Peace Corps only goes into countries and communities where they have been invited. Volunteers are matched with host country organizations that have invited the volunteer to help. The volunteers are placed in communities where the local leadership has agreed to and extended a welcome to the PCV.  As a result, the projects I worked on had unilateral and I also was assured that law enforcement would be friendly. (This was not necessarily true when I crossed into Haiti, for example.)

This simple lesson is profound. It’s about respect. As an educated person from the United States, I have no right to impose my views or ideas on people in other countries. That imperialism has happened far to often in our history. However, when invited, we can dialogue and work together in ways that are generative for both parties. The same lesson is true when I work with vulnerable populations in the United States.

2) Start with a cup of coffee. Even after being officially “blessed” at every level, it was important to start by getting to know those who lived and worked around me. For me, that meant three to six months of visiting the homes and businesses of the women I would work with. I sat on their front step and drank coffee. I helped them sell goods out of their colmado (small store). I watched them kill and pluck chickens for customers as they waited. As I did this, I was able to gain trust and come to understand valuable parts of the culture I would otherwise have missed. (But don’t get me wrong, I’m sure I still missed or misunderstood huge parts of the culture. To some extent, that is to be expected.)

This investment of time paid tremendous dividends when it came to designing a project that worked and that was embraced by the community.

3) Look deeply. I hit many bumps along the road. My microfinance project partner wasn’t as gung-ho as I wanted him to be. The teachers in the preschool kept playing with the toys. As much as I wanted to mange these problems and make them go away, they could only be solved by looking. The first class of kids for the preschool program. They are playing in a small sandbox outside.

I had to look deeply at my project partner’s life. He spent 8 – 10 hours a day on a motorcycle driving up and down bumpy, dusty dirt roads. His kid was sick and he only had enough money for diapers for special occasions. Of course he didn’t want an additional thing (me!) added to his plate. Of course he was defensive at first. I needed to back off and give him a greater sense of ownership in the project.

I looked deeply at the teachers in the newly founded preschool. I saw that, like the children they served, they had never seen toys like this. They had never painted or drawn as freely as we encouraged. They had never dug through a sandbox. Of course they were more interested in playing than teaching. Of course they had trouble adjusting to a fixed schedule. These things were foreign to them and I needed to adjust.

These are just a few of the lessons I learned during my two years in the Dominican Republic. They’ve guided my career as I work today with nonprofits.

I’ll have cookies, granola, and some greater good, please

Examples of social enterprise: Girl Scout cookies and "Your Choice Brands" Granola

Examples of social enterprise: Girl Scout cookies and “Your Choice Brands” Granola

Social enterprise is one of the hot new buzz words these days. Other buzz words include social entrepreneur, impact investing, philanthrocapitalism, and social innovation. These words sound really exciting, maybe a bit foreign.

Don’t panic. Social enterprise is less confusing or foreign than it sounds. In fact, we see it almost every day. . . After all, it is Girl Scout cookie season.

Girl Scout cookies are a prime example of social enterprise:

  • There is a profit created by the sale of cookies.
  • There is a social good realized when the girls learn entrepreneurship and when the money from the sales provides funding for the overall program.

Not so scary anymore, huh?

Now, let’s talk about practice. There are two primary ways in which a nonprofit can be or have a social enterprise:

1) Earned Income: nonprofits engage in social enterprise activity when they create earned income. These business-like activities create a profit for the agency which then is reinvested to further the mission. For example:

  • A nonprofit theater company charges for a ticket to a performance.
  • A nonprofit hospital charges patients for services.
  • A disaster preparedness agency sells earthquake kits.

2) Creating a for-profit company: nonprofits can actually create and own a for-profit company.The for-profit provides a revenue stream for the nonprofit corporation.

There are lots of other types of social enterprise which I’ll discuss in further detail in other posts. These include cause marketing, L3C corporations, Benefit Corporations, and cross-sectoral partnerships.

In case you’re curious, the granola pictured in this post is from a for-profit social enterprise (L3) called “Your Choice Brands.” Consumer can log onto a website and donate a portion of the proceeds from the purchase to the nonprofit of their choice. . . I’ll tell you more about these types of social enterprises another day.

The bottom line though is that social enterprise is not rocket science and you don’t have to be Gandi-like to be a social entrepreneur.

Learning to Listen

I am learning to listen.

This lesson is coming through many forms, most recently via a lecture I attended by Otto Scharmer of MIT entitled Leadership and Mindful Transformation of Capitalism: from Ego-System to Eco-System Economies.

Otto asked the audience two core questions:

  • Where do you experience a world that is ending/dying?
  • Where do you experience a world that is beginning/waiting to be born?

In thinking about these questions, only one answer came to my mind. The world that I experience to be ending/dying is the world that believes that problems are external.

In my work with nonprofits, I have come to learn that problems are—at their core—thinking problems. This means problems must be resolved internally first, then externally. What do I mean by this?

  • Problems with the environment are, at their core, a problem about how we conceptualize our relationship to the earth.
  • Problems with poverty are, at their core, problems about how we structure our economy and how we conceptualize our relationship to fellow man.

I did not always believe this. I used to think that “poor people” needed help. To that end, I spent many years in many countries in direct service. What I have learned is that direct service is powerful (there is tremendous power in any act of service to another human being), but it isn’t enough. If the core of the problem is a thinking problem, our work must also be on a different plane.

In thinking about this new work, I am compelled to listen more deeply. But how?

Otto described four levels of listening:

  • Downloading: is taking the information you receive and applying old opinions and judgments to that information.
  • Factual listening: is taking the information we received and acknowledging any data which disconfirms what we thought we knew.
  • Empathic listening: is seeing through another person’s eyes and thereby establishing an emotional connection.
  • Generative listening: is opening our awareness to that which exists and to that which might exist. We allow our attention to connect to an emerging future, waiting for that which wants to be born.

According to Otto, as we move towards generative listening, we let go of the voices of judgment, cynicism, and fear. Instead, we move to a position of openness, engagement, and, eventually, embodiment.

While all this sounds beautiful, I have not yet answered Otto’s second question. Where do I experience a world that is beginning/waiting to be born?

I don’t know, but I’m listening.

What do you think?

For more information about Otto Scharmer and his work on Theory U, visit: http://www.presencing.com/