Category Archives: Social Enterprise

Responsible business can mean profitable business

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I’m currently enjoying the book The Responsibility Revolution, co-authored by Seventh Generation founder Jeffrey Hollender. A few key points are coming to the surface for me from this book:

  • Truly responsible business efforts need to be done first and foremost because they actually matter for the company. If the driving reason is to have a good story to tell, then the initiative will fall flat.
  • Innovation is a motivating frame for responsible business. Embedded in that idea is the notion that responsible business practices can drive profitability, before you even consider PR value.

A short hand way of saying all of this might be “to do responsible business successfully, you need to really mean it.

The book’s chapter Authentically Good looks at the 2008 launch of the Nike Jordan 23rd anniversary shoe, the Air Jordan XX3, with a great quote from a member of Nike’s in-house sustainability group:

“We all want to do even more around sustainability…but we don’t feel the need to say more. The most important thing is that we do the work that needs to be done, and let the result speak for itself.”

And sure enough, the original press release for the Air Jordan XX3 mentions sustainability, but doesn’t make a huge deal of it.

On a related note, the book mentions that Jordan was initially not interested in the push to make the shoe more sustainable, but when he saw the end result, he became a believer in what was possible. In the ongoing process of bringing more awareness to sustainability issues, and possibilities, this was a huge win.

When responsible business practices are also good for business itself, before any PR gain, then they are most likely to take hold and make a difference.

The return of tangible value in jobs

The building that I live in has been having renovations done over the past few months, and the folks doing the work are mostly from Central America. In fact just today a young man came by to put a second coat of paint on the front door.

In watching him work, it occurred to me that in today’s society, there is a large gap in salaries between people doing “tangible” work, like construction or farming, and people doing “abstract” work, like private equity and marketing strategy. And that a lot of the folks around here in California doing the tangible work are immigrants from Central America, who don’t make a lot of money. Twenty years from now, what will the relative value be of being able to do a discounted cashflow spreadsheet vs. being able to change out a door frame or rejuvenate soil?

John Michael Greer recently wrote about how the energy bonanza of the past hundred years has allowed the flowering of many abstract lines of work. And frankly “abstract” often means “non-essential.” While it’s true that someone can make a lot of money doing “marketing strategy,” and that in today’s society such a role may financially make sense for a company to fill, it’s not hard to see a scenario in the future where there just aren’t the resources or the business justification for these “extra” jobs.

As a matter of fact, it’s well known that in India there are globally competitive businesses like WIPRO that run with a much leaner management structure, as detailed in the book Bangalore Tiger. It makes me realize that the MBA gravy train of well-paying marketing jobs may be on the wane.

I suspect that a key to being relevant in the tightening times ahead is to get as close to the “value” as possible. If I’m doing hands on work that is critical to the end offering–uncuttable, hard to replace–that’s valuable. If I’m doing the high level work of running a company *that provides something that people absolutely need* then that’s valuable. But if I’m somewhere in the middle–I’d be concerned about how to be relevant in the job market.

Why are so many non-profit salaries so low?

Homeless person, with shopping cart

a nonprofit mobile office?

Dan Pallotta’s book Uncharitable continues to move me; it is changing my views of where the nonprofit sector needs to go. In the first portion of the book, Pallotta delves into the origins of strongly held American beliefs about the nonprofit pay. He writes:

“In Puritan times, people gave directly to the needy, without using brokers. This is no longer possible on any meaningful scale. Charity is no longer an exchange between the non-needy and the needy. It is an exchange between the non-needy (donors) and the non-needy (the charity workforce) to provide services to the needy. Is an exchange between equals to help the needy. It is no different than the exchange between those who buy cars and those who make them. A law that was meant to provide an economic discount to the needy in face-to-face transactions is now improperly exploited to expect nonprofit sector workers to provide wage discounts to wealthy donors who are in essence buying a service from them, which they use their labor to provide. The donating public expects the nonprofit workforce to extend to it the law of mercy. But it was never intended that such a law be applied in this way.”

This is a big aha for me—over time two distinct dynamics have become confused as one. The first dynamic is the wealthy giving charity to the needy. The second dynamic is nonprofit employees (the non-needy but non-wealthy) working at below market rates, thus also giving charity to the needy. But in doing so, the nonprofit employees are in a way also giving charity to the *wealthy* as well, in the form of their under-priced labor. And this practice of low nonprofit wages is not just common, it’s widely considered to be the only acceptable situation.

I’ll never forget attending a mixer of the San Francisco chapter of YNPN and overhearing several discussions of nonprofit employees who have no health insurance. They were talking about where to go in the city to find free health clinics! These are smart, young, energetic people who could easily find work in the for-profit arena. They are living lives of poverty in order to work for nonprofits. It just doesn’t seem right to me, it doesn’t seem sustainable, and I absolutely can’t see this being good for the field. It doesn’t take much imagination to see many of these young people going and finding “real jobs” and only doing social benefit work on weekends. What a loss for the field.

So what’s going on here? My guess is that there are two factors in play.

One factor is that there are a few markets for the kinds of social benefit that nonprofits generate. These are organizations that are creating real value to society, but which society isn’t currently willing to pay for, at least not proactively. It’s a lot easier to get money to build prisons than it is to build programs that prevent the need for more prisons. I hope that over time as the underlying math and science of how societies work is better understood, the value of the right types of social investments will become obvious and uncontroversial.

The second factor is that there are huge discrepancies in the nonprofit world when it comes to pay—people at some organizations get paid extremely well, even if the impact isn’t clear. My guess is that this links to the relative lack of market mechanisms in the nonprofit world, where pay and impact can be worlds apart.

I wonder: if we can better understand and measure impact, and if we can create markets for that impact, can we find ways to fairly compensate talented individuals for the positive social impacts that they drive?

Struggling business or highly effective development effort? A social enterprise dilemma.

Developing 0.750–0.799 0.700–0.749 0.650–0.699...

Social venture and global competition

Suppose I told you about an investment opportunity with an outsourcing business based in a developing country. They’re the first of their kind in that country, which is an unknown in this particular industry. Furthermore none of their local employees speak English natively, and so all must study English and do their best in working with English-speaking clients on projects that are usually in English. Oh and by the way, this business’s main competitors are based in English-speaking developing countries with a history in the industry, and much more developed base of management talent. Would you like to invest?

Now let’s say I told you about an opportunity to support an innovative nonprofit
that provides top-notch training to underprivileged people in developing countries, and provides them three times their prior salary—plus benefits—to work in teams working on real projects, for real clients? And furthermore, after three to four years of work experience, employees are able to find even higher paying jobs, paying three times again what they made during training. Oh and by the way, this organization takes every dollar you donate and stretches it to be three dollars of impact, because of the income generated by the real world projects that are the heart of this training program. Would you like to invest?

Social enterprise, at the outset, is a great story to tell: running a real business that provides training and employment opportunities for disadvantaged people. But such businesses face the real-world challenge of competition from regular, for-profit businesses. When it comes to a local business, such as a restaurant, where the “delivery of value” is necessarily local and in-person, such social enterprises have a relatively even playing field on which to compete.

However when it comes to a global business, the playing field can be much more uneven. Whereas a competitor to a local restaurant faces similar costs for rent, personnel, and materials, a competitor to a global outsourcing firm might enjoy better English skills, a more highly educated talent pool, along with the ability to recruit highly skilled senior management locally, instead of from abroad.  Thus it can be very challenging to compete, sustainably, against such advantages.

So does this mean businesses shouldn’t set up shop in said developing country, because of those disadvantages? It depends on the goals and expectations of the business.

If the goal is to make bottom-line profit, then it doesn’t make sense to  “fight the current” on such a critical point such as the talent pool. You’re going to have to spend extra money to make up for the education system and bring people up to speed. Plus, to ensure that your organization can compete in the global space, you’re going to have to pay good money to hire for key strategic positions, whether you are hiring from the limited pool of locals, or you’re bringing in expats.

But if the goal is development, then the very sources of these disadvantages gives the justification for investment in such a social business. Because through such investment, the “disadvantaged” developing country can start on the road towards building a globally competitive talent pool. How else are they going to do it? Furthermore it’s a fair bet that in a country which has had much less investment in the talent pool, there are a lot undiscovered—and highly motivated—people looking for an opportunity. And this spark of enthusiastic hidden talent can be a real advantage for a business.

So yes, such extra costs to running a social venture in a “competitively disadvantaged” country make for a challenging business opportunity. However as a development opportunity, the ability to create a lively new industry that trains locals in relevant global skills can make for a highly impactful, highly relevant social investment.

The key question to me is, will traditional funders of development efforts have the insight and the courage to support a business-looking engine of economic development for the disadvantaged?

And at the end of the day, does the “developed” world actually welcome the competition?

Donations, overhead, and the “feel good” factor

Do we really want to compete for donors on the basis of low overhead?

I had the good fortune at SOCAP 10 to meet Barty Jan Skorupa of Groundwork Opportunities. In the course of our conversation, he shared with me that when he does a fundraiser, 100% of proceeds go directly to programming. A few years ago I would have said “great!” but after hearing Dan Pallotta give a rousing “social benefit folks deserve to get paid, too” talk at the 2010 SEA Summit in San Francisco, I’ve started to actively wonder how nonprofit leaders can pay the rent when calls of “no overhead” carry the day.

What I took away from Dan’s talk is that overhead ratios are a poor measure of impact. And it makes sense, when you think about it: a smart for-profit company that is going to launch a critical new venture understands the value of investing properly and “doing it right,” and thus they raise big money in order to be as successful. Guess what—a lot of that money goes into infrastructure building and paying competitive wages to smart people, in other words to “overhead.”

But for-profit’s get it—they swing the big bats to get the big results. Dan made the point that the non-profit world often has a meek “spend as little as possible” attitude, based on the belief that “less is best” when it comes to overhead.

Now back to Barty. Here’s a smart guy who could be making good money as a consultant to for-profit companies, who runs this social benefit org “just because.” And I couldn’t help but ask him, “so how do you pay your rent?” because it just seemed unfair that he should have to scrape by. Fortunately for Barty he’s started to attract some grants and institutional money, but it’s still early, and even paying the rent is tight.

Then it occurred to me the next day: the question of whether or not 100% of all “event proceeds” go to programming is really a question for accountants. Let me explain.

Consider two $1M a year social benefit organizations that are totally equivalent in over way, except for this:

  • Org A says “20% of all money we take in, from funders and from events, goes to overhead. The other 80% goes to programs.” So that’s $200K a year to overhead, $800K to programs.
  • Org B says “100% of the money we take in from events goes to programs. And 100% of money we take in from funders goes to overhead.” Let’s say the funders are chipping in $200K a year, and the events raise $800K a year.

Now we have two equivalent organizations, right? Well, not really. Why? The psychological factor.

Here’s my take: Barty is playing it smart by saying “we have no overhead” because the typical individual donor thinks that’s a good thing, and likes the idea of all of their money going “directly to the cause,” even if people who run these organizations in fact need to eat, get medical car, and have a place to live. The casual donor doesn’t really care–from a psychological standpoint, they want the emotional gain from the “direct impact” they are having.

Thus by using the rallying cry of “all funds raised at the event go straight to programming” he can unlock funds that otherwise might not be donated if they went, even in part, to “overhead.” As much as I agree with Dan that social benefits folks also deserve to get paid, unfortunately I doubt we’ll see human nature change such that the average donor cares about infrastructure.

Having said that, I realize that whenever a friend brags about how their charity of choice “has less than 1% overhead” I engage them in a conversation about whether that’s true, and if so, what that would actually mean for the quality of the organization. I’m trying to do my part to get the people around me to think a bit deeper about these issues.

Nonetheless, consider—do you care how about how much overhead Starbucks has, or do you want a good coffee at a good price in a nice shop? If, when it comes to donors, social benefit organizations are at least partly in the business of delivering “feel good,” in return for donations, then a “100% goes to programs” strategy can be a good thing.

Note: since writing this article I finally sat down and read through Dan Pallota’s thought provoking book Uncharitable in which he goes into more detail on this phenomenon of overhead ratios and accounting tricks. He also describes the unsettling case where non-profits that don’t engage in these tricks can lose their funding because they appear to be “inefficient” when in fact the whole “minimize the overhead” frame is what’s actually at fault. It’s time to get out of the overhead game and focus on impact.

Another hidden gem: The BRAC Rural Studies

I’ve found several gems in searching for great resources to understand how to have impact in social enterprise. Previously I wrote about the Ashoka Video Series, and now I’ve found another great resource:  The BRAC Rural Study Series, mostly published in the 90’s.

The preamble to the first study describes the creation of the series:

In the course of its activities over the last seven years BRAC  has developed certain capacities within the organisation and gained some perceptions of the rural scene through experience at the grassroots. It was, however, felt that more systematic investigation and analysis of the structure and dynamics of society was essential for formulating appropriate development strategies. Moreover, insights gained through experience needed to be analysed and documented if they were to be of use to others.

In typical BRAC style the preamble humbly understates the significance of these studies in beginning to understand key on-the-ground dynamics in rural poverty situations.

I have thus far had a chance to read the first two studies, and was impressed by the care taken to give a holistic, neutral view of what was observed, and to describe the history that preceded the observations.

While nothing is quite like going on site and experiencing with your own senses, my sense is that this series can bring one’s awareness and attention to many of the key underlying dynamics of poverty in the developing world, and efforts to reduce poverty.

The series covers a range of topics and is available as a series of free PDF downloads from BRAC Research and Evaluation (RED) website. Highly recommended for students of poverty alleviation.

Study 1: Who Gets What and Why—Resource Allocation in a Bangladesh Village

Study 2: The Net—Power Structure in 10 Villages

Study 3: Peasant Perceptions—Famine, Credit Needs, Sanitation

Study 4: Peasant Perceptions—Law

Study 5: Ashram Village: An analysis of resource flows

Study 6: A Tale of Two Wings—Health and Family Planning Programmes in an

Upazila in Northern Bangladesh

Study 7: Rural Women in Poverty Alleviation—Six Case Studies

Study 8: Continuation of Education of BRAC’s Non-Formal Primary School Graduates in Formal Schools

Study 9: Evaluation of Community Participation in a Maternal and Child Health Programme Setting in Rural Bangladesh

Study 10: Antenatal Care Service Coverage Through Village Based Centres—A Close Observation

In 1998 the series changed to be called the “Research Monograph Series,” including this intriguing title:

Series No. 11: Women, workload and the women’s health and development programme: are women overburdened?

To find the rest of the series, which by now numbers into the 40s, search for the keyword “series” at http://www.bracresearch.org/

The Magic of BRAC—Amazing Social Impact

Fazle Hasan Abed, founder of BRAC

Fazle Abed of BRAC

Many people have heard of Grameen and Muhammad Yunus, but who knows about BRAC and Fazle Abed? Outside of the development world, hardly anyone, and it’s a shame because BRAC does amazing, transformative, unique work. I just finished reading a fantastic book about BRAC, Freedom from Want, which gives an engaging overview of how several of BRAC’s major initiatives have developed through the years.

What strikes me as particularly interesting about BRAC isn’t so much the areas that they have entered, such as primary education, tuberculosis treatment, and poultry farming, but rather the organizational habits that allowed them to experiment, learn, adjust and ultimately succeed in these areas.

A good idea and the initiative to enter is a good start, but to actually succeed it takes the ability to adapt, and from “Freedom from Want” I’ve learned that BRAC is excellent at adapting. Not surprisingly, this core strength at adaptation has enabled BRAC to enter several other countries such as Afghanistan and Tanzania, and have an unusual degree of success.

So what is the magic of BRAC, and how do they do it? It’s hard to know from reading a book, but here are my guesses at some of the key factors:

Leadership

Mr. Abed started BRAC in his late 30’s, well into his career. If you watch him in action on video, he comes across as extremely grounded while at the same time being very intellectually nimble. Combine this with humility and a deep desire to find solutions, and you get the key ingredients to seed the DNA of an organization with the ability to learn.

Persistence

Related to this ability to learn is having the stamina to stick with a challenging idea, and be able to see it through. For example BRAC over 10 years to start its bank, and the idea for the bank inevitably changed over time as BRAC dealt with the bureaucratic challenges in Bangladesh. But the organization seems to have had a powerful enough vision for the bank that they stuck with it, resulting in what today is a bank that helps a tremendous number of people start small enterprises.

Humility

The flip side of persistence is knowing when to pull out. BRAC has had its share of areas, such as silk cultivation, where it spent many years trying to get in, but ultimately determined that it couldn’t make it work. For an organization that emphasizes impact and learning, and means it, an unsuccessful venture can be canceled without it needing to “mean anything” about the organization itself. But for an organization that “is never wrong” and “can never fail”, an unsuccessful venture can become a black hole that pulls in more and more resources.

If you don’t know anything about Fazle Abed, I highly recommend watching one of the Ashoka videos about BRAC, which reveals much about Mr. Abed as a person, and about the ways of BRAC.

Whatever the reasons for BRAC’s success, the point is that this is an organization to watch. BRAC’s organizational culture has created an amazing track record of success, and looks poised to continue presenting and refining new ways of having scalable social impact.