Social Good With Market Returns at Skoll World Forum on Social Entrepreneurship

April 15, 2010

Why I’m At Skoll…

I’m in Oxford, England today for the first full day of the Skoll World Forum on Social Entrepreneurship. I’m making great connections with investors who care about social impact equally to financial returns and learning how iContact can be a more socially responsible enterprise.

Our vision for iContact is to “Build a great global company based in North Carolina for our customers, employees, and community.”

So I’m here to ‘go to school’ for three days on how to truly maximize return for customers, employees, and community so that we can in turn maximize financial results for our shareholders. Fiduciary duty can go along with human social duty!

To me, having a formal CSR program and caring about impact for the customers, employees, and community is just good business sense that in fact maximizes financial return.

Increasing Financial Results By Focusing On Social & Environmental Impact

Personally, I strongly believe, in today’s new world, ensuring your business provides a positive social and environmental impact (or at least not a negative one!) will increase your financial return, not decrease it. I’ve seen this happen with numerous for-profit socially responsible companies like Ben & Jerry’s, The Body Shop, Whole Foods, Burt’s Bees, and Salesforce.com.

How can focusing on social impact improve financial results?

How can focusing on social return improve financial results? In three simple ways.

  1. The type of employees who want to work at companies that care–companies that put equal emphasis on profits and purpose–are the most productive and often most aware and intelligent team members.
  2. There is a growing movement toward consumers who care. Consumers will have much more brand loyalty to a company that they know cares and makes a positive social impact.
  3. When customers become passionate about a brand they talk about it more and more people will write about it.

The Tipping Point

After 30 years of so many in the social enterprise field working towards this, the tipping point has been passed wonderfully and thankfully. As the Dean of the Oxford Said Business School Colin Mayer said last night, the financial crisis has shown that short-term focus on only financial results does not lead to long term success.

Organizations like B-Labs have succeeded in changing public policy toward the benefit of companies who care. Self-interested (”greedy”) business owners who want to make money will now wonderfully benefit financially from implementing a formalized Corporate Social Responsibility program and ensuring they track and social impact and environmental impact.

The invisible hand is now starting to work toward social good with economic growth now that incentives are being realigned properly toward sustainable economic growth. While there is much more path to tread toward truly aligning policy incentives and consumer purchasing behavior toward companies who care–it is happening and the tipping point has passed! Eureka!!

Social Good With Market Returns?

Right now a panel called ‘Social Good With Market Returns’ is about to begin. I’ve been tweeting a lot about the conference via @ryanallis.

The moderator is Herta von Stiegel of Ariya Capital.

The speakers are:

Nick O’Donohoe, Global Head of Research JP Morgan
David Chen, Principle, Equilibrium Capital Group [video]
John McCall MacBain, Founder and Director, McCall MacBain Foundation

Nick from JP Morgan is talking about the Social Finance group at JP Morgan. Nick is not a “normal banker.” They invest in social enterprises that have a double-bottom line (financial and social). This social investing field is also being called “Impact Investing.”

Ensuring Off-Balance Sheet Externalities Are Positive

There is a engaging discussion going on now at the panel around off-balance sheet externalities (positive and negative) of impact (positive or negative). Nick says “every time we make an investment we are creating externalities.” He says these externalities can be positive (jobs) or negative (pollution). He says “for the first time the investment community is measuring the social impact of what they are doing and only investing in companies that create net positive externalities.”

This discussion is at the core of global history of the past 200 years as the ideological battle between communism, socialism, and capitalism has been waged. The new consensus that is emerging here is that what has won (and in fact what must win for the sake of humanity’s ability to continue) is socially responsible capitalism. As John Perkins points out in Hoodwinked, there is nothing inherent in the model of Capitalism and the competitive market economy that require off-balance sheet externalities that destroy the world.

Taking Into Account the Full Cost of Environmental Damage

Now the discussion is revolving around how to adjust public policy to enable the true cost of negative externalities to be accounted for in the financial accounting results. Some are saying the Holy Grail for improving the world through business is to make all investing ‘impact investing’ by taking into account the true cost of environmental resources that are not renewed into Generally Accepted Accounting Principles (GAAP).

“Better accounting for negative externalities is really important” said John McCall MacBain of the McCall MacBain foundation just now on the panel. The discussion is revolving around environmental costs being forced on any organization that destroys a natural resource (public good) that does not replace it sustainably and the impact this would make on ensuring warped incentives are not provided to global financially-focused Boards of Directors.

The discussion has shifted to bringing the silos of philanthropy, impact investing, running non-profits and socially responsible for-profit entrepreneurship.

Borrowing a meme from my friend Judith Cone who worked at the Kauffman Foundation and now works at UNC as a Special Assistant to the Chancellor for Innovation and Entrepreneurship, perhaps it is all about where goodness lies. Goodness can be in the heart of the public sector official, for-profit socially responsible entrepreneur, non-profit executive, global multinational Board member, activist, or investor.

Nick O’Donohoe from JPMorgan is speaking about how JP Morgan can access capital high net worth individuals and institutions they work with which want to tap into investment funds specifically set up for investing in companies who put an equal emphasis on social impact as financial results.

Questions & Comments?

What questions are there on this topic of public policy changes and investing in companies that create social good while achieving market returns or above market returns? I’d love to discuss this more!

You can follow tweets from the Forum here.

Tech Awards: $50K for Using Technology to Address Humanity’s Challenges

March 1, 2010

Tiffany Yee from Santa Clara University reached out tonight to ask me to share information about the upcoming Tech Awards which is offering five winners $50k each to scale their innovation solving a major human challenge.

The Tech Awards, a signature program of The Tech Museum, honors innovators from around the world who are applying technology to address humanity’s most urgent challenges.

In partnership with Santa Clara University’s Center for Science, Technology, and Society, 15 Laureates are selected annually and $50,000 is awarded to one Laureate in each category: Environment, Economic Development, Education, Equality, and Health.

Individuals as well as nonprofit and commercial organizations are eligible. Anyone may submit a nomination. Self-nominations are accepted and encouraged.

Deadline for nominations is March 31.
Deadline for final applications is May 5.

This year’s Laureates will be honored during a week of activities in Silicon Valley leading up to The Tech Awards Tenth Annual Gala on Saturday, November 6, 2010.

You can nominate today at www.techawards.org

Past winners can be found at http://www.techawards.org/laureates/

Bull City Forward: Looking for Socially Responsible Tenants in Durham

February 7, 2010

Bull City Forward is opening up a coworking/incubator space in downtown Durham on March 1st for socially responsible companies and non-profits. They are providing subsidized office space and services that include:

  • Central Internet, fax, copying, phones, mailing address, meeting rooms
  • Workshops on fundraising, legal structures
  • Networking events, speakers and a community of change makers
  • Space for members to host their own events

They will be in the Greenfire building at the Kress Building at the corner of Mangum St. and Main St. at 101 West Main in the heart of Durham.

For information on becoming a tenant you can contact Alison Dorsey at alison.noel.dorsey[at]gmail.com.

The Durham Herald-Sun did an article on their vision in January.

It’s truly wonderful what is happening in Durham. This city has been transformed in the past five years and the pace of positive change is accelerating!

How I Aligned What I Love With What I Do & Scaled Myself

February 3, 2010

This post will require a certain degree of vulnerability. Sometimes we build a hard shell around us when we’re going through difficult times. This is a story of personal growth.

A year ago I was sitting late at night in my Durham office at iContact wondering if I’d become a corporate sellout.

Was I trading in some of my most productive years of life to build a company I was no longer passionate about?

I had gone from being an entrepreneur to a manager. I was 24 and we had 150 employees and $20M in sales. I was dealing with purchase order forms and paid time off policies. We had achieved all the goals we had ever set out for ourselves. Where was the entrepreneurial passion?

We had gone from #20 to #2 in the market in five years and I had no idea how we’d get to #1. I thought it might be the time to start thinking about finding my replacement.

Even though we were still growing very quickly, we weren’t quite growing at the same percentages as we were before and for the first time in our company’s history we were going to have a year in which we would not double sales.

My confidence was wavering. I had made some big mistakes:

  • I had waited too long to launch a stock option plan for the whole company.
  • I hadn’t hired a CMO soon enough.
  • I hadn’t built the right ecosystem of mentors that could help me get to the next level as a CEO.
  • I had focused too much on the surrogate-family side of our culture and not enough on the performance-focused side that was needed.
  • I hadn’t created values that people believed in and used every day. I could recall just four of our ten values without looking.
  • I had waited too long to start a formal manager training program.
  • I hadn’t truly aligned my passion for social responsibility into the ethos of the corporation.
  • I hadn’t created any effective mechanism for communicating strategic direction to the company and we had a lot of confusion as to what our focus was and operating choices were being made with different assumptions as to direction.

And these were just the mistakes I knew about!

Was I Right for the Job?

As I sat there in May 2009 I wrote in my journal “I’m not sure I’m the right person anymore to lead the company into this next stage of growth. We need to make some changes to keep the growth and hit our goals. Scary to think about. Terrible to have lost some of my confidence.” I wrote an email to our CFO on May 20th thinking about succession planning for me.

I wasn’t sure whether we should try to get acquired or keep the faith that we’d get to the $60M-$70M in annual revenue needed to go public and stay on track for the 2012 IPO. At certain points I lost the faith.

Finally in July we got the CMO we wanted. And things were looking way up by the end of the summer when we got an investment term sheet with a nine figure PMV. Wow!

But then came October. In the same week my business partner got cancer (he is now doing well!), my mom started having worsening chronic arm pain (she is now doing better), and a company that was looking to acquire us told us they weren’t going forward. I guess they say that difficult times are the foundry from which greatness is cast. But it’s sure not fun being the molten iron!

Through that baptismal fire I came to a critical understanding of self and what I needed to do to align what I love with what I do–something I’ve been preaching atop the mountain for five years in speeches but only half-heartedly living. It helped me discover my authentic self. It helped me find my Csikszentmihalyian flow.

Motivated More Than Ever

So I sit here tonight in my home in Chapel Hill motivated more than ever. iContact is now at a $34M revenue run-rate and growing that by more than $1M each month. We will hire more than 50 new team members in 2010. We had our first ever post-investment EBITDA positive month in December(!!!). We’re well on our way to fulfilling our dream of “building a great sustainable company in NC for our customers, employees, and community.” And we’ve got a plan to go from #2 to #1. We have a plan to win.

I no longer question whether I’m a corporate sellout putting in my time. I’m aligned, I’m focused. I’m learning. I’m surrounded by amazing people every day who know how to do what they do so much better than I ever could.

What I Changed?

So what did I do? Three things (and I’m still working on fully implementing them)…

  1. I worked to align my long term life mission with what I do everyday today. My life mission, the one that’s been on my bedroom wall since May 2007, is to “be a leader of our generation as we work to end extreme poverty in our lifetimes.” While I was learning a lot about leadership and management and being paid to do it, I was somewhat unclear how building a SaaS company aligned fully with a passionate desire to end extreme poverty in the developing world over the next fifty years. The incessant question in my head was whether I’d be better off finding my replacement and either applying to the Kennedy School of Government or moving to Africa to invest in entrepreneurs there. I learned a lot about the integrated 1/1/1 corporate philanthropy model of Salesforce.com and wanted to see if we could do that at iContact. On January 8th, 2010 we launched an expanded CSR model, what we call the 4-1s Corporate Social Responsibility Model, at iContact in which we take 1% of equity, 1% of product, 1% of employee time, and 1% of payroll and invest it in local and global non-profit organizations. Since we’ve expanded this CSR program I’ve been able to see the tangible and immediate connection between my passion for social responsibility and what I do going to work every day. In 2009 iContact contributed $109,000 to 63 different 501(c)(3)s and in 2010 we’ll reach $150,000. But it’s not just money anymore. Now, each of our employees has the opportunity to be paid to take 1% of their time (2.5 days off from work) each year to do community service during business hours, which we’re tracking through VolunteerForce. While we’ve got lots of work to do to improve it, the model has real impact and tangible value for us and the community and it’s significantly helped me to a much greater degree see the meaning behind what we do everyday. I love it!
  2. We changed our company values at iContact. I realized in July of last year that we had ten “Corporate Values” but I could only remember four without reading the sheet. At an EO entrepreneurial exec ed program at MIT in June I learned you should never have more values than you can remember and that to be worthy of being a company value you’d have to be willing to let someone go if they didn’t live up to it. Our values fit neither requirement. In December at our two day Senior Leadership Team (SLT) offsite in Chapel Hill we came up with WOWME. WOWME stands for 1) Wow the Customer 2) Operate with Urgency 3) Without Mediocrity 4) Make a Positive Wake and 5) Engage as an Owner. We launched these values last month at iContact and now every SLT member knows them by heart and we’re working toward all managers using them during every performance and coaching discussion. We will hire and fire by these values, live up to them, and hold each other accountable to them. They’ve even inspired me to pick up my game and get it in gear. I love it!
  3. I let go of control. The best thing I’ve ever done for the growth of iContact is let go of control (and I’m still working on this skill). We have a six person Senior Leadership Team at iContact that can all do their jobs much much better than I can. We now have a thirteen person Leadership Team underneath them all of whom have more business experience than I do. When I realized that my job was not to ensure they did their jobs the right way but rather to enable them to do their jobs and hold them accountable for the results, my world shifted. I’m still learning in this area, but this single realization is enabling me to scale. I now focus on 1) people 2) strategy 3) culture 4) investment. Each time we get to a new stage in our company’s growth ($100k, $1M, $5M, $10M, $25M) I have to reinvent myself and my job description. I love it!

And here are some other life changes that are less critical to helping me align what I do with what I love, but are still fun to share…

  1. I made an equity investment in an African company. On January 4th I became a 10% owner of Village Energy Ltd. of Kampala Uganda. For four years I’ve been personally making contributions to non-profit organizations focused on ending global poverty. My philosophy has changed on economic development over the past year. Today I believe that while effectively monitored bilateral aid is an important component of ending extreme poverty and emergency humanitarian aid is morally and critically necessary in many locations, an investment in a local entrepreneur in Africa will have much greater long term impact in terms of job creation, tax revenue base, and constituent-focused democratic institution building. I was very excited to invest in Village Energy which is bringing a $60 solar panel powered LED lighting solution to rural village homes through a microfinance and franchise distribution model for $3-$4 per month per home. The product is a substitute good for kerosene which often costs $5 to $6 per month, causes lung inhalation problems and often burns down the thatch houses. I hope this $15,000 investment turns out to have much greater social impact than a $15,000 contribution. There is SO much opportunity to invest in Africa and so many entrepreneurs and companies poised for growth. And there is a huge gap between the countless MFIs that loan out $50 to $1000 and the Acumen Fund which invests $50k to $250k. Ten years from now I dream of running a socially responsible venture capital firm on the African continent. The challenge will be finding a scalable model of investing $5000 to $50,000 at a time. I think it can be done. I know the pipeline is there.
  2. We started a new entrepreneurial division of Virante. Virante is a 11 person company downstairs in the iContact building that I started as “Virante Design & Development” in 2000 that is now run by CEO Malcolm Young. I won’t say much about this early stage effort now because the team is still acquiring all the related domain names and IP, but it’s a socially responsible ecommerce play that I’m extremely excited about. Fortunately we’ve already got the team to make it happen and it won’t take much time. With the help of the Virante team and a 17 year old intern Aneesh that comes in each Wednesday they’re making it happen. Here I must quote my new New York friend Kim Scheinberg, “Starting a company is like having a baby. By far the most enjoyable part is the idea conception phase.”
  3. I followed my passion for writing and started the next book. This post is the beginning of book #2. My plan–one 5 page blog post per week that by the end of 2010 will be a ready to become a book. The title–”Dare Mighty Things: How Entrepreneurs & Social Entrepreneurs Are Changing the World.”

I have had two wristbands on my wrist since November. The first one says “Make Poverty History.” The second, “$100M in 2012.”

Thank you to everyone who has supported me through this endeavor and to all who are with us in this journey.

Here we go…

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Thoughts, comments, suggestions??? Feedback is the breakfast of champions!

Why Poverty?

November 20, 2009

As I sit on the 28th floor of a hotel in San Francisco I am angry, yet hopeful.

I wonder why in a world with as much wealth as we see, as much luxury that we experience, should 40% of the human species live on under $2 per day?

2.56 billion human beings, people just like you and I, live on under $2 per day. On average, 24,900 children under 5 die each and every day in the developing world, often from preventable diseases and starvation. 24,900 children under 5. Check out the sources below. This is absolutely unacceptable.

Why does no one talk about this?

Were you aware of this? Please comment…

-Ryan

——-Sources——-

1 – 2008 World Development Indicators: Poverty Data Supplement, World Bank

From p. 10: “…the number of people living on less than $2.00 a day has remained nearly constant at 2.5 billion. From Table 3: “People living on less than 2005 PPP $2.00 a day (millions), 2005 – 2.564″

2 – UNICEF State of the World’s Children, 2009

From p. 121, Statistical Tables, Table 1 Basic Indicators, Summary Indicators, Developing Countries “Annual Number of Under 5 Deaths (Thousands), 2007 – 9109″ We arrived at 24,956 deaths of children under 5 per day by taking the 9,109,000 total deaths per year for children under 5 in developing countries and dividing by 365.

Five Ways a Non-Profit Director Can Be An Entrepreneur

September 3, 2009

As a Non-Profit Director, you are an entrepreneur as well. You have a product and a customer, and you are working to rearrange limited resources to create value.

For the non-profit entrepreneur, today earned income models are becoming the norm rather than the exception. While 501(c)(3) non-profits have a benefit of being able to receive tax deductible contributions, these contributions are often unpredictable and at times can influence a non-profit to go in an undesired direction.

The age of non-profits being able to rely solely on donors and grants is over. For a non-profit entrepreneur, an earned income model exists when the non-profit company sells a product or service to others and gains net income on that sale which is reinvested in growing the non-profit in a sustainable manner. The line between non-profit entrepreneurs and for-profit entrepreneurs is indeed getting gray.

While you are required to reinvest practically all your net income back into the organization, you have a great advantage. As a registered 501(c)(3) you can accept tax-deductible monetary contributions from individuals and corporations. You can apply for and receive grants from foundations. You can also receive in-kind donations from local companies or receive discounts or pro-bono work from service providers.
At the end of the day, just because you cannot distribute net income to your shareholders doesn’t mean you aren’t an entrepreneur. Here are some ways you can be entrepreneurial as a non-profit founder or director:

1.Create an earned-income model. Find a product or service you can sell to others. Just because you have to reinvest your profits, doesn’t mean you can’t make a profit. You don’t have to give away everything. The more value you create, the more you will can earn and the more you’ll be able scale your organization to serve its mission. –> Quick Case Study: As an example, a non-profit I’m the Board Chair of this year, Nourish International, has an earned-income model.

Nourish teaches college students to run entrepreneurial ventures on its campuses. These ventures range from ‘Hunger Lunches’ with corn bread and beans to poker tournaments to selling medical scrubs.

Nourish then takes the net profit from the students’ ventures and funds a portion of administrative overhead at the national office and contributes to community-based non-profit organizations in the developing world that work to reduce extreme poverty and hunger. This past summer Nourish sent 58 of its students to nine projects in developing countries. Nourish’s model is growing and it now chapters on 29 college campuses.

2.Have an entrepreneurial mindset. Just because you have donors doesn’t mean you don’t have to have a sense of urgency and work quickly and efficiently to produce results and compete. The market for non-profit donations is competitive and contributions will go to those that are well-run and maximize positive human impact with minimum dollars (or at least maximize human impact in the fields that those with resources most care about, a substantive difference).

While there seems to be a somewhat unfortunate reality that some well-established non-profits with celebrity representation or large budgets can often get the bulk of available contributions and crowd out perhaps more deserving smaller NPOs, many of these established non-profits were start-ups once as well and only came to be influential by being efficient, achieving their mission, and attracting larger and larger contributions and grants.

3.Hire people who are smart, ambitious and driven. Don’t settle for poor-performers. As a Non-Profit Director you have the ability to attract talented, caring staff members that are willing to work hard for less than market pay. Use this to your advantage.

There are driven, smart, ambitious, educated, and talented individuals in the work force that want to work for a non-profit. Too often I have seen non-profit entrepreneurs settling for lower quality team members and not managing their performance. Hire A players who are passionate about what you are driving to achieve and empower them to be entrepreneurial, take risk, and grow the organization.

4.If You Aren’t Maximizing Social Value, Consider Merging. One of the issues in the non-profit world is that it is rather challenging for one non-profit to merge with or be acquired by another non-profit. This creates the reality that there are often dozens if not hundreds of small non-profits inefficiently and disparately going after the same cause. Industry consolidation and M&A in the business world happens naturally as controlling shares can be purchased in private or public markets. For a non-profit this is not possible so it is up to the humility of the founder to consider whether a merger could create a better social outcome.

Allowing for the benefit of competition and time it takes to start-up, test your model, and make it scale–consider shutting down or merging your organization with a more efficient or larger organization if you feel like your organization isn’t best using resources to create positive social value. Non-profit mergers can allow the combined entity to share resources, reduce overhead costs, and go after bigger grants while achieving the shared mission.

5.Run your non-profit like a business, because it is. Non-profit organizations sometimes use their non-profit status as an excuse not to seek to be efficient, employ staff performance management systems, or make the tough decisions for-profit businesses have to make to survive and thrive. Being a non-profit does not mean you should not seek to earn profit. It simply means you must reinvest this profit. The more profit your organization can make the faster it can scale and grow and achieve its mission (of course don’t make a profit in a manner that goes against your values and mission!). After all, your non-profit corporation is a business, just one that has committed to reinvest its profits every year back into the business and not distribute them.

What type of organization should I work for to make the greatest positive impact?
Often the best answer to the question “what type of organization should I work for to make the greatest positive impact” is a gray hybrid to the old-school black and white.

The answer is often a for-profit business that is socially responsible and integrates the concepts of social business into its organization, or an entrepreneurial non-profit organization that is run like a business, efficiently and with a sense of urgency.

And finally, today the boring and bureaucratic public sector is slowly but surely changing as it is again becoming cool for smart driven people to work in government. The bureaucracy that is Washington D.C. can only change if it is infused with entrepreneurial, efficient management that has a sense of urgency and passionately cares about making a positive difference.

Five Ways a For-Profit Entrepreneur Can Be a Social Entrepreneur

September 2, 2009

At the Entrepreneur & Social Entrepreneur Meetup on Tuesday I was having a great discussion with a new friend named Phil. Phil asked me a question I’ve heard often recently, “Can I still be a social entrepreneur if I run a for-profit business and not a non-profit?” In my view, the answer is a resounding yes.

What is an Entrepreneur & What is a Social Entrepreneur?

To me an entrepreneur is “a problem solver who takes action.” To me a social entrepreneur is “a problem solver who takes action.” There is no difference. The line is wonderfully blurry. Let me explain.

An entrepreneur is someone who rearranges the resources of land, labor, capital, and entrepreneurial ability to create a product or service that provides value to others. Whether the entrepreneur is doing this within a for-profit corporation, in which the net profits are either reinvested in the corporation or distributed to the shareholders or a non-profit corporation in which the profits are fully reinvested into the corporation, he or she remains an entrepreneur.

Non-profit founders and directors have customers and products too. Traditionally the customers of a non-profit are its donors and grant makers and the product is the social value it produces. If the product is not valued, customers (donors) will stop giving and leave.

Today, the black and white world of non-profits and for-profits is graying. If you want to change the world for the better, it is an open question as to whether you can make a bigger impact in a for-profit or a not-for-profit company.

Profit’s Correlation With Social Value Provided,
As long as the for-profit entrepreneur a) competes within the laws of a competitive market system b) does not create short-term profit for the company by externalizing the costs of the off-balance sheet destruction of the environment and c) does not exploit its labor force, the only way for the entrepreneur to make a profit is by creating value for others.

The more the ethical entrepreneur helps others, the more profit he or she will make. Profit for an ethical entrepreneur who has not exploited the environment or labor force to gain that profit is not an ugly sign of exploitation but rather a laudable sign of value created. The successful and profitable entrepreneur has rearranged resources in such a manner that the value of the output created exceeds the sum value of the inputs.

For the ethical for-profit entrepreneur, as products are produced that help others, social value is created. The very act of building your business creates jobs, provides product and services that others value, and enables you to give back to your local and global community.

Your for-profit business can often be more sustainable than a non-profit business as you are not reliant on grants and donations to grow. While you have a disadvantage of not being able to receive tax-deductible donations, you have the big advantage in the labor market of being able to offer a wonderful thing called stock options to employees, which enables you to attract top talent and enable all to participate in the value-creation.

One of the most important things you can do as a for-profit entrepreneur to enable you to make a social impact is to be profitable. As Joel Makower argues in his book Beyond the Bottom Line, “One of the most socially responsible things most companies can do is to be profitable.” Without profits one cannot pay taxes, provide jobs that pay well, give back to a community, or invest in innovation.

Five Ways a For-Profit Entrepreneur Can be a Social Entrepreneur
So for a for-profit entrepreneur, if you really want to be a ’social entrepreneur’ here are some suggestions:

1. Give all your employees stock options. Requiring a team member to be there a minimum amount of time (like 6 months) before they earn the options is okay. Vest the options over a few year period (3 or 4) to help with retention.

2. Treat your employees well. Show that you care about them. Offer health insurance and good working conditions. While you have to manage to results and that requires being a professional firm that tracks performance, you can do many little things that create a good work environment and culture that actually help the firm reduce costs, retain great people, and attract a better team.

3. Ensure your net impact on the environment is at least neutral, if not positive. Don’t externalize the cost of environmental damage. In other words, don’t profit off of destroying the environment, even if it may still be legal to do so. Take into account the full cost of any environmental degradation or destruction in the production of your products and services. Look up the supply line and ensure your suppliers also neutralize their impact on the environment.

Quick Case Study: Last Month, Walmart introduced a Sustainability Product Index that asks each of its suppliers fifteen questions on energy, climate, resource use, and labor practices. It has asked its suppliers to respond by October 2009. It is using this data to understand the practices of its upstream supplier network (of over 100,000 suppliers) and provide a Sustainability Index for each of its suppliers. Walmart is also creating a “consortium of universities that will collaborate with suppliers, retailers, NGOs and government to develop a global database of information on the lifecycle of products – from raw materials to disposal.”

4. Have a formal corporate social responsibility policy. A particular CSR structure I’m fond of is called the 4-1s program, in which you set aside 1% of company profit (or 1 percent of payroll if you are venture-backed and not yet profitable), 1 percent of employee time, 1 percent of product, and 1 percent of equity to contribute back to your local and global community.

Quick Case Study: At iContact, we have been contributing 1 percent of payroll since 2007. In 2008 we contributed $55,000 to 37 different non-profit organizations. In 2009 we’ll reach $100,000. We are now expanding our CSR program based on the 4-1s model to include 1 percent of employee time (up to 2.5 days of paid time-off per year to be spent on community service products), 1 percent of product (we are providing iContact free to any non-profit organizations in the Triangle), and 1 percent of equity. Don’t wait until you’re 60 and wealthy to give back. Start from day one and create an integrated giving model. You can read about iContact’s Corporate Social Responsibility Program here.

5. As you succeed personally, give back. A great differentiator for the for-profit entrepreneur is that you and those working with you can become wealthy through the appreciation of the value of your stock ownership as you scale your ability to help others.

If you’re fortunate enough to have a liquidity event (go public or get acquired) use your personal resources to invest in other entrepreneurs and social entrepreneurs who are changing the world for the better, contribute personally to the organizations (and candidates) that you feel are making the biggest positive impact for humanity, and vote with your dollars as a consumer and doing your best to purchase from companies who have a similar view about corporate social and environmental responsibility.

There is a movement of socially responsible companies that is defining our generation. These socially-responsible for-profits, sometimes informally called B Corporations instead of C or S corporations, can make a huge positive impact on the world, up and down supply chains.

Networks springing up
There are networks springing up for socially responsible professionals such as the Social Venture Network and Net Impact.

Companies like Vestergaard Frandsen, Salesforce.com, Danone, Stonyfield Farms, and Whole Foods are leading the way in this integrated social business model. They are doing well not in spite of their social mission, but often partially because of it.

There is a new genre of books focused on how to use business to change the world. There are many, but my favorites are The Business of Changing the World, Creating a World Without Poverty: How Social Business Can Transform Our Lives, The Power of Unreasonable People: How Social Entrepreneurs Create Markets That Change the World, and The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits.

There are now publications that focus on the socially responsible business owner, including Stanford Social Innovation Review and Good Magazine (founded by the son of INC. Magazine). There is even a newswire just for social responsible news called CSRWire. There is even a stock index called the KLD400 for socially responsible companies!

There are venture capital firms that now focus on investing in socially responsible companies. These include Good Capital and SJF Ventures.

What Ben & Jerry’s and The Body Shop started is becoming wonderfully mainstream and necessary as a new generation that connects and collaborates globally like none before it becomes corporate leaders.

While I am generally a fiscal moderate who believes in the ideology of individual freedom and liberty, Milton’s Friedman’s 1970 assertion that ‘the business of business is just business’ was wrong. As Peter Drucker argued in 1942 in The Future of Industrial Man, companies must have a social dimension as well as an economic purpose.

Can a For-profit Entrepreneur Be a Social Entrepreneur?

June 1, 2009

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Can a for-profit entrepreneur be a social entrepreneur? Can the Executive Director of a non-profit be an entrepreneur? Yes and yes!

At the Entrepreneur & Social Entrepreneur Meetup on Tuesday I was having a great discussion with a new friend named Phil. Phil asked me a question I’ve heard often recently, “Can I still be a social entrepreneur if I run a for-profit business and not a non-profit?”

In my view, the answer is a resounding yes.

What is an Entrepreneur & What is a Social Entrepreneur?

To me an entrepreneur is “someone who rearranges resources to create value.” To me a social entrepreneur is “someone who rearranges resources to create value.” There is no difference. The line is wonderfully blurry. Let me explain.

An entrepreneur is someone who rearranges the resources of land, labor, capital, and entrepreneurial ability to create a product or service that provides value to others. Whether the entrepreneur is doing this within a for-profit corporation, in which the net profits are either reinvested in the corporation or distributed to the shareholders or a non-profit corporation in which the profits are fully reinvested into the corporation, he or she remains an entrepreneur.

Non-profit founders and directors have customers and products too. Traditionally the customers of a non-profit are its donors and grant makers and the product is the social value it produces. If the product is not valued, customers (donors) will stop giving and leave.

Today, the black and white world of non-profits and for-profits is graying. If you want to change the world for the better, it is an open question as to whether you can make a bigger impact in a for-profit or a not-for-profit company.

Profit’s Correlation With Social Value Provided

As long as the for-profit entrepreneur a) competes within the laws of a competitive market system b) does not create short-term profit for the company by externalizing the costs of the off-balance sheet destruction of the environment and c) does not exploit its labor force, the only way for the entrepreneur to make a profit is by creating value for others.

The more the ethical entrepreneur helps others, the more profit he or she will make. Profit for an ethical entrepreneur who has not exploited the environment or labor force to gain that profit is not an ugly sign of exploitation but rather a laudable sign of value created. The successful and profitable entrepreneur has rearranged resources in such a manner that the value of the output created exceeds the sum value of the inputs.

For the ethical for-profit entrepreneur, as products are produced that help others, social value is created. The very act of building your business creates jobs, provides product and services that others value, and enables you to give back to your local and global community.

Your for-profit business can often be more sustainable than a non-profit business as you are not reliant on grants and donations to grow. While you have a disadvantage of not being able to receive tax-deductible donations, you have the big advantage in the labor market of being able to offer a wonderful thing called stock options to employees, which enables you to attract top talent and enable all to participate in the value-creation.

One of the most important things you can do as a for-profit entrepreneur to enable you to make a social impact is to be profitable. As Joel Makower argues in his book Beyond the Bottom Line, “One
of the most socially responsible things most companies can do is to be profitable.” Without profits one cannot pay taxes, provide jobs that pay well, give back to a community, or invest in innovation.

Five Ways a For-Profit Entrepreneur Can be a Social Entrepreneur

So for a for-profit entrepreneur, if you really want to be a ’social entrepreneur’ here are some suggestions:

  1. Give all your employees stock options. Requiring a team member to be there a minimum amount of time (like 6 months) before they earn the options is okay. Vest the options over a few year period (3 or 4) to help with retention.
  2. Treat your employees well. Show that you care about them. Offer health insurance and good working conditions. While you have to manage to results and that requires being a professional firm that tracks performance, you can do many little things that create a good work environment and culture that actually help the firm reduce costs, retain great people, and attract a better team.
  3. Ensure your net impact on the environment is at least neutral, if not positive. Don’t externalize the cost of environmental damage. In other words, don’t profit off of destroying the environment, even if it may still be legal to do so. Take into account the full cost of any environmental degradation or destruction in the production of your products and services. Look up the supply line and ensure your suppliers also neutralize their impact on the environment. –> Quick Case Study: Last Month, Walmart introduced a Sustainability Product Index that asks each of its suppliers fifteen questions on energy, climate, resource use, and labor practices. It has asked its suppliers to respond by October 2009. It is using this data to understand the practices of its upstream supplier network (of over 100,000 suppliers) and provide a Sustainability Index for each of its suppliers. Walmart is also creating a “consortium of universities that will collaborate with suppliers, retailers, NGOs and government to develop a global database of information on the lifecycle of products – from raw materials to disposal.”
  4. Have a formal corporate social responsibility policy. A particular CSR structure I’m fond of is called the 4-1s program, in which you set aside 1% of company profit (or 1% of payroll if you are venture-backed and not yet profitable), 1% of employee time, 1% of product, and 1% of equity to contribute back to your local and global community. –> Quick Case Study: At iContact, we have been contributing 1% of payroll since 2007. In 2008 we contributed $55,000 to 37 different non-profit organizations. In 2009 we’ll reach $100,000. We are now expanding our CSR program based on the 4-1s model to include 1% of employee time (up to 2.5 days of paid time-off per year to be spent on community service products), 1% of product (we are providing iContact free to any non-profit organizations in the Triangle), and 1% of equity. Don’t wait until you’re 60 and wealthy to give back. Start from day one and create an integrated giving model. You can read about iContact’s Corporate Social Responsibility Program here.
  5. As you succeed personally, give back. A great differentiator for the for-profit entrepreneur is that you and those working with you can become wealthy through the appreciation of the value of your stock ownership as you scale your ability to help others. If you’re fortunate enough to have a liquidity event (go public or get acquired) use your personal resources to invest in other entrepreneurs and social entrepreneurs who are changing the world for the better, contribute personally to the organizations (and candidates) that you feel are making the biggest positive impact for humanity, and vote with your dollars as a consumer and doing your best to purchase from companies who have a similar view about corporate social and environmental responsibility.

There is a movement of socially responsible companies that is defining our generation. These socially-responsible for-profits, sometimes informally called B Corporations instead of C or S corporations, can make a huge positive impact on the world, up and down supply chains.

There are networks springing up for socially responsible professionals such as the Social Venture Network and Net Impact.

Companies like Vestergaard Frandsen, Salesforce.com, Danone, Stonyfield Farms, and Whole Foods are leading the way in this integrated social business model. They are doing well not in spite of their social mission, but often partially because of it.

There is a new genre of books focused on how to use business to change the world. There are many, but my favorites are The Business of Changing the World, Creating a World Without Poverty: How Social Business Can Transform Our Lives, The Power of Unreasonable People: How Social Entrepreneurs Create Markets That Change the World, and The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits.

There are now publications that focus on the socially responsible business owner, including Stanford Social Innovation Review and Good Magazine (founded by the son of INC. Magazine). There is even a newswire just for social responsible news called CSRWire. There is even a stock index called the KLD400 for socially responsible companies!

There are venture capital firms that now focus on investing in socially responsible companies. These include Good Capital and SJF Ventures.

What Ben & Jerry’s and The Body Shop started is becoming wonderfully mainstream and necessary as a new generation that connects and collaborates globally like none before it becomes corporate leaders.

While I am generally a fiscal moderate who believes in the ideology of individual freedom and liberty, Milton’s Friedman’s 1970 assertion that ‘the business of business is just business’ was wrong. As Peter Drucker argued in 1942 in The Future of Industrial Man, companies must have a social dimension as well as an economic purpose.

Five Ways a Non-Profit Director Can Be An Entrepreneur

As a Non-Profit Director, you are an entrepreneur as well. You have a product and a customer, and you are working to rearrange limited resources to create value.

For the non-profit entrepreneur, today earned income models are becoming the norm rather than the exception. While 501(c)(3) non-profits have a benefit of being able to receive tax deductible contributions, these contributions are often unpredictable and at times can influence a non-profit to go in an undesired direction.

The age of non-profits being able to rely solely on donors and grants is over. For a non-profit entrepreneur, an earned income model exists when the non-profit company sells a product or service to others and gains net income on that sale which is reinvested in growing the non-profit in a sustainable manner. The line between non-profit entrepreneurs and for-profit entrepreneurs is indeed getting gray.

While you are required to reinvest practically all your net income back into the organization, you have a great advantage. As a registered 501(c)(3) you can accept tax-deductible monetary contributions from individuals and corporations. You can apply for and receive grants from foundations. You can also receive in-kind donations from local companies or receive discounts or pro-bono work from service providers.

At the end of the day, just because you cannot distribute net income to your shareholders doesn’t mean you aren’t an entrepreneur. Here are some ways you can be entrepreneurial as a non-profit founder or director:

  1. Create an earned-income model. Find a product or service you can sell to others. Just because you have to reinvest your profits, doesn’t mean you can’t make a profit. You don’t have to give away everything. The more value you create, the more you will can earn and the more you’ll be able scale your organization to serve its mission. –> Quick Case Study: As an example, a non-profit I’m the Board Chair of this year, Nourish International, has an earned-income model. Nourish teaches college students to run entrepreneurial ventures on its campuses. These ventures range from ‘Hunger Lunches’ with corn bread and beans to poker tournaments to selling medical scrubs. Nourish then takes the net profit from the students’ ventures and funds a portion of administrative overhead at the national office and contributes to community-based non-profit organizations in the developing world that work to reduce extreme poverty and hunger. This past summer Nourish sent 58 of its students to nine projects in developing countries. Nourish’s model is growing and it now chapters on 29 college campuses.
  2. Have an entrepreneurial mindset. Just because you have donors doesn’t mean you don’t have to have a sense of urgency and work quickly and efficiently to produce results and compete. The market for non-profit donations is competitive and contributions will go to those that are well-run and maximize positive human impact with minimum dollars (or at least maximize human impact in the fields that those with resources most care about, a substantive difference). While there seems to be a somewhat unfortunate reality that some well-established non-profits with celebrity representation or large budgets can often get the bulk of available contributions and crowd out perhaps more deserving smaller NPOs, many of these established non-profits were start-ups once as well and only came to be influential by being efficient, achieving their mission, and attracting larger and larger contributions and grants.
  3. Hire people who are smart, ambitious and driven. Don’t settle for poor-performers. As a Non-Profit Director you have the ability to attract talented, caring staff members that are willing to work hard for less than market pay. Use this to your advantage. There are driven, smart, ambitious, educated, and talented individuals in the work force that want to work for a non-profit. Too often I have seen non-profit entrepreneurs settling for lower quality team members and not managing their performance. Hire A players who are passionate about what you are driving to achieve and empower them to be entrepreneurial, take risk, and grow the organization.
  4. If You Aren’t Maximizing Social Value, Consider Merging. One of the issues in the non-profit world is that it is rather challenging for one non-profit to merge with or be acquired by another non-profit. This creates the reality that there are often dozens if not hundreds of small non-profits inefficiently and disparately going after the same cause. Industry consolidation and M&A in the business world happens naturally as controlling shares can be purchased in private or public markets. For a non-profit this is not possible so it is up to the humility of the founder to consider whether a merger could create a better social outcome. Allowing for the benefit of competition and time it takes to start-up, test your model, and make it scale–consider shutting down or merging your organization with a more efficient or larger organization if you feel like your organization isn’t best using resources to create positive social value. Non-profit mergers can allow the combined entity to share resources, reduce overhead costs, and go after bigger grants while achieving the shared mission.
  5. Run your non-profit like a business, because it is. Non-profit organizations sometimes use their non-profit status as an excuse not to seek to be efficient, employ staff performance management systems, or make the tough decisions for-profit businesses have to make to survive and thrive. Being a non-profit does not mean you should not seek to earn profit. It simply means you must reinvest this profit. The more profit your organization can make the faster it can scale and grow and achieve its mission (of course don’t make a profit in a manner that goes against your values and mission!). After all, your non-profit corporation is a business, just one that has committed to reinvest its profits every year back into the business and not distribute them.

What type of organization should I work for to make the greatest positive impact?

Often the best answer to the question “what type of organization should I work for to make the greatest positive impact” is a gray hybrid to the old-school black and white. The answer is often a for-profit business that is socially responsible and integrates the concepts of social business into its organization, or an entrepreneurial non-profit organization that is run like a business, efficiently and with a sense of urgency.

And finally, today the boring and bureaucratic public sector is slowly but surely changing as it is again becoming cool for smart driven people to work in government. The bureaucracy that is Washington D.C. can only change if it is infused with entrepreneurial, efficient management that has a sense of urgency and passionately cares about making a positive difference.

Comments & Thoughts?

I’d love your comments on this post! Particularly if you have any examples of companies that truly integrate social responsibility into what they do, interesting models of corporate social responsibility, or examples of non-profits that are run like an entrepreneurial businesses. Also, I’d love any thoughts on the graying of the for-profit and non-profit sector and any thoughts on infusing entrepreneurial principles and efficient management into government. Thanks for reading! – Ryan

OptInNow.org – Opportunity International’s New Kiva-Like Site

April 23, 2009

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This is something really cool.

I had coffee this evening at the HW55 Starbucks in Durham with Sam Serio from Opportunity International. Opportunity International is a Christian microfinance organization that’s been around since 1971.

Opportunity International has launched a site called OptInNow.org. OptinNow allows you to make small loans directly to entrepreneurs in developing countries.

Comparison to Kiva

OptInNow is similar to Kiva, with the exception that the loans made are contributions to Opportunity International and are re-loaned over and over again to entrepreneurs with microenterprises in developing countries instead of paid back directly to the lender. Another difference is that Opportunity International has a Christian affiliation whereas Kiva does not.

OptInNow.org is in the early stages, so the site does not yet have as extensive inventory of loans and projects as Kiva, but does allow loans to be made to entrepreneurs in Kenya, Ghana, the Philippines, and Mexico with many more to come soon.

Props to the folks at Opportunity International for creating a well-designed usable interactive site that will get a lot more visibility and unique donors for their organization.

Aid 2.0

As opposed to the old-school ‘top-down’ Easterly-criticized bi-lateral government-to-government aid model where funds were given to oft-unelected semi-corrupt dictators for cold-war geopolitical reasons that indebted the populace without providing much benefit to them while sometimes forcing the funds to be used to pay Western contractors (okay I’m being a bit harsh here but do read Perkins’ Confessions of an Economic Hit Man and Stiglitz’ Globalization and Its Discontents), OptInNow’s model is from the grassroots–from the bottom-up. It gives small amounts of funds that can make a world of good directly to the local entrepreneurs who know how to best use them. It’s market-based aid versus the top-down centrally controlled aid of the past.

Who Is It Run By?

Opportunity International is currently run by CEO Christopher Crane, an entrepreneur, YPO member, and Harvard MBA who took commercial real estate information provider COMPS InfoSystems to 450 employees and took it public in May 1999 before being acquired by CoStar (NASDAQ:CSGP) in February 2000. I haven’t met Christopher yet but look forward to meeting him soon.

Here’s a video about OptInNow. Spread the word!

————————

About Opportunity International

Opportunity International, the largest not-for-profit microfinance organization in the world. OI began in 1971 and specializes in working with the poorest of the working poor, those who make less than $2 a day. OI has 1.2 million active loan clients in 28 countries and 85% of their clients are women. Here are some key facts.

Opportunity International 2007 Highlights
Current loan clients worldwide:
1,121,786
Value of current loan portfolio worldwide:
$500,891,820
Number of loans made in 2007:
1,772,139
Value of loans made in 2007:
$702,278,911
Average loan size:
$227 (excluding Eastern Europe)
Average first Trust Group loan:
$162 (excluding Eastern Europe)
Loans to women:
84.13%
Loan repayment rate:
98.5%
Source: http://videos.opportunity.org/website/media-center/Opportunity_International_Fact_Sheet.pdf

————————

About OptInNow
Our mission is simple. We’re working to end global poverty. Faster. How? By providing those who live in chronic poverty with one vital thing they need to transform their lives: Opportunity. Along the way we hope to transform additional lives, like yours. That’s why we’ve made it so simple for good people everywhere to come together, to fund small loans, to witness big and lasting impact, and to truly change the world. That’s what we’re really about. We’re about every land becoming a land of opportunity. And with your help we’ll get there.

MIT IDEAS Competition Slides – The Great Opportunity of Our Generation

April 13, 2009

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I wanted to post my Powerpoint slides from the presentation I gave at MIT for their 2009 IDEAS Competition on Monday night. You can view them on Scribd or below via this blog post.

The topic was “The Great Opportunity of Our Generation”

Some of the formatting is off in Scrib but mostly OK…

MIT IDEAS Social Entrepreneurship Competition, Ryan Allis, The Great Opportunity of Our Generation, May 200…


Here are some notes from the award ceremony following my presentation from Joe Chung. Congratulations to the winners! AquaPort, HeatSource and EGGTech were especially interesting to me.

Opening: Nick Fontaine
Keynote: Ryan Allis

Chancellor introduced
$2.5k IDEAS Award Winners
Aquaport
Oladapo Bakare
Ashley
Mary
Rob
Joonhaeng
Ash
Rebecca
Daniel
(water filtration)

Professor Thomas Byrne introduced
$2.5k winner
Vision Group (seeing machine)
Quinn Smithwick
Brandon Taylor
Yi Fei Wu
(project image directly into eye, bypass distorting part)

Barbara Baker introduced
$5k IDEAS Award winner
sponsored by Baruch Family
Global Citizen Water Initiative
Scott Frank
Stephanie Bachar
(place water in tube for 24 hrs to see if clean)

Allan Powell introduced
$5k IDEAS Award Winner
sponsored by The MIT COOP
BLISS
Saba Gul
Dr. Ishrat Hussain
Nadeem Mazen
Ghanzala Mehmood

Presented by Dean Stephen Lerman
$5k IDEAS Award Winner
sponsored by the office of dean of grad education/Yunus Challenge Winner
EGGTech Blandine Antoine Emmanuel Cassimatis Alla Jezmir
(providing battery for lighting to those in tanzania without electricity)

Yunus Challenge Winner
$7,500 IDEAS Award Winner
Lebone
Alexander Fabry
Aviva Presser
Hugo Van Zuuren
(microbial fuel cell solution for providing electricity)

Presented by Professor Thomas Byrne, MD
$7,500 IDEAS Award Winner
Braille Labeler
Aleksander and Anna Anita Leyfell
Adelaide Calbry-Muzyka
Josh Karges
Karina Pikhart
Maria Prus
Rachel Tatem
(electromechanical braille labeler)

Presented by Professor Michael Cima
Sponsored by the Lemelson – MIT Program
$7,500 IDEAS Award Winner
HeatSource
Amy Qian
Celeste Chudyk
Scot Frank
Allen Lin
Mary Masterman
Catlin Powers
Saad S
(encapsulating solar radiation through textile/material that provides heat during night)

Winner’s Retreat 2 Days at Endicott House

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