If the macro problem is:
“How do we solve social and environmental challenges with a marketplace approach?”
there are three unhelpful obsessions that are read as ‘the problem’ and subsequently lead to unsatisfying outcomes.
A ‘Finance First’ approach takes the macro problem and names the issue as “money”. This leads to “if I had more money I could…”, with the solution then being articulated as “find more money”! This has lead to solution designs like the Social Enterprise Development and Investment Funds (SEDIF).
In the case of SEDIF, by focusing on ‘Finance First’ it failed to address the fact that there was a need for investable business models in the social enterprise sector, and that the establishment of the Funds would not address this. It heard a response that said: “access to capital is the biggest challenge for social enterprises” and it failed to recognise that the important word in the response was ‘access’. The problem wasn’t that there wasn’t capital out there, the problem was social enterprises couldn’t access it. So the question needed to then be “why?” Asking why a few more times would lead to the real problem…
The ‘Profit Focus’ takes us back to the scarcity mindset and silo mentality that exists. For some reason we in the social sector are so hung up on the notion of profit, yet so often we miss the point entirely due to our short-sighted and ideologically driven aversion to profit. Definitions have a lot to answer for in this regard. One of TDi’s pet hates is the focus on the percentage of profit used for reinvestment or redistribution, and there are a few problems with this ‘profit focus’.
A few problems with a Profit Focus:
Profit is a small part of the overall business for the vast majority. We want to focus on all of the money spent in the business, not simply what is done with the profits.
Profit pays for capital. Most people engaging with this topic and focusing on profit actually don’t understand where profit goes or what it enables. For a large organisation such as the National Australia Bank (NAB), if you examined where the bulk of profit distribution actually flowed it is into “mum and dad investors” often in the form of super fund investments. Our super fund investments making returns that enable us to cover the costs of postretirement life seems like an important social issue!
Profit is easily manipulated so purely relying on the reinvestment or redistribution of profit as the way in which a business model “does good” dramatically undermines your ability to create social change.
Redistribution of profits to “a good cause” is just prescribed philanthropy. We want more than that! We want integrated business models, not token percentages or side projects disconnected from the intent of the organisation.
Finally, most businesses need profits re-invested into their own business, so using this as a distinguishing feature of a social enterprise is unhelpful.
The ‘Social Focus’, or simply focusing on the ‘good’ we do, is prevalent throughout the sector. We often hear people say things like, “there is no business model for doing good”, or “there just isn’t a commercial model in what we do”. For too long we in the social sector have let ourselves off the hook too easily on this front. We hide behind how things have always been done and don’t do the necessary work to uncover different approaches and models that may allow us to produce blended value. At TDi we will work a business model until we find a way and we would love to see more people doing that.
Too often people breeze straight past the fact that costs far exceed the revenue streams in their business model because they tell themselves – or are told by their advisors – that because they’re “doing good” someone will give them money to plug that gap. This is not a wise way to build your organisation. It certainly isn’t sustainable, nor does it set you up to have confidence in your organisation’s ability to deliver the social or environmental outcomes you seek to deliver.
Grant funding, subsidies and philanthropy are all good things needed at certain stages of development and for certain issues we face in society. For too long though they have been used as a life support, rather than a foundation or leg up. Used correctly, funding can be massively leveraged through building capacity and then enabling organisations to access private capital (that they can now pay for). So, we get distracted. Distracted by our focus on the money (Finance First), distracted by our focus on the profit (Profit Focus), and distracted by our focus on the good (Social Focus). These distractions often pull us away from engaging the real problem. A mindset issue is at the heart here, with a need to truly believe in blended value.
At TDi we exist to grow Investable Social Enterprises (ISEs). For us, demonstrating that blended value is reality, is our mission. The solution is to design and build Investable Business Models. Sustainable, potentially scalable models that can solve the challenge you seek to address become possible when you take a blended value mindset and let it shape, influence and inform the design and implementation of your work.
Our Business Model Workshops help enterprises find focus and clarity in their business model.
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