HUB Berkeley Fireside Chat on the Edge Between Nonprofit and for-Profits

July 28th, 2009

I attended a fascinating talk on social entrepreneurship at the brand new HUB Berkeley last night.  HUB is a shared workspace concept especially for socially innovative people.  They have facilities in 12 cities around the world, including the brand new, gorgeous David Brower Center in Berkeley, CA.  This event + last week’s Cleantech Open event at AutoDesk’s One Market gallery made for two LEED Platinum building visits for me in a week, which was a minor milestone for me.

The talk featured Matt Flannery from Kiva.org, Steve Newcomb from Virgance and Ben Rattray from Change.org.  Discussion was lively and instructive on a number of levels.  I was especially fascinated by the fact that all three businesses stand on the line between traditional nonprofits and for-profit businesses.  All three panelists spoke about why they chose one form over another.  If I understood them correctly, Kiva’s founders simply felt that non-profit status was the right fit; Virgance and Change.org both raised money from investors and that required them to use for-profit entities.

From the discussion, though, I got the impression that any of them could have gone either way with their businesses.  As Newcomb said, it is a great moment in history when people can be capitalists and activists at the same time.

The legal framework needed to build businesses at this balance point is not fully developed, but through the efforts of B corporation and others they are coming into shape quickly.  I love working in this space and look forward to its full development.

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Charity-Owned Companies or For-Profit Companies Devoted to Social Good?

July 23rd, 2008

Attorney Gene Takagi has a really informative blog on legal issues for nonprofit businesses.  He has a post today on LLCs owned by charities and raises some good questions about how to insulate the charity from liability (e.g. if the charity owns real estate) and whether donations from to the LLC would be deductible.

Nonprofit Law Blog: Charity-Owned Limited Liability Companies

In many ways, this structure is a complement to the B Corporation idea I have blogged about previously.  A charity-owned LLC is essentially a for-profit subsidiary of the charity, while the B corporation is a for-profit company that may provide economic benefit to charitable organizations.

I am presently working on the latter concept- a B corporation set up specifically so that it can grow as a for-profit company, but which is very closely tied to a non-profit business and provides economic benefits back to the non-profit.  As the project matures, I hope to share detailed information about the business and its structure.  I would love to write a case study comparing the relative merits of the B corporation approach with the charity-owned LLC.  It seems clear that the structures serve related but different purposes.  A primer that helped figure out which to use when could be valuable.

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The Selfish Side of 1% for the Planet

June 16th, 2008

My last post was a wonky one on changes in California law that affect company management’s ability to consider social good as well as shareholder value.  Here is a complementary piece to that, courtesy of Harvard Business School’s Working Knowledge newsletter.

Spending on Happiness — HBS Working Knowledge

The jist of the piece is that we spend our lives trying to accumulate money, but succeeding at that doesn’t make us any happier.  Instead, the researchers found that spending money on other people does increase happiness.

The article talks specifically about personal spending, but I am willing to bet that it holds true for companies as well.  Knowing that your company gives away money to help outside causes increases loyalty toward the business.

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Social Entrepreneurship and Alphabet Soup Corporations

May 18th, 2008

There’s the C corporation that most people are familiar with (what you get if you don’t specify anything else) and the S corporation that is tax free but doesn’t allow preferred stock. Both of these names come from the sections of the IRS tax code that describes them.

Add now the B corporation. The “B” stands for “beneficial”. It doesn’t have special tax rules- instead the intent is to tell people clearly that the company considers benefit to its employees, the general public, the environment etc. along with shareholder profits.  The organizers have developed a community of B-corp adopters, and it includes a bunch of “green businesses” but also a couple of big law firms, a skateboard manufacturer and a handful of software companies.

The challenge of socially entrepreneurial companies is that they can do very well, get acquired or obtain outside capital and/or management, and the core principles can get diluted. The B corporation process doesn’t prevent this from happening, but it does make loud and clear that social good is a core element of the business.

So how does one become a B corporation? First, one must fill out a survey. A passing score means that one can take the next step of amending the corporation’s Bylaws and Articles of Incorporation to state the social purpose(s) clearly. I haven’t done it yet, but I am going to take the survey as it applies to my own business.  I hope I score well!

There is nothing magical about any of this.  It can all be changed or abandoned completely.  It is, though, a way to tell the world what your company cares about strongly.  That can be good for the company, good for business and- one hopes- good for the world.

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The Elusive Triple Bottom Line Again

February 4th, 2008

Harvard Business School’s Working Knowledge newsletter has an insightful post this morning asking whether sustainability and triple-bottom-line principles are growth opportunities or zero-sum propositions for most companies. There is great discussion in the comments as well.

I’ve mused on the same ideas previously. The idea of “service”- of adding value to society and the world that goes beyond shareholder returns- is captivating. Is it feasible?

The article speculates that there is some “low hanging fruit” that companies have already grabbed and that further integration of economic, social and environmental bottom lines is likely to be more difficult. Several commenters also point out that stock markets tend to reward the economic gains and gloss over less visible results.

True enough. Just getting any one line consistently “in the black” is hard- keeping them all there is probably more than most companies can do all the time. It helps when banks and regulators push issues like climate change onto the economic balance sheet, but the effort is still largely its own reward, which explains why even the companies really excited about the ideas consider 1% of profits to be an acceptable amount to expend on social/environmental goals.

Back to the original question- I believe there is a “balance point” for most businesses- where triple bottom line results may swing back and forth a bit over time, but stay basically stable. If each line is a pendulum, a few companies may be able to get them all swinging together most of the time, but most have to live with a certain amount of lurching when the pendulums get out of sync and then work to smooth the disharmonies. That’s what i strive for in my own business, at least.

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On Getting Paid to Recycle

January 24th, 2008

I wrote a piece for VentureBeat some time ago on the idea of “productizing good”, a great phrase I picked up from Terrapass‘s Tom Arnold. The idea is to use capitalist/consumerist impulses to drive socially and environmentally beneficial goals. I cited Terrapass, Ethos water and Kiva.org as good examples of the trend.

Lately I have seen a number of businesses with a slightly different spin- they pay *us* to do good. I mentioned EnerNOC the other day as one company that pays its customers to reduce their electrical consumption, and a commenter was kind enough to point out several other companies in the space as well.

On the consumer-facing end of things, I attended a VLAB panel the other night that featured RecycleBank, whose business model is to pay consumers to fill their recycling bins. RecycleBank signs contracts with municipalities, taking a cut of the amount the city saves on landfill costs as recycling increases, and passes on a portion of that to consumers as credits to be used at designated merchants. The goal is to divert recyclables out of landfill, potentially generate income for the cities by making material available to the recyclables market, and reward consumers every month for sorting their trash. I would have been really skeptical of the whole idea but for (i) learning that most people in the US don’t recycle much, and (ii) the company has a bunch of cities under contract already.

Even closer to my heart is Terracycle‘s Brigade project. Terracycle’s main business is selling organic fertilizer and pesticides. They package their products in straight-from-the-recycling-center plastic bottles. More recently, they have started projects to collect used yogurt containers, drink pouches and energy bar wrappers. I go through a lot of energy bars, so I’m pleased to have a place to send the wrappers. For each container, $0.02- $0.05 is donated to the charity of the collectors choice. I’m still working through the details, especially what will be done with all the material collected, but I love the idea.

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New Cycle Capital Having a Go at Multiple-Bottom-Line Investing

December 8th, 2007

New Cycle Capital is a new venture firm with a mandate to make money while investing in the “green economy” and underserved domestic markets. This is an area I find fascinating because it is such an intricate dance; some of my earlier thoughts on it are here.

Companies focused on a single, economic bottom line really have one big thing to think about- making money. Companies that adopt a triple bottom line approach or some variation on it are juggling almost by definition to find a profitable business that supports the non-economic goals.

I think most companies can’t really put that off very well, which is why they settle for making money in one arena and using it to do good in others. Investment funds run much the same way. The Omidyar Network, for example, cites a commitment to “creating opportunity for individuals to improve the quality of their lives”, but a quick look at its Portfolio page shows a split between for-profit and non-profit investments.

Pacific Community Ventures is a $60M family of funds trying to do things differently. Part of their mandate is that portfolio companies employ a portion of their workforces in low/moderate income communities. They invested in Timbuk2, whose bags are made by just such people in San Francisco.

The fact that PCV is not a household name may suggest that this area is a hard-to-serve niche. I’ll be watching New Cycle Capital as another entrant in the field, and hoping to see more funds taking similar approaches.

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