Thursday, May 5, 2011

Mercy Corps vs. Marcie Carr

Let's say that we're a nonprofit, say Mercy Corps, based in Portland, OR. Part of our mission is "sustainable economic development", so in post-earthquake Haiti, we launch a mobile banking project in partnership with Voila and Unibank.

And you say, boooorrring, who cares, right?

But then along comes Marcie Carr, a well educated, bright, energetic, and very well meaning person from the U.S. She starts an NGO in Topiland, a desperately poor country. Her little NGO does some pretty neat things, but nowhere near the scale of Mercy Corps. Marcie gets some awards for being a "Social Entrepreneur" but then goes to law school. However, before going to law school, she was thoughtful enough to make sure the Topis had assumed control of and responsibility for the NGO. Good for her.

What's the moral of these contrasting scenarios? It seems that Marcie is encouraged and rewarded for starting something new but is wise and kind enough to make sure it has a chance to survive (unfortunately, not all "social entrepreneurs" are as forward thinking), but not encouraged to join Mercy Corps and help them with their efforts.

Why is that? Are nonprofits and NGOs inaccessible to young people who want to do something more than answer the phone? Do we set up young people with visions of quick hit grandeur vs. helping them think through the long, arduous process of facilitating social change?

I don't know. I like Marcie. I like Mercy Corps. I wish the two would meet.

Disentangling Social Entrepreneurship/Enterprise

It's very common for social entrepreneurship and social enterprise to be referred to as the same thing. But they aren't the same thing. Here is my attempt to offer some simple and useful definitions of these and related terms:
  1. Social entrepreneurship: Designing and testing new ideas to solve tough social problems. Example: Mercy Corps' partnership with Unibank and Voila to bring mobile banking ("T-Cash") to Haiti.
  2. Social enterprise: When a nonprofit engages in commercial activity is aligned with its charitable mission. Example: TROSA in Durham, NC.
  3. Social business: When a for-profit corporation intentionally offers goods or services to address a social problem while accepting low profits and return on investment. Example: Grameen Danone.
  4. Earned income venture: When a nonprofit engages in commercial activity for profit to subsidize its charitable mission, or what a former student called, nonprofits' "side hustle".
In fact, I thank the IRS for these definitions. With #1, it isn't referring to a corporate entity per se. With #2, it is activity that escapes the IRS' "Unrelated Business Income Tax" (UBIT). With #3, it relates to for, not nonprofits, such as Low Profit Limited Liability Corporations (L3Cs) or B-Corps. And #4, you guessed it - a nonprofit that may be subject to UBIT.

Hope this helps!

The Problem with Social Entrepreneurship

OK, so first of all, let me be clear: the idea of innovation to tackle tough social problems like the lack of clean water in developing countries is a great thing. Yet I have some misgivings about the social entrepreneurial banner, from a nonprofit perspective:

  1. Elevating the individual. Not all of us can be a Geoffrey Canada or Paul Farmer. And besides, as Dr. Farmer is nice to acknowledge, behind every social entrepreneur is a team doing some serious heavy lifting to implement the entrepreneur’s vision. Why not focus on entrepreneurial organizations or communities? After all, to solve tough social problems, we need collective action.
  2. Poor economies of scale. Too often aspiring (and usually young) social entrepreneurs assume they need to start their own organization vs. partner with an existing one. This results in the need to raise unrestricted revenue to build infrastructure - bookkeeping/accounting, information systems, etc. albeit with poor economies of scale. Energy and resources get diverted from problem solving to organization building.
  3. Ignoring current efforts. There is no shortage of nonprofits doing very innovative things that nonetheless fail to be recognized, probably because they lack a charismatic leader and/or partners who champion and market the innovations.
  4. Lack of evidence. Many social entrepreneurial ideas are largely untested. It's great that these ideas represent new approaches to tackling social problems, but promotion of these ideas tends to be far out in advance of sufficient evidence that they merit promotion as “the next big thing”.
  5. The commercial assumption. A strong bias exists in favor of commercial approaches to addressing social problems. It’s great to exploit market opportunities to make innovations more financially sustainable, but sometimes public or private subsidies are needed. Sometimes they are always needed. To paraphrase Paul Farmer again, governments, not markets, confer human rights.

Again, I think the enthusiasm around SE is great. If people are thinking more about achieving greater social and economic inclusion and justice and less about how to exploit others, then that's great. Let's just be honest and humble about what we're doing. Please.