• 1 to 1 models: are they a social business?

    By Stephen King, Founder at SocialBusiness.org

    Popularized by Tom Shoes, the 1 to 1 business model is when the consumer buys 1, the company gives 1 to those in need for free. This has become more and more popular over the last few years for any product or service within the price range of $20-100. The likely first version of this was the Aravind eye institute, who has being giving cataract eye surgery for paying customers through one door, and the same surgery for free through another – they have been doing this for over 40 years.

    The business model is popular in part because of the elegant in its simplicity. For the entrepreneur it is very easy to understand the concept, write your business plan and even now point to successful examples to more easily secure funding. It is also a great story to attract talented employees, that might just work for less than the equivalent job at another similar product company. The marketing is also very straightforward and compelling; buy one of these, and I will give one to someone who cannot afford them. If the product is of the same quality, and about the same price, then you will convert consumers. This has been true of the Fair Trade coffee movement in the past, get the products to be the same priced with equal quality and the consumer will switch over to the more socially minded product.

    It all sounds good, and these companies are doing great work. But are they really a social business? Is this not the same as giving away some of your profits to charity? What happened if Dell computers gave 1 computer away for every computer bought to someone disadvantaged?

    The definition of social business is widely contested; let’s make an assumption that it is about the company doing something that is socially and environmentally beneficial and continues to do this through earning revenue by operating its service or selling its product. If we use that as the basis, does it qualify? The business helps people without shoes, get shoes – that is good. It does it in a sustainable manner through earned revenue from selling a pair to other people. You could ask where are the materials sourced from, and whether this is an environmentally damaging company, although that is covered at least by TOM’s shoes. Sounds pretty good to me, in particular because as long as TOM continues to sell shoes to customers, we know another customer will get a pair; and I also like how easy it is for me to audit whether or not the company is keeping to its promise of doing good. My belief is that the 1 to 1 model is a social business, the concept of giving a free ‘1’ away with the buying of ‘1’ is intrinsic to the business model.

    And this then takes us back to doing this on a larger scale, and the case of Dell computers. Large companies are having a really tough time lately, as they are not seen to be able to achieve any good, and if they try we are generally suspicious. If Dell or any of these large companies started doing what TOM’s shoes is doing the world would be a much better place. Alongside of the remarkable amount of technology that would now be in the hands of those that could not afford it, I am positive that Dell would learn a lot about how to innovate in order to deliver on this promise. Imagine a computer company that could really give one away every time you bought one, that would be a remarkable offering that would grab the market.

    We need to focus on the improvement from where we are currently and then look to critique constructively on how we can move forward. If more people were to buy TOM’s shoes the world would be better. And in the long-term it might be even better for the recipients of TOM’S shoes to be in a position to afford their own shoes, as they would have a job and are able to take care of themselves. A pair of shoes helps in many ways, and they are hugely valued, although it is not boosting the local economy in the same way that jobs can support independence and reduce the need to rely on aid. This is the longer-term goal, and we will get there, with 1:1 companies now in many markets around the world.

  • Advantages to creating a social business

    By Stephen King, Founder at SocialBusiness.org

    Starting a new business is difficult and that is no different for a social business or social enterprise. However, within the difficulty lies a silver lining of advantages for the social entrepreneur, which can come through better operating costs, labour, and marketing.

    Socialbusiness.org is one of the leading online publications following social businesses around the globe, and as such, has seen countless examples of how social businesses have leveraged their social mission to enjoy benefits that a traditional business does not.

    One of the simplest is in marketing, and TOMS Shoes is a great example. We have featured them numerous times on the site and their marketing message is pretty simple: buy one pair of shoes and another pair will be given to someone in need. That message is pretty hard to compete against if you are selling an ordinary pair of shoes at the same price, and thus, their shoes are doing well, having recently expanded into TOMS Eyewear. This one-for-one model is growing in popularity, as it is easy for the customer to understand and for the business to set-up, and we have a gallery of articles on our site showcasing these great social businesses.

    A key part of any business is the people and social businesses often need a wealth of people-power to deliver their services to both rural and urban communities. With social businesses, you can often leverage the charity aspect of your business to get volunteers—yes, free labour! When you are delivering a great food program like FoodCycle, in locations all across England, you need help. Any restaurant takes lots of staff to run, and FoodCycle manages to run many of them across the country using food surplus—400,000 tons of it—and unused professional kitchens. With the majority of the staff coming through volunteers, it helps to keep the costs low and enables the food to reach more communities.

    There are a growing number of companies that are finding it cheaper do the same thing as a big company, although at a lower cost while making the world a better place. GnewtCargo deliver parcels emissions-free for the last mile in London, and they can do this with no fuel costs, less expensive maintenance and no congestion charges. This can make them cheaper than the big guy in diesel trucks. Although it might seem like a paradox at first, social businesses are finding ways to lower operating cost and improve our environment.

    Lastly, our own company, SocialBusiness.org, is enabled by the crowdsourcing power of Trend Hunter. They have been our partner since the beginning and the marketing power of social good on the back of a platform like Trend Hunter has been awesome to watch. The reach and power of our message has been amplified via the crowdsourced model, and we get these benefits largely by association rather than at high costs.

    The in-between state of being a business and being philanthropic has its clear advantages over the regular entrepreneur. The social business can enjoy the perks of the social mission in its ability to attract consumers and people to their cause, and at the same time, see real commercial benefits to their operations. SocialBusiness.org is fascinated by these social businesses and how they are re-writing the rules on how to be successful while making the world a better place.

  • When is enough, enough?

    By Stephen King, Founder at SocialBusiness.org

    I had a debate on which picture to choose for this blog, I had a bigger debate on whether to write this blog, and really this blog is all about the biggest debate I have with myself – which I am finding out to be a secret debate that a lot of other people are having as well.

    ‘I have known it for while, although I keep making excuses, what I spend my day doing is not making the world a better place.’

    Making a profit, which allows companies to employ people, so those employees can eat well and put shelter over their head is a good thing; the debate is really about the way they go about making the profit. I have always been a fan of the concept of the ‘Triple Bottom Line’, which states after economic profit, you need to add (or in most cases subtract) environmental and social profit. In this way we can see the true contribution a company is making, and I would argue that most companies would be negative total profit under this measure. You only have to look at the recent BP incident to realise how the environmental impact will be factored into their new ‘bottom line’. And we have gone a long way in recent times to measure environmental impacts; the next push will be on the measurement of social impacts – although that is for another blog post.

    People make up companies, and I believe people are at the heart of this debate. It is all about what we choose to spend our days doing. And the choice in your career is often made to appear polar in its characterisation, it is either work for a big corporation or a charity, there is no in-between – I believe this is wrong, and I also believe this is rapidly changing. There are numerous options now to do both, and growing options to do both in the same company, here are some examples in a chronological approach to your career.

    Start from scratch: It might be the most challenging, but arguably the most direct route. This route is likely taken when you are already involved in the social sector, as you need to be close to the problems.Fair Finance is a great example of a young person with a passion who is replicating microfinance principles in urban poverty stricken areas, right here in the UK.

    From the corporate: Many corporations are keen to be associated with this growing sector. While in your current position, it is possible to start dedicating portions of your time to a social venture. In both the cases of Cool2Care, which started while at IBM, and Teach First London, which started while at McKinsey, we see great examples of migrating from their current employer to running the social venture that they started while fully employed.

    Within the coporate: While you are in your job, a number of the big coporations are starting to make it possible to do both while you are there, and Allianz is a great example. This emerging area of the social intrapreneur is interesting, as it points to large corporations hearing the message from the consumer and the employee.

    Post-corporate: This is the most traditional method for non-profits and charities to attract senior business people, for both board and CEO roles. Successful corporate people, who are financially secure and want to now give back to society. They find the idea of sustainable business models operating in social areas, even more interesting. One such example is the CEO of Café Direct, who retired from a very successful career to move into the CEO role of this exciting social venture.

    Today you will find employees and in particular new graduates from university screaming inside not to have to make this trade-off; they want to be able to do both, and it will be the companies that deliver all three types of profits that will be successful at the end of this century. And as I researched this blog, I found that this is not the first time business folks realised this. A quote from one of the biggest business gurus of our time:

    “Social responsibility objectives need to be built into the strategy of a business, rather than merely be statements of good intentions.” Source: Peter F. Drucker, Frontiers of Management. New York; Truman Talley Books, 1968.,

    The debate will rage, and in the end it is an individual decision. Although one debate is over for me, it is our purpose and our responsibility to help others, this is not a choice. Everyday you should be making the world a better place.

    What did you do today?

  • Funding sources

    By Stephen King, Founder at SocialBusiness.org

    The dominant funding source for social sector companies has been grants from either foundations or government, while smaller charities can usually rely on donations. These funding sources are quite timely to attain, and usually come with various strings attached to usage and the additional reporting can be cumbersome. In many cases this type of funding is critical as few other sources of funding are typically available. For funding these companies, a useful framework is displayed below to show the different stages.The most common social companies are in the first phase, which rely on grants and donations. Many companies do not exit that phase as creating a sustainable business model is not possible. In the middle phase is the most complicated and we will discuss this one in more detail. The last phase attracts normal venture capital funding and would also likely be viable for stock offerings and large corporate investment.

    The middle phase companies often start with donations and government funding during their start-up phase as they can attract that funding due to their social aims. In contrast to other start-up business, this is effectively free money they can use to help bootstrap their early stage growth. As the company looks to grow further there is has been an emergence of new ways to fund the companies in this middle sector. Companies such as Bridges ventureshttp://www.bridgesventures.com/ has started to raise funds to invest as venture capital money into socially good business models. Many of the same requirements apply, as other venture capital investments, although the fund has been sourced with this end use in mind. In addition, other creative funding sources have been created such as stock offering direct to consumers; as was the case with Café Directhttp://brewing.cafedirect.co.uk/.

    Future activity in this space is still unclear as growth is abundant. It is quite likely that mergers and acquisitions could become common as these new business models look to grow and expand, while increasing their efficiencies and economies of scale.

  • Management and measurement

    By Stephen King, Founder at SocialBusiness.org

    A critical problem in the social sector is measurement of the benefit that they have created in the system. For non-profits and charities the donors and government grants are looking for clear measurement of social impact; and those that can demonstrate the impact are more likely to get initial and future funding. The companies will measure market, operational and financial performance, in addition they will also need to understand their social performance. This extra dimension of measurement is what makes these companies so valuable, and also adds the complexity.

    First coined in 1994, the triple bottom line (http://en.wikipedia.org/wiki/Triple_bottom_line) was used widely in the environmental sector in the late 1990s. It is now being more widely used across the social sectors as more sophisticated measurement tools are available to describe and track the impact of these companies. The concept allows companies to measure their full cost accounting; as social impacts are taken into the balance sheet, companies will make different decisions. Social entrepreneurship companies, as described in the first blog, do not suffer from this measurement problem nearly as much as others. These types of companies are driven much more by market forces and their measurement of profit decides whether their products or services are seen as valuable in the market place. This brings up other issues regarding how socially focused these companies are, although this is a demarcation issue for tax laws mainly.

    With this framework in place, it allows these types of companies to adopt many of the business principles and approaches to managing their business. They should not be bashful of bringing over all of the strategy and processes that have been used for decades in the business world. Having customers, tracking market share, investing based on ROI, keeping fixed costs low, these are all acceptable ways to run the business. To push it further, having 6 figure director salaries, 15% profit margins and going after your competitors even if they are public sector is also acceptable; as long as the social impact is being improved by more customers being served with an increased quality, this new venture is adding value to community.

    While measurement is still a critical issue for these companies, by being more market driven they resolve some of the more complicated measurement challenges. If they continue to offer great products & services and restore equality to the social systems then the market will reward them with customers and profits.

  • People – getting involved in social entrepreneurship

    By Stephen King, Founder at SocialBusiness.org

    The entrepreneur life is not for the faint-hearted, it is hard work and you need a lot of passion for your idea. The social entrepreneur does not get any breaks, and in most situations the challenge is even greater as the market is less well-defined. However, the characteristics of the two do not change, as entrepreneur’s they share these traits: Passion for their idea, experience in the field, come in pairs, and have been close to another successful new venture. This is a tall order for most people and due to the hurdles in forces most people away from entering the field.

    As someone who is personally interested in the field, I was also somewhat daunted by the risks associated with ‘going it alone’. Upon further investigation, there are multiple routes into the social entrepreneurship field, potentially even more than the larger field. As the field is newly growing and trying to attract talent, the sector is quite open to people from the business world entering and lending a hand. Here are a couple routes:

    Post-corporate: This is the most traditional method for non-profits and charities to attract senior business people, for both board and CEO roles. Successful corporate people, who are financially secure and want to know give back to society. They find the idea of sustainable business models operating in social areas, even more interesting. One such example is the CEO of Café Direct, who retired from a very successful career to move into the CEO role of this exciting social venture.

    Within-corporate: Many corporations are keen to be associated with this growing sector. While in your current position, it is possible to start dedicating portions of your time to a social venture. In both the cases of Cool2Care, which started while at IBM, and Teach First London, which started while at McKinsey, we see great examples of migrating from their current employer to running the social venture that they started while fully employed.

    Start from scratch: Spoken about above, the traditional route to starting a venture. This route is likely taken when you are already involved in the social sector, as you need to be close to the problems.

    The sustainable business model in social sectors is an opportunity that has more possibilities and has wider appeal to the corporate business person. A growing number of routes and examples of success make this a more attract option for the socially conscious executive.

  • Defining social entrepreneurship

    By Stephen King, Founder at SocialBusiness.org

    A growing sector and of particular interest to me, is social entrepreneurship. Like all new fields it can suffer from a wide and misunderstood definition. The nomenclature is important to distinguish itself from non-profit or charity programs, as being a socially led company operating with clear business practises.
    Entrepreneurs have long been heralded as uncovering latent demand in the market place, solving problems in imaginative and innovation ways. Jean Baptiste Say[1] wrote at the turn of the century that an ‘entrepreneur shifts economic resources out of an area of lower and into an area of higher productivity and greater yield’. The social entrepreneur does the same by looking for inequality within the community and social system. This field is driven by the same passionate drive for business performance, with this social need at the beginning of the design in the venture.

    To discuss further, let us talk through a couple examples of how a business model mindset could still work in the social sector. With my three examples I will move from organisations that are closest to the historical charity group to the other edge close to for-profit.
    Fifteen restaurants http://www.fifteen.net/Pages/default.aspx are a social venture for providing underprivileged teenagers an opportunity to start a career in the restaurant industry. The foundation takes in hundreds of teenagers each year and staffs their restaurants from chefs to hosts to waiters and because of the quality of food, charges a hefty sum for the meals. This is a business that makes good money, and for most people is just a great restaurant; yet it serves social good while maintaining itself as an on-going concern without the continual funding of its initial foundation.
    Fair Finance http://www.fairfinance.org.uk/ is an organisation that provides cost effective medium sized loans to the underprivileged in our city centres. The current alternatives are high-priced loans that take weeks to process, often time being refused by the high street banks. The company has adopted the micro-finance principles to an urban environment and been able to sustain good margins with these loans and only have 5-7 bad loan percent. This is again a business that anyone would want to finance, with a focus on the underprivileged and giving great rates with a social good outcome.
    Whole foods http://www.wholefoodsmarket.com/ is on the edge of this spectrum, as they have found a way to get everyone to eat better and charging a premium price for their organic and healthy food. As most health food stores were not very well branded or had low quality environments, it was not common to buy these types of foods. The re-engineering of the experience and then being able to attach this high price has made the company an on-going concern, while making those communities eat much better food.

    This is my definition of the social entrepreneurship sector, which does purposely preclude a large section of the ‘third sector’. I do this to attract the serial entrepreneurs to an area where all of their business skills can be tested, prestige and pay can follow, all with a social goal in mind.
    [1] J.Gregory Dees, “The meaning of Social Entrepreneurship”, 2001