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SoCap’11: Creating a Social Enterprise Marketplace Dictionary

Posted September 19th, 2011 by Gena Rotstein
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At this past year’s SoCap, I led an Open Space conversation around the language that we are using in the social business/enterprise/venture space. I have observed over the past few years, as this sector evolves and pushes boundaries, there is much inconsistency in how we communicate what we are doing.  These organizations are generating revenue by tackling some of the world’s biggest problems, yet there seems to be much confusion in the marketplace from those who are building the businesses and those who are investing in them.This blog post addresses the questions I tweeted out during the conference. It’s an open call for continued dialogue and knowledge sharing. 

Thank you to the following people who have contributed their insights into this initial round of inquiry:

, CEO - The HUB Atlanta

, VP of Social Enterprise – Cook Inlet Tribal Council

, PhD Student – University of California at Irvine

, Management Consultant

, Director of Community Impact - San Francisco Jewish Federation

The questions I posted on Twitter during the conference shaping this conversation and ultimately this blog post were:

  • Is philanthropy dead? What would the new word be to describe the types of social investing that are going on? Is there a basic expectation that someone who “invests” in a project should have a financial ROI alongside the social?
  • The over-use of the terms Impact and Innovation… have these words been watered down too much to mean anything? Should there be a “success base” before one can claim their program/service/company has generated impact or is innovative?
  • In for-profit world when money is invested in overhead it is seen as building operational effectiveness. In the non-profit world, when money is invested in overhead it is seen as taking away from direct program/service delivery. For social ventures what are the expectations of investors? Where does the balance get struck between operational effectiveness and service/program delivery?
  • Need to create a reasonable standard for ROI’s in this sector. The expectation around 10x investment in 3 years is not reasonable when the R&D costs to push the social envelop forward are greater than the R&D costs in traditional business product development.

What is the definition of Social Enterprise?

  1. Financially self-sustaining business serving a social mission
  2. A for-profit enterprise’s primary objectives include but are not limited to financial return
  3. An effort to create social good
  4. Anything
  5. A series of activities connecting individuals to move forward a common collective
  6. The bridge between capitalism and communalism and/or social good
  7. The difference between a traditional business and a social business is that a social business looks at all the stakeholders
  8. Overuse of the terms Impact & Innovation

How do you define Investor?

  1. Someone with resources
  2. Someone with resources and faith
  3. This person has an expressed need for a value based-exchange
  4. This person has an expectation around a return; this return is defined at the time of the investment
  5. The return is customized between the partners (NOTE WORD PARTNER NOT INVESTOR).
  6. There is an understanding that the person is putting money in for a prospective return.
  7. There is a difference between seed investors and angel investors. There is a greater need for seed investors taking a social venture idea from concept to completing the proof of concept stage.

Scalability ≠ Sustainability

  1. Scalability is contextual and sustainability is a constant measurement
  2. In the philanthropic community scalability is seen as adoptability. Not just in organizational size but also in approach to solving the social issue
  3. It is the difference between re-investing money into overhead for growth vs. investing funds to maintain status quo
  4. Sustainability is meeting the needs of the current generation without robbing from future generations AND it can be replicated in multiple sectors (ENVIRONMENTAL PERSPECTIVE)
  5. Systemic solutions that can create the conditions for the system to heal itself
  6. Sustainability is a closed loop
  7. This is a long-term thinking process using a variety of metrics that can be measured in the short-term and long-term

Should there be a standard Market Rate Return on Investment?

  1. Seed Stage investor wants to be 1st, but very concerned about the size of overhead on due diligence in proportion to their investment
  2. Later Stage investor regards overhead in company's process as an inefficiency

How so we disseminate and reinforce common use of language?  Is it necessary?

How do we do this in a way that it helps in translating the ideas, content and strategy (intentions) of the sector to those that are first adjacent and then further removed in order to strengthen the ecosystem within and then around the space

Comments

GIIRS

On September 27th, 2011 Steven Crandell (not verified) says:

Clarity and definitions around impact investing (investing in organizations that seek both social and financial returns -- are at the heart of an effort by B Lab, supported by Rockefeller and a host of other foundations. It's called GIIRS. The idea is to bring a standardized approach to evaluating the social and environmental impact in social enterprises. It just had a big announcement at the Clinton Global Initiative. Check it out. http://www.csrwire.com/preview/press_release/YGpEmK4WpnNNI53cXcxsLO8iEJ4...

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B Labs & GIIRS

On September 27th, 2011 Gena Rotstein says:

Hi Steven;

Thank you for sharing this!

In fact, Beth Richardson from GIIRS joined in the conversation at the SoCap conference and she also validated this need for definition clarity.

It is so true that a standard for evaluating the social impact of organizations is required (hence the need for GIIRS) and I think what will help drive this standard forward is a common understanding of what we mean when we through around terms like investor, social investor, community investor, impact investing, impact assets... the financial services sector looks at these terms very differently from the charitable world, and a lot has to do with the un-articualted or perahps under-articulated social and financial ROI expectations.

Do you have any thoughts as to how this language should evolve?

~ Gena

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Thoughts

On September 29th, 2011 Nadine (not verified) says:

Hi, Gena,

This is a huge subject, and I find it difficult to wrap my head around just one opinion on it. So here are my somewhat disjointed thoughts:

- Are there really people who think scalability and sustainability are the same thing? I think of them as being almost completely different concepts. Scalability is capacity for growth and expansion. Sustainability is ability to support oneself without negative externalities. Almost everything should be sustainable, but only some things have to be scalable. No?
- Many of these semantics make me uncomfortable, since it feels like we're looking for a whole new language to support the idea that efforts to do good should be separate from other organizations and initiatives. I'm not sure I agree with that idea at all. Even the term "social enterprise" bothers me, because I feel that by using it we are tacitly giving other enterprises permission not to be social; to ignore the social aspects of their work. I don't know what the answer to this discomfort is, I just know I feel it.
- Impact and innovation: we do use these words a lot, but I'm not sure that means they're becoming meaningless. We use them so much because they represent concepts that mean a lot, that are very important. We do need to be on guard against misuse of them, though. Maybe you're right - maybe there should be some burden of proof for people who claim to be innovating and creating impact. We should be calling them out. This comes down to accountability. Ironically, accountability may be another word that's overused, and often misused.
- Investor: both 'investor' and 'partner' are better words than 'donor', because they're less passive - they imply that the giver or lender have some agency and some responsibility for the work being funded. (I know that 'investor' is used to describe more than just donors). It may not be perfect, but I think it's a step in the right direction.

Nadine

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Re: Thoughts

On October 2nd, 2011 Bill at FamZoo (not verified) says:

Nadine, those are really terrific comments. Great food for thought re whether "social enterprise" is (or should be) a separate category. Maybe we should focus on metrics for levels of "social-ness" exhibited by an enterprise (any enterprise) rather than separating enterprises into one binary bucket or another. That way, all enterprises would be encouraged to up their "social score."

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Rotary Micro-finance conference

On October 2nd, 2011 Gena Rotstein says:

Hi Bill;

Thanks for joining the conversation.

Yesterday this came up at the Rotary Micro-Finance conference that was held in Calgary. The investors in this space are torn between classifying investees by buckets or by impact. Of course, this conversation was very focused on the micro-finance and mostly funding enterprises in the developing world.  There have not been enough longitudinal studies (according to Finca) to determine the social-ness score of this type of investing.

I think that as GIIRS gets more established internationally this might change the way that investors play in the space and drive more social reporting by the businesses themselves.

~ Gena

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RE: Does Impact And Innovation Mean The Same Thing Anymore

On October 22nd, 2011 Josh Chandler (not verified) says:

Gena,

Thanks for a great post. Overall, I really agree with the core themes about the way social enterprises are perceived.

I just wanted to provide a quick piece of feedback about whether impact and innovation have as much meaning.

I think when we put the word impact in the context of how many people does this affect and how, I would say the word still has a lot of valid meaning.

Social enterprises are there to make a difference, and the way they impact can often be the biggest differentiation they have from any other local charity or social enterprise.

Whereas innovation is much more fluid. In the typical business sense, innovation can mean the way a process is improved or a service is performed.

But with a social enterprise, how do we define an innovation?

I think that this word has lost meaning and context because like in a for profit business, the word appears to make something seem magical.

For many entrepreneurs and change makers, they get bogged down in the detail of innovation. Rarely do they consider the real world implications and ways the innovation will occur.

So, I can't define how I would say a social enterprise innovates. But, it has certainly got me thinking!

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Overusing a word

On October 22nd, 2011 Gena Rotstein says:

Hi Josh,

I was chatting today with Tori Maclean (@acceleratorYYC) about disruptive technology and how when you take something that is used in one field and apply it in an entirely different field, is this disruptive and innovative? One example could be medication that is designed for one ailment that has medicinal properties for anothe ailment. Or it could be making a current technology better, but different (i.e. a new garage door opener isn't all that innovative, but perhaps one that starts your car and backs it out without hitting the garbage can in the alley behind it might be pretty cool).  I am obviously a little punchy today.

I couldn't agree with you more that we have over-used the terms innovation and impact. I like what the Unreasonable Institute has to say about this - does your solution affect the lives of billions of people?

A wind turbine is nothing new in the world (see Don Quixote... ;-)  )... but placed in a community that use that turbine as the only source of power generation could be seen as highly impactful while not innovative.

I guess as a social entrepreneur, are we looking for the new ways of doing old things, or are we looking at new ways to do new things? Can it be a combination of both?

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To the commenters uncomfortable with the term social enterprise

On November 4th, 2011 Tammy Maloney (not verified) says:

Social entrepreneurship is the future of business. If entrepreneurs continue to launch businesses that replace profit-maximization with a "blended value" approach and the market continues to demand sustainable businesses without negative externalities a ripple effect that evolves capitalism will be created.

When our economic system is an obvious reflection of societal values that extend beyond financial profit the term social enterprise will become obsolete.

My full thoughts on the subject - http://tammymaloney.com/2011/10/15/capitalism-evolves-as-our-values-evol...

Tammy

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