December 23, 1992

Convergence, Creativity, and Collision

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Many of the same forces that are driving change in the private sector economy are also switching things up in the social sector. Technological advances, interconnected communications, globalization, economic volatility, reduction in resources—these are some of the reasons why we’re seeing so much innovation in the business of generosity.
The old verities are being called into question. Models are being torn down and rebuilt. The landscape is being rezoned. Laura Arrillaga-Andreesen titled her book on philanthropy Giving 2.0, and she’s right—what we have today really is a distinct iteration of generosity in America. Some of it may be in beta form and may never survive its rollout, but the net effect of all the inventiveness, I can’t help thinking, has got to be more of the “substance” of generosity filling the “gaps” created by needs in the world.
There is high learning happening from channel to channel and from market segment to market segment. We are borrowing frameworks and tools from each other. The top-grading of best practices happens more quickly in today’s environment.
The changes taking place in the business of generosity largely consist of a blurring of lines and a convergence and restructuring of both forms and practices. In the area of generosity, there aren’t just houses and boats anymore; there are also houseboats of every make and description.

Businesses doing good

It used to be that for-profit businesses just focused on making money. It was assumed that was the way it was supposed to be. In fact, Milton Friedman famously said, “There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits.” But increasingly, businesses are trying to do good at the same time they are doing well.
Now let me slip in a caveat.
I know that a lot of people look down on business. As Tom Addington told me, “The act of giving is way more pure than the act of earning, in most people’s minds.” But I believe it’s important to remember that businesses do a lot of good simply by doing business: they produce valuable goods and services for the world; they create wealth for their workers and shareholders; they have a way of providing a sense of purpose, spurring innovation, and breaking down barriers. So it’s far from the truth that businesses do good only through their corporate giving programs or generosity marketing. But on the other hand, if businesses can leverage their cash and their knowledge capital to do good more directly, why not?
These two aims—doing good and profitability—are no longer mutually exclusive propositions, but rather two complementary corporate emphases. Mike Duke, former CEO of Wal-Mart, captures this relationship wonderfully, noting, “Being involved in social issues isn’t counter to being profitable; it actually causes Wal-Mart to be a better business. We strive to run a better business, to be more profitable, and to serve customers better.” In short, doing good doesn’t have to mean you lose profitability, and being profitable doesn’t mean you aren’t doing good.
Using the caterpillar-into-butterfly analogy, Whole Foods CEO John Mackey writes, “Corporations…can exist at a caterpillar level, where they strive only to maximize their own profits, extracting resources from nature and from human beings to do so. Or they can reinvent themselves as agents of creation and collaboration, magnificent entities capable of cross-pollinating human potentials in ways that nothing else can, creating multiple kinds of values for everyone they touch.”
The Coca-Cola Company gives around 1 percent of its operating income annually to improve the living standards of people around the world. According to their reports, they partner with governments and private organizations involved primarily in the four areas of water stewardship, healthy and active lifestyles, recycling, and education. In 2011, the Coca-Cola Foundation invested more than $76 million in 257 community organizations around the world.
The examples could go on. Drug maker Eli Lilly has a patient assistance program reducing the cost of prescription medications for uninsured and underinsured patients. Through its Network for Teaching Entrepreneurship, MasterCard releases its finance-savvy employees to give business lectures as volunteers in schools. According to the Chronicle of Philanthropy, the U.S. company that gave away the most money in 2012 was Wells Fargo, banking on the social sector in the amount of $315 million.
Meanwhile, businesses are finding new ways to help. Some for-profit corporations are starting their own nonprofit foundations or not-for-profit arms. They are working for good with specific causes or in specific locations. In the process, they are looking more like small, nimble private companies.
When my daughter Katelyn buys a pair of TOMS shoes at the Masons boutique in Fayetteville, where we live, the good folks at TOMS donate a pair of their canvas slip-ons in one of more than fifty countries. TOMS is the best-known practitioner of the buy one, give one, or BOGO, model of generosity, but it’s far from the only one. Buy a pair of a eyeglasses from Warby Parker and they’ll give another pair of glasses, or comparable funding, to one of their nonprofit partners focused on improving eyesight. If you buy a comforter from the Company Store, the retailer will donate another comforter to a homeless child living in a shelter somewhere in the United States.
Then there is what I called “channeled capitalism.” This is a model within the world of online shopping in which someone buys something and creates a margin or surplus, which is then directed to a needy person or project. For example, if you place the iGive button on your browser, a percentage of your purchase prices at online retailers can go to a cause you support. Pure Charity tailors a shop-and-earn program to put “charity rewards” into your own Giving Fund. Givington’s will direct charity through your purchases. And eBay Giving Works enables shoppers to donate to nonprofits and sellers to direct a portion of their sales to nonprofits. Want to know how much they’ve given away? Check out the real-time counter at their website (the number reaches into the hundreds of millions of dollars!).
As businesspeople are trying to be more organically generous, whole new forms are being created to contain business-charity hybrids. B (for benefit) corporations are for-profit entities that consider society and the environment in addition to profit in their decision making. L3Cs (low-profit limited liability companies) are another kind of entity that facilitate investments in socially beneficial for-profit ventures.

Foundations taking over ground from government

Governments are the largest generosity providers in the world, even though they’re often not even included in discussions about generosity. Take this one example alone: New York City, through its taxing powers, provides $25 billion annually for education in city schools. No nonprofit could match that kind of giving. Foreign aid, domestic entitlements—these and many more kinds of giving by governments small and large around the world are utterly immense.
One can also argue, however, that they are immensely wasteful, even if they are necessary. And from a problem-solving perspective, the answer they seem to offers is always “More of the same.”
The New Deal, the Great Society, and all the other government efforts to improve lives have failed to eliminate many problems and arguably have created some others. It’s not surprising, then, that some wealthy individuals are making noises about taking the reins back to raising up those who have needs. Foundations are taking initiative, forming partnerships, and coming up with strategies to finally defeat intractable problems.
Perhaps in a more coordinated approach, government can take its rightful place as larger, though less nimble and certainly not all-capable, partner in addressing important needs, along with giving entities, nonprofit activists, and faith-based groups.

Nonprofits making profit

Every year, I participate in dozens of nonprofit board meetings or conversations with board members about their nonprofit work. And I can’t think of a single one of these conversations in recent years where the subject of alternative revenue streams did not come up. No nonprofit, it seems, wants to be fully dependent on donor giving. Every nonprofit would like to find some other way to bring in cash to fund their efforts and to grow. Many are experimenting with, or at least considering, ways to earn a profit.
Just as for-profit businesses are looking more like nonprofits, it’s also true that nonprofits are in many cases looking more like businesses. This is often called the earned income model. Fees for goods and services make up around 45 percent of total nonprofit sector revenue.
In certain areas of nonprofit work, earned income through sales and fees plays a huge role. These areas include health care, education, and the arts. Also, larger nonprofits are more likely to earn income than smaller ones.
But more and more, other types of nonprofits are experimenting with alternative streams of income. I’ve worked with poverty missions that sell crafts from the Third World, churches that supplement their offerings with rents from store space, and many other nonprofits benefiting from the earned income model. They may never make huge sums from it like the $2.4 billion brought in annually by Goodwill stores. But if it might enable them to grow and do more good, they’re willing to try it.
The earned income model has been around for a long time—the first Girl Scout cookie was sold in 1917, the first UNICEF card was marketed in 1949. But it’s getting interest today like never before. As the authors of a Harvard Business Review article on the subject say, “Revenue-generating initiatives are being launched or considered in virtually every nonprofit domain, from human services to housing to the environment.”
Why are more nonprofit leaders turning to profits to support their mission? I’ve heard a few reasons.
• It’s more appealing than constantly making an ask.
• Reupping every year with a zero balance can be tiring.
• It can be a differentiator from other, similarly missioned nonprofits.
• It can raise visibility and expand volunteer contacts.
• The money comes without strings attached.
• It can help predictability in funding.
• Managers of nonprofits want to be viewed as entrepreneurs.
• Board members, with a background in business, encourage it.
Establishing alternate streams of income is not without its challenges and limitations. But for many nonprofits, it’s another way to accomplish their mission.
In the case of churches, acting like a business may raise special theological questions. Are they getting away from being who they’re meant to be? Daniel Harrell says, “Some churches have gone whole hog in adopting full-on business practices without filtering out the business values that don’t specifically apply to the faith community.” But done right, profit making can accrue even to the benefit of the service of God.
Fundraiser Dan Pallotta, in his book Uncharitable, argues that the entire nonprofit sector needs to become like its for-profit counterpart in even more fundamental ways than just earning income. He says that society’s nonprofit ethic acts as a strict regulatory mechanism on the natural economic law. It creates an economic apartheid that denies the nonprofit sector critical tools and permissions that the for-profit sector is allowed to use without restraint (for example, no risk-reward incentives, counterproductive limits on compensation, and moral objections to the use of donated dollars for anything other than program expenditures).
These double standards place the nonprofit sector at extreme disadvantage to the for-profit sector on every level. While the for-profit sector is permitted to use all the tools of capitalism to advance the sale of consumer goods, the nonprofit sector is prohibited from using any of them to fight hunger or disease. Capitalism is blamed for creating the inequities in our society, but charity is prohibited from using the tools of capitalism to rectify them.
The answer, then, would be to move even more radically in the direction of nonprofits acting like for-profit entities.

Churches acting like social-service nonprofits

Most churches would say that their primary purpose is to bring glory to God. But more and more churches are strategically reorganizing to engage in material service to man alongside the spiritual worship of God. They are exhibiting a renewed sense of responsibility to care for “the least of these.”
This is much more than hosting a Thanksgiving dinner for the homeless in the church basement. Some churches are starting the equivalent of endowments and legacy giving chairs. They may look more like a university setting or a small business or even a foundation than the traditional image of a local church.
This is kind of thing is happening even more frequently in new church starts founded by younger leaders. There is a recovery of energy to see the gospel make a sustainable difference in the renewal of a community and in service of those in need. As Martin Luther King Jr. said, “The Christian gospel is a two-way road. On the one hand, it seeks to change the souls of men, and thereby unite them with God; on the other hand, it seeks to change the environmental conditions of men so the soul will have a chance after it is changed.”
My own church has spun off an organization called Samaritan Community Center. Trying in a broad-based way to help the poor of northwest Arkansas, the center provides meals for the hungry, sets up mental health counseling, pays for doctor and dentist visits, provides children with backpacks stocked with school supplies, sells used clothing and furniture are bargain prices, and just recently started a garden/farm. Although the center has become independent, it is still housed in the 19,000-square-foot building donated by the church, is still run by church members, and still offers its practical services in the name of Jesus.
To help organizations of all types think more broadly about what they can be accomplishing, I use the acronym MBL.

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