What if Charities had an Exit Strategy?

This past weekend I was part of a facilitation team taking a group of individuals and organizations through a course on starting a social enterprise.  The workshop was hosted by Canada Bridges and there were about 25 individuals ranging in age, ethnicity, and most especially in the ideas that they felt they could get to market that would make meaningful social change.

At one point there was an exchange about whether charities should be more like businesses, and what does that really mean?  In Canada, we do not have a formal structure of a Social Business.  It is a term that is used province by province (not unlike the L3C's in the US). What we do have is an appetite of both for and non-profit organizations that are exploring a socially driven, profit oriented business model.

Charities are businesses and philanthropy is an industry (see Lucy Bernholz for more about this). Therefore, it only makes sense that charitable organizations embrace their inner-business soul and start reflecting the financial and social capital that they hold.  The fact that non-profit organizations control a large portion of our employment space, our overall national economy, and are the very institutions upon which our society has been built indicates that they are in fact, businesses.  For some reason we have said that our culture is capitalist, but that isn't the case.  Peter Drucker, the godfather of the corporation and formal business education, once wrote,"...that companies are communities built on trust and respect..." We lost that sense of community when we put, "...profit as the ends, and not the means to an end," as Mark Durieux said at the workshop (author of Social Enterprise for Dummies).  Because we have put profit as the ends, non-profits and those who legislate them, make people feel guilty, apologetic, undervalued when their organizations not only becomes profitable, but as a result sustainable needing less public support.  What other business tries not to have a stable, predictable revenue stream? NONE!  Mark and I differed in view on what reasonable profit is, but we both agreed that the core of the business is one that is socially motivated and will impact the lives of thousands of people. 

We also differed on what an exit looks like.  For Mark, a social entrepreneur makes a commitment to the social change they want to see, and sticks with it until it is solved.  My approach is more like making a "Go/No Go" decision at critical points in the social venture.    Again, because I believe that if your project/idea/business isn't sustainable then you have the wrong business model.  As well, with 161,000 non-profits/charities in Canada there is not one social issue that isn't being addressed, which means that there are ways to engage in the market that does not require you to start your own thing.  Sometimes the role of a social entrepreneur is knowing where s/he best fits and tries to inject him/herself in that space instead of building a whole new space to play in.

When I first started pitching Place2Give software for financial institutions, potential investors asked me what my exit strategy was.  I quickly learned that unlike the charitable sector, where I had grown up professionally, in the for-profit world, it is about the exit not the solution.  What would the charitable sector look like if we focused on the exit?  Actually started marketing the social change and the need to get out of the business once the issue was solved?  Built institutions that were purposefully designed to close because the need for the organization was no longer in society’s best interest? People create organizations for any number of reasons, but at the core of this decision to make a charity, is an emotional one; the same goes with financing a charitable organization – at the core of decision to write the cheque, donate your time, transfer shares, etc. is an emotional one.  People don’t give because of the tax receipt, the tax issue is only a question of how much they give and when.   It is important to start somewhere, and so, by putting a financial equation around the discussion, we can start mapping out when the potential for significantly reducing or altering the issue that the organization has set out to address.

I have a very clear exit for my software company. Every decision I make is a three-fold decision:

1. Is the customer I am building my platform for going to further my social objective of shifting the way that North America's charitable sector operates
2. Is the service that I am providing one that my customers are interested and willing to pay for and will be they evangelize the product afterwards (thereby growing my revenue base allowing me to further the objectives of Point 1)
3. Are the platform features that I build-out going to increase the overall value of my company so that the exit that I have in mind is one that I am strategically driving towards.

Those who have chosen to invest in my business are individuals who not only see the social side of the business, but there is also an expectation that there will be a financial reward. The financial firms that are my direct customers also have a financial stake in the game – they want to see that as a result of implementing my software their client retention rates increase, their assets under management increase, their employee engagement and client satisfaction rates increase... ultimately everything that drives to their bottom line.

The social enterprise movement is shifting the way that our capital markets operate, and most especially the way that organizations talk about the value that they bring to our society. 

So, what would it look like if charities created themselves with a vision to be out of business?