socially marketing

Society takes its time to absorb new ideas - even really good ones.  A closer look at your typical “overnight sensation” will almost always reveal the slow, methodical build-up behind the meteoric rise.

SROI (Social Return On Investment) is still a relatively new idea, but I think it’s finally starting to work its way up the general acceptance curve.  Here at socialmarkets.org, we see it all the time - talking amongst ourselves and the other early adopters in the SROI sandbox.

It is noteworthy (and gratifying) to hear SROI mentioned outside that sandbox.  A recent article at Slate.com did exactly that, in a piece  entirely devoted to SROI and the challenges behind its calculation.  The specific issue at hand was not entirely obvious, but valid nonetheless: the costs and benefits of increased access for the disabled at miniature golf courses.

Apparently, the Department of Justice has released a report on new regulations for greater disabled access to many public venues, including miniature golf courses.  The government includes not just the estimated cost of those regulations in their report ($23 billion) but also the estimated public benefit ($54 billion.)  Seems like a good deal at first blush - but to Slate’s credit, they ask this critical question:

“How do you calculate the benefits of getting around a miniature golf course?”

I think they do an excellent job in addressing that question - you can click here and decide for yourself.  They talk about the many factors to be measured (e.g. value to the disabled, energy savings, time horizon) as well as the challenges in taking those measurements (e.g. questionable assumptions, survey unreliability) and end with this rather sobering statistic:

“Depending on the assumptions the analysts use, they find that there is a possibility the net gains from the regulations could be as high as $40 billion or as low as $4.7 billion…”

One of our goals at socialmarkets.org is to narrow such alarmingly wide ranges of expected social benefit by advancing the science of SROI.  In the meanwhile, we’re happy just to see the government demonstrating the constructive use of SROI, and the mainstream media reporting on it.

This week’s Newseek has an article entitled “A Stock Exchange for Do-Gooders” about one of the pioneering forays into a social stock exchange. BVS&A, the self-proclaimed “Social and Environmental Stock Exchange” launched in Brazil way back in 2003 with the full support of Bovespa, the actual Brazilian stock exchange.

We are always happy to see positive publicity for social capital markets, especially in such mainstream a venue as Newsweek. BVS&A strongly advocates for corporate donations and has the explicit support of the world’s largest CSR (Corporate Social Responsibility) organization, the United Nations Global Compact.

BVS&A reports nearly $6 million in contributions to date. While they differ from socialmarkets in execution, BVS&A’s founding principles have many similarities to ours - some strikingly so, as highlighted by its founder Celso Grecco in the Newseek article:

• the marketplace needs to “make informed decisions about which projects to fund”
• investments in philanthropic enterprises yield profits in the form of “social dividends“
• BVS&A offers features that “intelligent investors crave: order and transparency“
• BVS&A is a “pioneer in the field called ‘social marketing‘” (our personal fave)

The social capital driving socialmarkets and similar agencies is only as real as you make it. It is not hard to sell the idea of value in educating our youth, housing our homeless or cleaning up our environment, but it is not easy to translate that value into concrete terms.

The concepts and even the vocabulary we use to describe social capital is largely borrowed from “real” capital markets, which makes the translation easier. This suggests an accounting system that mirrors, but is separate from the ledgers that define the bottom line at all but the most avant-garde organizations.

I don’t know if we will ever see (or even need to see) this separation disappear entirely, but I do know that less of it is more better - and that the winds of change are blowing in that direction. Carla Dearing (disclosure note: she is CEO of our fiscal sponsor GivingNet) talks about this on PhilanthroMedia.org, which in turn references this recent Fortune article on how the carbon trading market is helping farmers literally turn manure into money.

Carbon trading is perhaps my favourite example of the ‘new accounting’, where the scope of the bottom line is growing. Not long ago it would have been downright silly to include greenhouse gas emissions in your business plan, let alone on your balance sheet. Now, an increasingly viable carbon trading market has turned silly into savvy, and is drawing in participants from the public, private and nonprofit sectors.

This leap from social to “real” capital is just the tip of the iceberg, and arguably an arbitrary tip at that. Increasing alarm about global warming combined with an increasingly desperate search for new energy sources and myriad other factors to make carbon trading a reality.

But every social ill and issue has its own unique DNA, and is potentially just waiting for the perfect storm of political, social and economic trends to take them off the back burner. I can’t wait to see what market response is induced from a perceived crisis of illiteracy, homelessness or similarly sticky social problem.

The idea of applying market savvy to the social sector is still a pretty young one, but is growing up fast. We can now see social entrepreneurship, one of the more enduring labels attached to this idea, becoming institutionalized - for example, in our institutions of higher learning.

The Catherine B. Reynolds Foundation is sponsoring a Program in Social Entrepreneurship, which they define (rather nicely I think) as

“a form of public leadership that maximizes the social return on public service efforts while fundamentally and permanently changing the way problems are addressed on a global scale.”

Reynolds offers full scholarship and other support to the most promising future social entrepreneurs it can find at the two universities it endows: The Kennedy School at Harvard University, and The Wagner School of Public Service at NYU.

I know a good deal about this program, since I am a proud and active alum of Wagner myself, and was pleased to serve as a judge for selecting the 2008 Reynolds fellows earlier this month.

This was a tough gig - largely because by the time we judges came along, the huge number of applicants was whittled down to the most promising four score or so. Such pre-screening guaranteed that pretty much all the candidates we saw demonstrated a clear vision of their future as social entrepreneurs, on top of a history demonstrating their clear ability to walk their talk.

I see a trend, and I like it. In just a few short years, social entrepreneurship has migrated from the fringes of social science to its very core. As a result, some of our most promising young minds are incorporating its ideals into their own plans for their place in the world - and from what I’ve seen of those minds, the world will be the better for it.

Back to the harsh reality of limited resources, only a few of the candidates I saw made the final cut to become Reynolds Fellows. This is of course sad, but there is this consolation: who better than these budding social entrepreneurs to tackle this classic problem of too many worthy social causes and not enough money to support them?

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.