Jan
29
Social Entrepreneurship ASB - Class Four
January 29, 2008 |
Wow! Our class today was absolutely AMAZING. We had a guest speaker by the name of Kevin Jones from Good Capital and he was absolutely fantastic. Before I get ahead of myself I should say that Sophia (the class co-leader) also gave an amazing presentation about her experience and research about philanthropic foundations and non-profits. There is a lot of information from this class so I’ll focus mostly on Kevin Jones and talk about Sophia’s presentation in a later post.
Background
Here is his background straight from the Good Capital website: “Kevin has extensive entrepreneurial and private investment experience in a range of technology and social enterprises. Kevin’s former positions include CEO of Net Market Makers, an $18 million revenue online community, research and events company, which was sold to Jupiter Media Metrix in 2000, having built Net Market Makers into the largest brand in business-to-business internet commerce. His previous six businesses all achieved market dominance before he left or sold them. In addition to starting businesses from scratch, Kevin is also adept at turnarounds. One, the Mississippi Business Journal had failed five times and was losing money in the face of two better-funded and more powerful rivals. Within three years, both rivals were out of business and the franchise was extended into local television, syndicated radio, trade shows and conferences. In addition, Kevin has been a columnist for Forbes and Business 2.0.”
Theory of a Silver Bullet
If only we reduced carbon dioxide emissions, we would solve global warming and all of our other problems… Or so some may argue. The idea of a “silver bullet” cure-all pervades many leader’s thought processes, and Mr. Jones made an excellent point that this is completely untrue and unfounded. Sure, if we take care of one aspect of an issue, it becomes a little less complicated, but attacking the issue from a variety of directions with a variety of tactics is much more effective. Even though we would like to simplify issues as much as possible to one key thing, for example, life is too messy for that to be the true case.
Defining a Problem
One of the most significant conundrums an organization can face is how to define a problem, because many times the perceived problem changes based on the way it is defined. Another issue is that many leaders want to constrain the problem in terms of what they’re used to, thus making it “easier” to solve. This constraint of view as well as misdefining a problem obviously work against organizations, and the problem only becomes more drastic when trying to have organizations from very different perspectives, such as nonprofit and for profits, attempting to work together. One of the key ways to work through these issues is to be open-minded communicators.
Communication is Key
Nonprofits focus on the mission and something called the “theory of change” while for profits look at return-on-investment (ROI) and the bottom line. This fundamental difference in approaching a problem or situation makes it difficult for the two to work together. One of the skills Mr. Jones has is talking both of these languages and effectively managing the relationships and politics between these organizations. Once that initial barrier is transcended, and trust is established, very different organizations can work together to accomplish extraordinary things.
Social Entrepreneurship Barriers
In 1970, Milton Friedman wrote an article in the New York Times that essentially stated that the only responsibility a business has is to maximize the return of its shareholders. This idea has become embedded in modern day economics, and has acted as a huge roadblock to the idea and implementation of social entrepreneurship. Another such text Mr. Jones identified is Andrew Carnegie’s book Gospel of Wealth which, I believe, argues that 95% of profits should stay in the hands of businesses to grow and expand while 5% is put into foundations. In order for foundations to become larger, the business realm has to grow proportionally larger. One of the major problems identified by these philosophies is sometimes the narrow focus on short-term earnings versus long-term value. In the past 10 years though, the rules have been changing as people are questioning these old paradigms.
Helping the Flow of Capital Get Smart
In 2001, there were a lot of passionate people, but not a lot going on in terms of organizations and success stories. These passionate individuals weren’t getting any money and they didn’t have the skills to bootstrap. Since then, though, the timing has changed and more infrastructure is developing to help these passionate individuals bring their ideas to market. Today there is more money, and Mr. Jones himself is working with individuals who have $10 million and above to invest in ideas/organizations that have a level of impact and value not seen in traditional systems. Essentially, he says he is helping the flow of capital get smart.
Establishing Credibility
One of the main problems with this market is the lack of validity it has thus far. Even though it has exploded in recent years, with more happening in the past six months versus the past 10 years, there is a lack of credibility that prevents even greater adoption. Mr. Jones makes a few suggestions, the first of which is a third party evaluation of the size and growth of the social entrepreneurship market. A second point is that third party evaluation is needed on the fifteen funds that exist (Acumen Fund, for example) that analyzes the deals that are made, what the asset class was, the size, and the impact of the investments made by these organizations. Essentially, we need to make the landscape clear and create context. A final point is that the best way to help a new category out is by having more people enter the marketplace. For example, there is nobody else like Acumen, and that is a problem, but if there is competition or someone comparable, we could evaluate and give even greater credibility to what they are accomplishing.
Enron is Good for Business
In the nonprofit world, there is neither competition nor creative destruction. We can all agree that it’s easy to see the nonprofit world doesn’t act competitively, but we first have to define creative destruction before we can evaluate it. An excellent example of creative destruction can be seen with Enron because it went bankrupt and disappeared off the map due to its horrible accounting practices instead of continuing to operate and doing deceptive things. The nonprofit world does not have this creative destruction because metrics rarely exist to measure impact and success of organizations. As such, there is no way of evaluating if an organization that argues it is successful is actually successful. And even if you attempt to measure impact, more or less money isn’t being distributed to these organizations based on impact, which is something that acts completely unlike market mechanisms (donor circles are trying to change that, though.)
Final Lesson and Conclusion
Mr. Jones was an absolutely amazing guest speaker with a lifetime of insight to share. After hearing his perspective on the realm of social entrepreneurship, I felt as if I had transcended the rat race of trying to figure out who’s who and what’s what and instead develop a broad, overarching picture of the field that makes it much easier to contextualize. His final example, which I think illustrates this point perfectly and adds perspective is that existing nonprofits are like the old telcos and we need citizen Skypes to change the playing field.