I’ve got an investment thesis for the kind of business that I think will work best under current economic, climactic and social conditions. I’m seeing a new opportunity for a spectrum of businesses that will produce more revenue at higher margins by being more tied to their social and environmental mission. More mission focus, more margin more sustainably.
Here are the foundational assumptions behind my current thesis. As I’m using the word, it means more than a hypothesis, but not proven enough to be called a theory.
- We all have less money than we did and that’s likely to remain true for a while.
- Not all of us can have more things, or new things all the time. The cost of doing business in the old (old as in pre-September 2008) consumer economy based on planned obsolescence has become too high as environmental and social costs nudge their way onto the balance sheet.
We are not going to recreate an economy based on collective financial and cultural deception that pretends we can grow beyond the carrying costs of the planet. Deep and structural changes are underway in our economy and our culture.
It’s not that we have become suddenly wiser. It’s that we suddenly have less money because we have been collectively complicit in an economic system that has lied to us about the true costs of our actions. The culprit is not Madoff or the men from AIG. They sold us the growth story we wanted to buy. It was a collective, participatory deception; markets are co-created realities. We are now reaping the fruit of the lies we all wanted to be true. But I am far from pessimistic. A dose of reality in time is a lot better than riding a false myth down the tubes.
The good news is that I think the economic system we will build next will be one in which environmental and social costs will no longer be externalities; costs that get pushed off the balance sheet. The cost of doing business to the planet and at least the human costs of climate change will now be factored in. For someone whose main motivation is to see the market become a tool to fight poverty and injustice, that is good news. It means that poverty is now closer to getting onto the balance sheet.
At the micro level, that means that where I work as a professional investor I am looking for businesses that make more money in times when customers have less money to spend, when buying patterns are factoring in the truth that we won’t all be able to have more things and have new things all of the time.
That means I am interested in businesses that make more margin when people effectively share scarce resources: non profit and for profit businesses like Zipcar and City Car Share, where people rent a car or truck for just the hours they need them. Other models include coworking, where entrepreneurs share space and resources. Examples include coworking sites like Ned in Portland and non profit shared garden projects like Alemany Farm.
At the heart of these new models that involve cooperative use of finite resources is a sharing dynamic; to maximize their efficiency, there needs to be an incentive to get over old ideas of single person, single business or nuclear family ownership of things like cars, offices or gardens. The best way to enable efficient sharing, I believe, is to encourage allegiance to a cause or a movement. That’s why I like the global network of coworking sites linked to The Hub (the-hub.net). It’s coworking for social entrepreneurs, or, as they call them in order to avoid getting stuck in the definition wars, social innovators.
If you do it right, the way they do in the Hub’s network, the more you are true to the mission, the more aware and in tune the operators and hosts are in creating the proper social dynamic that facilitates match making and sharing; the closer social entrepreneurs want to be to each other within the work space; and the more they talk to each other about what they are working on and who the person next to them should meet who could help them.
If you manage that hosting magic right, if you listen to the community well, that equals a higher density of usage of the space, which maximizes the revenue per square foot. So the more true you are to the mission, the higher the margin, all based on the sharing of resources that we now realize are scarcer. And by sharing space, buying it in cell-phone-like plans of 20 to 100 hours per month, the entrepreneur cuts her costs while lowering her businesses carbon footprint by up to two thirds.
There are more than a dozen affiliates in The Hub’s network, from London to Johannesburg to Cairo to Sao Palo to Amsterdam. We’re launching the first US member of The Hub’s network in San Francisco. And I’m working with a team from the green MBA program at the Dominican University to find other businesses where effective sharing equals more revenue at higher margin.
So here are the two pillars of the model, as I see it emerging: You build your business based on sharing scarce resources in a time when your customers have less money, and you dedicate your business to serve a movement where sharing comes easily.
Then you build your revenue model to reduce financial and environmental costs for your customers (individual and collectively) while increasing your margins as a provider. The more you focus on your mission, the truer you are to your community’s mission, and the higher your margins. That’s the model that makes sense to me these days.
Kevin Jones is a cofounding principal of Good Capital, an investment firm that accelerates the flow of capital to enterprises that use market forces to create large-scale social change. Jones is a successful serial entrepreneur, angel investor, and cofounder of Social Capital Markets, the groundbreaking conference on social venture investing.