Maximizing Social Return from The Giving Pledge

I originally wrote this post for the Social Entrepreneurship Section of Change.org. You can find the original Change.org post here or read below.

A Vision in a Time of Peril

It’s hard to see the big picture in times of turmoil. Let’s go back to Wednesday, March 4, 2009. That day, Bill Gates and Warren Buffet, the richest individuals in America, wrote a letter to David Rockefeller, President of the Rockefeller Foundation. The letter suggested a gathering of their billionaire friends to discuss giving.

The letter was mailed in the backdrop of a tumultuous week. By that Friday March 6th, the Dow Jones Industrial Average reached its lowest point in twelve years, free falling 52.9% from two years before in the good ‘ole days of 2007 prosperity.

March 6th, 2009 brings back vivid memories. I was visiting the White House with a group of young entrepreneurs with The Summit Series. The White House Office of Public Engagement had put together the session to discuss their plans for the Economic Recovery Act. As Jason Furman, the Deputy Director of the National Economic Council, spoke to our group, the market was in freefall.

While the media was anointing The Great Recession and debating whether it would become a depression, Gates and Buffet had the fortune and foresight, to bring together their friends for dinner in New York to discuss how to give back.

The Launch of The Giving Pledge

Out of this meeting in New York came an initiative called The Giving Pledge, “an effort to invite the wealthiest individuals and families in America to commit to giving the majority of their wealth to philanthropy.”

So through The Giving Pledge Mr. Gates and Mr. Buffet are encouraging other billionaires to give at least 50% of their net worth away.

In fact, instead of the recommended 50%, Warren Buffett has pledged to contribute 99% of his net worth to charity within 10 years after his death, all to be used for immediate need and none for endowments. Laudable indeed. Buffet writes in his usual matter-of-fact style,

“The reaction of my family and me to our extraordinary good fortune is not guilt, but rather gratitude. Were we to use more than 1% of my claim checks on ourselves, neither our happiness nor our well-being would be enhanced. In contrast, that remaining 99% can have a huge effect on the health and welfare of others. That reality sets an obvious course for me and my family: Keep all we can conceivably need and distribute the rest to society, for its needs.”

How Much Money Are We Talking About?

Mr. Buffet will perhaps give around $50 billion to philanthropy by the time of his death. Through The Giving Pledge, he and Gates have the opportunity to leverage their influence and connections to multiply their giving many times over and set the example for other billionaires, who can no longer give away just 10% of what they have and feel good about themselves.

The total net worth of the Forbes 400 in 2009 was $1.27 Trillion. If Gates and Buffet convince 20% of these billionaires to give half of their net worth away, they’d be able to drive another $120B into philanthropy, doubling the amount of they themselves can personally give away.

So let’s say The Giving Pledge is successful and it generates another $120B in giving over the next twenty years, or about $6B per year for the next twenty years.

While an additional $6 billion per year can certainly make an impact, this amount pales in comparison to the $3.8 trillion proposed spending in the U.S. Federal Budget for 2011. It also pales in comparison to the $303B in total annual private giving by U.S. citizens.

The Goal: Sustainable Economic Prosperity

The two issues in our world today that are causing the greatest threat to a secure and stable human society with access to opportunity for all are extreme poverty and environmental sustainability. Most people don’t know that 39% of the human beings on this planet live on under $2 per day. If our goal is global stability, not to mention justice, this cannot be allowed in our world. And most of us by now get the global economic and natural disaster that will be caused if we keep increasing our annual consumption of goods without decreasing our carbon emissions.

As an entrepreneur and social entrepreneur, I believe that our mission, challenge, and opportunity as a generation is to create sustainable economic prosperity for all. We will never have a truly secure or stable world until we do. So how can this extra $6 billion per year be used to get the maximum return toward this goal of sustainable economic prosperity?

While humanitarian aid is absolutely necessary and moral, providing funds with this extra private capital for short-term gap filling needs caused by the symptoms of these issues won’t solve the issues themselves.

How Can This Money Make The Biggest Positive Impact?

So how can these funds best be used to generate the highest Social Return on Investment (SROI) and work toward sustainable economic prosperity for all?

The funds of these Giving Billionaires can either be given to address immediate need or invested to change much bigger systemic issues that are at the root cause of so much human suffering. While I do not know which will generate the highest return, I believe that by investing in changing global public policy (in a few select areas mentioned below) to reduce the incentive structures that are at the root cause of much suffering, lack of access to opportunity, and environmental damage these new Billionaire Givers will generate the highest SROI.

In order for this relatively small amount of additional capital to have the biggest positive impact, it must be leveraged. Philanthropic money can be leveraged by investing it in changing how other, larger, capital flows occur within our global system.

To effect real long term global change this $120B should be directed to:

1) Change U.S. domestic policy so we stop spending on the very expenditures that block access of the poorest countries to the market and creates need for more humanitarian aid and philanthropic giving in the first place (e.g. farm subsidies, trade tariffs, some military spending);

2) Influence a change in International Financial Reporting Standards and laws of nation-states so that companies can no longer off-balance sheet their negative environmental externalities;

3) As Nathaniel Whittemore has recommended, invest in social entrepreneurs who can leverage these dollars and markets (the largest capital flow of them all) to create sustainable change with dignity; and

4) Launch a campaign to encourage not just billionaires, but millionaires, to make a giving pledge and generate many trillions of additional dollars to invest in one through three.

Leverage Point 1: Invest in Domestic Policy Changes to Gain Social Return

Imagine the social good that could come from a concerted effort focused on lobbying to reduce the gargantuan $721B per year U.S. military budget (which as of 2008 was 48% of the world total military spending and larger than the next 45 countries combined) by 25% so that we could increase the salaries of every teacher in America by more than 50%.

There are 6.2 million elementary and secondary school teachers in the U.S. according to the U.S. Census Bureau’s 2000 Census. The average U.S. teacher salary was $51,009 according to American Federation of Teachers Survey and Analysis of Teacher Salary Trends 2007. So in total, the U.S. spends around $316 billion per year on teacher salaries. Hence a $180 billion re-allocation from defense to education would enable us to pay teachers 57% more.

Having this type of dollars and cents carrot might just enable Chancellors to negotiate out the single requirement of Teacher Unions that is the most damaging to our children’s education–the inability to fire a teacher who is not performing due to the tenure system, allowing the best teachers to be paid well above $80,000 per year.

Take a look at the below graph showing the allocation of 2009 U.S. Federal Taxes and you’ll see where our priorities seem to lie as a nation (of course noting that most funds for education come from State Taxes). A few billion dollars per year spent on influencing our Government to re-allocate this pie a bit more toward butter and a little less toward guns might just provide a huge return.

Source: Friends Committee on National Legislation Budget Chart for FY 2009

Leverage Point 2: Invest in Global Policy Changes to Gain Social Return

If these giving billionaires that join The Giving Pledge really wanted to get a large social return they would allocate dollars to change the public policies that drive the economic incentive structures that are the source causes of many of the issues.

One of the biggest problems in the world today is of course environmental sustainability. Six billion dollars per year, if the funds were focused, might just be enough to lobby the largest world governments to make a change to their accounting principles.

If companies across the world were required by law (that was enforced) to pay for the replacement of any environmental resource that they utilize such that each company had a net neutral impact on the environment, we’d remove much of the incentive structure that causes investors to seek out companies with the highest returns, which often are companies that unethically but legally have off-balance sheet environmental externalities that are simply passed on to all human beings.

Any philanthropist who can begin to create a tipping point for governments to stop accepting off-balance sheet negative environmental externalities that are not reported in GAAP or IFRS statements would enable the return on their investment to be leveraged many times over.

Change the economic incentive structure and you’ve changed the flow of trillions of dollars of private capital that billions of dollars of philanthropic capital simply cannot compete with.

Leverage Point 3: Create an Investment Fund for Triple-Bottom Line Entrepreneurs

As Nathaniel Whittemore suggested two weeks ago, some of the funds from The Giving Pledge should be directed to a Social Private Equity Fund. Nathaniel writes,

“What I can imagine is an institutional actor whose specialty is helping great social businesses with good revenues get even bigger while retaining their social and environmental missions. These types of firms would bring companies into their portfolio by acquiring some of the stock that had previously been held by investors and founders, in that way providing that liquidity that is missing from the current social finance system without compromising the social mission. This would create more incentives for early stage social investors, and provide social entrepreneurs more plausible returns that could increase the variety of the people thinking about social businesses.”

I agree with Nathaniel that late-stage capital for socially responsible businesses would be a help to provide liquidity, and thus returns, to the early stage investment funds already investing in triple-bottom line entrepreneurial companies.

I would add however, that any company that gets to $30M or $40M in EBITDA positive revenues, regardless of whether it has a core social mission or not, will be able to raise private equity and provide liquidity to shareholders. I don’t think the gap in the market is lack of funding for profitable at-scale social ventures.

The gap in the market is lack of funding and assistance for small-scale socially-responsible businesses that have the desire and dream to grow their impact and their revenues but don’t know how–both in the developed world and the developing world.

The biggest market gap I see is investment dollars in for-profit businesses in the developing world, where “microequity” investments of $5,000 to $50,000 along with some guidance and incubation can generate huge returns for a local entrepreneur who requires capital greater than a microfinance organization can provide but isn’t able to take on the $50,000 to $300,000 that organizations like Acumen Fund are able to invest.

And so, to maximize both financial return and social return for the Billionaire Givers, I would recommend not just a late-stage PE firm for social ventures, but also expanding capital investments in existing or new growth stage funds for socially responsible companies, particularly those in the developing world.

The second area of leverage I see within the world of private capital markets, is to invest in putting pressure on publicly-traded companies to implement strong CSR programs and actually live up to them. A few billion dollars spent buying mass media advertising to publicly encourage (read:shame) large MNCs so they live up to global CSR standards would be dollars well spent for social return.

Leverage Point 4: Invest in The Giving Pledge for Millionaires

While I applaud Gates and Buffet’s effort on The Giving Pledge, in order to enable this pledge to truly make a substantial impact, part of the funds should be directed to extend the effort beyond billionaires and create a new social norm where it is simply expected that anyone who makes way more than they need will contribute half of their net worth by the time they die to making the world a better place.

For the millionaires out there, it will just screw up your kids if you leave too much money to them. So why not ensure your legacy by committing now, publicly, to giving at least 50% away?

There are 10 million millionaires in the world, with a total net worth of $39 trillion according to the 2010 Merrill Lynch and Cap Gemini World Wealth Report. The average millionaire has $3.9 million.

Excluding the $1.3 trillion of the Forbes 400 from this $39 trillion, there is $37.7 trillion in assets among millionaires globally. What if there were a Millionaire Pledge?

If through a directed effort we can get 20% of global millionaires to commit to give half of their wealth, instead of an extra $120B for philanthropy, we’d have an extra $3.8 trillion. If we invest much of this $3.8 trillion in the three key leverage areas to fundamentally change our global economic and public policy system and use the rest to invest in filling short-term societal needs we can make a truly meaningful impact in the world.

Every multi-millionaire should commit to giving at least 90% of their wealth away by the time of their death. I made a commitment to do this in 2008 (in my book Zero to One Million) and will uphold this commitment. You can’t take money with you.

So who will take up this charge? And what do you think about these four areas of recommended investment?

Dr. Gerry Bell on Leadership, Listening, Happiness and Peak Performance

Session 1, Dr. Gerry Bell
EO/MIT Entrepreneurial Masters Program
Year Two, June 17, 2010

I’m in Boston for a few days attending year two of the EO/MIT Entrepreneur Masters Program. Our first presenter this morning is Dr. Gerry Bell of my hometown Chapel Hill, NC from the Bell Leadership Institute. Here are the notes from the session.

The 6 Laws of listening:

1. You can’t listen and work at the same time.
2. You can’t listen and think at the same time.
3. There is no such thing as multitasking.
4. Everyone knows exactly when you stopped listening.
5. You can’t fake listening. You can’t pretend to listen. You can’t fool people.
6. People only tell you the truth when they think you’re capable of hearing it.

You can’t afford to live your life on the surface. Listen and you will go deeper.

When you’re listening, ask questions to clarify what people are saying and elicit additional information.

If you find you’re uninterested and eyes are glazing over, ask a clarifying question.

A good tool to get people to open up a bit is to say, “Can you tell me more about that?”

There’s a thousand pieces to the puzzle of most meaningful conversations. A lot of times the real meaning to why someone is saying what they are to you cannot be determined in level I.

Class comment: Active listening is foreplay for a woman.

Playback what people are saying to you when talking about deep or important issues.

Never say, “well I disagree with you.”It just throws down the gauntlet and won’t lead to positive results. (’Yes and’ them instead of ‘No, but’ them)

Listening is the essential skill to build an understanding of people.

You can learn to listen better.

Living With Authenticity

There is no other way to live than living with authenticity.

You live longer when you’re authentic and you’re profoundly happier.

We experience stress when we behave differently than we are.

People say “I’m going to start being myself when this happens.” Don’t miss life while you’re living it.

As yourself if you’re going to listen to this person, or not. Make a black or white decision. Don’t half listen. Either 100% listen or delay the conversation.

Say, “I’d love to see you, I’ve got a deadline. Let’s discuss this at XX time.” Be pleasant, look at them, smile, and move on and then come back to it when you can focus.

Whenever you go to talk to someone, ask them if this is a good time.

Live authentic, open, and clear.

Emails/texts should only be used for surface level communications (level 1). The more personal it is, the more important it is to talk in person or at least by phone.

You have to guard your time as much as your money.

Skills Needed to Make Money

• Technical Skills/Specialty Skills
• Commitment: Ability to commit yourself with deep 100% focus on what you’re doing
• Interpersonal & Leadership Skills

Commitment is built by loving the work you do and being able to enter flow. The worst thing that could happen to you is to wake up and not love going to work. Make sure you’re doing things you love to do for your profession. Make sure you wake up and are so excited you can’t stand it.

Your personality dictates how you lead. You better be great in people skills to build a successful organization. Invest in yourself to build yourself. The smartest decision in someone’s life is to build themselves. Work on your people skills before you have kids as your kids will inherit your personality weaknesses. Your childrens life will be better if you invest in yourself. Your business will do better if people like you. People do business with people they like.

Warren Buffet has made $50B and his conclusion was ‘invest in yourself.’ He said ‘take communication courses.’

The best leaders are outstanding with people. The worst leaders are not good with people.

Living a Great Life

Boredom will make you crazy. You should never never never never retire. If you retire to go play you are likely to have the most unhappy period of your life. A lot of people sell their business to recover their happiness. Don’t do that, change your business. To have a great life you have to be exhilarated about getting up.

You have to create your life so every day you wake up you love life. Don’t ‘make a lot of money so that you can have your life back later.’ You can actually make more money by focusing on doing what you love to do, because you’ll be passionate about it.

Dr. Bell studies peak performance in a complex life. It is possible and is looking at examples of how to do it to stay at prime.

Don’t overwork as then you’ll burn out and want to quit.

Peak Performance

When were you most engaged? What caused this?

When were you least engaged? What caused this?

You cannot produce better than when you are in prime. Performance comes on a bell curve. You are best at 100mph, not 200mph.

You have a significant increase of illness when you work too hard. Hiatal hernia, heart disease. You have significant increase of destroying your relationships with spouse, kids, parents. You become flat and you dislike what you do. You’re unhappy. The happiest time is when you’re at prime. You can’t have more fun and have a greater impact on humanity when you’re at prime.

If you’re going 115mph you become grumpy, irritable, impatient, and don’t sleep well. You die early.

It’s hard to contribute to humankind if you’re dead.

If you love it, working long hours is not bad. If you don’t love it and your strained, it is bad.

Don’t work like a dog until you’re 50 and then wake up and have no health, no spouse, no family.

Every day you wake up your goal should be to have the best day you’ve ever lived.

Do great work every day.

We’re in the 21st century of understanding science and in the 1st century of understanding people. The secret to make the world a better place is to have great leaders who build businesses who provide jobs who are worthy of human life and someone can go home and buy food for their children, and have shelter, and educate them.

When you go through the slums of Sao Paolo or Somalia, the only solution will be if people who are entrepreneurs build businesses so people can have jobs.

Great leaders build great companies. Average leaders build average companies. Poor leaders destroy companies.

The 7 Causes of Happiness or Unhappiness

1. Yourself
   Do you like yourself or not? You have to like yourself to be happy. If you don’t like yourself, money is irrelevant. Invest in yourself and helping your children become effective, achieving, happy people.
2. Loving Relationships
   You don’t have to be married, but you have to have the ability to love. If you can’t love you’re missing one of the joys of life. This is a genetic need of human species.
3. Health
   The biggest single mistake people make is to throw away their health and abuse themselves. Be as good at mastering your health as your business. You can’t make the world a better place if you’re not here. The average human body is designed to live to 100. 70% of life expectancy is lifestyle, not genetics. Do you love being alive? If you do, you should set a goal to be alive as long as you can. Don’t throw away your health and then at 60 try to start over. Set a goal to live to 100. Do you want to see your grandkids? We are thoroughbreds in the Kentucky Derby and we need to train to be able to perform.
4. Work
   Can be the greatest joy or greatest pain. Make sure you’re working on what you love doing.
5. Money
   It’s not how much you have, it’s how you see it. Do not make your childrens’ lives easy with your money. Rather teach them skills to solve their own problems. Make sure your child has a job by age 11. Work ethic is ingrained by age 12. We got to be successful because we learned to work early.
6. Spirituality and Community
   Feeling of giving back and contributing to the world. When you leave the world leaving it better off than when you.
7. Fun
   You should have as much fun as humanly possible without destroying your work, family, marriage. You normally drink as much as you don’t like yourself. Drinking dulls your senses.

Develop Your Six Core Compentencies on Being a Great Leader

1. The Entrepreneur
   Initiator, developer, seeks and finds opportunities, seeks success and achievements, positive can-do attitude, high goal setter
2. The Competitor
   Assertive, honest, faces problems squarely, raises the bar, rises to the challenge, makes the tough decisions well
3. The Producer
   Focus on getting things done, organized, takes leadership, does it now and gets it done, a finisher, streamlines work, maintains focus and priorities, highly disciplined
4. The Stabilizer
   Recovers quickly from mistakes and failures, has confidence, cool under pressure, calm, balances priorities and time, paces self, careful
5. The Team Builder
   Good listener, giving, supportive, builds teamwork, gives love and affective easily, mixes easily with others
6. The Creator
   Innovative, flexible, fun, good sense of humor, strategic thinker, adapts easily to change

Manage Around and Reduce Your Six Extreme Personality Pattens

1. The Performer
   Overly ambitious, takes too many risks, prpmises more than can delivery, manipulates people for own success, over extends self and others
2. The Attacker
   Too critical, fault finding, disrespectful, too aggressive, argumentative, rude and abrupt, destroys teams, destroys relationships, makes people afraid of you
3. The Commander
   Domineering, rigid, controlling, inflexible, overly analytical, micromanager
4. The Avoider
   Too cautious, avoids risks, does not take initiative, is afraid to fail, too detail oriented
5. The Pleaser
   Too nice, allows others to take advantage, smooths over conflicts, backs down from competition, too agreeable, won’t fire anyone
6. The Drifter
   Disorganized, messy, impulsive, starts things and doesn’t finish, short attention span. If this is you, build your ‘Producer’

Make your goal to be every person you see, when you’re done seeing them, they feel better. Be open and caring toward people. Everyone you see and talk to wants to be talked to. Don’t be cold, critical, or hostile.

===========

Presenter Bio:
Dr. Gerald D. Bell, founder and CEO of Bell Leadership Institute, is a leading consultant to major business organizations throughout the world. He is also an award-winning professor, rated by Forbes Magazine as a “Don’t Miss,” at the Kenan-Flagler Business School at the University of North Carolina-Chapel Hill. Dr. Bell’s cross-industry experience and in-depth expertise have earned him a reputation as one of the most sought-after keynote speakers and effective resources on leadership in the United States and abroad. [Full Bio]

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

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.

Microequity at Skoll World Forum on Social Entrepreneurship

What Comes After Microloans?

As a technology entrepreneur and angel investor in both North Carolina and East Africa, I’ve been thinking about what comes next in microfinance? To me, it’s microequity.

I had a fascinating breakfast this morning here in Oxford on the topic of microequity. The field of microequity is nascent, but rapidly growing. To me microequity is investing small amounts in for-profit socially responsible companies, particularly those in the developing world. I’d consider the core of microequity investment ranges are between $5k and $100k in for-profit socially responsible companies in the developing world.

Microequity investing can fill a tremendous need for capital for SMEs that can help a small business grow when microloan maximums have been reached but an entrepreneur is not yet able to access banks and larger scale institutional investors.

Effectively, microequity can be seen as seed funding and angel funding for companies in the developing world–with the exception that investing $25,000 in an existing company in the developing world really is growth capital rather than seed capital as this amount of capital can go much further and in some cases get a company past cash flow positive.

A Model for Microequity

From my vantage there seems to be a profitable (and hence scalable for greatest social impact) model that is now being developed investing in these microequity capital ranges in many parts of the world and filling the gap that sometimes exists between microloans, banks, non-profit investing funds, and institutional capital while creating tremendous social impact through sustainable job creation and economic development.

Overhead costs, deal selection, accounting transparency, and methods of obtaining the return are perhaps the most challenging obstacles to achieving a market rate of return to the investment. We talked about how all of these challenges can be overcome. There is such a huge gap here that traditional finance has not yet solved and there so many high quality opportunities to invest in while making a tremendous impact.

One suggestion centered around taking a pre-agreed upon percentage of free cash flow (FCF, or effectively net profits) that is pre-agreed upon in advance. Another suggested revolved around tying returns to a revenue multiple since EBITDAs are easier to manipulate by non-audited smaller companies.

Personally, my interest is in helping small, high potential companies based in the developing world owned primarily by local entrepreneurs access the mentorship and financial resources they need to grow into the future leading companies in their respective countries and eventually take their firms public on regional stock exchanges when run. It will likely take a couple decades to bring together the educational (human capital), governmental, and infrastructural resources needed to help small companies run by smart ambitious local entrepreneurs thrive–but the trend toward local entrepreneurial-led (often ICT-related) economic growth is already happening in Kampala, Kigali, Dar es Salaam, and Nairobi and so many other emerging markets globally from what I’ve seen.

To me, small business growth is the key to sustainably growing an economy and effectively increasing per capita incomes (otherwise known as reducing the number of people in urban and rural areas in poverty) and I believe through the right local trust networks for deal flow and local entrepreneurial support and mentorship models it is quite possible to achieve very strong returns investing today in high-potential for-profit socially responsible companies in the developing world.

Not Replacing NGOs, Non-Profits, and Public Sector

Investing in for-profit socially responsible companies in the developing world does not replace the need for a strong effective transparent public sector and does not replace the need for investments from non-profit organizations and NGOs.

Rather, it is additive to creating sustainable bottom-up economic development that creates local constituent-based growth in a way that reduces inequality of opportunity–and it happens to be where I think I can add value with my background as a venture-backed technology entrepreneur at some point.

Creating a venture capital fund that puts social return equal to financial return is something I hope to focus on someday down the road and create a scalable model that provides market-rate returns (15-20% per annum) investing in high-growth entrepreneurial ventures in the developing world run by local entrepreneurs (likely in the energy, solar, water, agricultural, low-cost medical device, software, and Internet fields).

Microequity Breakfast This Morning at Skoll

The microequity breakfast attendees this morning were:

Forrest Metz, Dev Equity, based in Oxford
Ryan Allis, iContact, based in North Carolina USA
Allan Barkat, Dualis, based in Israel
Naoko Felder-Kuzu, Socential, based in Zurich
Ron Boehm, Boehm Gladen Foundation, based in California, USA
Rob Pettit, Sumaria, based in Dar es Salaam, Tanzania

We chatted about a number of social venture funds investing in equity in the developing world such as GrowFin, BusinessPartners, TBL Mirror Fund, InReturn, ManoCap, and Jicana.

We had a great discussion around the technical structure around how to achieve market-based returns investing in for-profit socially responsible companies in the developing world.

We also talked about networks of socially responsible investors including Social Venture Network, Aspen Network for Development Entrepreneurs, and the Global Impact Investing Network and marketplaces for entrepreneurs in the developing world raising capital like BidNetwork and NeXii.

Questions & Comments?

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

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

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!

2009 By The Numbers

In 2009 I’ve slowed down a bit from 2008 and focused on iContact and Nourish International. I had to reduce some commitments to be able to do that and left three other non-profit Boards. After my mom hurt her arm and two of my friends were diagnosed with cancer in October I slowed down a bit at the end of the year and didn’t hold any Entrepreneur or Social Entrepreneur meetups the last three months. They’ll be back in January.

I still ended up racking up some good frequent flyer miles riding in 72 planes in 2009 (down from 74 in 2008) and spoke to about 5700 people this year (down from 8500 in 2008). I very much enjoy public speaking. Most recently I’ve been speaking about how to change the world through business and social entrepreneurship.

I am becoming more and more interested in investing in entrepreneurs in Africa that bring electricity, water, and internet to rural villages in sustainable manners. I hope to complete my first such small investment in January in VillageEnergy a company out of Kampala, Uganda run by a former roommate of mine Roey Rosenblith–who actually was on the Detroit plane that was attacked on Christmas day yesterday. As he wrote me tonight, “I just started to really realize what a gift it is to be alive.” In a year in which so many people close to me had life and death experiences this is a fitting quote to remember.

Congratulations to the team at Virante for hitting its first $1M in sales year and the team at iContact for ‘finishing the marathon’ and growing revenue more than 80% year over year to beat our revenue plan of $26.2M for year!

Per my commitment, I’ve got my running shoes laced and am on track for my training schedule to run a half-marathon in March and a full on April 24th.

Here’s 2009 by the numbers:

• 6 Billion Emails Sent by iContact Customers
• $27M in sales at iContact
• $4.5M in additional capital raised
• 4.4M unique visitors to iContact.com
• $1M in sales at Virante
• 557,000 iContact users
• $90,000+ contributed by iContact to non-profit organizations in 2009
• 59,000 customers at iContact
• 5790 people spoken in front of
• 600 Entrepreneur & Social Entrepreneur Meetup Attendees
• 190 employees at iContact
• 80 daily Senior Leadership Team huddles
• 72 plane rides (30 actual trips, avg 2.5 trips per month)
• 50 weekly Senior Leadership Team meetings
• 50 new hires at iContact
• 29 cities visited
• 20 miles run (10 in the last week!)
• 19 U.S. States Visited
• 18 Speaking engagements
• 16 non-profit Board Meetings
• 12 monthly all-day Senior Leadership Team Meetings
• 11 Corporate Overview Sessions
• 10 Entrepreneur & Social Entrepreneur Meetups in Chapel Hill
• 9 countries visited (China, India, U.S., Uganda, Kenya, Spain, Italy, France, England)
• 9 New Monthly Company iNews videos produced – http://www.youtube.com/user/iContactTV
• 8 iContact Board Meetings
• 7 Conferences Attended
• 6 VC term sheets received
• 5 Company Offsites
• 4 continents visited
• 3 friends diagnosed with cancer
• 2 Summit Series Attended
• 2 Spontaneous company parades – http://www.youtube.com/watch?v=xORn76rXOMw
• 2 Small Private Company Investments (EvoApp and Unblab)
• 1 Renaissance Weekend Attended

In 2010 iContact’s theme is to Deliver Wow to Our Customers. It is going to be a great year. We have so much to accomplish and go after!

Here’s to doing something wonderful with infectious enthusiasm.

Happy almost New Year from Anna Maria Island, Florida!

Cheers,
Ryan

Why?

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.

Changing the World Through Business

Here are the slides from my speech last weekend at the Entrepreneurship Education Forum in Norfolk, Virginia.

The presentation was called, “Changing the World Through Business”

The link is: http://bit.ly/3hTqhb

UPDATE: Here’s the video…

Enjoy!

-Ryan

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.

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

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.

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