I am a budding (not leafing? why are they always budding?) entrepreneur. I have a young company that I started as a sole proprietorship a couple of years ago, but have big dreams for it.
I’ve spent a lot of years working in the nonprofit sector — in the arts, in community, and in social services, and have reached a point of literal and philosophical exhaustion with the assumptions that we make about how “charity” should work, and how separate it is from commerce in this culture.
As a result, as I began my business, I decided not to start it as a nonprofit, though I have a really burning commitment to many of the ideals of the nonprofit world, because I wanted to see what it felt like to come at it from a sense of strength and abundance, rather than trying to convince the world I was doing something noble, so everyone needed to give me money for it. I’m done with begging! (If I never see another grant proposal in my lifetime, I will die happy.)
But, as I’m dreaming it forward, I’ve been wondering about this split we perceive between for profit and nonprofit, and have been doing some digging about how to shake up those assumptions.
One of the online communities that I visit from time to time is http://www.socialedge.org. This is a project of the Skol Foundation that is trying to foster ideas and support for social entrepreneurs.
In a nutshell, social entrepreneurs are trying to take the ideals of the nonprofit world and inject them with some of the financial and organizational savvy of the corporate world. It’s a pretty cool bunch of people working on some amazing projects.
But they frustrate me, often, because almost of of them come first to the equation from a nonprofit standpoint, and then add on the corporate layer. Their organizations are almost unilaterally nonprofits, with a few people starting to experiment with hybrids. (Where an entity of one kind starts a parallel version of the other — generally, it’s a nonprofit that starts a for profit to generate sustainable funding support, or a for profit that creates a foundation to support community work.) It’s a very cool idea, on many levels, but I don’t think it’s the answer.
Why not? Because it continues the split in our thinking between commerce and community. The entities must be separate, with careful attention paid to staffing, board representation, money flow, etc. from the IRS in an effort to make sure that these aren’t used as unethical tax shelters by greedy corporate mongers. I understand this, because people who are inclined to do so take advantage when they can. However, this can dilute leadership and vision, by demanding only limited contact between the two entities, and creates an elaborate, strangulated set of business constructs that are, at best, inflexible, and at worst, so cumbersome that it can take the effort down.
And, most importantly, this split does nothing to heal the deeper issues of how we engage with community, and how we imagine our resources doing so. In a hybrid, there is the “noble” work of the nonprofit side, balanced against the “corporate money maker” work of the for profit side, and never the twain shall meet, in many ways.
Why, instead, aren’t we pushing to change our thinking? Why is it that commerce is only imagined as being only about the bottom line and not as something that exists in the larger context of our communities, our natural resources, and our culture?
Turns out, some people are imagining it differently. Perhaps most eloquently, Muhammad Yunus, the Nobel prize winning microcredit magician in India. He has begun to talk about the “social business venture” as something that is commerce AND community based simultaneously.
You can read an article he’s written about this at:
http://www.grameen-info.org/bank/socialbusinessentrepreneurs.htm
Wonderful stuff! And it’s not the ravings of an over-the-edge idealist; this is the guy that got collateral free loans to the extremely poor working with a 99% repayment rate. (Gee, wonder how that would stack up against the American loan system at the moment?)
And then, the Brits have a leg up on us. They’ve created something called a “Community Interest Company.”
Here’s a short description:
Community Interest Companies (CICS) are limited companies, with special additional features, created for the use of people who want to conduct a business or other activity for community benefit, and not purely for private advantage. This is achieved by a “community interest test” and “asset lock”, which ensure that the CIC is established for community purposes and the assets and profits are dedicated to these purposes. Registration of a company as a CIC has to be approved by the Regulator who also has a continuing monitoring and enforcement role.
How a CIC can work, what it does, and how it accepts and spends resources is flexible, (the CIC regulator site talks repeatedly about the regulation’s “light touch”) with the basic understanding that it is committed to investing in its community — in order to be considered, a company must define their community interest and their asset allocation. They don’t have the tax-exempt status of nonprofits, but can sell dividends and shares. They are not for profit only in that their profits get shared, reasonably, with the communities they exist in.
For more information:
http://www.cicregulator.gov.uk/
I think this is really exciting. It’s flexible and fluid, and allows entrepreneurs to simultaneously do good work and do good — and the profits that get made go into the community in direct, tangible ways.
So far, there are very few rumblings, if any, about this in the US.
Maybe this is the next windmill to tilt…
{ 11 comments… read them below or add one }
I think we’ll move in this direction (for-profit corporations valuing social responsibility, philanthropy and community) for reasons alternately altruistic, fulfilling and cynical.
Being a socially responsible company certainly has a PR benefit that is only increasing, but it also creates happier employees and happier clients. The baseline metrics of customer and employee retention alone are, in many cases I would imagine, compelling enough to institute what some companies are calling corporate responsibility divisions.
I think we are also seeing that in a world laden with debt, greed, inequity and war, individuals (including entrepreneurs, corporate officers, managers, employees, every link in the chain in fact) want to make a difference and are synthesizing that with the ability and direction to make a profit, without a social stigma attached to the juggling act between the two.
Your examples are great, Leigh, because they show the full spectrum of entrepreneurialism and social good that in part come underneath the banner of philanthropy that has ceased to be the domain of the Gates and Buffetts. We all can be the change we seek.
Isn’t this just called marketing?
Leigh-
nice meandering…
Thanks, Tyler and El Anonimo!
And Tyler, I think you’re right — I think lots of people are looking for ways to “be the change we seek.”
And Anonymous, I think that’s a really good question, but no, I don’t think this is only marketing. Far from it. Certainly, as Tyler suggests, there is PR value in presenting a company as having some sense of conscience/responsibility, but that is only one piece of this effort.
It’s a very different philosophical construct about how businesses should work in community. It suggests that people can make money in commerce, but there can be built-in efforts to make sure that those profits benefit the community in literal ways.
Some companies have done their own, internal versions of working out these ethics. For example, when Ben and Jerry still owned Ben and Jerry’s, they had written into the intitial incorporation documents that the highest paid employees working for the company would never make more than a certain percentage more than the teenaged kid scooping ice cream at one of their stores. Or, in another example, when the American dairy industry was struggling (I’m remembering this as mid 80′s, but I could be wrong), and milk prices dumped, dairy farmers were closing up shop and selling their farms. In PA, where I grew up, this had longterm impacts on the countryside — much of the development around Philadelphia paved/suburbaned those farms under when developers bought from dairy farmers who couldn’t survive. In Vermont, Ben and Jerry’s was in the unique position of being the single largest buyer of milk from family farmers — and they decided they didn’t want to part of the reason that the 200+ year old tradition of family farming died in Vermont — so, they met with a coalition of farmers and together decided what the per gallon price would be, which ended up being quite a bit higher than the standards set by the milk board.
I mention these stories for two reasons. One, because I think they’re great examples of how companies can make important, long term decisions that don’t cripple themselves or the world around them.
And two, because they are the prologue to another part of the problem of how corporate entities are structured in the US. When B&J got big enough, they decided to go pubic with the company (first offering shares to employees). Once they’d gone public, and were financially successful, they caught the attention of much bigger corporate fish. In 2000, Unilever bought B&J (a megacompany that made its initial fortunes in British/Dutch colonial commercial efforts).
The problem? B&J couldn’t, by law, refuse the buyout. Legally, the bottom line responsibility of a public corporation is to make the most money possible for its shareholders. They would make many dollars over this sale, and B&J, whatever the company’s leadership believed, had to sell. This has happened to any number of nontraditional, successful companies.
So, it seems to me that we need some new definitions of corporate structures — and a re-working of the legal responsibilities of a corporation.
There is some momentum to change this — as one example, you can check out http://www.c4cr.org/ if you’re interested!
Thanks for checking in.
All the best,
Leigh
This is a great topic, and one I think is close to many of our hearts in Ojai. We after all are a hotbed of “social entrepreneurs.” Tyler and this Ojai Post are a great example. If we look around, we will see that many people in our town offer up their talents and services to bring us things that – “for profit” or “nonprofit” – certainly are not motivated primarily by pecuniary gain. By and large, these efforts result in the things that make Ojai great. Theater 150 and the Art Center put up art, music, and plays. (By the way, go see the current “Madwoman of Chaillot” this weekend at the Art Center, I know there are tix available and its great.) Peter and Kate, Steve Sprinkel, BD Deutsch, and others, farm fresh artisan veggies available by CSA or at the Farmers Market – these presumably are “for profit” ventures (though I will put my foot out and say I doubt any of these will be giving Exxon a run any time soon). In town, Nigel at the Village Jester has opened his space to folks hosting open mikes, and he brings music and poetry. There is example after example.
I think it is a fallacy to focus on the form of organization, though. That is secondary, and in many cases, totally meaningless. For example, there are IRC 501(c) nonprofits who pay their executives hundreds of thousands of dollars a year. Contrast that to many individual entrepreneurs, for example a small art gallery owner who might focus on emerging artists, who in a great year won’t break a six figure income. Both go about what they do year after year. Which one is the true “nonprofit”?
The biggest issue I see facing would-be social entrepreneurs is finding a way to do it sustainably. (That is, without ending up hungry in the street.) From tax policies that favor the rich, to regulatory hurdles that create huge up-front capital requirements to do simple things, to simple cost-of-living issues, as a society we have made it difficult to impossible for most people to pursue small-scale, community-oriented efforts for a living. The result of all these policies is that we abdicate what should be small, community-level social entrepreneurs (the kind of thing enabled by Granmin Bank and microfinance) to just large-scale enterprises – like Ben & Jerry’s and now Unilever, or like the mega-charities on the “nonprofit” side. What happened to the community ice cream shop that made its own with milk and cream from the local creamery? Why (in most communities) is a person unable to make a living running that small-scale business?
This is why we have terms like “social entrepreneur” in the first place. We have made what should be the common way of making a living something unusual.
We could have a great experiment in Ojai on this whole issue, because we undoubtedly have the people, the talent, the resources, and the interest. How do we encourage and enable small scale enterprise, fueled by passion?
Love the topic and have learned a lot. Don’t have anything meaningful to contribute at the moment except – keep posting the thoughtful posts and comments with links to sources so we know where you all get your info. This is the Ojai Post at its best!
I discovered that my parachute was multi-colored,
changing from season to season…
sometimes red…
sometimes blue…
sometimes dreary grey…
and then again the sun would shine…
economics 101:
do something no one else is doing…
stay open on Sunday when everything is closed…
don’t sell ice to eskimos…
but if you must make sure it is a little warmer than the others…
Thanks, Jeff and Heather, both, for your comments.
Jeff — I think you are absolutely right about the Valley being a wonderful spot that has many people playing both lightly and earnestly with these ideas, with energy and creativity. (And I completely agree with you about Tyler and how he has imagined his work with the Ojai Post and other ventures — it’s part of what drew me as a reader, and is a large part of the reason that I’m honored to join as a writer.)
And I do agree with you on scale, in many ways, but it’s one of the tensions I struggle with in my own efforts — what I’m pitching needs a different geographical community than a small town, as we’re doing a combination of education, events, and, soon, publishing — (not that I’m giving Exxon a run for its money, either!). I’m groping towards how to imagine what local community support looks like for my efforts. But for many businesses, I’m totally with you on local! (Do you know BALLE? Very cool organization — Business Alliance for Local Living Economies — I went to a conference of theirs a number of years ago in Portland and it totally turned me on to the possibilities in this kind of sustainable thinking.)
http://www.livingeconomies.org
I also hear you on your critique of my focus on organizational structure, but I think it’s not that simple. While there are big nonprofits that pay big dollars to executive level staff, and small for profit arts organizations that are “for profit” mostly in name at either end of the scale, that’s not where most of either kinds of organizations are. Most nonprofits are in a constant battle to survive, and there is a culture of poverty that attends them, often both internally and externally. Again, this isn’t true for org’s like the American Heart Association, for example, but is for most small to midsize, local to regional nonprofits. Their payscales are horrifically low, and there is a kind of vow of poverty you take when you work in that world that I find really troubling — I don’t think we should expect people to struggle financially when they want to do well by the world. There are also distinct guidelines you need to follow about activities, especially when you’re finding funding from external sources rather than donors (funders are becoming increasingly draconian about outcomes reporting, etc).
And for hybrid organizations, there are very specific IRS rules about who gets to play in which sandbox, and how much overlap there can be between the two. I understand the logic of it, because of the tax exempt status of 501(c)3′s, but it makes for enormous organizational overhead that becomes really top heavy really fast. For some efforts, this hybrid makes a lot of sense, and I think it’s a good model for some, but I don’t think it’s the only answer.
Thanks again for sharing your thoughts!
Best,
Leigh
Nice self promotion under the guise of social awareness.
Okay, BK, I’ll bite…
How? Why do you say that? Can you point to where I’m self-promoting?
Wasn’t my intent.
Best,
Leigh
Just found a link to a great article on social business in the NYT:
http://www.nytimes.com/2008/02/24/business/24social.html?_r=1&scp=1&sq=charity+and+capitalism&st=nyt&oref=slogin
Best,
Leigh