Successfully operated social ventures have added value to the community through increasing employment, generating social capital, promoting social value and justice, and pushing forward issues of sustainable development and green environment. One doesn’t have to be a business pundit to guess that any business generating such social and financial returns should flourish and find favors with investors & common people. However, contrastingly and [ironically], in the last decade, a mere 144 social enterprises were able to cross the 50 million dollar revenue mark as compared to the 46,000 for-profit commercial organizations. Simply hard to believe!! So, who and what is to blame for the current state of the non-profit and for-profit social organizations – Is it the investors snub towards social change, is it the lack of regulations & tools to measure just how social an enterprise is, is it the over dependency on philanthropists and donors, or is it inability of social enterprises to find macro solutions to the global social problems, or is it the poor advertising by social activists that they failed to garner enough enthusiasm and interest?

Keynote speaker Dan Pallotta in his talk, presented some very compelling arguments and figures to shed light on why all of the above are responsible for the inability of the social organizations to eradicate the social issues on global scale. He in fact, raises a much bigger question –

“Is the current system even capable of bringing the required social change?

Investors are more patient towards a commercial venture vis a vis a venture working to make a difference? For any business to thrive and prosper, it needs to be supplied with the right mix of ‘basic business promoting ingredients’ – belief, time, investment, and manageable risk. Ironically, all these important factors, for some inexplicable & unfathomable reasons, seem to be forgotten when it comes to social investment. Even though a million dollar commercial idea/venture turns out to be a flop, we term it as a ‘learning curve’ towards a bigger goal and probably invest in it again. Then, why do we not show the same degree of faith in a social enterprise? Why do we expect quick returns?

We don’t have any problems handing fat paychecks to the honchos of commercial organizations. But, we are skeptical of the integrity and intentions of an entrepreneur who makes profit while working for social upliftment. Why this change of attitude, questioned Dan Pallotta? As a matter of fact, the profit generated by the social enterprises is re-used to further their social and environmental mission. So, in all logical & humanitarian sense, shouldn’t the community be more supportive of a social enterprise?

Pallotta also held the non-business like entrepreneurial approach of the non-profits responsible for the sorry state of social agencies. He claimed, just the social mission can take a business only so far. However, in order to attract long-term investment, social entrepreneurs will have to create innovative enterprise designs, creative ad campaigns, awareness programs, and deliver concrete social impacts. If the social enterprises start delivering high social impact, then evil questions like ‘what percentage of my donation or investment goes to social work and what percentage goes to overhead,’ will cease to be asked and profits and overheads won’t be considered the evils they are thought to be.

With the current fiscal turmoil and people looking around for more ethical and environmental friendly enterprises, has the age of social enterprises finally come? Absolutely, provided that both the community and social enterprises take steps in the right direction. The first and foremost step will be to build an ecosystem conducive for social innovation and social entrepreneurship. Secondly, social enterprises should work to improve the signposts and milestones, i.e., create awareness among common people about the importance and necessity of social change. Although making money by supporting a social or environmental cause is not bad, it is very important for common people to ‘optimistically’ embrace social enterprises & initiatives with open heart and realize that making social difference [and NOT money] is the true inspiration behind it. Lastly, as mentioned by keynote Lewis Hower, for social enterprises to become a globally successful phenomenon, social organizations will have to rapidly scale initiatives, eliminate work not required to attain social goals, exceed milestones, and scale existing micro solutions to eradicate macro problems.

If all goes to plan, social enterprises may well attain the credibility, sustainability, and popularity that they have always craved for and we may well be on the path to create a socially just and green world.

Kevin Doyle Jones becomes more popular by the second as more social enterprises are increasingly ready for venture capital investment to build their capacity to scale. As a principal at Good Capital, Kevin sees the value in investing in triple bottom line companies. Good Capital just invested in their third company, Alter Eco.

For social entrepreneurs who are currently melding their ideas, shape it up soon because Good Capital is preparing to offer seed capital this fall. Good Capital recognizes the large gap in seed funding and has commitments from investors for seed funding.

Kevin is a pioneer of good. Not only does he invest in a socially responsible manner, but he also was one of the US founders involved with the Hub. These centers for innovation organize managed and explicitly focused networks of social entrepreneurs.

In a post-panel interview, Kevin shared the current picture of social investment and the current undertakings and future plans of Good Capital.

When do you think the tipping point is going to occur for social investing, when more than just a handful of investors will partake?  What is it going to take for the tipping point to happen?

I’m with Yogi Berra and will predict anything but the future. It’s much easier to raise money for social enterprise now than it was three years ago. Now we have proven businesses. With Better World Books, we invested 24 months and two weeks ago. Now they are at $59 million in revenue. They are reinvesting into themselves through their profit. The $2 million we put in is now worth $6 million. The concept is catching on.

We’re past the stage that needs heroes. I’m tired of heroes. We need viable businesses. The Kiva guys are phenomenal. They are at $135 million in loans and they’ve stayed focused. They know who they are going to partner with and who they are not going to partner with. Good Capital is going to use Kiva’s model for our “Impact Exchange” lending platform. It will be the same thing but for fair trade, to help fair trade farmers with their growth. [Author’s note: Kiva connects people around the world who are willing to lend to entrepreneurs in developing countries in segments of $25. Kiva entrepreneurs have a 98.57% repayment rate.  And Kiva just won $1 million from Sam's Club.] This platform will allow lay investors to invest alongside us in fair trade. People are ready to change their consumption habits rather than investment habits. We want to invest in conscious consumption and it’s the way people are changing.

What do you find to be the most difficult barriers to the change your organization wants to create in the world?

Our challenge is still the existing myth of capital: people want to invest in one place and donate in another. Potential investors like what we do, but they can’t think about their money in the way we invest it. We need to change the way people think about their money. What’s going on with [the] Goldman Sachs [Senate hearings] was great for us. Investors have to look at the impact of their money. Many could see Goldman Sachs as having an important place in the financial crisis. As an intermediary, they can take a cut on both ends [investor side and investment side]. People are waking up to investing purely on financial return. They are not doing anything for the benefit of investors or investees when focusing on [financial return alone].

There are many cultural battles and we’re changing the mindset, one investment at a time. Where many investors examine the potential internal rate of return, which is how much money is made on an annual basis, year over year, we invest on a time to behavior change. We don’t want to be complicit with the way people are treated in the supply chain. Many companies are moving toward fair trade principles and we are investing in a lot of it. Once consumers have a foundational relationship with the people that create their food and their clothes, things change.

Lilith Fair created the i4c fund. They are investing in two out of the three of our companies to include AlterEco and Better World Books. We’re excited about AlterEco because they are fair trade, organic and zero carbon. Every ticket is an investment with Lilith Fair and Good Cap. We are working with ReVerb [a musician tour greening company with outreach to fans] on Lilith Fair. They understand what gets people to take action at concerts and we want them to show people what steps can be taken to lead more sustainable lives and provide people with the ability to take them.

Kristen Parrinello is a perpetual student of non-profit management and social entrepreneurship.

by Kristen Parrinello

Since Uncharitable was published in the beginning of 2008, Dan Pallotta’s speaking schedule has been quite full. The founder of Pallotta TeamWorks made waves in the social sector; some would say the waves are increasing to tsunami size. In an effort to “examine the arcane structure we inherited for non-profits,” Dan’s book unpeels the layers of non-profit culture to reveal ties to the Puritans and questions how a similar culture still exists. The ideas Dan brings forth in his book has roused voices, making room for new ideas and questioning the old rule book.

Debate has ensued over many platforms and between many non-profit players over the past two years. Robert Egger has used Sean Stannard-Stockton’s blog as a discussion platform with Dan. Rosetta Thurman and Joe Brown have qualified and quantified their thoughts on non-profit CEO compensation.  It seems as though this kind of contention is exactly what Dan aimed to catalyze with Uncharitable.

Before his keynote at ReVisioning Value, Dan noted, “There has been a great response [on Uncharitable] with tremendous enthusiasm, across a range of ages and sectors”. He shared, “We are philosophically wedded to the purity of the non-profit ethic. Many live in a smaller context where the ethic is important and they have a quaint idea of charity. They can’t imagine charity should free itself of the constraints on non-profits. I think there is no reason the private sector can’t address social problems in the same robustness as consumer products. It’s just another way of organizing people.”

Dan has garnered attention with his book; however, he believes the tipping point is yet to come. “As a new generation moves into leadership positions, I think we’ll see changes,” he stated. Dan admitted, “there hasn’t been a change as a result of the book, rather the times. The conversation is gathering critical mass. Brave acts of leadership are taking place within the philanthropic sector.” Such brave acts are changes in philanthropic granting. For example, some community foundations are now granting for overhead, a treasured account within non-profits to pay for rent and salaries that is many times overlooked or avoided by donors.

Some would disagree with Dan’s denial of Uncharitable’s impact. While these days, we are communicating more about innovation than ever, it takes the right catalyst to get ideas pushed around, and thoughts and models to be reframed. Keith Kall spoke of similar points to those made in Dan’s keynote, during his speech at The Ideation at the beginning of April. Like Dan, Keith illustrated that the magnitude of the issues have not changed in many decades and the way to solve problems will be within free-market capitalism. And many think capitalism will be a strong part of this change lead by value-added social-impact models, such as social enterprises. Social enterprise is still a new idea to the for-profit and non-profit sectors, but has been around for decades. Bill Drayton believes turning next generations into change makers now is crucial for solving social issues via social enterprises.

New ways of thinking are on the horizon, but the question of how fast they will be implemented remains. Dan’s ideas have drawn allies and enemies alike, creating a catalyst for a modified social sector culture.

Kristen Parrinello is a perpetual student of non-profit management and social entrepreneurship.

This is a wonderful opportunity to push for the ecosystem your city’s social innovators need, and raise awareness of the value of social business and upstream solutions!

Conference Call:   Monday, May 17  |  11:00 - Noon PST

ReVisioning Value 2010 attendee Megan Strand summarized her “mind-bending takeaways” from the conference on her InCouraged blog with the post titled “Disturbed”.

Then she asked me to offer my main takeaway from the conference. Even after posting my comment I still can’t decide whether I, too, should be disturbed, or whether I should rejoice my old bias has proven rock solid: market capitalism continues to be the worst economic system except for all others that have been tried from time to time.

In her opening address, Springboard Innovation’s very own Amy Pearl previewed the conference by highlighting its aims: 1) to redefine the meaning of value and 2) to demonstrate how to use profit-seeking ventures to generate social and environmental good. Put another way: We must utilize the traditional market capitalism tools and mechanism to benefit people and the planet.

From that standpoint, ReVisioning Value 2010 succeeded. Participant Elizabeth Hoffecker Moreno, of Social Innovation Partners, found it “inspiring and radical that people are subverting the dominant paradigm through action that looks mainstream.”

According to Dave Chen, of Equilibrium Capital, this has been happening over the past decade or so, as we’ve seen a transition from philanthropic to capital markets in various sectors, such as clean energy or land conservation.

On the same panel, “Measuring and Marketing Social and Environmental Value”, Patricia Farrar Rivas, of Veris Wealth Partners, emphasized that “philanthropy alone cannot solve global issues”, a sentiment echoed throughout the conference.

Both Dave and Patricia (as well as a number of other speakers) emphasized the need for social ventures to demonstrate their impact with data. As Drew Tulchin, of SEEP and the third speaker on the measurement panel, pointed out, blended value investments tack on social on top of financial considerations in assessing the value (and valuation) of social enterprises.

Inasmuch as such ventures must vie for funding and investment to scale their generation of social and environmental benefit, they must demonstrate good-old hard-currency profitability. Social value is good and fine, but even the investors specializing in social enterprises seek financial viability.

An entire panel, titled “From ‘Fundable’ to ‘Investable’: What It Means for Nonprofits and Social Businesses at All Levels of Growth” spent its time on ways social enterprises can obtain the funding necessary for their good works. To underscore the point, panelist Josh Cohen, of City Light Capital, said, “building a social business is harder than building a non-social business because you must generate comparable [financial] returns”.

As you attempt to scale social ventures and move the generation of good into the mainstream of business, you have had to, and must continue to, re-evaluate value by blending social-impact metrics with financial indicators. In circling back to capital markets, you must also — and perhaps first and foremost — demonstrate social impact pays. While moralists debate whether profiting from helping the poor is evil, social ventures will continue their march into the economic mainstream.

What is the significance of start-up, citizen led innovation? And how do you think we could better enable it?

People realize that a financial return on investment is not a sufficient return. They recognize we are a social community, one that could address the issues in a positive way as well as a financial way. They are looking for returns that are demanding more out of the investment than financial gain; they are also demanding a social and/or environmental return. We could better enable this by educating the investment community to understand the demand.

Investors now see more companies providing a double and triple bottom line, which creates a demand for more entrepreneurs who are going to create businesses with double and triple bottom lines. For example, ten years ago we had zero depositors in our bank and now we have 4,000.

As a previous student of economics, you have a big picture view of the world. American culture generally seeks a quick turnaround, whether it’s food, profit or services. How do we get our culture to understand the long-term investment and patience required to create social change?

There is a growing group asking the large picture questions. Innovation is created at private companies and larger companies buy it later on. Smaller companies know not to go public so they don’t have to worry about quarterly return. Being publicly traded puts companies in the [stock market] game, which is to keep the stock price high enough not to get taken over. Investors willing to make a longer term investment rather than a shorter term investment need to be brought into the arena. They do exist and they are growing in numbers.

A new company has the opportunity to put clarifying information in the Articles of Incorporation from the start, to run the operation to be responsive to a variety of stakeholders rather than shareholders. This allows companies to refuse buy out in legal protection. Adding this feature will allow the business to stay in a long-term strategy position.

What are the greatest opportunities and challenges afforded by cross-sector collaboration, which ReVV facilitated in this conference?

Opportunities are present for participants to meet others whom they can learn and share ideas on strategies from at the conference. The speakers are irrelevant. We need to create a framework for people to talk with each other, which appeals to those who are willing to say “tell me more.” The speakers are there to create an argument, and the conversation is what people benefit the most in a conference.

ShoreBank Pacific is planning on creating and facilitating smaller conversations that are initiated at ReVV in the NW. The plan is for this group to share ideas often with a collaborative intent.

Your eclectic background enables you to identify which lessons can be transferred across many sectors. What are these lessons?

1. Have many “lives” or different types of jobs. It’s hard to collaborate when young because experiences are limited, so it’s hard to find connections across sectors and businesses across disciplines. The breadth of experience will give an opportunity to see across sectors; we need to be exposed to much to see it. Being open to a lot of exposure with a variety of experiences is important to do this.

2. Seek diverse opinions: economic, social, racial, educational, etc. Find someone who doesn’t think like you and bring them into your group for thought sharing.

What advice do you have for budding social entrepreneurs?

Assume limited success for a longer period of time than predicted. Set a period of time three times longer for success than anticipated. Be able to answer:

1. How am I going to survive from a financial perspective?

2. How committed am I to be totally dedicated to the idea?

3. How big does the business have to be to be interesting and can I get it there?

4. How much success is too much success? How am I going to handle wild success (social risks, management risks, financial risks, reputational risks)?

Kristen Parrinello is a perpetual student of non-profit management and social entrepreneurship.

Twitter: @VoxPoppdx and @ReVisioningValu

If the role of a conference keynote speaker is to spark dialog, Dan Pallotta exceeded all expectations. In fact, his opening speech seemed to have left the most indelible mark on every participant I spoke with at ReVisioning Value 2010, both in form and in content.

For example, Jenna Ringelheim, of the Northwest Earth Institute and Bainbridge Graduate Institute, said, “I’ve worked in nonprofits for 10 years. [Dan Pallotta] made me rethink how I imagine nonprofits should operate, and how they can demonstrate their values by the actions they take.”

In “ReVisioning Change: Removing Barriers for Good”, Dan summarized his book “Uncharitable”, challenging everyone to give nonprofits the freedom to make as much difference as possible by allowing them to use the rulebook governing the market.

According to Dan, nonprofits experience discrimination in 5 areas:

1. Compensation - Nonprofits aren’t culturally and ethically allowed to pay competitive wages based on the value they produce, which drives talent and leadership away.
2. Marketing - Nonprofit can’t build demand with for support of their services with advertising the way businesses can.
3. Risk-taking - Nonprofits are forced to avoid failure at all cost and can’t freely try out innovative initiatives to generate revenue.
4. Investment - Nonprofit initiatives are driven by the need to generate short-term returns rather than grow revenues in the long run.
5. Profit - Unable to pursue profit, nonprofits are starved for growth and risk capital and can’t compete with business for investment.

In other words, we — donors, foundations, governments, media, as well as nonprofits themselves — should allow tax exempt organizations to operate more like businesses.

What irks Dan more than anything, however, is how we tend to evaluate nonprofits based on the percentage of donations going to the cause versus to overhead. Focusing on lowering overhead forces charities to forgo solving problems. It also gives donors bad information, failing to provide any feedback on the quality and effectiveness of service or on what difference the organization makes.

Dan’s argument against separating overhead from cause convinced many. Photographer Sara Gray, one of the event sponsors, said, “I’ve heard that information reported on the news. It sounded reasonable. But his presentation made me think, ‘Wait a minute, let’s step back, and evaluate it again.’”

Dan’s solution to all these problems: build a massive assessment apparatus, within a specialized institution perhaps, to measure program effectiveness.

Jenna Ringelheim reached a different conclusion: “We must get beyond numbers and figure out a way to better tell stories of nonprofits that are doing good. There has to be a balance between numbers and stories, but we have to be able to communicate what we do, how we make a difference, and how nonprofits’ work impacts lives, rather than just how dollars are spent.

All interviewees highlighted Dan’t engaging presentation style. All agreed with most of what he said, if only because it seems to have confirmed something they’ve long felt.

The most radical disagreement came from an unexpected corner. In reference to Dan’s call for salaries of charity CEOs to reach parity with those of business executives, Jefferson High School student Erica disagreed “with the idea that nonprofit leaders should be earning as much as businessmen just because it’s charity work.”

Rather than push nonprofit salaries upward, toward the levels of business, Erica argued for lowering all salaries. “Comparing $400,000 salaries with CEOs making millions is like littering on a small scale,” she said. “Just because you’re littering less than someone who’s littering a lot doesn’t make littering right.”

Dan’s keynote began with a case study suggesting nonprofit success comes from asking people to do not the least, but the most that they can do. Dan Pallotta had been tasked with getting the ReVisioning Value 2010 ball rolling; I predict the conference participants will recall his presentation as the event’s highlight.

Media sage/prophet/futurist/demigod Clay Shirky wrote a piece recently entitled “The Collapse of Complex Business Models.” While it’s ostensibly about the media industry, it’s also reflective of the nonprofit sector’s current state of affairs, and struck me yesterday as strongly resonant with ReVV keynoter Dan Pallotta’s arguments that the sector must change - and be allowed to change - in order to survive.

Shirky starts out by referencing Joseph Tainter’s 1988 book The Collapse of Complex Societies, in which the author examines several societies – the Romans, the Mayans, et al. – that built up complex social structures and advanced technology over time but then suddenly collapsed. Tainter theorized that these societies hadn’t collapsed despite their complexity but rather because of it; they created “huge, interlocking system[s] not readily amenable to change,” and societies whose elites refused to change them because of how such adjustments could imperil their power.

The parallel between Tainter’s conclusions and the current collapse of journalism’s business model is an obvious one, and Shirky gives numerous examples of how media industry executives dismissed opportunities to change their strategies in everything from audience engagement to revenue generation, choosing instead to stick to the 20^th-century status quo. In so doing, they’ve lost viewers, seen their profits plummet, and witnessed the rise of many journalism “experiments” – citizen journalism, online ad partnerships – that they passed on in favor of sticking to the script, as it were.

The less obvious analogy is between the media industry and the nonprofit sector. There are many established organizations and charities that have faltered during the Great Recession, due in part to their reliance on government funding, gifts from wealthy individual donors, large grants from foundations hit hard by the stock market crash, Bernie Madoff’s Ponzi scheme, or all of the above.

But it’s not just the nonprofits who are to blame for their donor dependency. In fact, according to ReVV keynoter Dan Pallotta, it’s the current economic paradigm that castigates charities for pursuing profit, and in so doing created institutional and psychological barriers that keep nonprofits from achieving transformational social change. In Pallotta’s keynote, which drew heavily from his book “Uncharitable: How Restraints on Nonprofits Undermine Their Potential,” no one was spared; the nonprofit sector, the for-profit sector, the advertising industry, and even our Puritan ancestors were all taken to task for their complicity in the creation and/or acceptance of a culture that scorns nonprofits for using the tools of capitalism to eradicate social ills.

Just as Shirky draws parallels between past societies and today’s news industry, so too did Pallotta look to the past for the origins of today’ ingrained and inflexible mindsets.

In his view, the current nonprofit state of affairs is rooted in our Puritan past.

“The Puritans came [to America] for religious reasons, but they also came here to make lots of money,” Pallotta argued. “They were major capitalists; they established the Massachusetts Bay Company.” Their religion of choice was Calvinism, and they believed “that making money would get you sent permanently to Hell. So charity became this economic sanctuary where they could do penance for their profit-making tendencies. They created this other economic world where farmers and traders got the market, and the needy got religion. We’re still stuck with this system today.”

Pallotta painted a profoundly bleak picture of the nonprofit sector’s state of affairs, but also emphasized the potential – indeed, the necessity – for a paradigm shift.

“We need to stop asking the wrong questions and … build a magnificent assessment apparatus,” said Pallotta. He called for a “leadership voice,” and discussed his work-in-progress: collaborating with other organizations and thought leaders to create an International Charity Defense Council, “a charity anti-defamation league, legislative force, and public awareness campaign fighting to change tax codes and create creative ad campaigns” about why ‘overhead’ and profit aren’t the evils people think they are.

Above all, Pallotta appealed to the purest of purposes: “hav[ing] the courage to be true to our dreams.

“None of us got into this work because we were passionate about our lack of profits,” said Pallotta. “We had feelings, we had tears. Something moved us at the level of our heart and soul. If we remember that feeling, and set brave, wild goals, then overhead will go out the window.”

Pallotta’s message is a rallying cry for the enterprising innovators in the nonprofit sector and beyond, imploring people to get back to basics – the dreams that inspired their work – while forging ahead and breaking down dysfunctional systems to create new ones that free them from unnecessary financial restraints.

In light of all this, Shirky’s conclusion seems particularly resonant:

“It is the people who figure out how to work simply in the present, rather than the people who mastered the complexities of the past, who get to say what happens in the future.”

Only a paltry number of volunteers and investors won’t be able to create the world we all dream of. We need a constant motivation and committed manpower and funds. The real challenge is “to generate excitement among common men, entrepreneurs and investors.” It is never too late to start and the Revisioning Value Conference could be our starting point to contribute back to the community. I am ready to create a socially healthy and greener world, for myself, for my family, for my friends, for people around me, and for future generations. Are you?