Tag Archives: social entrepreneur

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.

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.

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.