socially marketing

A recent post thread at Tactical Philanthropy on the topic of measuring nonprofit effectiveness caught my attention. It discusses the issues related to recent (and possibly over-enthusiastic) efforts to apply scientific measurement techniques to help evaluate the work of nonprofits. I could not resisting throwing in my $0.02, which is reproduced below (and can also be found in the originating post here):

It seems to me a recurring theme of the ‘metrics mania’ debate is that it involves both art and science. If the ‘art’ position is that non-profit value defies objective analysis, and the ’science’ is that non-profit worth can be reduced to equations of input and output, I expect I’m somewhere in the middle.

This is surprising, since in the interest of full disclosure, I should say that I am co-founder of socialmarkets.org, where donors “invest” in nonprofit projects based on their SROI (Social Return On Investment.) This sounds like pretty hard science, but there is actually quite a lot of room for art to soften the edges.

The stock market analogy already seen in this thread is spot on. Apple’s stock price is influenced rather than defined by the financial science that slices and dices its cash flows. The beauty of a market is the marvelous job it does boiling down a large, complex set of valuation inputs into a single output called “price”. This number is useful on both an absolute scale and relative to other offerings in the market.

In a testament to the wisdom (or lunacy) of crowds, Apple’s stock price reflects the collective opinion of financial analysts, status-conscious teens and everyone in between. The potential to harness the same power to “price” The Red Cross or your local community foundation seems both possible and useful to me.

There are plenty of donors looking for a “best-bang-for-the-buck” (i.e. maximum SROI) approach to non-profit investment, and right now there is not much useful data out there for them. The success of sites like Charity Navigator are a testament to the need for metrics, but they only tell potential donors about what nonprofits spend, rather than what they accomplish. Surely we can do better than that.

Those with a less scientific approach may not find metrics like SROI as compelling, but still potentially useful. Consider Albert Ruesga’s story of the high-risk, low-return homelessness project that he presents as an argument against metrics. This is where the difference between the sectors becomes significant.

For starters, unlike the for-profit model, there are often donors willing to invest in hard-luck nonprofit cases - as they ultimately did in Mr. Ruesga’s example. More importantly, since nonprofit metrics is still a new field, we can - and should - redefine the notion of return to more accurately capture the total social value being added. That seems to be the most constructive cross-product of art and science in this space: a more artistic approach to the science of metrics.

As we get closer and closer to our official release, we have been having more and more conversations about the vision behind socialmarkets. Allan and I have a pretty good handle on that vision, and hopefully do a respectable job of describing it here on our site. What has been most interesting to me in these conversations is how some people see things in our described vision that we didn’t - or at least not clearly until it was reflected back at us.

One recent example came from a conversation at a soiree right here at Studio Guild, our headquarters in midtown Manhattan. After giving the quick elevator pitch on what we’re about, the instant response was to note how well socialmarkets fits into the Long Tail model of markets - which is actually quite true, and quite insightful.

The Long Tail (full explanation here) is an interesting emergent property of the Internet’s immense scalability, allowing for example Amazon.com to add an arbitrarily large number of books to its “inventory” with arbitrarily small marginal costs. The larger that inventory gets, the more the cumulative sales of the many slow-selling books will dwarf the stellar sales of the few best-sellers.

With a large enough inventory of participants, socialmarkets can function in much the same manner. So for example, the aggregated donations to the army of lesser-known non-profits in the environment protection market (e.g. our own Rushing Rivers Institute) can outweigh those to familiar faces like Greenpeace and Sierra Club. Even better, socialmarkets offers a unique set of tools for its participants to actively engage in the process of determining who are the slow versus best sellers:

• Space for non-profits to promote themselves
• Forums for users to share their thoughts on individual charities or markets
• Objective measures of non-profit performance, e.g. SROI
• Crowdsourcing tools to allow for subjective tweaking of SROIs
• Leaderboards to see where the “smartest” donation dollars are going

Finally, I’ll note an important difference between socialmarkets and other markets: our particpants’ investment decisions are highly subjective. We deal with charitable donations, which is typically a much more personal decision than stocks or bonds or even books.

That subjectivity can play itself out in all sorts of interesting ways, including ones that turn the “normal” market model on its head. For example, there may be donors who are particularly attracted to hard-luck cases, i.e. charities whose inherent risks make stellar SROIs difficult. In this case, the low investment return which is the kiss of death in stock markets may actually attract investors in socialmarkets.

In whatever way our participating charities end up sorting into the star vs. bit-player buckets, we think The Long Tail is a useful and potentially powerful model for our sector, and are pleased to be thought of as a part of it.

One of our resolutions for the new year is to post more frequently to this blog, so we’re kicking off 2008 by taking a look at what we learned in 2007 - socialmarkets’s first year.

Bringing this project to life has been challenging on many fronts, and in the interest of transparency we should talk about all of them. I’ll start with one of the most fundamental: the social benefits of charitable efforts is the basis of our work, and calculating it is really, really hard.

The volume of existing research into SROI (Social Return On Investment) varies greatly within the nonprofit sector. For example, there’s good quality and quantity of data for homelessness intervention, and far less of either for advocacy projects. Most of the sector falls somewhere in between.

We’ve been incredibly lucky to have many of the best minds in the SROI field helping us map out the current landscape, usually with nothing more than our gratitude as payment. Their input was instrumental in our decision to hold off on our initial alpha (i.e. proof of concept) release until we added one additional feature to help fill in some of the SROI holes: crowdsourcing. You may already be familiar with that term, or it’s cousin “The Widsom of Crowds“.

In the socialmarkets context, there are two essential ideas that pointed us in the crowdsourcing direction:

• All markets (stocks, real estate, ebay…) self-define the value of its offerings, through the collective interactions of the people who participate in it

• Participants in the social sector have opinions on the relative importance of nonprofit projects and their outcomes, and capturing these priorities can help define the value of the related social returns

The new alpha is just about ready for prime time, so please stay tuned. We want to be models of our favourite buzzwords like transparency and accountability, so we want your honest feedback - for our own education, and to share with the larger community. This is, after all, a grand experiment in social science, and we’re excited to be a part of it.

Here’s to a great 2008!