Today, more than ever, for-profit ventures have the capability to change culture quickly and with huge impact. In less than a decade, YouTube has significantly changed how we experience education, war, and art; Twitter and Facebook have had dramatic effects on the political revolutions of 2011 and 2012. Though these new businesses didn’t necessarily start with a social mission, their effects have had major impact. It’s clear that mobile devices and the Internet--coupled with shifting societal values toward brands--have major potential to help solve health problems, redefine transportation, revolutionize finance, and solve a host of other problems.
But in order to drive this innovation, the way businesses and nonprofits measure success must catch up to the values that drive how they operate.
A gulf between "pro-social" and "business" very much exists. Why? Historically, nonprofits and for-profits sought investment from sources with very distinct expectations. Sources of capital targeting for-profit businesses have encouraged financial performance in short-term bubbles. It’s for this very reason that society has viewed corporations as narrowly motivated by profits, and generally sees nonprofits as propagators of good, without any need for financial returns.
But the ideas that define "for-profit" and "nonprofit" missions are blurring because market demand has changed. As the ideals of transparency and communication evolve and proliferate, people (especially millennials) relate to brands like they do each other, looking to goods and services for self-expression not just of wealth, but also of values. A new breed of startups (like the Collaborative-funded Simple, Codecademy, and TaskRabbit) are working to disrupt major industries. Their mission is inherently tied to both their profits and potential to change the world. It is the entrepreneurs within these cultures that we believe will be the next chief influencers in how we live our lives.
And so today we are in an interesting place. Many entrepreneurs remain leery of traditional venture capital, as its nature may force them to sacrifice their company or personal values by encouraging short-term gains over long-term prospects. And impact investors are restricted to nonprofit investments requiring detailed reports quantifying social good. This should change: They should be encouraged to make investments in nonprofits and for-profits when it aligns with their mission. And venture capital (or private equity and banks) should include societal returns in their measurement of success.
Capitalism will continue to encourage short-term returns at the expense of natural resources and labor quality. But a growing number of large companies are seeing financial returns from implementing better practices and collaborative values. Tech companies make up nine of the top 25 big businesses with good corporate citizenship. In the past three years, ethical companies have outperformed growth of the S&P 500 by 40%. Meanwhile, attitudes in the labor market have shifted in favor of these companies. According to the Kelly Global Workforce Index, the majority of young talent would accept a lower wage if their work contributed to something “more important or meaningful.” Considering how these two trends complement each other, these folks won’t have to take a pay cut.
It makes sense to apply for-profit skills--like distribution, scale, and marketing--to creating cultural change. Businesses are often much better equipped to distribute and market innovations than government agencies and NGOs. And solving big problems can mean making big profits. Harvard economists Michael Porter and Mark Kramer argue that investments in shorter-term profits miss major opportunities to create long-term shared value. But it’s not easy: Building problem-solving products to scale takes long-term vision and patience. Like Amazon’s Jeff Bezos says, "Shiny doesn’t last."
This is why we at the Collaborative Fund are betting big on cultural entrepreneurship, which we define as innovation that creates long-term impact on how we live and relate to one another. We believe the most mindful, inventive for-profit businesses will drive the biggest societal impact in the next decade.
When profits come from economic growth tied to collaborative values, businesses become embedded, agile, scaleable--and the effects will be enormous.