For Profit vs. Non-profit: Innovating the Business Perspective

While reading this week’s articles, and reflecting upon our recent discussions in class, it struck me how caught up a lot of our focus has been in the dichotomy between “for-profit” and “non-profit”. In reading about the misconceptions about how profit can affect the poor—how a for-profit company can often be chastised for trying to run a sustainable business providing quality goods and services to the poor—we see that social ventures struggle with the notion that you can either do good, or you can make money.  Society tells us we can’t do both.

For a class based upon social innovation, it’s ironic that we’re allowing our perspective to be boxed in by traditional market views and concepts.  We keep struggling to determine if for-profit or non-profit is a better business model for social ventures, when we could just as easily be innovating the business model schema itself.

And that’s exactly what I think both our class, and society in general, needs: an innovation in business model. We need to create a new designation for businesses—not for-profit, but for-impact. We need to carve out a new space in the business world for ventures that strive to do well by doing good. We need to create new metrics and a new dialogue to evaluate how much impact a social venture has, not by how much profit they make or how little money they spend on salaries, but by how many lives and communities are changed.

Think about it: we can develop a system for calculating an ROI based on social impact. Instead of looking at purely profit dollars, we can look at how widespread the organization is, how deeply rooted its impact is, how many years it can sustain itself operating at its current capacity. Making profit by doing good won’t be looked at as greedy capitalism, it will be looked at as effective impact-ism.

I realize that some of these metrics are very abstract and hard to truly capture in number form. And that numbers won’t always tell the whole story. But just as we have experts trained in reading financial statements and evaluating the viability of a for-profit corporation, we can train experts to be adept at reading impact statements. We can teach students how to evaluate the numbers in the context of the venture, and determine if the venture is succeeding or not. It won’t be perfect, but it will help to alleviate a lot of the stress caused by the for-profit/non-profit chasm forced upon businesses currently. 

While I’m sure there are organizations that follow a similar model, I think this concept needs to be embraced and promoted by the business community and at B-school. Major corporations should develop for-impact offshoots, business schools should develop specializations in for-impact studies, investment groups should start using for-impact ROI to highlight investments that are both sustainable and effective. Who knows, maybe one day we can even get an official designation in the tax code to encourage for-impact organizations.

Is this feasible? Can we innovate the business model schema itself, to encourage a new wave of social entrepreneurs? You tell me. But I certainly think it’s worthy of a valiant effort, and at the very least could spread awareness about the limitations of our current perspectives on for-profit and non-profit organizations.

How sustainable it is for small-sized social venture?

Most founders of social ventures are determined to make a difference for people and the world. They have dreams, passion and talent. Their ideas are innovative and most of them could make impacts on their targeted beneficiary. However, many newly founded organizations cannot last long, especially for those who are so-called “grass root”. In China, grass root organizations do not have stable fund source, governmental support, professional staffing, or cozy work place.

One of the solutions for these social ventures could be collaborating with big organizations that have passion and interest in the certain field. As Paul Bloom wrote in How to Take a Social Venture to Scale, partnering with other entities could help social ventures to grow impact without a large organization. Building the alliance is beneficial not only for the social venture but also for the big partner.

Big corporations have growing demand of building their public image through series of social responsibility events, such as bringing solar power to rural Kenya that Coke Cola did. As long as the social venture has effective solution to tackle with social issues, big corporations would not lose the opportunity to work with them and expand the social impact. As for a large corporation, probably one of the Fortune 500, sponsoring a small project or innovative idea is cost-efficient. For example, Ford China awards good practices in the field of environmental protection annually. They provide million dollars grants to sponsor the awarded non-profit organizations, social ventures or individuals. It might be a small amount of money as for Ford, but it indeed is a huge funding for small organizations. Seeking for assistance from a large partner could help social ventures to optimize their limited resources.

However, the alliance relationship should ensure independence and purity of social venture. While scaling the social impact with the help of large partners, some social venture could lose their initial intention. It is possible that social venture is only helping the corporation with their marketing promotion instead of solving social issues. As a small-sized social venture, it is less powerful than its big partner, how can it maintain independency?

Large size is not necessarily important for social ventures comparing with impact scale, but how to measure social impact? It seems that size of an organization is easier to measure and evaluate. Measuring social impact needs a set of mixed data and analysis. Where is the balancing point whether a social venture needs to grow its size or scale its impact without larger size?

Reference:

1. How to Take a Social Venture to Scale, http://blogs.hbr.org/2012/06/how-to-take-a-social-venture-t/

2. Why Coke Is Bringing Solar Power To Rural Kenya, http://www.fastcoexist.com/1682126/why-coke-is-bringing-solar-power-to-rural-kenya

Borrowed Credibility

Venture development of start-ups has always been a mystery to me. It’s clear that upon having a brilliant idea one would have to go make the pitch to investors who would then loan the money for the start up. My interest has always been on the investor side—why do it? Perhaps, these investors are looking for the next new Kickstarter or DonorsChoose and hoping to gain twofold or more monetarily. But these days, I think it’s more than that. A lot has to do with image building and borrowed credibility.

When Coca-Cola partnered with One Degree Solar to bring solar power to kiosk owners in Nairobi, Kenya, they didn’t just do it for the high ROI. While they were extending their product brand more extensively in even the most rural parts of the country, Coca-Cola was able to borrow the credibility and status of One Degree Solar to “do good” and bring positive impact locally.

With the rise of Corporate Social Responsibility (CSR) departments in large corporations like the Nike and Nestles of the world, there is a clear trend in the way existing businesses are looking at social innovation or social impact.

Last summer I backpacked through Peru with a travel company called G Adventures over the course of a month, starting my trip in Lima and ending it in La Paz, Bolivia. During my trekking experiences through the Andes, my group was accompanied by porters and cooks who followed us on our journey. We soon came to realize that G Adventures had a partner organization called Planeterra, which was their non-profit arm dedicated to the development and support of small communities. Planeterra had porter training and education programs throughout Peru in an effort to promote sustainable tourism by employing locals. Additionally, Planetera helped the wives of porters by setting up weaving co-ops in villages to set up small business developments. By borrowing the credibility of Planeterra, G Adventures was able to brand itself as a sustainable tourism company invested in the lives of locals.

Borrowed credibility can be great for the ‘borrower,’ but does this make start-ups and new organizations who are trying to take their social venture to scale, dependent on these bigger companies? Could there be a healthy symbiotic relationship between bigger corporations and smaller groups? 

Have Innocent smoothies lost their innocence?

Innocent drinks, founded in 1999, sells 100% natural smoothies and juices in the UK. Known for their bottles and cartons in the grocery store, they’ve seen great growth since their 3-person start at a music festival. Personally, I find their smoothies truly delicious and nutritious and hope to one day see them in the US. Innocent also uses green energy and donates 10% of their profits to the Innocent Foundation, a charity focused on the countries where Innocent purchases produce. As of February of this year, Innocent drinks took a significant turn when Coca Cola became the majority shareholder at 90%.

Coca Cola first purchased stake in the company in 2009 at 18%. During the economic downturn and fruit price inflation, Innocent struggled financially and this backing supported their operations and innovations. In 2010, Coca Cola’s stake increased to 58%. Amidst this buyout, Innocent has also faced controversy surrounding its donations to the Innocent Foundation. In 2007, it held onto £520,000 that it pledged to donate. From 2008 to 2011 it was not profitable and in turn donated nothing. In 2011, Innocent committed £250,000 even without profits so that Innocent Foundation could continue their operations. It is not clear what will happen in the future.

Since Coca Cola’s investment in Innocent, it has doubled in size. In contrast to Bloom’s recommendations in How to Take a Social Venture to Scale, Innocent simply brought in a much larger partner with vast resources. It is possible that without Coca Cola’s support, Innocent would not have survived the past four years. Although Innocent says nothing about the company will change with Coca Cola’s new ownership, details on the deal are not public.

Theoretically the deal could allow this social enterprise to grow and expand geographically. However, Innocent lost some of its identity and control along the way. Is Innocent still considered a social enterprise now that it belongs to Coca Cola? Was the deal worth the potential sacrifice to the cause?

Resources

Innocent and Coca-Cola deal for further investment

http://www.innocentdrinks.co.uk/us/press/release/130222-innocent-and-coca-cola-agree-deal-for-further-investment

Innocent smoothie maker says charity cash bottled for best interest rate

http://www.theguardian.com/uk/2011/may/26/innocent-smoothies-charity-cash

Not so Innocent now... Bumper payday for trio of Cambridge graduates who founded ethical smoothie maker after Coca-Cola snaps up firm for a fruity £100m

http://www.dailymail.co.uk/news/article-2284834/Bumper-payday-trio-Innocent-founders-Coca-Cola-snaps-stakes-fruity-100m.html

The Art of Social Development

In recent times, there are numerous social ventures that have propped up. Most of them have the noble idea of empowering the needy. A close examination of certain models in the society reveals an association with the patterns of nature. Such models have a greater impact on bringing about sustainable changes in the society.

Agasthya Foundation in India, is one such example. The Agasthya foundation was established to lay more emphasis on science education in the villages of India. The children of rural India, lacked exposure to science like the children in the urban areas. The foundation had a sole aim of narrowing the yawning gap between the rural and the urban areas. The seed for the foundation was laid in a village close to Bangalore in India. The seed that had been sowed, has grown into a huge tree with its branches across various cities in India. While bringing structural changes to the organization model, the founders ensured that a pattern similar to the 'Golden Mean' is implemented. The approach to ensure that people get on board was a centered approach, that had the capability to spread its influence across the various sectors.

From this example, it is evident that the art of developing the society lies in following certain patterns of nature. This would ensure the sustainability if the model in the long run.