Doing Good isn’t Good Enough: Cold Reality for Social Entrepreneurs

by Freddy Tran Nager, Founder of Atomic Tango & Social Entrepreneurship Instructor; photo by Alejandro Linares Garcia via Wikimedia Commons…

Some people just don’t get it.

I’m not talking about the willfully ignorant knuckle-draggers on the Texas State Board of Education. (They’re so beyond not getting it, they’ve gone full primordial.) I’m talking about the highly educated, wealth exuding finance execs who impersonated the Tin Man at a recent conference I attended…

The four of them — a VC, a banker, an angel investor, and an asset-based lender — explained how they help entrepreneurs finance their dreams. There was the usual spiel about due diligence, meticulous records, profitability, exit options, and their need as financiers to earn a significant ROI. Indeed, most of what they discussed centered on their needs and their business standards — with not a single word about worthy causes or making the world a better place.

So what — that’s business, right?

Except these financiers weren’t addressing just another meeting of profit-obsessed entrepreneurs. This was the Social Entrepreneurship Keynote Event 2010 held by the USC Marshall School of Business Alumni Association. Most of the 150 in attendance had paid to learn how they could make the world a better place through business — they wanted to change the world, not just count change.

Even the conference lunch had been provided by an all-nautral, organic, eco-conscious caterer, Paleta, which included a flyer stating that “we can enjoy the fruits of our planet while still preserving our resources for future generations. To this end, we have proudly built the first green kitchen in SoCal complete with our own greenhouse.”

Yet somehow, despite all the conference literature proclaiming “social entrepreneurship” — the printed program featured a cover illustration of hands cradling the globe and the words “corporate social responsibility” — the finance guys seemed to miss the point of the entire event.

Some Do Get It…

Just a few hours before these finance troopers took the stage, the high priestess of progressive media, Arianna Huffington, had regaled and inspired the audience to “reinvent capitalism.” She underscored her firm belief in private enterprise — that capitalism is the best system ever invented — then added that she doesn’t believe it exists in America, where the forces of the status quo and their lobbyists now dominate public policy and the markets. She then extolled Alfred Marshall’s “economic chivalry” and the value of empathy for the survival of both business and society. She concluded by inviting all attendees to blog for her new cause-oriented site Huffpost Impact.

The finance guys on stage must have completely missed Ms. Huffington — “Arianna who?” They also apparently missed conference honoree Adlai Wertman, a successful investment banker who later launched the nonprofit organization Chrysalis to employ the homeless, and who now heads the Brittingham Social Enterprise Lab at USC. Professor Wertman defined social entrepreneurship as “the creation of new business models that manage multiple missions,” not just generating a profit.

But the way the financiers spoke of profit, you’d think it was spelled p-r-o-p-h-e-t.

And Their World Keeps on Spinning…

An audience member thanked the financiers for taking their time to share their insights, then asked what it all had to do with social entrepreneurship. The guys were caught completely off-guard, reminding me of Sarah Palin’s reaction when asked what newspapers and magazines she reads. Being seasoned executives, they entered spin mode. “We’re creating jobs,” one of them repeated several times, not mentioning whether those jobs were in the U.S., a Chinese sweatshop, or their own assistant ranks. Another twice said, “We don’t discriminate. We look at all business opportunities.” That made me wonder if he would invest in clearcutting the Amazon rainforest if the indigenous peoples would swap their trees for cigarettes and booze.

We’re talking business options here, comrade, not gender or race: you better discriminate.

Now, I’ll give the banker a break. He worked with the Small Business Administration and had to abide by their mandates, which stipulates only ventures that create jobs in America. Even so, I was hoping he’d at least offer lower interest rates to entrepreneurs hoping to do good in addition to doing well. Instead, his mantra was, “We have to get repaid.” I think I heard that line once on “The Sopranos.”

Fortunately, the crowd didn’t let ’em get away with it. One articulate young women pressed them on the values issue, which they again dodged by mentioning “jobs” and “no discrimination.” Then, having brought the conference’s soaring spirit of benevolence and possibilities crashing back to earth, the tin men quickly made their getaway.

Reality Bites — in a Good Way…

In a sense, this was great. This stunning splash of business frigidity had reminded the collected entrepreneurs and students that the forces of greed were everywhere and nearly impossible to sway. The finance guys also helped dispel some of the naiveté that often rises from these “anything is possible if you set your mind to it” conferences. Reinventing capitalism is not going to be easy.

The indignation incited by the financiers also stirred the audience from their post-lunch lull. (If you can fire up a food-comatose crowd despite all the finance jargon you can throw at them, you know you’ve hit a nerve.) And that was great for me, because I was speaking next.

I was part of a three-person marketing panel. You could tell we were marketers because our presentation was irreverent, loud, and the only one backed by a PowerPoint presentation. Tracy Williams, who runs the PR firm Olmstead Williams Communications, discussed the value of corporate social responsibility. Michael Miller, Director of Operations of CFO 911 Solutions, offered case studies in green marketing.

I decided to talk about critical needs and mistakes in social entrepreneurship:

• Marketing is not an afterthought: I meet too many entrepreneurs who tell me “they’re not ready to do marketing yet.” They have the common misconception that “marketing” means “advertising” when, in fact, marketing touches all aspects of their business, including the product, pricing, place of business, and — yes — commercial promotions. The truth is, if they’ve named their business, they’ve already done marketing. If they’ve decided where to locate their operations, they’ve done marketing. If they’ve had business cards printed, they’ve done marketing. However, if they did all those things without strategically considering their customers, competitors, community (of particular importance to a social entrepreneur) and their company brand, then they haven’t been doing it correctly. This could cause significant problems down the road — or even right out of the starting gates.

• Good intentions only go so far: There’s this idealistic notion that customers will beat a path to your door if you’re doing something good, whether it’s organic or fair trade or donating profits to charity. Unfortunately, customers often have other overriding needs. While they might want to do good and support great causes, sometimes what they really want is a low price. I cited a startup garment factory in L.A. that mistakenly believed it would generate endless business from “Made in the USA” enthusiasts, only to discover that, in business, patriotism often only goes so far as flag waving. In fact, some people will even have their flag made in China if they can get a good price for it. So I advised that factory owner to emphasize other benefits from being local: quick turnaround, lack of import hassles, and client ability to readily inspect their orders and the factory’s working conditions. In general, social entrepreneurs should certainly tout their values and missions, but they also need to put their customer benefits front and center.

• Too much too soon: In their well-intentioned zeal, some social entrepreneurs try to do too much before establishing their brand or their business model. I told the story of Nau clothing, which launched with every good intention and noble practice — including donating 5% of their sales to nonprofits. But Nau was on a crash course, and would have disappeared from existence had it not been bought out by a larger, more moderate company that tempered some of its benevolence. I then quoted the late great USC business professor James Stancill, who taught me that no matter what kind of business you run, the three most important keys to survival are cash flow, cash flow, cash flow. Referring to the earlier panel, I added that the finance gods often have to be fed first.

• Come together right now: I also emphasized the need to collaborate, particularly for ventures with small budgets and little brand recognition. Collaborating (as I discussed in [intlink id=”3267″ type=”post” target=”_blank”]an earlier post[/intlink]) helps organizations share costs, customers, brand equity and risk, while feeding more human needs, such as romance and beer (not necessarily in that order). I also mentioned that a for-profit venture might be better off partnering with a nonprofit rather than trying to duplicate its efforts. The nonprofit offers experience and expertise, which enables the entrepreneur to focus on the business.

• Make it personal: A social venture is an act of passion, and that should be reflected in the company brand. I pointed out that a brand isn’t a logo, that it’s the company’s visual image, personality, and reputation rolled into one impression. A strong, differentiated brand helps prevent competitors from copying your every move and stealing your customers. I suggested that one of the best sources of differentiation is the person they see every morning in the mirror, and that they shouldn’t hesitate to put their passions and personalities into their businesses.

• Social media has costs: Finally, I picked on — I mean, picked up one of my favorite subjects, the overhyped offerings of social media. Many underfunded entrepreneurs understandably rely on free social media for all their self-promotion. While the likes of Twitter and Facebook and Flickr may be free and easy, they usually require a huge investment of time before delivering significant followings and business — and there’s no guarantee that they’ll ever deliver. Furthermore, while entrepreneurs are busy tweeting and friending, posting and following, they might miss out on real-world opportunities and connections, such as potential clients and investors at conferences. In the end, the entrepreneur might find that old-fashioned advertising would have been less costly and demanding.

So, yes, I also decided to splash a little reality on the proceedings — but for a worthy cause. I studied social entrepreneurship in business school and taught it at Antioch University, because I see social entrepreneurship as the primary source of positive change — and jobs — in our time. My objective is to help aspiring social entrepreneurs avoid common mistakes, ultimately fulfill their multiple missions, and triumphantly say “no thanks” to old-school capitalists who just don’t get it.

Related Articles:

• [intlink id=”3267″ type=”post” target=”_blank”]Pour It On: Putting the “Fun” in Charity Fundraising[/intlink]
• [intlink id=”2897″ type=”post” target=”_blank”]Not Weird Science: Social Media in One Word[/intlink]