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Out of Our Minds
Thursday, February 09, 2006 8:45 PM
The Tugs of Conscience and Commerce
David Batstone on Business

I am inspired by the out-of-the-box experiments in enterprise that proliferate during our moment. The social venture initiative, led by entrepreneurs who launch for-profit companies to solve a human problem, has turned into a movement. Meanwhile, not-for-profit organizations are becoming increasingly savvy about deploying business practices to set their projects free from unending cycles of charitable support. We can see emerging a generation of leaders who can walk comfortably in both worlds without contradiction.

In fact, my good friend Michael Kieschnick, president of Working Assets - a $140 million annual revenue telephone company with an advocacy agenda - teaches a course at Stanford University in this vein. Michael helps students define the best organizational vehicle for a given social mission; sometimes a not-for-profit better enables social change, but not always. What matters most is understanding the organizational structure as a tool for accomplishing a purpose.

The devil is in the details of implementation, of course, and social entrepreneurs face considerable obstacles. Suffice it to say that not everyone operating in the financial markets has jumped on board the social venture train. Finding like-minded investors is the first tall wall they have to figure out how to scale. That's no easy task, for the majority of investors still think somewhat conventionally about profit and philanthropy. If they want to do some good in the world, most investors will donate funds to a philanthropic group that targets issues close to their heart. It a is very 'clean' transaction: they donate funds, take the tax write-off, and do not expect anything back in return. So it's complicated for a social venture entrepreneur to make an investment pitch that blurs these categories. The investor knows how to evaluate return on investment for a strictly commercial deal. Likewise, the investor knows how to evaluate philanthropic giving. But the social venture deal takes the investor into uncharted waters, and in most cases he or she is not comfortable sailing there.

Another of my good friends, John Sage, has done some of the most creative thinking around investment models that I have run across. I spent a morning in Seattle with John this past week, and our conversation inspired this column (don't hold him responsible for my musings, however!).\n\nA former marketing whiz at Microsoft, John launched seven years ago Pura Vida Coffee, a social venture enterprise in the coffee industry. In one effort to surmount the commerce and philanthropy divide, John gave potential investors the opportunity to invest in his for-profit venture, but designate the return on that investment to the investor's favorite charitable organization. In essence, John was offering a hybrid option as a way of dealing with what was a muddled business model in the mind of the investor. Though the model did have a modicum of success, John has not relied on it for his bread-and-butter investments. He experimented with a number of other hybrid offerings, but pretty much has fallen back to appealing to those investors who are willing to make a straight investment in his company simply because they believe in both the business and the social mission.\n\nTruth be told, both consumers and investors are not willing to give a social venture much of a break. Consumers by and large are not willing to pay a premium for an organic, fair trade pound of coffee, even if the profits help at-risk children (as Pura Vida Coffee does). And investors by and large are not willing to take a hit on their investment income even if it is a cause they believe in. If you can play on competitive terms - say, sell a pound of coffee roughly at the same price as Starbucks - then consumers and investors of conscience may very well tilt in your direction when it comes the decision point in a financial transaction. Maybe that sounds like crumbs off the table, but it points to a significant edge for a social enterprise. Reduce the friction points - convenience and cost are big ones in the coffee business - and you have a good shot at winning new converts.\n\nAll the same, at this point in the paradigm shift, you cannot expect consumers or investors to fully blend conscience and commerce. Many folks studiously keep their values and generosity private, while operating with a separate playbook in the marketplace. \n


Santhosh - 2/23/2006 7:21:55 AM
Grants vs. profits - Its a dilemma lingering in our minds, as a start-up stage social enterprise.

However, I tend to believe that future businesses cannot survive without creating social purpose value. For ProGreen, being a social enterpise, offers immense competitive advantage, and no friction points. Atleast thats our belief!

Rob Johnston - 2/10/2006 5:40:05 PM
Yes, we are undergoing an ongoing exploration of choosing the best organization for the challenge. I comment on your piece in a posting on my blog http://4nonprofits.org/worthwhile-on-for-profit-SE .


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