A Sane New Year

There’s an old saw that says that Sigmund Freud defined insanity as “doing the same thing over again and expecting it to come out differently”. Now with a little spin around the interwebs, it turns out that maybe it was Benjamin Franklin, or Mark Twain, or nobody at all. And maybe it doesn’t really define insanity after all. Maybe it defines the way we as Humans learn to change behaviors over time. Like the way that you learn as a child that holding your hand over a candle will burn your hand, so you don’t do it again. Regardless of the source, or the condition it describes, it seems pretty easy to see that the rational adult would seek a new mode or method when the old one no longer works. Too bad that most of us are not nearly that mature.

All of this came to my mind the other day while meeting with an organization that wanted me to volunteer to help with fundraising. It’s a local mission that I care about and have personally benefited from, so I was happy to have the conversation (actually two separate conversations of about 90 minutes each as it turned out). There was a lot of social value being produced by these folks, and a lot of potential interested parties. There were significant opportunities for commercial partners, any number of ways to monetize the social benefits they were producing.

Our discussions were very interesting. We talked about the incredibly low return on investment that most programs accrue from the typical fund raising gala. We spent a lot of time talking about how the traditional grant-seeking process is not working particularly well these days. We even talked about how little time many folks spend in working with a grant maker before they submit the proposal, and that the real source of philanthropic support is the private donor (a source they have not even begin to tap – even though the membership roles were filled with people of means). They asked a lot of good questions. We wrapped up the conversations with a commitment to follow up in a few weeks.

About 10 days later I got an email from the primary contact thanking me for my time and telling me that the board had decided to pursue a strategy of grant writing and “maybe a few fundraising events”. So here’s a group of folks that are openly admitting that the exact methods that haven’t worked for them before are the ones that they are going to use going forward. Why? Well, as they said to me, it was because all of this earned income and social benefit stuff was kind of new and hadn’t really been proven to work. So rather than take a shot with something that might work, they chose to stick with something familiar, even if it didn’t work.

So maybe that quote from Freud (or Franklin or Twain or whoever) isn’t really the right fit for this problem. Maybe the better notion is that “Change happens when the pain of holding on becomes greater than the fear of letting go” (attributed to Spencer Johnson but with an equally checkered pedigree). And while I certainly understand how an organization can come to the conclusion made by my friends (who – by the way, received my membership renewal and a small donation), my hope for all of us in the coming year is that we will have the courage to step out into this new world of funding freedom, where social benefit organizations are recognized and rewarded for our ability to create value far beyond that recognized in the commercial world.

That we won’t wait until the pain of the old model becomes so bad that we are forced to try something new. That we, as social innovators, can model mature and sane behavior, learn from the past, and make great change happen. That we make a resolution – to try.

The Donor you should marry

Do you remember that girl in high school who said she thought you were kinda cute but she wouldn't go out with you because you couldn't quote Shakespeare (or couldn't stop quoting Shakespeare)? Well sometimes, the old school method of funding social benefit, the world of grants and gifts, is kind of like that girl.

If we're honest with each other, we can all tell stories about that donor with the huge potential who made us go through twenty seven revisions to the proposal and ended up with a much smaller gift than you'd started out with that funded something that wasn't really key to your mission. And you did the gift letter, and put the donor's name on the side of whatever it was he funded. Why? Because you knew that your payroll account was a month from running dry and you needed the money. Or because you had some fundraising goal that the Board had set and you knew that this one would put you over the top. But did it really move the mission forward?

The other day, I found myself in another one of those discussions about what does and want doesn't qualify as a social enterprise. Now, I can get down into the weeds as easily as the next guy, but c'mon now - this is not what we're here for. To me, social entrepreneurship is not about percentage or definitions. It’s about changing the conversation and leveling the playing field. Having earned income gives you the freedom to say no thanks to that big donor that's not the right fit and would love to fund you if you just change the program a little bit. I can hear him now - "what you should REALLY do is....... (whatever crazy idea it is that I want to see my name on)".

Didn't we learn that lesson in high school? That cute guy who wants you to grow or shrink some portion of your anatomy? That really hot girl that's out of your league but would date you if you could only quote Shakespeare or stop quoting Shakespeare (actually it was my obsession with the philosophical insights of Warren Zevon, but that's another post).

The thing that earned income does is allow you to be free of the one sided conversation that is at the heart of donor based funding. When all we can do is beg and say thank you, we have absolutely no bargaining power, so we must (and do) take whatever we can get. And it's also not about what type of earned income it is. We get the same freedom from a direct business/service model that generates income and also matches the mission as we do if we're a subcontractor providing services as a proxy for another entity. Even a service delivery contract under a government grant does the trick (although with the state of government funding these days, I'm not sure that the long term cash flow is all that stable). Anytime we can create some financial space between us and that donor with the 27 revisions, it's a good thing (and don't think for a second that the donor doesn't sense that you're desperate - they can smell the sweat even if they don't know it consciously).

You see, the reality is that not every social benefit organization is a good fit for an earned income strategy. There are times when a direct business/service model can serve to generate earned income for a social program. There are far more times when an existing social program can produce outcomes that are valuable and can be monetized

Now I do recognize that there is a need for distinctions in order to be able to do analysis and make observations about any situation - hey, I can geek out with the best of them. But if we spend our energy on those definitions, then it's that much less energy that we can spend on actually moving the dial.

To go back the high school dating metaphor, the real issues is that desperation is unattractive and confidence is sexy. And earned income gives you that confidence. The confidence to believe in what you're doing. The confidence to know that the social change model you've worked so hard to perfect is the right one, and it's making a difference in people's lives. And when you can walk with your head held that high, that's when you meet the girl who really gets you. The one who can quote Shakespeare even better than you. And her, you marry.

Take the occupiers out to tea

I clearly remember a day in high school that has proven to be a major formative moment for me (and no, it’s not THAT day, thank you very much). I had a social studies teacher whose name is lost to my aging memory who went off on a riff about how what we see as a political spectrum with opposite ends is actually more of a circle (and if you Google political spectrum as circle, you’ll quickly find a bunch of geeky posts that illustrate this – to any number of individual points). My teacher’s point (what was his name?) was simply that we are more alike than different. I was reminded of this when I saw the lead item in today’s New York Times reporting on the universal disappointment with the lack of results from the vaunted super committee “A Failure Is Absorbed With Disgust and Fear, but Little Surprise” NYT 11/21/11 by Michael Cooper.

Cooper does a great job of bouncing back and forth from liberal to conservative, and showing how both sides are disgusted. And it hit me that this is not just a watershed moment for our country, but a defining moment for social entrepreneurship. We (social entrepreneurs) say that the process of creating value is not in itself flawed. It is the application of that value that has brought us to this precarious moment. The infamous notion that the sole purpose of business is to maximize profit to shareholders is what leads us astray. And that’s why we need to take the occupiers out to tea.

We have two major social movements going on right now in the good old US of A. On the left, we have the occupiers – not just of Wall Street, but Baltimore and Oakland and DC and dozens of other cities. And they’re saying that their sick and tired of the system, it’s broken and needs to be fixed. And then we have the tea party movement - A bit older (in more ways than one) and WAY down on the opposite end of the spectrum. In fact, a steel cage match between an occupier and a tea partier would probably sell out our local football stadium quicker than a Ravens-Steelers Super Bowl game. And what is the tea party saying? That the system is broken, they’re sick and tired, and things need to change. Oh wait, that’s what the….. oh my (what was his name?).

So, let’s do some quick math. Depending on the poll you read, somewhere between 15 and 20% of the voting public views itself as sympathetic to the Tea Party Agenda. A similar percentage (maybe more, maybe less) seems to identify with the occupiers. Put them together and you’ve got a sizable force that may in fact NOT be that ideologically separate. Cooper’s piece in The Times reports that “a record 84 percent of Americans said they disapproved of the way Congress was handling its job in the most recent New York Times/CBS News poll last month.”

Now, before you start ranting about how these two groups are SO different, and whichever side you support is the correct one, and the other guy is just a wacko (as the tea party recently did on it’s website), just stop for a second and think about one thing. What if we stopped screaming at each other long enough to compare notes? What about focusing on ways forward, rather than furthering the space in the divide? What if what feels like extremes is actually the new middle? What if we took the occupiers out to tea?


And yes, I am aware that the notion that there are similarities between the two movements is not unique to my feeble mind. Not just Cooper's piece today, but the polar opposite voice of conservatism The Wall Street Journal also recently published a similar piece (Populist Movements Rooted in Same Soil, WSJ 11/15/11 by Gerald F. Seib) Come to think of it, the Times and the Journal making the same argument may be the only support this notion needs.


But to move forward, we need an answer, not just more questions. And that answer, my friends, is Social Enterprise.

The bipolar disorder in Social Enterprise

This past week, I had the privilege of attending two of the leading conferences in the field of Social Enterprise – The Social Enterprise Alliance’s summit in Chicago, and the Satter conference on Social Entrepreneurship hosted by the Stern School at NYU. You would expect (as did I) that I would be filled with the harmonious reverberations of brilliant new earned income models, great ideas for public policies that move the social order forward, and brilliant social change theories that get to the root cause of deeply entrenched human challenges. Instead, I was left with the distinct conclusion that this movement is bipolar.

In six years of working intensely with a wide range of social entrepreneurs (in well over 100 different organizations), I’ve seen a distinct pattern. The vast majority of the folks leading the charge on the ground come to this work from non-profit or social work perspectives. Now, that certainly makes sense at many levels. You need to know community organizing. You need to understand the delicate nuances of managing a broad array of stakeholders. You need to understand how to deliver services to folk who may not realize they need you, and who are usually not the ones paying for what you deliver. Those skills and experiences are typically found in the training grounds of social work and community development. But if we really want to move toward a social benefit industry where a market based entity is used to drive a social mission, then the basics of sales, profit and loss, opportunity analysis and product development are just as important. And those classes are taught on the other side of campus in the business schools. And these more (dare I say) “commercially” oriented skills are the most lacking – at least in the unscientific sample that has come past my desk. The typical social entrepreneur is extremely passionate about the needs of his or her population, understands how their folks think and is able to meet their needs. But ask them about business models, value chains, cash flow, or any number of b-school basics and they are quickly treading water. Love ‘em all, had a great time in The Windy City, but oy! – do we ever need less social and more entrepreneur.

Jump on a plane to the Big Apple, and I’m dropped down into the middle of the leading thinkers in this field (and I’m talking Alex Nichols from Skoll, Paul Light from NYU, Tom Lumpkin from Syracuse just to drop a few names). And here’s where the bipolar disorder hits me right in the head - Just about all of these folks are from business schools. Now just like the practitioners, that can be explained. B-schools are where most of the social – E courses are being taught (and feel free to go on a rant about why the b-schools are suddenly concerned about social obligations. Go ahead. I’ll wait……………………. – OK, feel better now?) See, earned income is huge. And impact investing absolutely needs to happen. But the first step in any venture is figuring out if your big idea can actually work. And in social enterprise, that is a complex question that deals not only with how you fund the venture, but also with how you know that your social intervention will get to the root issues that cause the disparity you are trying to fix. And let’s not forget the process for measuring if it actually makes a difference over time rather than just putting a band aid on the problem. So now, we’re right back in the social work and public policy fields that we started in.

So here’s the rub – if the practitioners are coming from one direction, and the researchers are coming from the other, there are going to be some really nasty collisions coming up in this space – and it’s going to take a long time to clean up a mess that may be avoidable.

At the SEA summit, the crowd cheered for the guy who said he wanted to hear more from practitioners and less from consultants and researchers at future meetings. No wonder – that’s like an American audience asking for the next speech to be in English not French. More importantly, it makes us (as an industry) look like we don’t know what we’re talking about – like we’re bipolar. And that’s because we are. Here’s hoping we get professional help, and soon.

Soul Food

Bob Hebert says we’ve lost our soul. Stephen Moore says we’re eating our seed corn. I say there’s a way forward. Here’s why.

Noted columnist Bob Herbert recently stepped down from his perch atop the New York Times to “write a book and expand my efforts on behalf of working people, the poor and others who are struggling in our society”. A noble calling. (And, after 18 years as a leading writer at one of the world’s leading newspapers, a move he could likely afford). In his farewell column, he wrote about how America has lost its way, that the American enterprise system is seriously skewed to the already rich and powerful. In fact, he says that “the current maldistribution of wealth is also scandalous. In 2009, the richest 5 percent claimed 63.5 percent of the nation's wealth. The overwhelming majority, the bottom 80 percent, collectively held just 12.8 percent. ” As an example, he cites that General Electric ( a mega-conglomerate by any measure) made $5.1 billion in profits in its U.S. operations by paid no taxes. He further laments that big government and big corporate America are, if not in cahoots, at least on each other’s speed dial lists ( Jeff Imelt, head of GE, is the leader of Obama’s Council on Jobs and Competitiveness – a relationship Herbert describes as “cozy”). Now, you could write this off as the parting shot of someone who is seeking to publicly justify his personal life choice, but the man has a point. Unfortunately, other than offering a general plea that “new ideas and new leadership have seldom been more urgently needed”; Bob say good bye without presenting any possible solution to this admitted mess.

A few days later, Stephen Moore observed in the Wall Street Journal that “more Americans work for the government than in manufacturing, farming, fishing, forestry, mining and utilities combined”. One of the main reasons he cited for this is that a government job is viewed as far more secure than a private sector gig, with better benefits, more generous retirement packages, and far fewer of those nasty layoffs and staff reductions. There are any number of problems with this trend. One of them, as Moore wryly opines, is that “we could end up with a generation of Americans who want to work at the Department of Motor Vehicles”. The larger issue, in my opinion (and interestingly NOT mentioned by Mr. Moore) is that this growth in government jobs and reduction in actually making things, means our economy will become more and more reliant on fewer and fewer sources of revenue (remember kids – taxes have to come from somewhere!). But, as with ole Bob Hebert, Stephen Moore leaves us without any proposed way to fix it. Well, your humble public servant is here to remedy these errors.

One of the reasons government has expanded is that we offer a far broader range of social services than we ever have before. And that’s great for the underserved, but can be an issue for an economy (I’m sure you’re closely watching the various budget debates around the country and in DC). The bigger economic issue with government funded social services is the basic economic principle of frictional cost, which tells you that every time a dollar changes hands, it loses some of its value. When my tax dollar has to go from me to the IRS to HHS to the Maryland State Department of Health and Mental Hygiene to the Baltimore City Health Department to a non-profit homeless shelter, you can see that by the time we put a roof over someone’s head; my one dollar in taxes is worth, well, a lot less.

And while the mega-conglomecorp may be contributing to the problem, there is a (somewhat) valid reason for their behavior as well. You see, thanks to some thirsty attorneys, there is legal precedent that a corporation can be exposed to shareholder lawsuits if it does not do everything in its power to maximize return on investment. So, the behavior of Imelt and the like is, well, almost rational.

Now, about that way forward. You may have heard about something called a B-Corp. The legal structure of a B-Corp includes a provision in its charter that the purpose of the corporation is to benefit (hence the B) society as well as earning an income. If you use this tool, you can say so long to the loophole of shareholder lawsuits. And guess where the B-Corp is becoming popular? Why, in Social Enterprise of course!

Wait, isn’t that the model where you use business to fund a social mission? And isn’t the idea that the funding activities and the mission activities work hand in hand so that the social benefit is actually part of the business model? Wait, wouldn’t that then eliminate frictional cost and reduce the need for government funded social programs?

I’ll have to get back to you – Bob Herbert just called and Stephen Moore texted me with a question. Cheers!

I couldn't have said it better myself!

Thanks to my good friend Newt Fowler for a great interview!

Check out The Soul of Entrepreneurship.

Back on My Feet

In entrepreneurship, one of the hardest things to understand is that it’s not about the BIG IDEA, but about the idea that actually can work. And getting from the idea to the enterprise involves a lot of thought and effort. It’s called opportunity analysis, and it’s a lot of work.

In social entrepreneurship, there is a similar need to really think about how you are effecting change. Feeding the hungry is great. But getting them off the soup line and into gainful employment (like my friend Robert Egger does at d.c. central kitchen) is better. It’s called social change theory, and having a handle on it is absolutely critical if you want to make a real difference.

I’ve recently become a fan (literally) of a program called Back on My Feet, which – of all things – is a running club for the homeless. Now, before you giggle too much, think about this for a minute. Being homeless is a dehumanizing experience – you lose some of your self-esteem when you are without a place to call home. And exercise is a great way to build self-esteem (I know I feel better every time I get back from a run!). So what BOMF does is send volunteers down to local shelters, supplies the shelter residents with running shoes, and they train together as a group.

There are rules – clean and sober among others – but the basic idea is that you start to feel better about yourself, which then translates into an increased ability to get – you guessed it – back on your feet.

Great social change, and great social change theory. Now if you’ll excuse me, I’m late for a run.

Social Capital takes a step forward

One of the toughest nuts to crack in the world of the Social Entrepreneur is the balance between growth oriented risk-based capital (aka private equity) and the need to use profit to fund a social mission. This issue is even tougher when most of the traditional non-profit mindset is conditioned to a world where social benefit organizations are evaluated on how little they spend on infrastructure and growth. And here in the U.S., we are actually lagging the efforts of most of the rest of the developed world.

Good news on this front may be coming in a proposal to develop social impact bonds that can serve as a source to fund expansion and growth while rewarding investors. It's got a long way to go, but it's a great step forward - and might be particularly useful to those of us in the great state of Maryland.

Keep your fingers crossed on this one!

The Mind of the entrepreneuer

One of the more interesting debates that goes on about Social Entrepreneurship is the issue of being pulled off mission by concerns over money (and that NEVER happens in a traditional non-profit, does it? -sarcasm intentional) The truth is that even if you are forming a for-profit entity, it's not about the money.

For the commercial entrepreneur, money is how you measure the success of the venture. For the social entrepreneur, the metrics are a bit fuzzier (but that's a topic for another post).

Interestingly, how their brains work is really quite similar - Take a look here at how entrepreneurs think

PS - If nothing else, this constant adjusting and ability to assemble disparate resources should convince you that the Social Benefit industry needs a lot more folks who can think this way.

Joining forces as the way forward

One of my many concerns about the entrenched nonprofit mentality is the way they view mergers and aquisitions.

In the world of the commercial entrepreneur, when two companies merge, a number of things happen. First, a stronger, more responsive organization is created that combines the strengths and reduces the weaknesses of the two smaller firms. Second, waste, inefficiency and redundancy are reduced, making for a more profitable enterprise. Third, a number of people involved in the transaction are handsomely rewarded. Each of these events is viewed as a good thing.

In the bunker mentality of the traditional nonprofit, when two ventures combine, we hold a funeral and mourn the loss of a good program. It's just crazy.

That's why recent news from my hometown is such a breath of fresh air. Five projects, overlapping missions and territories, somehow found the insight that they can be stronger together than appart.



Hallelujah!


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