As always, it was a pleasure to hear from Steve Blank, father of the Lean Startup, last night at Columbia Business School. He rehashed several of his familiar 'Big Ideas,' not least of which the fact that startups are searching for a business model, whereas companies execute on a proven business model. The new part of his talk was from work he's doing with Alex Osterwalder and Eric Ries about innovation in established companies in the current environment where continuous innovation is a requirement for success, or even survival. This is certainly an issue that my colleague (Yael Silverstein, also a CBS grad and with me in the front row center last night) recognized is also critical for not-for-profit organizations: social problems - and their potential solutions - are growing and changing, as are funding models. So any not-for-profit that's going to be successful in the medium- to long-term has to be strategically creative about their services and business model.
I stopped nodding, though, when Steve added a parenthetical note that 'social entrepreneurship' is a contradiction in terms for him. (He was listing six types of entrepreneurship - lifestyle businesses, small business, scalable startups, viable startups, social entrepreneurship, and corporate entrepreneurs or intrapreneurship - to point out that we inaccurately lump these very different things together.) Yet I know he is involved with several not-for-profit organizations, he subscribes to the altruistic 'pay it forward' culture of mentoring younger entrepreneurs in Silicon Valley, and a bulk of his time is dedicated to public service to help commercialize scientific innovations so they can save more lives. So I asked him to elaborate further.
He first asserted that he believes in the work of not-for-profits, and has served on many boards, as well as serving his local community as a public official. Then Steve made a valid point about the risk of a not-for-profit organization that is 'customer-driven,' as he would have all businesses be. The risk in this situation is that the largest donors become the 'customers' rather than the beneficiaries of the organization's services, and this can tragically distort the organization's work toward its original social mission. I agree deeply with Steve on this point, and think there are indeed many not-for-profit organizations that have been highjacked by well-meaning but unaware donors. I'd go even further to say that the not-for-profit model of attracting grants and donations inevitably leads to sub-optimal performance toward the organization's mission. It is for this reason that I advocate earned income strategies by which not-for-profit organizations can earn and control their own revenues.
Steve also addressed his perspective on businesses' involvement with social causes. Again demonstrating his ideological commitment to making the world a better place, he suggested that big businesses should lobby for tighter regulation to raise the bar in their industries, rather than what we generally see of corporate lobbies fighting to reduce or eliminate relevant regulation. He also celebrated businesses that contribute to worthy not-for-profit causes. However, he quickly added that if any of his portfolio companies had such plans, he'd promptly block them. He explained this position with the accepted belief that entrepreneurs must 'keep their eyes on the prize' during early stages to get their venture established. While I agree with the importance of such focus, I think that Steve is missing a significant new trend.
Myriad studies have demonstrated that Millennials (those born roughly between 1980 and 1995) and women - two large and growing consumer segments - care deeply about a brand's commitment to and action for social causes. Specifically, Cone Communications' 2010 Cause Evolution study showed that 83% of consumers "wish more of the products, services, and retailers would support a cause." The same study showed that 61% of consumers would try a new brand they'd never heard of simply because of the cause it supports. That can't be an insignificant factor for at least some of the startups in which Steve has invested.
I recognize that startups have to be focused and highly cost conscious (after all, I run one such company). However, I think that there are an increasing number of cases in which that 'prize' we have to keep our eyes on has a social component. Recognizing this trend and searching for business models accordingly is exactly the ongoing innovation that Steve himself cited as crucial for long-term success.