The Answer to the the Chicken and the Egg

The seventeen UN Sustainable Development Goals (SDG’s) give us a way to think about how we might divide up the work to be done on the most pressing problems that humanity faces. But these goals aren’t a checklist of items that can be tackled one at a time. These challenges are interconnected, and they cannot be addressed separately. For example, we won’t have #1 No Poverty without also having #2 Zero Hunger, #4 Quality Education, #6 Clean Water and Sanitation, and #16 Peace Justice and Strong Institutions. This is a global “chicken-and-egg” situation.

Most entrepreneurs – especially social entrepreneurs – are constantly faced with such situations. “I can’t get the funding without the data; I can’t get the data without the funding.” “The opportunity requires three years of history; I can’t get the history without the opportunity.”

But the SDG’s have one special loophole. One goal can be put on top of all the rest. It is #5 – Gender Equality.

If we would simply focus on equality for women, all the rest of the goals would become easier. In fact, it is impossible to achieve almost any of the 16 other goals if we do not first address women’s equality.

The data is clear: in environments where women and men are in a balance of authority – that means decision making power – results are vastly improved. Companies with more balanced boards earn more profits. States with more balanced legislatures have better health outcomes. Countries with more balanced political leadership have less conflict. Villages that move from all-male led to balanced leadership see dramatic decreases in poverty.

I am not calling for a world run by women. I am calling for a world run by women and men, with equal authority among them. The Sustainable Development Goals should be organized as an interlocking circle, with one goal in the center: Gender Equality.

Either Or, Dallas

“How can you be focused on global poverty when Dallas has its own poverty problem?” You can replace poverty with education, justice, food security, or slavery – I hear this concern from institutions working on Dallas’ serious social problems.

Many of my mentors and heroes – and sheroes, thanks Catherine Cuellar! – are people in Dallas who have dedicated their lives to solving our own poverty, education and justice challenges. I don’t want anyone to think that I’m diminishing the scale of the problems we face in Dallas at all, or to minimize the work that many passionate people are doing in Dallas.

I don’t believe in the either/or of working on global scale problems or local problems. In fact, I believe in a different either/or: either focus on the best, biggest, scalable solutions for all humanity, or miss out on tens of thousands of people whose minds, talent and resources can pitch in to solve our city’s toughest problems.

I’m asking us to consider a different strategy for our city – both for its problems, and for its potential.

My vision for Dallas is to become the Impact City – the center of the world for solving humanity’s greatest challenges. That center is going to emerge somewhere. If you work on our local social problems, I propose that you should actively support the emergence of Dallas as the Impact City:

  • Would it be better for our city if the greatest minds working on scalable poverty solutions live in Seattle, or in Dallas?
  • Do we want the top innovators from around the world working on improving educational outcomes for poor children to be concentrated in New York, or in Dallas?
  • Do we want the top global-scale foundations investing in food desert solutions to be located in Chicago, or in Dallas?
  • Which gives us a better chance of solving our local homelessness problem: if thousands of social entrepreneurs working on improving the lives of billions of people around the world are concentrated in London, or in Dallas?
  • What will happen to the city that invites tens of thousands of global-scale thinkers, social innovators, compassionate and passionate and committed people who dedicate their lives to solving deeply challenging human issues – do we want them to volunteer for nonprofits in Dallas, to be on the boards of the foundations in Dallas, to mentor the millennials of Dallas, to engage the corporations in Dallas, to teach at Dallas universities, to invest in Dallas social impact funds? Or is it better if they live in Cincinnati or Detroit?

How do we bring this energy to the city? By creating irresistible programs in Dallas that bring together the greatest minds and resources for global-scale impact. Once they are here, those minds will apply their passion and talent to the city’s challenges as well.

By bringing energetic innovators and a resource-rich ecosystem to our city, a whole new dynamic for solving Dallas’ local problems will emerge. Impact City isn’t just for the world, it’s for Dallas too.

We’ve already defined several powerful programs to launch the Impact City initiative, to become that magnet for impact organizations to come to the city. I’ll share them in upcoming posts – stay tuned.

Total Impact (shortpost)

Here’s an interesting product invented by Kyle Lukianuk​: the Impact Card. It takes the Good Returns model to a whole new level.

How it works: you purchase a gift card from a company. You can use it or give it immediately. The company sends all the money to a sustainable impact organization as a one-year interest free loan to scale their impact. One year later the company gets paid. All the money goes to good, and you get all the money to spend.

We put Kyle’s idea into action: you can now buy an Impact Card at Soap Hope. Pick an amount. You can spend it all anytime or give it to someone as a present. Soap Hope sends all the money to Esperanza International or Milaap or PeopleFund, which lends it to women to start businesses and escape poverty. One year later Soap Hope gets the money back. We’re willing to wait a year because (1) we love our mission and (2) our customers love to give the Impact Card.

Good one, Kyle!

All talk (shortpost)

A pet peeve of mine: spending a lot of time talking about what does or does not qualify as a “social enterprise.”

I’ve quit using the term altogether. We now say “Impact Organization.” Are you an impact organization? Answer these three questions.

  • Does your organization exist first and foremost to solve a significant social issue that improves the lives of people who are substantially disadvantaged?
  • Do you currently make a profit, or have a business plan that leads you ultimately to make a profit?
  • Do you implement your mission without substantial negative side effects to society?

If you can unambiguously answer Yes to these questions, you are an Impact Organization.

Most importantly, if you work in an Impact Organization, I already know you will not be spending more than 3 minutes thinking or talking about this post – while others are defining social entrepreneurship, you have a mission to do.

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On Purpose

A friend of mine recently told me about a conversation she had with a business leader about Impact City, my vision for transforming Dallas into the center of the world for solving the world’s greatest problems.

She told him about Impact City like this:

“You have to meet my friend Salah. He wants to make Dallas the nonprofit capital of the world!”

My heart sank. That is the last thing I want to do to our great city! I want to transform Dallas into the impact capital of the world. There’s nothing nonprofit about impact.

I encourage you to think about organizations in three dimensions:

(1) For-profit vs. nonprofit. 

The only thing that makes an organization a for-profit is that it is designed to make money for its owners. Pepsi, Soap Hope, Google, Radio Shack, and Whole Foods are all for-profit. They may have a mission, or not. They may be making money right now, or not. In the end, if there is money made, it will go to its owners (shareholders). The government collects taxes on the profits. For-profits are not inherently good or bad, sustainable or not sustainable, purposeful or not purposeful. They just have owners.

The only thing that makes an organization a nonprofit is that it has no owners. The American Heart Association, the NFL, and the Republican National Committee are all nonprofits. They may have an important social mission (ending hunger), or not (the clown museum). They may serve the poor, or they may serve wealthy business members. Their leaders may be volunteers, or they may earn $40 million a year. Nonprofits are not inherently good or bad, sustainable or not sustainable, purposeful or not purposeful. They just don’t have owners.

One key problem for nonprofits is that, since they don’t have owners, they generally struggle to scale. When Pepsi wants to build a new distribution facility in Africa, they can quickly and easily raise capital from investors (owners) because the investors will earn double digit returns. When Feed My Starving Children wants to build a new distribution facility in Africa,  there is no source of capital other than donations, which may take years to raise, or may be impossible to raise.

(2) Sustainable vs. non-sustainable.

An organization is sustainable if its normal operations generate enough money to cover its expenses.

Sustainability is not related to for-profit or nonprofit status. For example, the PGA (a nonprofit) is highly sustainable, as is Google (a for-profit).

It’s important to note that for-profit does not automatically mean sustainable. Most startup companies are not sustainable. Blockbuster was not sustainable. Even Amazon is currently not sustainable.

If a for-profit is not sustainable and doesn’t reform itself, it goes out of business when investors stop investing new capital. If a nonprofit is not sustainable, it goes out of business when donors stop giving it new donations.

It’s also important to understand that while many nonprofit organizations are currently not sustainable, there are more and more that are partially or fully sustainable. When Esperanza International first started, for every dollar it took in, it used up the entire dollar. Now for every dollar it takes in, it can return over 70 cents after one year. In a few years, it will be fully sustainable.

(3) Important purpose vs. non-important purpose.

This one is easier to understand but harder to quantify. Pepsi’s core reason for being does not serve an important human purpose: it is made to sell chips and soda. Feed My Starving Children’s core reason for being does serve an important purpose: it is made to feed starving children.

There is a large spectrum in between.  People will argue over the relative merits of the ballet, spaying cats, beautifying parks, and the Clown Museum.

The way I think about it, an organization’s purpose rises to the very top when its primary reason for being is to solve a key challenge of humanity. At Good Returns, we focus on these eight: poverty, slavery, water, conflict, health, energy, environment, and education. The United Nations’ Sustainable Development Goals offer a different take on top-purpose initiatives.

With these three dimensions in mind, we can now identify what an Impact Organization is – and we can see how Impact City will approach solving the world’s greatest challenges.

When an organization is scalable, sustainable, and very high on the purpose scale, we call it an Impact Organization (or IO for short). An IO can provide solutions to the world’s biggest problems (purpose), without relying on donations (sustainable), and access capital to expand everywhere the problem exists (scalable).

Traditionally, sustainable for-profit companies focusing on top human problems have been rare, but they are growing in number every day. And traditionally, sustainable nonprofits have been challenged to access scaling capital, but Impact City will be promoting innovative business models such as the Good Returns model that enable such nonprofits to scale, turning them into Impact Organizations as well. For-profit and nonprofit Impact Organizations are on the way in greater numbers than most people imagine.

Stay tuned to learn more about Impact City – I will be updating you soon on how and why we are creating the “Silicon Valley of Impact” right here in Dallas, Texas.

The Social Entrepreneur’s Scaling Dilemma (and One Solution)

It’s rare for a social entrepreneur to get through the gauntlet of hurdles to reach that amazing milestone she strives for: a functioning, growing, sustainable business that is solving a core problem of humanity.

But even once she gets there, she faces a decision that can be excruciating: I call it the social entrepreneur’s Scaling Dilemma. Scaling strategy is yet another area where impact organizations face an either/or decision that profit-only businesses don’t have to make.

A traditional business has only one thing to maximize: profits. Well-run businesses optimize their prices based on what will produce the greatest profit, not what will produce the greatest number of customers. If a company believes that raising prices will increase profits after taking into account lost customers, then that’s what it will do.

But for a social entrepreneur, raising prices can be heartbreaking when the customer is disadvantaged. Not only are fewer clients served by the mission; those that are no longer able to afford the service will be the most disadvantaged in the pool.

A clean water service that charges just enough to break even will serve the largest possible pool of people that it can reach. It also leaves the most money in those people’s hands as possible. If the facility increases its prices, it will be more profitable – but less people will be served, those that are served will have less money for other survival needs, and those that can’t afford the water at all anymore will be the poorest of the population.

A water business run as a for-profit company with ROI as its primary objective will find the perfect price to maximize its profits, with no care at all to these social negatives. But for an impact organization, the loss of impact is a terrible side effect of increasing profits.

Now here is the dilemma: those profits that the social entrepreneur is foregoing to serve today’s poor are the same profits that would enable the business to scale. Without profits, there is no self-funding capital to build the next water treatment plant. Without returns, there is nothing to entice investment capital either. So the impact organization, by maximizing today’s impact, has limited tomorrow’s impact.

What should the CEO of the impact organization do? Should she maximize profits today, grow through reinvestment, and then accept lower profits later to increase scale? When should that happen? What if she knows that some people will die in the meantime? Should she pass up investors today, because she knows she won’t be able to downshift later to increase reach by lowering prices? This is a difficult moral place to be for the social entrepreneur.

That’s why social enterprises need a model like Good Returns. It solves the Social Entrepreneur’s Scaling Dilemma. Good Returns effectively says, “CEO, offer your services at the lower possible price while maintaining sustainability. Maximize today’s reach. We will provide the scale capital you need so you can maximize tomorrow’s reach, too.”

Good Returns works because it creates new value by providing businesses and their investors with a reason to invest capital into impact organizations. This capital provides a missing piece that solves the Scaling Dilemma.

Profits are the end for traditional business. For impact organizations, profits are not the end – the mission is. But profits are a critical tool that provides the sustainability and scale that the impact organization needs to achieve its mission. This need to focus on both mission and profits creates a multitude of challenges for social entrepreneurs. We need to be working together to find structures and devices that transcend these dilemmas.

If you have struggled with the Scaling Dilemma, please share your thinking process and the decisions you have made. If you have found other solutions to the problem, please share your approach so other social entrepreneurs can learn. Comments are open below.