Author Archives Marco Puccia

Cause Marketing vs. Corporate Social Responsibility

I recently published a post on B-Corporations and the role they play in separating the socially responsible businesses from those that simply market themselves a such. “Cause Marketing” is a proven effective technique at creating a more loyal consumer base and earning a competitive advantage. Look at the (RED) Campaign and TOMS Shoes. With a (RED) Starbucks Card, you can help fight AIDS with every Mocca-Frappa-Latte you purchase! But to what degree is “Doing Good” setting a standard for Corporate Social Responsibility?

Here’s what Starbucks gives to the Global Fund through the (RED) program:

  • 5 cents, every purchase on a (RED) Starbucks Card (through 12/31/09)
  • $1, per $12 1lb bag of (RED) Coffee (8%)
  • $1, per $16 (RED) Coffee Tumbler (6%)
  • $1, per $20 (RED) Water Bottle (5%)

Of course with any philanthropic initiative there will be somebody saying, “but they could do more”. There’s always more to do. The question is, is there a point where cause-related marketing is “disingenuous”? Are firms, like Starbucks, using cause-related marketing to maximize their ROI while “giving” the bare minimum? If Starbucks were to register as a “B-Corporation”, would they meet the criteria?

A consumer looking to maximize their coffee-to-philanthropy ratio should probably look at Organic Coffee Cartel — a small social enterprise selling efficiently grown coffee purchased from small farmers in the developing world and giving 51% of profits to charity.

So here are some questions for discussions:

1.) How discretionary are consumers when it comes to cause/cause-related marketing?

2.) If consumers are utility maximizers, does social impact enter into their “utility function”; and if so, to what degree? Is it simply self-serving (eg. I feel good) or is it practical (eg. I maximized my investment)

3.) If the answer to the above two questions is YES, how can we generate broad-based consumer education on how to maximize their social impact?

By : Marco Puccia /September 08, 2009 /Business and Development, Cause Marketing, CSR /11 Comments Read More

Corporate Structures and Business Models for Social Enterprise

The three “breakout” sessions I attended today discussed very similar ground in terms of how to structure social enterprises and build business models that are accessible to investment, financially sustainable, and socially optimal.

I’ll start by mentioning the institutional challenges that social ventures run up against – particularly corporate structure. Our corporate structures in the US were adopted out of common law from England. Milton Freidman wrote that the role of company managers is to maximize profit, and the role of company owners is to decide what to do with that profit. This represents the traditional post-WWII school of thought, that today we can see is a major misconception of reality. But it is this school of thought that has guided the laws and frameworks governing corporations. In most states, for-profit businesses and have legal obligation to maximize profits, which inhibits them from practicing necessary discretion when it comes to social and environmental costs of doing business.

The biggest challenge in reforming corporate statutes is that it’s a state-by-state battle. B-Labs introduced B-Corporation, which I’ve written about in the past, which takes more of a branding approach in labeling businesses that operate behind a specific social mission first, before profit maximization. While this is just a label, it B-Corp creates a universal set of standards that can transcend state lines. Businesses still face the institutional challenges of being stuck within an outdated corporate structure that limits or restricts their ability to raise patient capital or “program related investments” (PRIs) from foundations.

During a different panel discussion on “Value Chains”, Ella Silverman of World for Good, Inc. and World For Good Development Foundation talked about they set up two distinct organs to manage the aforementioned challenges. They are able to house the primary business operations under their corporate entity, and offset some of the high costs of their social-end work through the non-profit “Development Foundation”. The non-profit end also allowed them to bring in donor money to help subsidize some of the costs of doing research on “The Wage Guide”, for example, through which they introduced a metric-based approach to determining “fair wages” across the value chain for products not traded on a public exchange. I thought this was a fascinating approach to creating a “hybrid” model.

Another initiative has been the L3C (Low-profit Limited Liability Company), which builds off the LLC structure but allows for better financial stability, fewer financial/fundraising constraints, the opportunity to sell products and services, and placing “social mission” before profit maximization while complying with IRS rules. You’ll have to Google it to learn a little more details, but it seems very touch-and-go – one person described it a mere semantics.

It was interesting hearing today the perspective of the foundation/grantmaker side, and the legal challenges they face when putting money into for-profit business models – such as acquiring a “letter of qualified counsel” convincing the IRS that the PRI satisfies IRS requirements for “charitable” contributions. It’s really fascinating, and this is really where policymakers need to be moving forward in creating corporate structures and tax policies that allow for patient capital to be investing in for-profit social ventures.

Also, I liked what one of the panelists (Rick Zwetsch) said about how L3C got started: If you look at the foundation portfolios over the last couple of years, they have depleted by almost 50%. So L3C was founded under the assumption that these investors are going to want to shift away from pure grantmaking, towards more of an investment strategy where they can earn interest and re-grow their assets while achieving their social mission.

By : Marco Puccia /September 03, 2009 /SOCAP09 /0 Comment Read More

Looking at the Social Capital Marketplace

After stock markets worldwide collapsed, bringing down 401Ks and people’s personal assets, common sense would tell you that traditional assumptions of the market and modern portfolio theory needs to be reevaluated. We need to move beyond the “OR”: I either maximize profits OR give my money away. The social capital markets offer investors an opportunity to both earn a return on their investment while having a social impact – creating a more holistic return on their investments.

It’s encouraging that despite the economic downturn, social investment funds are continuing to grow in their asset bases are earning steady returns. Additionally, there is growing interest among large institutional investors who are beginning to look at the social capital marketplace as “smart strategy”. However there is a ways to go in developing the marketplace to make it a more widely accepted medium for investment.

Going back to the points made yesterday, the advancement of this sector is going to require ultra-transparency and generally accepted metrics that illustrate the social impact of an investment, or the social return on investment (SROI). Furthermore, we need to take the time to develop the infrastructure that will allow the sector to scale. New standards like IRIS and GIIRS should really help in bridging the divide between traditional financial investors and the social capital marketplace.

By : Marco Puccia /September 02, 2009 /SOCAP09 /0 Comment Read More

Social Capital Markets: A New Landscape

Entrepreneurs are continually in search of capital investment to launch their enterprises forward. Venture Capital firms and traditional capital markets were designed around the concept of earning quick and really high yields on their investments.

Social entrepreneurs, too, are in continual search of capital to launch their enterprises forward. The difference, however, is that quick and high-yield profits are not part of the equation. The social sector requires “patient capital” with an added interest in “Social Return on Investment” (SROI).

The panel discussion, “Showcasing the Social Capital Spectrum” featured multiple representatives of the “social capital” investment funds. There is a movement to mobilize “social capital” to really have a dramatic global impact on development (both economic and social). There are several major impediments, however, to bringing the social capital markets to the mainstream:

Need to Educate People on Role of Capital in Poverty

There are two flawed assumption of the poor:

1.)  That they lack purchasing power

2.)  That they lack the power of choice

These misconceptions really shape people’s understanding of how “social capital” and bottom-of-the-pyramid (BOP) markets work. What they do for investors is add a level of perceived risk that prevents the social sector from accessing investment from traditional models.

Metrics and Language

It’s really critical for social enterprises to be able to communicate their pitch to investors in a universally understood and accepted language with standardized metrics. Social entrepreneurs need to be able present that their models are accountable, producing measurable change, and fully transparent.

Investors need to be involved in the process of redesigning the metrics and tools that they use to analyze their risk. The current economic crisis in the US is case and point. Their metrics need to be able to better capture “total costs”, as well as incorporate social impact.

A phrase used I liked was “Sustainability Quotients” – this notion that we all have varying degrees of acceptability when it comes social metrics. For example, how green is green enough?

Fighting Mainstream Traditional Models

Those of us in the social capital movement are placed in a position to combat a traditional worldview of social investment.  There is a desire to stick with the models that are perceived to work (eg. Giving/Philanthropy), rather than adopt new “riskier” models like “investment.”

By : Marco Puccia /September 01, 2009 /SOCAP09 /0 Comment Read More

The Future of Social Innovation on the Web

The first “breakout” session I attended was “The Future of Social Innovation on the Web”. Panel participants included: Premal Shah, Kiva.org; Jonathan Greenblatt, All for Good; Steve Newcomb, Virgence; and Ben Rattray, Change.org.

Some very interesting and critical discussions were raised ranging from for-profit v. non-profit, competition v. collaboration, and how to develop and foster social engagement through the Internet.

Where Web 2.0 was all about creating 2-way interaction over the Internet, Web 3.0 adds an “offline action” element. This is a great way of describing the “social innovation on the web” movement, and how online platforms can effect offline social change. The challenge faced is creating a vibrant and active user base. Premal Shah told us that 5% of Kiva users drive 50% of activity, and there is a huge amount of dormant capital in inactive user accounts.

The solution really lies in the “user experience”. User engagement tends to be more of a “consumptive decision” as opposed to an “investment decision”. There’s so much untapped potential out there that creating a system that users enjoy using lays at the heart of creating a system that can maximize its social impact. More often than not, this is best achieved by opening your code/API to developers to build their own platforms.

An interesting discussion took place over the friction between socially driven for-profit businesses and the non-profit sector. Premal Shah of Kiva (non-profit) mentioned flack that they get about “crowding out” the microfinance opportunities of in-country banks that could be generating profit and creating wealth. Jonathan spoke about Ethos water (for-profit) and how they are able to generate millions of dollars from selling bottled water to invest in sustainability projects worldwide, but receive flack from nonprofits who say that by selling bottled water they become part of the problem. The discussion concluded we need to get past the for- vs. non-profit discussion and just build high-impact solutions that work, placing less attention on labels and more attention on models.

By : Marco Puccia /September 01, 2009 /SOCAP09 /2 Comments Read More

The Role of Government in Social Innovation

Today at SOCAP09, Sonal Shah, Director of the White House Office of Social Innovation, opened the conference with a Keynote addressing the work being done by the Obama Administration in determining the role of government in the social innovation arena. At a time when US communities are in need of new and high-impact solutions to social problems, entrepreneurs and the institutions in the social sector are struggling in the current economic climate.

Ms. Shah broke down the Administration’s goals into three categories:

Directing resources to the most innovative and effective solutions

Through the new “Social Innovation Fund”, the government can assist in directing much needed capital toward “high-impact” models that work. The goal is not to duplicate efforts already taking place, but to provide the assistance to scale proven programs nationwide.

Facilitating Stronger Multi-Sector / Cross-Sector Partnership

The government can play a role in bringing together nonprofits, the private sector, and government agencies. The goal is to defeat the silohs that these sectors frequently fall into, and to share knowledge and innovative solutions to create a more high-impact society.

Identifying Tools to Help Leverage and Foster a Culture of Social Innovation

In part, this has to do with engaging more Americans with the social sector through programs like Americorps and volunteering. But also creating policies that enable the social sector to thrive. An example of this could include creating the appropriate incentives for the flow of patient capital to social enterprises.

Panel Discussion

The following panel discussion focused on how the social enterprise movement has developed to the point that the government has acknowledged it and begun to see how to build upon it. In social enterprise, we speak a lot about “ecosystems’ and creating environments in which innovators can thrive.

Some of the critical issues the social sector faces right now are institutional (eg. L3C incorporation status, financial incentives/disincentives, etc.). With the creation of an “Office of Social Innovation”, we can now see opportunities for policy reform that create an ecosystem better suited for the implementation of innovative new programs that impart high-impact social impact.

One of the key question was, how can we approach the government to get the change that we want. The challenge we face is being able to present meaningful metrics and a direct plan of what change we want to be implemented, particularly when the sector is very decentralized and segmented.

It was also noted that for-profit businesses should take more of a central role in the discussion of policy around social innovation. It is more that corporate social responsibility (CSR) and implementing programs to advance your own programs within your company, but it’s contributing to the overall ecosystem.

By : Marco Puccia /September 01, 2009 /SOCAP09 /0 Comment Read More