by Paul Polak
I have long felt that there is massive confusion about the how the social mission and the bottom line profitability of a social enterprise relate to each other.
To me it’s very simple.
Any self respecting social enterprise should build the social mission into the vision and mission of the enterprise, and then forget about it- the rest of the time should be spent on making a profit. If the mission of an organization is to deliver safe drinking water to people without access to it, the act of delivering safe drinking water to customers at an attractive price has a profound built-in social impact. The same is likely to be true for a company delivering eyeglasses at an affordable price to customers who need them. Massive data collection on triple bottom line
impacts diverts time and money from the most significant challenge- earning attractive bottom
line profits.
Profitability is the most direct path to achieving scale, which carries its own profound social impacts with it. Delivering safe water to a hundred million customers who need it has a much greater social impact than reaching ten thousand customers. Profitability brings with it access to much larger pools of investment funds than the subsidies required when profitability is not reached. Of course, it is useful to collect some basic data verifying the positive social impacts and ensuring that the company’s activities are environmentally neutral. But if the social impact is built into the mission, the company should then turn to the most significant activities that correlate with scale- making an attractive profit!
Social good built into an organization through Vision, Mission and Profitability
Vision, Mission, Value and Goals are a great way to set the tone for an organization. Profit sounds like a dirty word to many, but it is the food that gives energy to run the race. It is going to take a tremendous amount of energy to see a billion people escape extreme poverty. To build something that is truly great and valuable for life and society it takes extreme focus and determination. I could see that loosing focus on creating a profitable scalable business model will greatly limit social good that these products offer. If we find great solutions for our customers why get them into the hands of as many as possible. If we are going to see a billion people move out of poverty our eyes need to stay focused on the fuel that will propel great enterprises.
I enjoyed this article because it made me think. Thanks Paul.
Second thought.
I see that many of us look at profit as the end goal, but I believe that many entrepreneurs are driven by the passion they have for there unique products and services even more then getting rich. Building a great enterprise has it’s own intrinsic rewards. Profit is a means to an end not the end. You can’t build a great organization without resources.
I look forward to the discussions that will come from this article.
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Also important to note is the amount of time, man-power, thought, etc. are required by organizations to fund raise every year! Imagine the amount of innovation and project development that could take place if these minds were focused on projects rather than where the next support check is coming from… Profit orientation allows for more focus to be placed on that which is important – the projects that are changing peoples life, rather spending time worrying which flower arrangements should be used as centerpieces at the annual dinner auction. Arg.
Paul you are far to logical!
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I agree with this position in general. The obvious problem is how to ensure that the mission is continually referred to and upheld. I agree that the massive commitment to measurement is not always a good use of funds, but I think an organisation that is solely focussed on profit cannot help lose sight of it’s original aim.
Surely the Executive Board is focussed on profits, while the Governing Board, (or whatever name you give it) ensures that the organisation stays true to it’s mission?
Tim… not always a good use of funds? If you are referring to a growth stage SME, then its a double edge sword. Many if not all “social capital” funders may want to see social impact but as the MD of a growth stage enterprise, I need to baseline cash flows to demonstrate financial sustainability and scalability or I have no hope of raising growth capital. It’s a seriously sharp, double edge sword!
Paul, This is how we argue the case for a ‘profit for purpose’ approach in international development:
“An inherent assumption about capitalism is that profit is defined only in terms of monetary gain. This assumption is virtually unquestioned in most of the world. However, it is not a valid assumption. Business enterprise, capitalism, must be measured in terms of monetary profit. That rule is not arguable. A business enterprise must make monetary profit, or it will merely cease to exist. That is an absolute requirement. But it does not follow that this must necessarily be the final bottom line and the sole aim of the enterprise. How this profit is used is another question. It is commonly assumed that profit will enrich enterprise owners and investors, which in turn gives them incentive to participate financially in the enterprise to start with.
That, however, is not the only possible outcome for use of profits. Profits can be directly applied to help resolve a broad range of social problems: poverty relief, improving childcare, seeding scientific research for nationwide economic advancement, improving communications infrastructure and accessibility, for examples – the target objectives of this particular project plan. The same financial discipline required of any conventional for-profit business can be applied to projects with the primary aim of improving socioeconomic conditions. Profitability provides money needed to be self-sustaining for the purpose of achieving social and economic objectives such as benefit of a nation’s poorest, neediest people. In which case, the enterprise is a social enterprise. ”
From Microeconomic Development and Social Enterprise : A ‘Marshall Plan’ for Ukraine.
I am sorry Paul but I could not agree less – building a social orientation into an organization over the long term requires you to incorporate a way of knowing and showing your impact. What you measure will help determine who you are! Simply enshrining a social hope in a vision and mission statement will not carry over into a robust social organization in the long term, nor create the robust narrative for outcome that socially inclined investors need to justify their engagement.
The example mentioned in this article is not relevant for each industry. Can you emagining disbursing loans to poor people without having in mind, and tracking, impact on their lives. Pure profit orientation in this case can do much harm to poor people (already happened in many country).
For many other industries and product, social dimension is very important and can influence much on the profitability.
So, I could not dissagree more