Recently I invited Suzi Sosa, co-founder and CEO of Verb, to lead a conversation about social innovation and entrepreneurship with representatives from local charitable foundations. Suzi is a firm believer that by 2050, most nonprofits will not look anything like they do now.
A national leader in the field, Suzi Sosa is passionate about unleashing the power of entrepreneurship for the good of the world. Yet she also understands why funders and nonprofits have a healthy skepticism. The Austin Community Foundation believes in offering different types of capital for different points in the life of a nonprofit or social impact venture. Impact investing is one more tool in our community philanthropy toolbox. Here’s my summary of the generous and thoughtful give-and-take dialogue Suzi led with about 25 local funders.
There is a lot of talk in the world of philanthropy about social innovation and entrepreneurship. Why all the buzz? Is this just the latest trend in philanthropy or does it have the staying power needed to make lasting change?
What is social innovation or social enterprise? A social enterprise is an organization or initiative that has the social good mission of a non-profit with the revenue-driven approach of a business.
- A social enterprise can have a for-profit legal structure or a nonprofit one.
- A for-profit social enterprise places at least equal emphasis on its measurable social impact outcomes as it does revenue.
- A nonprofit engaged in social enterprise has the financial sustainability to be creative and take risks to innovate to fulfill their social good mission.
- Some additional qualities of social enterprise are: innovation, scalability, risk-taking and accountability.
Austin has long been fertile ground for social enterprise. Starting with Whole Foods Market, which has a mission and values that mention health and happiness more than profit, Austin has been a growing home for both companies doing good and nonprofits earning revenue. See Dan Graham’s recent history of social innovation in Austin.
Imagine expanding the ways we support innovation solutions to our community’s problems. Actually, you don’t have to imagine it—it’s already happening:
- We launched Austin Community Foundation’s Impact Investment Fund last fall and soon will announce our first round of investments in local enterprises seeking to expand their proven mission-driven model of service.
- In addition, Mission Capital, formerly Greenlights, now offers opportunities for nonprofit organizations to develop and pitch their projects as a business plan for investors.
If it isn’t broken, why fix it? Most social innovators aren’t saying the nonprofit model is broken. Yet, as government funding for basic needs and services has declined—and the income gap has grown in Austin, and with it waiting lists for services—philanthropy hasn’t kept pace. Here are some of the positive attributes of social enterprise:
- Expands financial capital beyond philanthropy
- Leverages positive attributes of for-profit model
- Focuses on scalability to reach more people
- Engages new audiences (ex: Millennials and risk-takers) with new viewpoints
- Emphasizes accountability/sustainability
- Promotes innovation/new ways of thinking
- Increases public awareness/engagement
Something in the middle. Austin is known for its entrepreneurial energy, creativity and cooperative spirit, so it’s no surprise these qualities are being harnessed for social good. Is it nonprofit or a business? Increasingly it may be something in between.
Social innovation is not a silver bullet. Social enterprise won’t solve every social problem. There are a number of downsides and challenges to this approach:
- May not address root causes or most difficult social problems
- Difficult to integrate into large social service organizations
- May require new regulations
- Some companies may be seeking PR over social good
- Can be expensive (legal costs)
- Will the voice of people being served be heard and included?
What if funders embraced a balanced social good portfolio? When funders make choices about supporting causes and solving social problems they might consider a continuum:
- Nonprofit model – On one end of the spectrum, pure mission-focused nonprofits with diverse revenue from philanthropy and government sources.
- For-profit model – On the other end of the spectrum, profit-focused companies with social good as an after-thought or side benefit.
- Hybrid social good model – In the middle, enterprises with high social good outcomes and profit.
Social entrepreneurship isn’t new. Suzi Sosa considers such familiar enterprises as Sesame Street (profits from licensing its beloved characters), Girl Scouts (cookies, anyone?) and Goodwill (selling donated items to fund its mission to put people to work) all to be social enterprise. Here are some ways charitable foundations are investing in social good:
- Michael and Susan Dell Foundation provides highly structured equity and loan investments to select entrepreneurial organizations working in their key areas of focus: education, vocational training and financial inclusion.
- MacArthur Foundation invested in rebuilding gulf coast communities following 2005 hurricanes, including affordable housing.
- Cincinnati Community Foundation offers their fundholders the opportunity to invest in projects that increase the availability of health care services for under- and uninsured persons.
Austin is already a hive of social entrepreneurship. The Foundation is glad to be a part of this community—not because it’s a buzz word—but because when challenges and opportunities out-pace resources, it’s time to expand the ways we support innovative solutions for pressing needs.