Playing with money and fire

As the distinctions between the nonconventional nonprofit, social enterprise, and conventional business begin to blur, we are starting to see social businesses take on traditional qualities including the infamous initial public offering (IPO). Hiroko Tabuchi’s NY Times article Etsy I.P.O. tests pledge and balance social mission and profit sheds light on a recent example for the online retailer Etsy. Etsy embraces a concept that we’ve studied in the past for social innovation- to empower instead of simply give. In the world of small retail businesses, it helps empower them to grow their own businesses, and the IPO should in theory help increase the scale at which this can be done. 

Etsy belongs to a list of B Corp companies, which pledge to adhere to social and environmental accountability based on a list of guidelines written by a nonprofit organization called B Lab. In its public offering, it made it very clear that it would stick to its value for community over profits. In a traditional sense, once there are shareholders involved, it may harder to be as innovative with external pressure. In the Standard Business article Are IPOs good for innovation (https://www.gsb.stanford.edu/insights/are-ipos-good-innovation), Edmund Andrews brings to light a study done by Shai Berstein, and assistant professor of finance at Stanford GSB, that innovation slowed down by 40% at tech companies after they went public. A variety of reasons influenced this result- the main being that top innovators were leaving the company due to the restricted freedom they had for innovation (which would particularly be the case for companies making products). The largest distinction of companies that went public and ones that stayed private was the size of the stock market’s appetite at the time of filing. As such, it would make sense that most of the B Corp companies have chosen to stay private.

Making a decision to stay private or public is a uniquely difficult decision for businesses with a social cause. This idea is explored in a recent TED talk given by Dan Pallotta, in which he encourages the audience to rethink the way we think about the concept of charity. He argues that the deeply rooted Puritan values of using charity as a means for penance for making money has brought on a 400 year outlook that social businesses/nonprofits should limit profit, risk seeking, and marketing (overhead). However, this mentality limits the potential for the social cause to grow, as all of these are needed. In a logical world, overhead is needed to make the “pie” bigger. With this approach, Etsy’s IPO does help increase the size of the market for small retail business owners to reach, as well as how many small businesses Etsy can have an effect upon. Similarly, allowing companies to reach a larger scale and revenue can also allow them to make enough money to scale up smaller companies (examples being Google and Facebook). While there is no clear answer which direction is the obvious front-runner, we can hope that companies continue to ask themselves- how much are we willing to compromise our core vision and purpose?