Starting a business? There’s never been a better time to do well by doing good.
Chicago is experiencing a surge in startups that combine good-for-society goals with good-for-the-bottom-line business. Based on my experience with the Chicago-based startup Kauzu and conversations with others, I see three big reasons for the growing popularity of social entrepreneurship:
- It works.
- It feels good.
- Capitalism may not survive without it.
Do more good with sustainable revenue
Zealous Good is a Chicago startup that connects local charities to people and businesses with excess goods. From just four clients in June 2011, Zealous Good now boasts 140 clients in Chicago alone, and expects to have more than 200 by the end of the year before expanding to other cities.
“Running a non-profit is like running two distinct businesses – one for programming and one for fund-raising,” says founder and CEO Brittany Graunke. “This way, our clients are reassured that we’re not competing with them, and the structure allows us to do more good with a sustainable revenue source.”
Some concepts simply wouldn’t be possible with a non-profit structure. Chicago startup ForGoods is introducing a platform that creates tangible rewards for volunteers. Founder Beth Bond explains, “If you donate $10,000 to a non-profit, you get a big tax write-off. But, if you donate $10,000 worth of your time, you get nothing. We want to incentive volunteers with points they can use toward purchases, but you can’t disperse goods and services as a non-profit.”
Kathleen Wright, Founder & CEO of Chicago startup Collaborative Group, explains that the brands who purchase her company’s artisan-created goods “sometimes shy away from artisans—but they’re made comfortable by the tight timelines and very specific quality control they can expect from a for-profit model.”
These three social ventures are succeeding because their business methods make their social goals more achievable. But, sometimes it’s the other way around—the social mission creates new potential for the revenue model.
At Kauzu, our social goals give us access to partners and markets we wouldn’t have with a more conventional business model. By designing our job-finding applications specifically for Chicago’s hardest-hit communities, we were able to enlist the help of non-profit workforce development centers to launch them. And, while we’d love to someday see ourselves on the cover of Crain’s, last month we proudly celebrated making the cover of StreetWise.
Rewards of the social enterprise model
Most business models don’t include riotous celebrations with teenagers.
But the social enterprise model lends itself to partnerships like the one Kauzu has forged with the Centers for New Horizons in Bronzeville, IL. We joined their Summer Youth Employment Program graduation event to introduce Kauzu.Jobs, a free mobile app that helps lower-income urban youth overcome transportation barriers in their job search.
The party kicked off as soon as we wrapped our presentation, with dozens of motivated young adults lining up to register, while the cheers and music swirled around us. Indescribably gratifying.
Knowing your efforts resonate with people just feels good. Everybody’s had a tough job search at some point in their lives and, these days, everyone knows someone who’s out of work. Even before we had a product on the market, we’d get messages from people saying they loved what we were doing. Many of them have joined us as volunteers, working long days in challenging circumstances for nothing more than a t-shirt. (Of course, they are pretty awesome t-shirts.)
Another reward of the social enterprise model is seeing your efforts create an immediate impact. Graunke describes a highlight of Zealous Good’s first year: “Last year, a consulting company donated 100 computer monitors. One of our clients had a $5,000 line item in their budget for new monitors, and they were able to completely eliminate that line.”
Collaborative Group impacts artisans in every corner of the world. “We employed 125 artisans, paid fair wages and provided them with stable income for 6 months,” says Wright, recalling an order for 40,000 cosmetic cases from Morocco. “You just can’t describe the look on an artisan’s face when you give them an order for 5,000 units.”
“This is how capitalism needs to grow”
So says Mark Roth, an advisor to Impact Engine, Chicago’s first incubator devoted to impact entrepreneurs. This summer, the accelerator screened more than 170 applications to select eight members of their inaugural cohort.
Why the boom? And, why now?
In the wake of a financial collapse and the worst recession in 80 years, a new generation of entrepreneurs doesn’t want to have to choose between building a business and working to improve society. Impact Engine co-founder Jamie Jones, who is Director of Social Entrepreneurship at Kellogg School of Management, says, “The old idea that you work all your life and then leave your money to charity is no longer valid.”
Jones also points to global forces at work: “The markets of the future are informal economies—major corporations need impact entrepreneurs to be like the pioneers of the wild, wild west and lay the groundwork.”
Another factor: New laws make it easier for social enterprises to raise funds. First enacted in Vermont in 2008 and one year later in Illinois, L3C laws allow ventures with socially beneficial missions to be classified as Low-Profit Limited Liability Companies, which can pursue profits while still attracting investments from foundations.
“Foundations are required to distribute 5% of their assets annually for charitable purposes,” says Chicago attorney Marc Lane, an early champion of the L3C. “This is usually accomplished through grants. But investments in L3Cs and charities can also fulfill the requirement, so foundations can actually see a return.”
More than 100 L3Cs have registered in Illinois, and Lane adds, “Since 2009, the number of foundations making such ‘program-related investments’ has risen from fewer than 1% to more than 7%.”
Still, the trend may have more to do with changing attitudes than changing tax codes.
Every new business is created to fill a need—but some needs matter more than others. You don’t need to look too far to find a social problem that, approached creatively, can be helped with a profit-driven business model.
“We’re strongly in favor of making money,” says Kauzu CEO Mitch Schneider. “But we don’t think helping people and making money are mutually exclusive. In fact, we believe helping people is the best way to make money.”
Apple is a socially conscious org because it employs people, and creates products that employ and cause people to be productive. Innovation is nothing unless you have revenue. Money is just a by product of a successful journey. Every “social” start up should go through the same process a money grubbing capitalistic enterprise goes through and earn money for solving a pain point.
I agree — a social enterprise that doesn’t drive revenues with its mission is going to wind up a non-profit. Social ventures should still be fiercely competitive. But I do think there’s a distinction between a company whose success just happens to advance social good (through job creation, etc.) and one whose success actually derives from advancing social good.
“Capitalism may not survive without it” is a true statement. With social technologies increasing transparency to near “perfect” (think economics, and “perfect information”) the ability to drive profit by cutting corners, and abusing labor is (and should be) next to impossible. Look how on this side of the Pacific we are acutely aware of the social issues affecting Apple’s manufacturing in Asia. Whether for-profit, or non-profit – doing things right will be critical for survival of the enterprise, as well as capitalism.