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.

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?

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.

The Marketplace report balances our perspective on the idea of a social market with that from Trent Stamp, President of Charity Navigator. He makes two points, both worthy of response:

1. “There is a fundamental difference between charities and Wall Street. We can’t just measure the bottom line when it comes to charities.”

True, but while it is obvious there are many fundamental differences between charities and Wall Street, it’s less obvious that both sides are building bridges between them, changing the very language of this very discussion. It’s hard to keep up with the latest cooperative buzzwords, but we’re already good friends with Corporate Social Responsibility, Social Return on Investment, Venture Philanthropy and Social Entrepreneurship. Even the sacred bottom line itself is not safe, as the double bottom line accounting model reports on corporations’ social as well as economic impacts.

For the record, we don’t want to turn charities into Wall Street. What we want to do is connect the charities and donors who think some ‘Wall Street’ ideas could have valuable application in the non-profit sector. One favourite example is just for non-profits to set clear goals for success, and to track their progress towards meeting them. Internally, this provides valuable information for program managers. Externally, this provides the input to socialmarkets, where outcomes data is converted into social capital for the consideration of donor ‘investors’.

2. “We have to measure whether they’re doing the work with passion, with purpose, whether they’re honoring people, whether they’re keeping up with the public trust.”

We not only agree with such talk, we think we’re a great example of walking it - arguably an even better example than Mr. Trent’s own organization. Superficially, his org and ours have much in common: we both use quantitative measurements to evaluate nonprofits. But the devil is in the details, in this case the specific data involved in the evaluation: socialmarkets believes in evaluating charities based on what they do rather than what they spend.

socialmarkets is riding the wave of several new trends, including an increase in charitable donations, and an increase in the need for advice to the donors behind them. There are many other sites surfing these waves with us (including those like Charity Navigator) that use the information in IRS Form 990 as their advisory database. We see the appeal of this approach, since every U.S. tax-exempt entity must file this form, and the data within it is publicly available. This makes this database highly efficient to compile, if somewhat less optimal to execute.

We just don’t see mining data from 990’s into a good metric of nonprofit effectiveness. Sure it’s helpful to know that Soup Kitchen A has twice the expense ratio of Soup Kitchen B, but if it also serves ten times as many meals, isn’t it by far the more “efficient”? Isn’t it then okay to pay for the better benefits, more expensive software, and/or free cupcakes that are behind this impressive performance? We think so, and we think there are lots of donors and charities who agree.

This is where socialmarkets comes in - not making 990s irrelevant, but putting them in perspective. We know you can’t evaluate a charity’s success in their stated mission without digging deeper. You need more direct contact, at the very least asking charities to share their goals and the record of their experience in meeting them. In our experience, evidence of the “passion”, “purpose” and “honour” Mr. Trent is looking for is just one of the fringe benefits this deeper connection affords. We encourage him and the others sharing his corner of the charity evaluation space to see for themselves.