Doing Good is Good BusinessMay 17th, 2010 View Comments |
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Doing good is good business. “Social good” can be the base of a strong business model, and I believe we’re steadily coming closer to a point where a business without a “social good” is not a sustainable business. And I’m not talking about environmentally, culturally or morally sustainable, but strategically, economically and financially sustainable.
When I hear the words “social entrepreneurship”, the first thing I hear is “entrepreneurship”, not social. I come from to the world of social business from the perspective of an educated and trained hard-core capitalist, a management consultant, an Excel geek, an MBA with a concentration in finance and accounting, an ex-private equity / corporate raider and a man who thinks numbers first. And since quantifying “social good” is hard, I tended to push it aside.
But over time, I learned that “social good” matters. It matters to us, our lives, our communities, our environment, our society. That’s obvious.
It also matters to business.
Social good has traditionally been an externality that businesses could not value, measure and rank, so they choose to downgrade or ignore it as an input to business decisions. It’s not just a choice between short-term impact and long-term impact, but a choice between the impact we can see, measure and be accountable for and the impact that we have. The full impact that we have can be difficult to measure even in the short term, as the cost and value of our business model externalities tend to disappear from our profit and loss statements. We’ve tried to bring these externalities back to the table with “modified” accounting statements, balanced scorecards and other decision-making frameworks, but they’ve failed to gain the same traction as the simple, culturally-known and corporate-benchmark corporate financial statements.
But we haven’t given up, because companies have come to learn that unaccounted and unvalued business model externalities lead to sub-optimal decision-making and reduced performance: financially, operationally and competitively.
Umair Haque, Why Betterness is Good Business:
Striving to do more good is associated with greater profitability, equity and asset returns, and shareholder value creation. But that’s still not good enough. Today, the bar is being raised: success is itself changing. Those are yesterday’s metrics of success — more importantly, maximizing good lets companies outperform on tomorrow’s measures of success.
More and more, investors aren’t just looking for near-terms financial returns: they’re looking for financial returns *plus.* Why? Because the *plus* makes returns less risky, more defensible, and, the biggie, more meaningful. As the expectations of people, communities, society, and investors change, the definition of outperformance itself is changing.
Umair supports this with data from a number of research reports proving the need for companies to adapt their measures of performance, for the simple reason that people now demand a different kind of performance. Financial isn’t enough. Financial returns *plus* is necessary. And interestingly enough, as we get better at measuring the *plus*, the *plus* will disappear, because we’ll have developed new measures of business model success. Based on ideals or “betterness”, these business models will matter, and that’s why they’ll succeed.
They’ll succeed because they’ll tap into “The Power of Pull”, tap into the edges of their networks, bring the edge to the core, tap into the power of serendipity, and open themselves up to “that which cannot be completely measured today”.
These business models will leverage the passion of individuals, create networks and build communities. They’ll provide ways for people to connect, to build, to contribute, to give. They’ll let employees be people. They’ll build products with a purpose. They’ll build companies with a purpose, with a mission that is understood, supported and created by their employees, customers and fans.
We won’t do it just because it’s socially responsible. We won’t do it because we’re in some utopian “post-consumer” era. We’ll do it because it’s strategically, economically and financially necessary. We’ll do it because these are the types of innovations that can be disruptive and sustainable today. We’ll do it because…
Rising hyperconnectivity and the increasingly publicly available trails of intentions and actions by individuals and corporations are creating the opportunity for an ethical edge to “pay” in a wider range of products, markets and industries.
We’ll do it because information, stories, content and context scale easier, cheaper and faster than ever before. We’ll do it because companies will have to understand how to create and tell stories about their business, impact, relevance and meaning to stay competitive. We’ll do it because obfuscating the truth or hiding externalities will be an expensive, inefficient, suboptimal business strategy.
We’ll do it not because it’s “social good”, but because it’s good business. And that’s the type of social entrepreneurship I care about.
May 17th, 2010 at 7:28
And soon we'll even drop the word 'business'. We'll just do stuff that makes our lives AND the world better… because that's just simply how it really works.
May 17th, 2010 at 7:31
Taylor,
Absolutely agree that because “it's socially responsible” is not an effective business strategy or motivator. But isn't it wonderful that the good that is achieved through social responsibility is also financially and strategically the best decision? I also like your hard-core capitalist perspective.
May 17th, 2010 at 10:05
What's wrong with the word “business”? The deep cultural interpretations of the difference between “business” and “personal”? The artificial barriers and constructs it puts in the minds of people as we make business decisions?
Lol. We both know the term isn't going away in our lifetimes. I just hope it doesn't mean the same thing the entire time we're here.
May 17th, 2010 at 10:11
Olivia: Yes, it's a wonderful thing that good can direct the flow of profits. Profits help keep good going :)
(and btw, thanks for coming by and commenting. I've been reading your blog for awhile and you've helped me think about a lot of the practicalities of CSR. I've been holding this post in my mind for a couple months but it hadn't found its way out until today.)
May 17th, 2010 at 10:27
Hehe, the meaning is already changing. It all just gets so much simpler as we see it all as life. Much fewer rabbit holes to get lost in.
May 17th, 2010 at 10:33
The more people “see it”, the more profits flow towards good, the less
we need to differentiate between entrepreneurship and social
entrepreneurship.
May 17th, 2010 at 13:30
BRILLIANT!! Love it. Thank you! Keep up the excellent work and beautiful writing!!
May 17th, 2010 at 13:36
Thank you!
May 17th, 2010 at 14:35
Excellent piece Taylor. The kind of innovation and entrepreneurship that needs to be pushed these days are those ventures which have a reason that goes beyond financial profit.
May 17th, 2010 at 15:01
Hi Taylor, I'm a grad student pursuing an MPA (vs MBA) because of the growing importance of social missions and organizations that have a goals larger than themselves. What you discuss in this post are things that we talk about frequently- and I think you're absolutely right in this post.
Also I think (and hope) that the trend will continue to spread and become a deep-rooted business value. We're a very (very) long way from this, but with technology increasing our socialization and creating info-share, and with Gen Y (characterized as motivated by public service) starting to take the reins in businesses, there's reason to believe the ideas you discuss here will stick!
I'm hopeful! Thanks for the post and keeping the education and optimism going! Great post!
May 17th, 2010 at 15:32
True: but I'm looking forward to a world where ventures that are “good” are strategically necessary and financially profitable in and of themselves.
May 17th, 2010 at 15:35
Interestingly, I don't think we're a very very long way away from this. This is a potential within-my-lifetime shift, and something that will be large enough to provide very fulfilling and financially rewarding lives for many. Not everybody, but for an increasing amount of people every single day.
(And thanks! Where are you doing your MPA? Could you share a bit about your experiences?)
May 17th, 2010 at 16:07
[...] last post was about how doing good is good business. Here’s how I can work with you to help you “do and share good” as a [...]
May 17th, 2010 at 20:55
Excellent post with some meaty and salient points.
I love your perspective on financial returns *plus* and your insightful prediction that as we get better at measuring (and communicating, I might add) the *plus*, that it will simply become incorporated into the new standard of business model success.
Also appreciate your “tell it like it is” style – I'm with you that this is where we're headed. Your certainty is refreshing. Thanks for a great post!
May 17th, 2010 at 22:56
Thank you. I must note that the notion of “financial returns *plus*” and how culture + business will change its metrics is really Umair's point, not mine. Umair has been a major influence on my thinking over the past few years. I just hope I'm adding something to the discussion and finding a way to apply it to my businesses and my life :)
July 10th, 2010 at 20:08
[...] that gap between purpose and profit with a little more blood, sweat and tears. Trust: purpose pays. Doing good is good business. It just takes the marketplace some time to realize it sometimes. And sadly, we can’t pay the [...]
August 5th, 2010 at 11:04
Sounds like “we'll do it because it makes for good marketing and brand to support the bottom line”. Not that there is anything wrong with that! Making the needed investment in “social good” by leveraging community/customer sentiment vehicles is essential in todays business world to drive profits and market share. The great thing is that for startups or established companies the cost to take part in social media to develop community and manage customer sentiment are low cost. To say they're free brings us back to our current conversation.
August 5th, 2010 at 18:04
Sounds like “we’ll do it because it makes for good marketing and brand to support the bottom line”. Not that there is anything wrong with that! Making the needed investment in “social good” by leveraging community/customer sentiment vehicles is essential in todays business world to drive profits and market share. The great thing is that for startups or established companies the cost to take part in social media to develop community and manage customer sentiment are low cost. To say they’re free brings us back to our current conversation.