Burgess COMMENTARY
I am always glad to see people who are advocating for organizational arrangements that deliver social (and environmental) good rather than merely optimizing for profit and the wealth of investors ... but as I see it those with interest in society and the environment will never get much traction until they figure out how to number social and environmental performance as easily and as rigorously as the money performance is measured.

This essay completely avoids the question of numbering ... and as such is just another layer of words on top of a huge number of other words already written.

Numbering these important things is not easy ... but it is essential

Peter Burgess http://truevaluemetrics.org
Peter Burgess

Beyond the Porn Principle: How to Better Evaluate Social Enterprise

Most Americans have by now realized that not all businesses are created equally. Toms shoes, Newman’s Own, Patagonia, Hershey and even Google, with its former corporate motto of “don’t be evil,” have differentiated themselves from competitors by tying their business practices to social or environmental impacts.

Just as not all businesses are equal, the levels of social or environmental impact that companies create vary significantly. While any steps a company takes in the direction of corporate social responsibility should be commended, entrepreneurs and consumers who really want to make a difference increasingly need to understand the spectrum of social responsibility.

The “porn principle”

When the term “pornography” was put to the U.S. Supreme Court to define in 1963, Justice Potter Stewart famously stated simply, “I know it when I see it.” Similarly, most consumers rely on their guts alone when assessing one socially-responsible business against another.

Despite an ongoing debate among academics about exact definitions of this type of social business, there seems to be a common understanding of the most basic constituent parts that must be present for a company to attain the pure social enterprise status that has emerged.

To be considered a true social enterprise, a business must have been:

• Created with the explicit intent of positively impacting a social or environmental cause.

• Designed with a defensible financial model that attempts to sustain its impact with revenue generated by the sale of a product or service.

Both characteristics are required. A business that creates social or environmental value but without a sustainable financial model is still a worthy thing called a charity. Similarly, while there is nothing wrong with a business created with the primary intent of making money, even if the business has significant and measurable social or environmental impact, it does not rise to the level of intentionality required of a pure social enterprise.

The social enterprise spectrum

As more nonprofits and social entrepreneurs pursue the pure form of social enterprise and bring new products and services to market in virtually every category, this simple framework will become increasingly insufficient. The “porn principle” will no longer suffice.

At the same time, it will become increasingly important for entrepreneurs to understand where they are on the social responsibility spectrum — it will be a defining characteristic of their business.

Here are some questions entrepreneurs need to ask in order to evaluate their places on the spectrum:

• Was your business created under a nonprofit corporate structure?

• Has your business been granted tax-exempt status at the state or federal level?

• Is your business eligible to receive tax-deductible gifts or contributions?

• Is your business a low-profit limited liability company (L3C), benefit corporation, or other form of legal hybrid?

• Is your business B Corp-certified?

This is, of course, an ever-evolving list. The spectrum itself is evolving, too. But if you find yourself answering “yes” to some of these questions, you’re firmly angling toward social responsibility — and that’s how you should market your enterprise and define it internally.

To be clear, it is completely fine for a social entrepreneur to profit off her own hard work — that just can’t be the primary objective of the business. Undoubtedly, the marketplace will become only more confusing in the short term as more systemic approaches to the triple bottom lines become widely adopted. In the meantime, the ability to critically evaluate the claims of companies across the entire spectrum of socially responsible businesses is required of any entrepreneur who wants to do as much as he can to advance a more sustainable capitalism.

Chris Miller is the founder and CEO of internationally renowned social entrepreneurship incubator and accelerator The Mission Center L3C. He is the co-founder of the Washington University Startup Training Lab and a senior lecturer of entrepreneurship at the University of Missouri-St. Louis.