Interesting post, but I feel the need to point out the danger in equating “intelligent” philanthropists (see your final paragraph) with those who choose to focus on social enterprises or related organizations with revenue streams, payback to donors, or whatnot. This unfairly characterizes many, many donors—those who give to more traditional organizations and do not seek a financial return—as either unintelligent, by definition, or at least as people who give for reasons that have nothing to do with smart analysis.
I realize this is probably an unintended meaning of how you phrase things here when you talk about “intelligent philanthropists” (maybe not?), and it may seem that I’m picking nits. But the problem is that this is a very, very common way that proponents of social enterprises and similar business-oriented models talk about donors. There is this false dichotomy (often subtle, sometimes not) set up between those who supposedly give “strategically”—the ones who give based primarily on calculations of return and impact measures—and those who don’t. Another way this is often put is to say that the first group give from the head, the second from the heart.
The reality is that motives for giving are never that simple or singular, and that there is all sorts of strategic thinking and careful, critical analysis that goes into the giving decisions of people who give to, say, organizations that provide emergency aid or shelter from abuse, or any number of other problems/causes that don’t lend themselves as well to revenue-generating models. Put another way, people who give to relieve suffering—to provide the “band-aids” “downstream”, if you will—often do so carefully and thoughtfully—e.g., by looking closely at the operations of various aid providers, the nature of the problem and timing of interventions, and so on. And they usually are fully aware that “upstream” or preventative solutions—i.e., providing microloans or employment that can avoid the crisis that creates the need for emergency aid—are ultimately the best way to deal with the problem. They might even give some of their money to those upstream solutions, perhaps even to revenue-generating solutions. But this doesn’t mean that by giving for emergency aid—or to traditional organizations of other sorts—they are by definition not strategic (or intelligent) givers.
The innovation of these new models, like those you talk about, has been a very exciting development in our field over the past decade. But the lessons of those years of innovation have also shown that setting up one side (the new) as good/strategic/intelligent, and depicting the other side (the traditional) as NOT those things, is not only an unsophisticated understanding of the philanthropic universe, but it creates divisions and antagonisms that stall the progress that these new models can surely bring.
If legacy organizations will slowly be forced to evolve themselves to have a revenue model, will this also force greater efficiency and effectiveness into these organizations? While many of the better social services organizations do operate just as efficiently and effectively as any other organization, many do not yet somehow continue to exist (perhaps due to the people who “give with their heart” as Michael describes above). One aspect I wonder about is if, in the long term, societies would be better served if they somehow have those inefficient and ineffective social organizations “weeded-out”. Perhaps Social Capital will do the same thing that private capital does when it identifies a Google and fuels their growth while simultaneously eliminating a lesser, similar idea/entity (AOL, for example)…
One thing that should be clarified here is what you call Social Entrepreneurs and Social Businesses.
In the case of Kiva, we are talking mostly poor people who are trying to make a living out of their business, and I can see where investors feel comfortable with donations that come back after a while, rather than generating an actual profit from the investment.
However there are social entrepreneurs outside of developing countries, and there are social businesses that will generate more than just a living to their entrepreneurs (or at least you can expand the definition of social businesses to include such businesses).
To me a social business is any business who is not focused on maximizing profit but rather on maximizing social capital within the ecosystem it exists in, using the broad definition of Social Capital to be the credibility you have within your community.
This is the kind of business we need to change the world beyond the focus on poverty.
Even with a definition that is not as broad as this, you can have social businesses generating good cash, and if this is the case I would feel as an investor that I want some return as well.
This is where I like loans rather than equity because it becomes easy to gauge what is reasonable in various situations, as you can benchmark the rate against standard market returns and decide whether you want more or less. This is what we offer with Entrepreneur Commons. And this is a way out of the blended value discussion that does not seem to go anywhere because you are right that while people get it at the intellectual level, they have a hard time dealing with it when it comes to making an investment.
And this is where I like the concept of trying to come up with an index that would help us evaluate the social capital of people or organization. One simple measure that you can try to optimize (because this is human, we like to optimize things and competition is healthy). I am exploring the idea with the Vindex (http://www.venyo.org/content/?help=what_is_vindex) and there may be other possible options.
In the end, the main issue at this point is lack of focus on the investment side: people know how to invest in general to maximize profit, but when it comes to social businesses, everybody has their own view of the world and their own goals to fulfill and matching demand (social businesses looking for cash) with offers (social investors with very precise ideas of what they think is wrong and a mission to change things) is hard at this point. And it will stay like this until there is a way to focus everybody or enough people involved that the lack of focus is compensated by shear volume (as it is in regular financial markets).
I think the 2nd is what we should try to push for: when people realize that what has gone wrong with the world is because we try to maximize profit, and when they will agree to move to maximizing social capital (=sustainable capitalism), and they start using an index that allows everybody to compare despite the lack of focus from one mission to the other, then we will have a good story to tell.
Just one more thing if you are interested in the Index idea, I have started listing people and organization willing to try the concept here: http://entreco.blogspot.com - feel free to try too, and feedback is welcome
COMMENTS
BY Michael Moody
ON October 22, 2008 11:06 PM
Interesting post, but I feel the need to point out the danger in equating “intelligent” philanthropists (see your final paragraph) with those who choose to focus on social enterprises or related organizations with revenue streams, payback to donors, or whatnot. This unfairly characterizes many, many donors—those who give to more traditional organizations and do not seek a financial return—as either unintelligent, by definition, or at least as people who give for reasons that have nothing to do with smart analysis.
I realize this is probably an unintended meaning of how you phrase things here when you talk about “intelligent philanthropists” (maybe not?), and it may seem that I’m picking nits. But the problem is that this is a very, very common way that proponents of social enterprises and similar business-oriented models talk about donors. There is this false dichotomy (often subtle, sometimes not) set up between those who supposedly give “strategically”—the ones who give based primarily on calculations of return and impact measures—and those who don’t. Another way this is often put is to say that the first group give from the head, the second from the heart.
The reality is that motives for giving are never that simple or singular, and that there is all sorts of strategic thinking and careful, critical analysis that goes into the giving decisions of people who give to, say, organizations that provide emergency aid or shelter from abuse, or any number of other problems/causes that don’t lend themselves as well to revenue-generating models. Put another way, people who give to relieve suffering—to provide the “band-aids” “downstream”, if you will—often do so carefully and thoughtfully—e.g., by looking closely at the operations of various aid providers, the nature of the problem and timing of interventions, and so on. And they usually are fully aware that “upstream” or preventative solutions—i.e., providing microloans or employment that can avoid the crisis that creates the need for emergency aid—are ultimately the best way to deal with the problem. They might even give some of their money to those upstream solutions, perhaps even to revenue-generating solutions. But this doesn’t mean that by giving for emergency aid—or to traditional organizations of other sorts—they are by definition not strategic (or intelligent) givers.
The innovation of these new models, like those you talk about, has been a very exciting development in our field over the past decade. But the lessons of those years of innovation have also shown that setting up one side (the new) as good/strategic/intelligent, and depicting the other side (the traditional) as NOT those things, is not only an unsophisticated understanding of the philanthropic universe, but it creates divisions and antagonisms that stall the progress that these new models can surely bring.
BY Noel Johnson
ON October 24, 2008 10:47 AM
If legacy organizations will slowly be forced to evolve themselves to have a revenue model, will this also force greater efficiency and effectiveness into these organizations? While many of the better social services organizations do operate just as efficiently and effectively as any other organization, many do not yet somehow continue to exist (perhaps due to the people who “give with their heart” as Michael describes above). One aspect I wonder about is if, in the long term, societies would be better served if they somehow have those inefficient and ineffective social organizations “weeded-out”. Perhaps Social Capital will do the same thing that private capital does when it identifies a Google and fuels their growth while simultaneously eliminating a lesser, similar idea/entity (AOL, for example)…
BY Marc Dangeard
ON November 11, 2008 05:56 PM
One thing that should be clarified here is what you call Social Entrepreneurs and Social Businesses.
In the case of Kiva, we are talking mostly poor people who are trying to make a living out of their business, and I can see where investors feel comfortable with donations that come back after a while, rather than generating an actual profit from the investment.
However there are social entrepreneurs outside of developing countries, and there are social businesses that will generate more than just a living to their entrepreneurs (or at least you can expand the definition of social businesses to include such businesses).
To me a social business is any business who is not focused on maximizing profit but rather on maximizing social capital within the ecosystem it exists in, using the broad definition of Social Capital to be the credibility you have within your community.
This is the kind of business we need to change the world beyond the focus on poverty.
Even with a definition that is not as broad as this, you can have social businesses generating good cash, and if this is the case I would feel as an investor that I want some return as well.
This is where I like loans rather than equity because it becomes easy to gauge what is reasonable in various situations, as you can benchmark the rate against standard market returns and decide whether you want more or less. This is what we offer with Entrepreneur Commons. And this is a way out of the blended value discussion that does not seem to go anywhere because you are right that while people get it at the intellectual level, they have a hard time dealing with it when it comes to making an investment.
And this is where I like the concept of trying to come up with an index that would help us evaluate the social capital of people or organization. One simple measure that you can try to optimize (because this is human, we like to optimize things and competition is healthy). I am exploring the idea with the Vindex (http://www.venyo.org/content/?help=what_is_vindex) and there may be other possible options.
In the end, the main issue at this point is lack of focus on the investment side: people know how to invest in general to maximize profit, but when it comes to social businesses, everybody has their own view of the world and their own goals to fulfill and matching demand (social businesses looking for cash) with offers (social investors with very precise ideas of what they think is wrong and a mission to change things) is hard at this point. And it will stay like this until there is a way to focus everybody or enough people involved that the lack of focus is compensated by shear volume (as it is in regular financial markets).
I think the 2nd is what we should try to push for: when people realize that what has gone wrong with the world is because we try to maximize profit, and when they will agree to move to maximizing social capital (=sustainable capitalism), and they start using an index that allows everybody to compare despite the lack of focus from one mission to the other, then we will have a good story to tell.
BY mdangear
ON November 11, 2008 06:04 PM
Just one more thing if you are interested in the Index idea, I have started listing people and organization willing to try the concept here: http://entreco.blogspot.com - feel free to try too, and feedback is welcome