Business Models for Social Impact

Cathy Clark
Founder and Director, Columbia Business School, Research Initiative on Social Entrepreneurship

When Greg Dees and I started our blog over six months ago, it was to get feedback on some of the patterns and trends we had been seeing in our research on business models for social entrepreneurs. We shared the results of our global surveys, posted individual profiles on some of our case study subjects (more will be available here in 2012 for educational use), and hosted several online discussions about trend lines we were seeing across many different ventures.

One of the biggest trends we saw in our business model interviews was a newfound attention to sources and uses of capital. The lure of impact investing has taken root among social entrepreneurs around the globe, and we decided to let those inquiries take their course.

Can a more robust capital market help bring ideas that work to a scale that matters? Would the new market players across the capital spectrum offer better help to social entrepreneurs struggling to build significant and sustainable models? The conversations have been wonderful – folks in every impact area, geography, stage and business model type are asking the right questions at the right time.

But the fact remains: I am entirely dissatisfied with the state of knowledge about how capital is used to help ventures scale their impact.

I think we do have great stories of exemplary ventures. Ask for an example of a great business model, and you get a diverse but relatively known handful of nonprofit ventures, ones that are on a convincing path to self-sustainability, such as Kiva, VisionSpring, and Root Capital.

On the for-profit side, what comes up are innovative ways to integrate mission into business, like Better World Books’ equity model, or Greyston Bakery’s hybrid structure. Very few of the conversations can tell you how successful the field has been as a whole or which strategies lead to the best outcomes. Everything seems to be a one-off.

I’ve come to the conclusion that what the field needs now is fewer anecdotes and more data.

(Victor d’Allant, Executive Director of Social Edge, gets to chuckle here, as we first met at a wintry foundation conference in coastal Maine, where I presented on the power of metrics and he presented on the power of stories and we publicly dubbed each other DataGirl and StoryBoy. Yes, Victor, DataGirl is back!)

But it is aggregated and well-collected data, not more case studies, that are going to help us see universal trends and challenges, dispel myths, and identify overall opportunities. How many nonprofit ventures have accessed debt that gave up basis points for mission? How many impact entrepreneurs are able to scale membership organizations to the point of self-sustainability?

I’ve worked in this field for over ten years and given the growth of the field, the lack of basic data is appalling – how many social entrepreneurs are there in the US that operate with over $3 million in revenues? How many actually scale their organizations or their impact to reach 5-10x of the people they reached in Year-3 of operations, and how long does it take them to do it? What is the value of being selected by a prominent fellowship grantor or funder? How much debt capital is being utilized by social entrepreneurs and has it worked?

Luckily, we have some models for this. We have field panels and databases set up purely for research purposes in a variety of academic disciplines. And we at CASE, in close collaboration with Pamela Hartigan and her team at the Skoll Centre at Oxford, are starting some serious conversations with top practitioners around the globe about the need for universal data collection and analysis.

My CASE colleague Paul Bloom and I have written an initial paper on this topic that Paul will be presenting soon at the NYU research conference. Our paper talks about the datasets that already exist (like Urban Institute’s work with IRS data, or the data being collected on impact practices by B Lab and GIIRS) and some of the challenges in creating datasets in our field for research purposes, but I wanted to pose some questions here :

Isn’t it high time we got beyond anecdotes and individual accolades and started to understand the field of social entrepreneurship as a field?
What are the critical questions you think we should be asking at a field-level?
What would you as practitioners most want to know in terms of benchmarking yourself against or learning from your peers?
What challenges do you think we face in trying to define and capture the behavior and results of social entrepreneurs? For example, will people be truthful?
If you are interested, how could you help us?

Join Cathy Clark, Adjunct Associate Professor at Duke University’s Center for the Advancement of Social Entrepreneurship, in the conversation.

DanielBassill

Finding Funding for Market Research

HI Cathy,

I encourage you to look at the graphic in this blog post. http://tutormentor.blogspot.com/…/creating-networks-of-purpose.html

It’s an inverted pyramid. At the top it has goals that most of us share. We want more youth to stay in school and be well-prepared for jobs and careers. At the bottom of the pyramid is a statement saying "database".

Since I focus on volunteer based tutor/mentor programs serving kids in high poverty neighborhoods, I’ll use this for my example. When people say they want the result, most cities don’t have anyone making a concerted effort to know what organizations already do some work in this field. Most don’t use maps to show the entire city, and show where these programs are located and where they are most needed, based on poverty, poorly performing schools, dropout information, violence, or any other number of social indicators.

While it would be great to have a deeper understanding of who these programs serve, how they do what they do, what works and what barriers exist, no one can do that research without first building the database and including most of the existing programs in it.

I’ve been collecting information about Chicago tutor/mentor programs for 18 years and host this in a map based program locator at http://www.tutormentorprogramlocator.net. Yet because of lack of consistent funding I’m barely able to keep the contact information updated. I’ve never been able to dig deeper to build a greater understanding of this ecosystem of organizations.

In any other social/environmental/health issue the problem could be mapped showing where it is most concentrated in a city, or in the world. Someone could be building a database showing what organizations are doing work in that issue area. We break our database down by age group served, type of program, and time of day service is offered. These are layers of information on the map that help people build a more in-depth understanding of the availability and distribution of these programs. In other sectors the problem and solution providers would need to be shown as layers of information.

If someone is doing this then other partners could be using the data to build deeper understanding and everyone involved could be working together to get more attention to the information and to draw more resources to all of the programs working to solve that particular problem.

I’ve shared this idea on Social Edge and a variety of other Internet forums for many years yet I continue to not be able to find donors/partners to support this type of information collection and analysis.

If we’re going to go beyond anecdotes and individual cheer leading we need to build the pool of investors who will fund this work in many different places and in many different sectors.
Jim Kucher

Outcomes not outputs

Cathy,

Couldn’t agree with you more. The need is particularly strong on the social side of social e. The traditional non-profit lives on outputs (we fed X people, clothed Y, taught Z to read). These are certainly good things, but we need to be able to show that there are lasting effects. One of the best examples here in Baltimore is Vehicles for Change. Marty Schwartz, who runs the place, can tell you that 73% of his clients obtain a better job in 6 – 12 months making an average increase in salary of $4,800.00. We need to be able to talk about long term social benefit in hard number terms, and not just with individual examples, but as an industry.
Paul Rigterink

Perhaps this will help

Organizations such as the Child Rights Information Network may have some of the data you are looking for. See for example http://www.crin.org/organisations/vieworg.asp?id=1068 I know that the Colombian Government knows something about every NGO working in Colombia (over 500 of them).

When the Colombian government or I are developing a business plan, we see how various NGOs solved the problems that we have encountered. Sample questions we encounter:

1) What are the best crops for BOP farmers to grow in a particular tropical or arid rural area? In particular, what price will I get for the final product?

2) How can BOP urban dwellers make a living in a wide variety of fields (not just panhandling or crafts)?

3) Where can I get appropriate training material for BOP farmers and city dwellers so they can make a living? The training material must be in the right language.

4) How do I identify and obtain all the supplies I need to start a successful BOP business and how much will these supplies cost?

5) How do I get the fiscal information I need so that I can evaluate the true cost of starting and running a particular type of BOP business without relying on philanthropy?
Shaula Massena

Social measures in for-profits

Hi Cathy,

I’m glad to see you continuing forward with this effort, and I share your frustration.

Daniel, the work you’re doing does sound fascinating and valuable, yet does not overlap with the space I’m trying put in narrow enough focus to make progress. My goal: to be a social investor who seeks to get my capital back, with a non-zero return (I’m not here holding a bar for what that non-zero return is, merely that the sttucture within which I invest legally allows for one).

We have many financial structures that work today, but I find no ability to also measure a social return. I greatly appreciate the work that B-Lab is doing, but I find it not yet significantly more valuable than a relationship network. To date I rely on personal relationship, anecdotes, or hope that a social good is achieved. I would like to see better. I frequently harken to a comment Julie Gorte made at an SRI-in-the-Rockies several years ago, something to the effect that financial statements were not handed down by God on stone tablets, they were evolved over time by funders (bankers) and government to meet reporting needs. Our reporting needs are evolving and so can our financial statements.

So I have been thinking from that perspective – what do I think we could add to financial statements that might give me as an investor a better glimpse into the social costs of my profits? The following are things that I think could be measurable and meaningful (thougth all opportunites for endless debate no doubt).

I wonder about employee turnover – could that give me a sense of which company treats their employees better?

What % of their workforce is paid a living wage, what % of their workforce receives benefits (and that’s probably it’s own rabbithole) what % of their workforce is part-time but wants full-time?

On my taxes this year I noticed some investments reported receiving tax credits for meeting various workforce employement program goals. However I only see those if they get passed through on a K-1 and generally they dont – is there another way I could look those up for a company?

I’ve been thinking that some kind of internal gini coefficient for a company might help put it on a scale of wealth-concentrator vs wealth-generator. No doubt there are all kinds of ways for that information to be blurred with vendor payments and non-arms-length relationships but it seems like a promising direction.

I hope you are well and that we cross paths in 2012,

Shaula Massena
Eli

Entrepreneur Experience Lab

Hi Cathy,

My favorite topic – we’re all about the business model at the business innovation factory. A resource and a couple of thoughts for you. In partnership with Babson, BIF just released the findings from its first round of entrepreneur centered human factors research: http://www.businessinnovationfactory.com/projects/elab

The reseArch obviously takes the context and stories, and finds the patterns. We looked at social entrepreneurs as a portion of the pool,of total entrepreneurs and found some really interesting things:

Whether you are a social entrepreneur or an entrepreneur, you can’t identify yourself as such on official documents or surveys (many of us have tried this going through passport control … SE humor?) which makes the data collection hard.

Secondly, social entrepreneurs rarely segmented them selves into the business or social pots. Most look at organizational form or biz model as a tool rather than a part of identity (I was just on a panel on social entrpreneurship panel and this came up again from 3 other panelists). I have found this same thing with women entrpreneurs who are thinking more holistically about the type of value they want to create and capture.

Those that did self identity as entrepreneurs found that they were in no mans land and it relates to biz models and funding sources.

Happy to help further. We are about to launch our second round of research.
Jonathan C Lewis

Just a note of encouragement

Bravo! One my continuing concerns about the perpetual pep rally which permeates social entrepreneurship is that the reality of capital fundraising for social change is seriously uncharted.
alice codsi

Business Models for Social Impact

there is an EU funded project that did a huge academic research on European social entrepreneurs, there are loads of information and they could answer some of your questions. http://www.selusi.eu/
Robert Hanna

Entirely dissatisifed

Hi Cathy,

I feel that as a stakeholder in social entrepreneurship you are right to be dissatisfied with the state of intellectual rigor and evidence based knowledge regarding the pedagogy (or lack thereof) of social entrepreneurship. We are simply lacking a crucial unifying theory no matter how you sort it out from a practitioner’s point of view.

But if you take the high ground regarding the larger promise of social innovations, especially those unsung initiatives that deliver the most impacts on the planet, you realize that building going concerns are just a few of the eight potential operating structures for driving impacts, as regards operational models of social entrepreneurs today.

The challenge to our field, from a pedagogical standpoint of intellectual honesty, is to be fully circumspect about the value and entire variety of innovations possible to drive social change in our world. And for the better. If we are to articulate social enterprise as a missing link, we actually miss probably 80% of the extant potentials and realities of change occurring outside the classroom. Why are we against what is already changing the world?

At the very least, and if we are not against such positive forces, why are we against acknowledging them?

Cheers,

Rob
Nik at Wishbone

Data

Hi Cathy,

Thanks for bringing this topic up.

I would suggest that the first step in being able to generate/collect the data needed for academic (or even amateur) analysis is to clearly define the boundaries of your population and measurement criteria. i.e. what is meant by ‘social’, ‘impact’ and other similar terms that can vary wildly between different types of venture. In order to answer a question like "How much debt capital is being utilized by social entrepreneurs and has it worked?" you first need to set firm criteria for what constitutes ‘debt capital’, a ‘social entrepreneur’ and whether something ‘worked’ or not. Provide the boundaries and the data will follow.

Perhaps much of that boundary setting has already been done? I’m just getting into this, so maybe I’m not looking in the right places…

I’m working on a project to compile a list of businesses that have a strong social mission. One of the difficulties in that is determining what constitutes ‘social mission’ and how integral to the business does it need to be to warrant inclusion of the business in my list?

If anyone is aware of any such existing lists or of any definitions/criteria that can help me in that project, please do let me know!

Failing that, I’m more than willing to help come up with some boundaries and criteria that we all could use to scope out the population we wish to analyse.

Cheers,

Nik.
Luz Gomez

Benchmarks for Improved Performance—we couldn’t agree more

Cathy,

Thanks for your blog, it raises many of the issues that we’ve been wrestling with at FIELD/Aspen Institute (www.fieldus.org) for years and we’re glad we’re not alone. A main area we’ve been working in has been data collection and analysis—essentially getting nonprofits that work with micro-entrepreneurs to take a step beyond powerful stories and anecdotes and use data to both benchmark internal performance but also relate business outcomes. An example I want to share is an online system we recently launched call microTracker (www.microtracker.org) that we hope makes the process that much easier for these nonprofits—but also helps investors and donors navigate the field of US microenterprise. MicroTracker is a data warehouse—we’ve collected (and will continue to collect) information on microenterprise organizations in the US over 10 years. But the key is translating that data into something useful—so much of our work involves getting programs to use data benchmarking to improve internal performance. But we also encourage programs to use client outcomes data combined with storytelling for effective external communication. Let’s face it, the human story catches your attention—and if you have data that relates to the job creation track record of your program, for example, even better.

Our microTracker system hopes to make data collection and report generation more accessible, and we’re in the process of rolling out some enhancements. We’d love some feedback on what you think of the tool, especially folks who care about this issue, so take a spin and let us hear from you.

Thanks again,

Luz Gomez