socially marketing

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.

Sometimes we get so caught up in sweating the details of bringing socialmarkets to life, we forget about the bigger picture. We know our work is an important step towards advancing the social capital model, but once in a while it’s encouraging to see that socialmarkets is just one piece of the puzzle, and that we are by no means alone in this effort. Last week we had the opportunity to get a glimpse of that bigger picture, and we liked what we saw.

Allan and I were invited to a discussion group on The Social Capital Marketplace (SCM) here in NYC. It was a small gathering - just a dozen or so people hosted by GivingNet, powerful proponents of SCM (as well as our fiscal sponsors.) While the group was small, it included a good cross-section of the market, from the supply side (e.g. donor advisors) to the demand side (e.g. nonprofit advocates) and the spaces between them (e.g. socialmarkets.) Everyone brought something special to the table, and the discussions which took place around it were animated, unscripted and best of all, highly educational. I may go into details in a later post, but for now I’ll focus on just one general idea: how social capital markets are gearing up for growth right now.

There are more wealthy people than ever pouring more money than ever into the nonprofit sector. This statistic is a mixed bag, since this new wealth is hardly democratic. As the rich are getting richer, the wealth divide is getting larger. However, as the invisible hand of the capital market moves us further into economic inequality, the social capital market offers a counter-balance. The inclination of the wealthy to “give back”, and in particular the “giving while living” trend offers new inputs to SCM. Gates and Buffett are setting good examples, but they’re really just the tip of the iceberg. Also, it’s not just the quantity of new philanthropists, it’s the quality: many if not most of them come from the quant-based worlds of finance and technology, so are receptive to the market approach of SCM. Here are a few of the creative ways that receptivity is being exercised:

• Knowledge is power

Several efforts (including ours) attempt to bring transparency and accountability to the market by doing more due diligence on nonprofits. There is very little information available for most nonprofits beyond IRS Form 990, which offers no insight on function and impact. Ultimately these efforts can produce complete ratings and analysis functions, offering potential social capital investors the chance to make more informed decisions. The functionality is like Moody’s, but the Web 2.0 model makes it more like a cross between Kiva and TripAdvisor.

• Behind the buzzwords

Terms like Social Entrepreneurship and Venture Philanthropy are so over-used that we forget the powerful ideas behind them. There are many current projects which recognize that social vs. economic capital is not a black and white issue. Inside the gray area between, there is plenty of room for deriving economic profits from social services. A little flexibility on the size and time frames for those profits can go a long way towards directing real money into social markets.

• Bottomless bottom lines

Once you broaden your definition of ‘profit’ to include non-economic criteria, the sky’s the limit. Double bottom line accounting, which adds social returns into the equation, allows for a more complete picture of what defines a successful business. This is where other often abused buzzwords like Socially Responsible Investing and Corporate Social Responsibility show their true power. When your only bottom line is economic, you’re shut out of several alternative (and arguably larger) economies, including the human, social, environmental and spiritual. At some point we should probably stop counting (triple and quadruple bottom lines are common, and I even found a quintuplet here) but the bottom line is that there is more than just one bottom line.

This is just a taste of what is happening in the SCM space, and it was all the more tasty because we got to meet the people behind the projects. We try to keep up with the literature, but you can get so much more out of face-to-face interactions with the people who share your goals- especially if those people are smart, committed and open to sharing. I think we all left that conference room a little wiser, and a little more energized. Socialmarkets is a web-based operation, so we spend a lot of our time in virtual spaces. Once in a while it’s awfully nice to check in with the real world.

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!

socialmarkets.org is a Web project by yours truly, Allan Benamer, and Jeff Tuller designed to create a social capital market that will more effectively link together donor capital with nonprofit projects and case listings. Think of it as a NYSE for the nonprofit sector. Yes, I understand that that’s a controversial notion, but we believe that it has merit regardless of the excesses and market failures we’ve seen. We are looking for a better and more fundamentally open and transparent way to fund projects and case listings at nonprofits. We believe that a simple market based on concepts such as “social return on investment”, “user generated content”, “social networking” and “open APIs” can address issues of accountability and transparency so often harped upon in the mainstream press. And it can more clearly link what nonprofits do and what they’re funded for in a way never before imaginable.

Reach out to us, talk to us, we want to engage with all the stakeholders in our sector: philanthropists, nonprofits, and technologists. Jeff and I are in this for the long haul and we’re not going away. A limited set of wireframes for our project is available upon request.