Social Innovations
When More Mission Equals More Money
The more a business focuses on its social mission, the more revenue it will generate.
I’ve got an investment thesis for the kind of business that I think will work best under current economic, climactic and social conditions. I’m seeing a new opportunity for a spectrum of businesses that will produce more revenue at higher margins by being more tied to their social and environmental mission. More mission focus, more margin more sustainably.
Here are the foundational assumptions behind my current thesis. As I’m using the word, it means more than a hypothesis, but not proven enough to be called a theory.
Assumptions:
- We all have less money than we did and that’s likely to remain true for a while.
- Not all of us can have more things, or new things all the time. The cost of doing business in the old (old as in pre-September 2008) consumer economy based on planned obsolescence has become too high as environmental and social costs nudge their way onto the balance sheet.
We are not going to recreate an economy based on collective financial and cultural deception that pretends we can grow beyond the carrying costs of the planet. Deep and structural changes are underway in our economy and our culture.
It’s not that we have become suddenly wiser. It’s that we suddenly have less money because we have been collectively complicit in an economic system that has lied to us about the true costs of our actions. The culprit is not Madoff or the men from AIG. They sold us the growth story we wanted to buy. It was a collective, participatory deception; markets are co-created realities. We are now reaping the fruit of the lies we all wanted to be true. But I am far from pessimistic. A dose of reality in time is a lot better than riding a false myth down the tubes.
The good news is that I think the economic system we will build next will be one in which environmental and social costs will no longer be externalities; costs that get pushed off the balance sheet. The cost of doing business to the planet and at least the human costs of climate change will now be factored in. For someone whose main motivation is to see the market become a tool to fight poverty and injustice, that is good news. It means that poverty is now closer to getting onto the balance sheet.
At the micro level, that means that where I work as a professional investor I am looking for businesses that make more money in times when customers have less money to spend, when buying patterns are factoring in the truth that we won’t all be able to have more things and have new things all of the time.
That means I am interested in businesses that make more margin when people effectively share scarce resources: non profit and for profit businesses like Zipcar and City Car Share, where people rent a car or truck for just the hours they need them. Other models include coworking, where entrepreneurs share space and resources. Examples include coworking sites like Ned in Portland and non profit shared garden projects like Alemany Farm.
At the heart of these new models that involve cooperative use of finite resources is a sharing dynamic; to maximize their efficiency, there needs to be an incentive to get over old ideas of single person, single business or nuclear family ownership of things like cars, offices or gardens. The best way to enable efficient sharing, I believe, is to encourage allegiance to a cause or a movement. That’s why I like the global network of coworking sites linked to The Hub (the-hub.net). It’s coworking for social entrepreneurs, or, as they call them in order to avoid getting stuck in the definition wars, social innovators.
If you do it right, the way they do in the Hub’s network, the more you are true to the mission, the more aware and in tune the operators and hosts are in creating the proper social dynamic that facilitates match making and sharing; the closer social entrepreneurs want to be to each other within the work space; and the more they talk to each other about what they are working on and who the person next to them should meet who could help them.
If you manage that hosting magic right, if you listen to the community well, that equals a higher density of usage of the space, which maximizes the revenue per square foot. So the more true you are to the mission, the higher the margin, all based on the sharing of resources that we now realize are scarcer. And by sharing space, buying it in cell-phone-like plans of 20 to 100 hours per month, the entrepreneur cuts her costs while lowering her businesses carbon footprint by up to two thirds.
There are more than a dozen affiliates in The Hub’s network, from London to Johannesburg to Cairo to Sao Palo to Amsterdam. We’re launching the first US member of The Hub’s network in San Francisco. And I’m working with a team from the green MBA program at the Dominican University to find other businesses where effective sharing equals more revenue at higher margin.
So here are the two pillars of the model, as I see it emerging: You build your business based on sharing scarce resources in a time when your customers have less money, and you dedicate your business to serve a movement where sharing comes easily.
Then you build your revenue model to reduce financial and environmental costs for your customers (individual and collectively) while increasing your margins as a provider. The more you focus on your mission, the truer you are to your community’s mission, and the higher your margins. That’s the model that makes sense to me these days.
Kevin Jones is a cofounding principal of Good Capital, an investment firm that accelerates the flow of capital to enterprises that use market forces to create large-scale social change. Jones is a successful serial entrepreneur, angel investor, and cofounder of Social Capital Markets, the groundbreaking conference on social venture investing.
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COMMENTS
BY Cliff Figallo
ON April 3, 2009 10:29 AM
Important ideas. We must adapt and with some haste. This is the right direction.
BY Jon Carson
ON April 3, 2009 01:06 PM
i’ll put in a plug for a venture i started 6 years ago called biddingforgood.com. We are transforming the charity auction marketplace by putting these critters online thereby enabling ALL consitutents to bid, not just the 20% who show for the gala. We are also aggregating cause minded consumers under www.biddingforgood.com (100,000+ as of last week) who drive incremental bids (approx 20% of winning bid revenue from these folks), and adding a network of now 30 product marketers who can now get measureable marketing exposure by donating more items (almost $3m over last 9 mnths). We just passed the $60 million mark in dollars raised for wrothy causes and schools.
Very tangible network effects. the more charities who sign up to run their auction the broader the item selection for our bidders and exposure for product marketers. the more product we can offer the more $$ for charities. And the more membes to biddingforgood.com the more bidding for the charities. the network gets more valuabel with each new particpant.
And because its online and auctions are where 90% of where the profit in a event lies we have found that 30% of clients have done away with their gala, reducing everyones carbon footprint.
BY Amynbarr
ON April 5, 2009 08:52 PM
Kevin, I think the “shared services” model has real merit. It’s been around in the corporate world for quite some time as a cost-saving measure, but I think small business, non-profits, and even consumers need to think about this as a strategy. A friend from the Netherlands told me about The Hub and I look forward to participating in the SF Hub. Thanks for this insightful post.
BY Evan
ON April 5, 2009 09:41 PM
Kevin,
I agree with your thesis that organizations that provide goods / services should do so in a way that the rise in transactional value (things you can get paid for) is in direct proportion to the accomplishment of social and environmental objectives. In other words, we are redefining “growth” to be a balance of social, environmental, and individual needs - but we still ascribe to the belief that growth is possible in a good way.
From thinking about these same issues, I have come to some related conclusions.
1. While the transactional value you create (as an org) is within your mission, it may come from secondary skills / knowledge gained through the achievement of the primary social mission. (e.g. Your primary mission is to restore urban brownfields using native plants, but you derive your earned income from contracting to landscape homeowers yards with native plants that use less water, produce better habitat, etc)
2. Sharing can be vertical within the supply chain, not just horizontal - instead of producing goods we should think in terms of services. See Bill Mcdonough’s “Cradle to Cradle” for more. Essentially, producers and consumers of valuable / non-renewable materials (computers, etc) should be a complete cycle with consumers leasing computer services but changing hardware every year. In this way consumers are actually producers of used goods.
3. Some social / environmental missions will have difficulty in creating transactional value while some businesses with effective transactional value models cannot effective create soc-env value. These must be paired together to offset one another. This is not to say that businesses can be less than socially and env. responsible - they still must “do no harm” first.
4. Corporate governance is the key - we have democracy for our public systems, why not our private? In the current hierarchical systems people can always defer blame and culpability. But, if we had democratic governance of all for-profit organizations the priorities would be different - this is not to say we should have equal ownership necessarily but that governance cannot remain oligarchical.
EH
BY Kevin Jones
ON April 8, 2009 08:34 PM
ok. in order.. and not sure how in this format to link to earlier comments and i wish there were profiles, etc. thanks cliff. bidding 4. contact me plz. kevin at goodcap.net and wes at goodcap.net on intake. amy, i agree, with you and with me, that shared services, esp. linked into a movement where sharing is enhanced, has merit. and then to evan. wow a lot of things to react to. the value mapping… well.. just too much to react to here.. each point could lead to a longer discussion. but the mix of value mapping that equals those elements without social value linked to those that do, pretty neat and fits into the monitor framework of yin yang deals, if you’ve read their new research. which means im punting you’re putting out a lot of new ideas and im reacting by pointing to some of them seem resonant with what i’ve seen before.
BY Liz McLellan
ON April 10, 2009 02:03 PM
GMTA…
I built hyperlocavore.com while thinking along these very same lines.
“hyperlocavore.com,” which blends bottom-up collaboration with food production. It’s an example of peer-to-peer agriculture, and it’s a pretty neat concept. The founder of hyperlocavore wrote to me, saying that she thought this was a pretty “worldchanging” idea. I agree. Check ‘em out.”
- Jamais Cascio
openthefuture.com and worldchanging.com
What is a ‘hyperlocavore’?
A hyperlocavore is a person who tries to eat as much food as locally as possible. Growing your own is as local as it gets!
What is ‘yard sharing’?
Yard sharing is an arrangement between people to share skills and gardening resources; space, time, strength, tools or skills, in order to grow food as locally as possible, to make neighborhoods resilient, kids healthy and food much cheaper!
Why would I want to set up a yard sharing group?
Yard sharing is a way to connect people who love to garden, people who love healthy fresh food and people who have yards! Often people who have yards have little time time for a vegetable garden. And sometimes gardeners have trouble finding soil to garden in because they rent an aparment! Sometimes older people lack stamina and are socially isolated, finding younger people to partner in growing food together works wonderfully for all. There are all kinds of reasons it makes sense.
Yard sharing works for:
* apartment dwellers
* busy parents
* older people
* frugalistas
* foodies
* treehuggers
* cheap bastards
* farmers lacking land
* land holders lacking farmers
* people sick of leaf blowers
* curious kids
* folks with a disability
* people who want to get outside more
* people that want to eat better
* people that want to eat cheaper
* people who want to make their community resilient
* people who like their food super fresh
* people worried about peak oil
* and maybe you! (if you’re not on the list - send me a note!)
And nothing tastes as good as food you grew yourself.
Who can yard share?
Anyone! If you don’t see a group for your area just create one. Then send invites to people in your neighborhood, your friends and
their friends and maybe you will find someone willing to start with you.
BY Neal Gorenflo
ON April 11, 2009 01:35 AM
Glad to see this idea so well articulated. As similar perspective has inspired me to work on a series of startups that help people share assets in the real world, including working recently on Divvy.com.
I think we have the opportunity to move from consumer culture where the material pits people against each other in status competitions to a new regime where the material brings people together. Where objects bond people symbolically and through shared use. Where you own less but are “richer” because you have access to more resources through agreements with others. Where you experience an elegant adequacy if not abundance through these social arrangements. And social capital can be built and resources conserved simultaneously in this kind of regime. It’s a two-for-one proposition in terms of social impact.
This being said, there are some powerful obstacles to sharing real world assets. For instance, the founder of Divvy, Aaron Freed, has spend many months developing a car sharing module for Divvy. Writing software was not the problem. The main obstacle was getting a car insurance solution for this setup. No one writes policies for self-organized car sharing groups, until now that is.
My advice to anyone going down this path as a investor or innovator is to carefully scrutinize the hard and soft barriers around empowering people to share. The best ideas for sharing, at least to start, might be ideas that are consistent with traditional practices. Co-working seems to fit the bill. Nearly every adult has rented space or is familiar with the idea of renting space. Sharing office services is also commonly experienced or understood. Car sharing is another example. Getting a ZipCar is not all that different from renting a car.
BY Kevin Jones
ON April 20, 2009 10:30 PM
good point neal :carefully scrutinize the hard and soft barriers around empowering people to share.
yeah to make money in this model you have to pay a whole new kind of attention. how do people work together with less friction and more collective impact? so analysis of friction in the business looks at a whole new range of social and cultural factors. who gets listened to. who doesn’t but should, etc. power dynamics that you don’t typically think about in a top down business environment become completely central when the margin is based on sharing the resources.
BY Kevin Jones
ON April 20, 2009 10:32 PM
if everybody who has commented would email me, kevin at goodcap.net i’d love to continue this dialogue in some venue. but i don’t know who im talking to. i can continue in this way but it’s not the one that will take things forward. or if you are in the bay area it’d be great to gather to talk about the idea. maybe at the brower center in berkeley where we are launching our first hub.