socially marketing

I know that social capital markets are not for everyone. I’ve listened to and spoken with many of its detractors in both real and virtual space, and usually find such conversations constructive. But once in a while I’m bumfuzzled by arguments from seemingly reasonable people that slide right off the rational rails.

Yesterday I was directed to this recent review of social capital markets (SCM) on the Gift Hub blog. I found it far more instructive than constructive, at least as an example of the anti-SCM sentiment that borders on the zealous.

In a quite short post, Gift Hub finds space to liken social capital markets to alchemy, and conjures up both William Blake and Jesus to fuel the fire. I find this and similar discounts of SCM both heavy-handed and surprising. SCM’s approach to philanthropy is new and different, but it’s not evil, and can play nicely with others - which begs the question: why can’t we all just get along?

Decisions of charitable giving are as complex as the humans behind them, and as unlikely to be black or white. There are countless considerations behind these decisions, and social capital is one potentially valuable piece of that puzzle.

Even stepping out of the gray, I acknowledge someone could use social capital as the only basis for their selection of charity, just as they might follow only their heart, minister or Ouija board. Giving to charity, which is for now and the foreseeable future a voluntary enterprise, has room for all the above.

Social capital markets is not alchemy or voodoo, but rather a thoughtful model for incorporating some market science into the art of giving. It raises the visibility of social benefits that are often difficult to see, and presents those benefits in familiar, easily understood terms. It is a supplement to, not a substitute for, the grand carnival that is charitable giving.

The social sector above all others is a place where intolerance should not be tolerated. I dunno about Blake, but I believe Jesus would second that emotion.

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.

The social capital marketplace that socialmarkets advocates is a relatively new idea, but is clearly gaining traction - and visibility.

We were delighted to see this article in the Financial Times by Sean Stannard-Stockton (who also runs the excellent blog at Tactical Philanthropy) describing a future where social capital markets are the norm, not the exception, across the nonprofit sector.

His vision offers a model of nonprofit funding that closely mimics today’s for-profit financial markets, perhaps more closely than even we would have guessed. It includes the somewhat hyperbolic story of a nonprofit that defaults on a billion dollar bond issue, shocking the social capital marketplace and tightening credit across the sector.

While such a story may exaggerate the point, it certainly illustrates the potential power of the social capital market model. It also reminds us that such a market is subject to both the rewards and the risks inherent in its successful implementation.

Here are a few more features of this proposed future which resonated particularly strongly with us:

• Turning the tables: Google, IBM and Exxon don’t have to explicitly lobby for investors. There are plenty of third-party agencies offering potential investors both the data they need to make an informed decision and the mechanism to invest once they do. Nonprofits can reap the same benefit from similar tools in their own sector, allowing donation dollars to come looking for them rather than the other way around. Music to our ears, as well as to the legions of nonprofit staff who spend way too much of their time scrambling for financial support.

• Not your father’s marketplace: The social capital marketplace will inevitably differentiate itself from the financial marketplace it is modeled upon, a direct result of the people behind the market. The fortunes being sought by social capitalists go beyond the simple dollars of their finance counterparts, including the human, environmental and spiritual enrichment that defines multi-bottom-line accounting. The common goal of greater social impact will motivate both donors and nonprofits to share their experiences and related information, forming the tight community that keeps the social capital markets humming.

We spend so much time promoting the outcomes-based performance measurement model for the non-profit sector, that we sometimes forget one of it’s most fundamental problems: it does not currently offer a generally accepted standard of outcomes. It is often challenge enough to convince the relevant donors and/or charities of the value of outcomes measurement, but even after winning that challenge we are quickly confronted with another: which are the “correct” outcomes to measure?

Consider the market of charities working for affordable housing, particularly critical here in NYC where real estate prices stubbornly defy reports of credit crunches and imminent recession. “Number of available housing units” is an obvious metric of quantity, but what about issues of quality? Where does safety fit into the equation? What about measuring subjective outcomes like quality of life? We critically need at least an initial set of outcomes that considers all these questions - and fortunately we have one very promising source for just that: The Center for What Works (CWW).

CWW states their mission as:

“improving social sector results through benchmarking for nonprofits, a strategy to facilitate outcomes measurement and reporting by linking nonprofits and funders through a common language.”

This kind of talk is music to socialmarket’s ears. The notion of a common language is particularly compelling, since it would be tragic to see the coalition of support for outcomes measurement fall apart for lack of clarity on implementation. CWW (along with the Urban Institute) has created an impressively coherent road map for fourteen non-profit markets (including affordable housing) as well as a generic taxonomy to implement those not yet covered. I encourage you to click the link above (or here) to look for yourself - and see if you agree.

With enough momentum behind them, we envision CWW becoming the de-facto standard for performance benchmarking across the nonprofit sector. We think that their outcomes taxonomies are a sensational way to move nonprofit outcomes measurement forward in a highly practical - and measured - manner.

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.