There is a lot of talk these days about social entrepreneurs and social ventures but not a lot of clarity around what this really means. It seems in many cases the term is just a new spin on not-for-profits, a new label for start-up organizations that focus on social issues. However, there is a big difference- social ventures can be for-profit or nonprofit in their structure.
There are three models for social ventures: leveraged nonprofit, hybrid nonprofit and social business, all out to solve social problems and provide social benefits. In all cases, profitability is considered a path to making these social benefits sustainable, rather than singular focus on building shareholder value. The social business venture generates profits, but rather than return those profits to shareholders, like commercial ventures, it reinvests profits to further the organization and the resulting social benefits. Their success metrics measure the return to society and the wider environment as well the organization’s financial health.
There is great momentum underway for this business model with countless conferences and venture capital groups committed to just social ventures. The driving force behind this movement is the Millennials, also called Gen Y, a generation born in the 80’s to early 2000’s with ambitions to change the world. They are not looking for a career but rather a purposeful path in life. Among GenYers’ most important personal values are authenticity, altruism and community. These attributes coupled with their entrepreneurial bent, explains the rise of social venturing. According to the Wall Street Journal, half of all new college graduates now believe that self-employment is more secure than a full-time job.
The social venturing movement is important in two ways. First, it may bring about long overdue reform to inefficient not-for-profit organizations that should adopt a more capitalistic business model to wean of grants and become self-sustaining. The mere existence of these more nimble organizations playing the fringe and using innovation to solve problems will either drive out the old line inefficient non-profits or force them to change for the better. Second, as these organizations continue to succeed their influence will pervade big business and corporate America. In order to succeed in the future, the big companies will need to rediscover or reinvent what it was that they actually stood for in the beginning.
As founder and CEO of Whole Foods, John Mackey says “great companies have great purpose.” It will be interesting to see if Mackey’s vision for “conscious capitalism” comes to pass. In our view, this sea change will encourage innovation in both the commercial and non-profit sectors. Non-profits will take a more capitalistic approach and get off the dole, while corporations will exist for something greater than profit. When this happens, many of the world’s problems will be solved. John Mackey said “Just as people cannot live without eating, so a business cannot live without profits. But most people don’t live to eat, and neither must businesses live just to make profits.” We think this rings true on so many levels.
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