I totally agree-it is a good disctinction. I need to hunt down this great quote from William McDonough on this topic. He does sustainable architecture and doesn't believe in just doing "less evil" but actively pursues creation of buildings and landscapes that improves the environment. He also has a great book made out of PVC (you can drop it in the bathtub!)-no use of trees! It feels like a book and I imagine you can recycle it when you are done!

I would state it even more strongly: the second generation is characterised by very tight interdependence between profit and social good. When you can't make a profit without having a positive social impact, you know you're talking about this second generation.

I work with an organization that promotes the development of a regenerative food system, using what are commonly called organic, sustainable, or natural production techniques. We have created the beginnings of an off- and online community to help farmers transistion from conventional industrial agriculture to regenerative systems, but find that the major pinch-point in the food system overall is neither supply nor demand, but distribution, and retail distribution in particular. Given your experience in community-building in the marketspace, do you have any thoughts about how to expand our community to include people and families who want to eat food that regenerates themselves, farmers and their world, but can't get it at a reasonable price from the current retail system? We are currently looking for ways to help them get what they want from retailers who are neither first nor second generation social enterprises.

Interesting, maybe we should start a new topic about that. You can do that by clicking on the "Discussions" at the top of the page under the group name, then clicking "new entry" on the brown menu bar which appears.

Clearly the types of challenges you describe are complex. In theory, retail distribution systems should be sensitive to demand. But my guess is that consumers who are looking for those products will still purchase substitute products if they can't find what they're looking for. This creates an illusion of demand for those substitute products, and doesn't capture the unmet demand for the organic products.

By the way, welcome to omidyar.net!

Thanks for the welcome, Pierre. I had a chance earlier this year to chat with Deborah Alvarez-Rodriguez about your work, which made me think you might have some thoughts on this particualr community-building issue.

I'm a bit of a newbie at online communities myself, but I'll see what I can do about setting up a new topic. Thanks for the directions.

Next phase of social enterprise? Perhaps another way of looking at this is that enterprises occupy points on a scale that ranges from negative to positive "externalities." A cigarette manufacturer, for example, would be on the negative end of this scale. An organic farmer - or an organic farmer who employs disadvantaged urban youth - would be more on the positive end of the scale. With this perspective, the greater social challenge is to discourage enterprises with negative externalities, and encourage ones with positive ones. (Should I go for an economics degree?)

One the better ways to frame these negative vs. positive, first genreation vs. second social enterprises, might be to look at them as "extractive" or "exploitative" vs. sustainable or regenerative. If an activity "uses up" or "consumes" social and/or material resources (including the earth's ability to process our waste), then it is exploitative and should be replaced with activities that regenerate resources, such organic vs. industrial agriculture, but also vs. an entire food system that keeps farmers from making a sustainable living and consumers from getting food that does more than fill them up and make them fat.

The model would seem to apply to all forms of human enterprise: manufacturing, politics, education, you name it.

Tell me where I'm wrong.

I'd be interested in more examples of successful businesses that this group would characterize as also creating social good or positive externalities. Presumably most successful businesses create value (I enjoy my coffee and Starbucks enjoys my $2). Most also create positive externalities to some extent (Starbucks is a "fun place to work", adjacent stores get increased traffic). But I think this group has somethimg more ambitious in mind. What businesses create significant positive exernalities? I'll take a stab at three:

New York Times: fosters political accountability.

Yahoo: Yahoo Groups underpins most of non-profit sector.

Ballard Power: fuel cell development lessens dependence on fossil fuels

Other examples or ideas? (It's frankly not that easy a list to generate :) )

This is an interesting discussion. I think a great service and opportunity would be to help establish links between members of the for-profit and non-profit sector. Aligning the right organizations that can link missions, share infrastructure, people, talent, etc. That's one way where positive externalities can be enhanced.

Perhaps this can be done as a consulting service? This could be of tremendous value, since finding and building such relationships is very difficult (especially given cultural differences between the for-profit, academic and non-profit sectors).

I can even imagine that some for-profit corporations would pay for such services, especially if it enhances their marketing efforts. Hmmm. I’ll have to talk to my friends in strategy consulting to see if this can fly at all .

Ours is an example of a business that can't be profitable without generating a positive social benefit. We operate within the live entertainment industry, currently focusing on live music and expanding over time to other arts.

The social and economic problem we address is that musical artists find it very difficult to make a living practicing their art in today's economy. They face 1-in-a-million odds and unfair practices by labels, pay-to-play barriers with radio station conglomerates, and music "piracy" by consumers.

Live performances, rather than sales of recorded music, have always been the greatest source of income for musical artists. However touring outside one's home market is difficult, expensive and highly risky due to lack of knowledge of where demand exists for one's performances and the high cost of reaching prospective ticket buyers.

By identifying and measuring local demand in cities across the country for live shows by any (and virtually all) musical artists, we help them solve the first problem - in which cities do a sufficient number of people wish to see the artist perform?

Since the "latent audience members" we have identified have asked us to alert them when that specific artist has booked a local show, we solve the second problem - how can ticket buyers be reached economically so that the performance is profitable?

The identification, measurement and activation of otherwise-latent demand helps more artists perform their works in front of more people than ever before. There's a socio-economic benefit to the artist and a social benefit to society if one believes that experiencing art provides social benefits.

We earn revenue when latent demand for a musical artist's live performance becomes activated - when a show is scheduled and performed in front of an audience. Our model depends upon consumers placing requests for live music and on artists using the resulting data to book their shows - both groups have to want the benefits we make available. Without the social benefit being sought and realized, we can't be profitable.

We've proved major elements of our model in a local test market and, since it's highly scalable, we plan to take it national and global. Our success will mean that tens of thousands of musical artists can consider quitting their "day jobs" to concentrate on their art. And people in cities large and small will get to experience more of the artistic performances they truly want rather than those selected for us by fiat (a social issue best left for another forum).

The distinction between two types of philanthropy may or may not be sound. What is not correct, in my view, is the use of the word "generation" , which would seem to imply that the 'emerging' "2nd" eclipses the good or optimization of the prior generation.

I believe that the facts of some earlier philanthropists contradict this use of "generation".

William Norris, founder of Control Data Corporation comes to mind as a shining example. Rather than give a limp rendition of his praises, here, (due to my ignorance), I refer you to:

http://en.wikipedia.org/wiki/William_Norris

for an outstanding biography.

I would note in closing that global competition has made it more difficult for businesses to be philanthropic. Conditional probabilities are the culprit, here, not some satanic business mindset. It's hard enough to make a profit. It's hard to make a difference, under the best of circumstances, apart, from that. Put them together, and you may have a vanishingly small probability.

It's interesting that the two examples discussed above of enterprise that can't make a profit "without having a positive social impact" both bring the direct producer and "consumer" closer together. Farmers get closer to the families that eat their food in farmers' markets and musicians get closer to listeners through the services described by Ben.

I agree that "generation" is not quite the right terminology -- since the word implies a sense of progress that is often belied by actual history.

And I agree that what we currently experience as globaliztion makes philanthropy very difficult, since profits are less and less available for social enterprise outside the business strategy of a profit-driven enterprise.

But a business that adheres to a strategy that doesn't allow it to make a profit unless it creates social value is a very different animal than most of the businesses competing on a global scale today.

Can we think of other extant businesses that fit that model? How could we foster more of them? Does eBay fit that model?

I'm pretty sure eBay fits that model -- though admittedly I'm biased. eBay can't succeed unless it convinces people to extend their trust to a complete stranger, without ever meeting them face-to-face. Trust is a prerequisite for trade, which is where eBay earns its revenue.

Over the last 9 years, it's been very successful at proving the assertion that "people are basically good," and worthy of trust, in almost all cases. (There are always cases where ill-intentioned people take advantage of others, and that happens on eBay as well. But well over 99% of transactions conclude sucessfully without fraud.)

It's even possible that members of the eBay community are more willing to trust strangers today than they were nine years ago, on or off eBay.

I think your other point about the common denominator between these examples is very important. You say, "both bring the direct producer and 'consumer' closer together." I think transparency, a bottom-up and empowering approach, and a much higher degree of connectedness between the traditional "company" and its "customers" is a critical factor.

Perhaps one way of considering whether or not a company is a social enterprise is whether or not the benefits it provides to society would otherwise be promoted (and funded) by government agencies or philanthropic organizations.

As an example, in our what-if scenario exercises, we have reviewed our own motivations for the creation of Demand ID Systems. The desire to provide balance to economic distorions in the recorded music and performing arts industries, to facilitate revenue generation for performing artists and, thereby, to foster the growth and health of the arts - these figure highly in our motivations.

As a result, we have considered converting the company to a non-profit and tapping funding from government and philanthropic sources focused at the arts and humanities. However, asking such institutions to consider funding revolutionary models like ours seems as much a risk as the current hide-our-heads-in-the-sand state of early stage venture capital. And, all other things being equal, we would prefer to benefit from capital appreciation while delivering these social goods.

But the fact remains that the "good" we seek is akin to the "good" sought by arts funding organizations. We simply apply a new economy method. We've passed this gut check to our own satisfaction and feel comfortable describing Demand ID Systems in a social enterprise context.

It's a litmus test useful to qualify companies as social enterprises quickly. It should be applied carefully however as there likely exist social needs never before addressed by government agencies nor philanthropists.

Ok, but what about the REAL change thats happening to society globally... the spirit of GPL/OSS development

What we are really doing is changing the social and economic distribution of wealth so that the world can be a better place... and we can do this since software runs the world.

And yet there is little to no support out there for open source developers other than free web hosting on sourceforge and a bunch of greedy corporations who want to take advantage of their work by offering them crooked deals with lots of catch-22's

Open source is the future and it is changing the world - its leaking out into society in the way that all good revolutions are fought... quitely and discreetly but steadily and powerfuly. And its inspiering people to help change the world since we are showing that it can be done in a industry thats all about money and wealth.

I was however greatly dissapointed to attend the WOS conference in Berlin last month and see that the leaders of a lot of the OSS projects there were all moving on to commercial gigs since the financial support isnt really there...

what can be done to REALLY help fuel this revoluition so that it can run its course?

As Jean Luc Picard said in First Contact - "The economics of the future are different"

I would very much put eBay on the leading edge of the positive social impact model, and not just its trust model. I use the 5 core values all the time in my presentations on values...it is quite compelling to point Pierre's value statements and eBay's success, and keeps one from being suspected a "girlie man" for bringing up such topics in polite business company. See http://www.corante.com/uplift/archives/2004/07/15/pam_and_pierre_omidyar_on_uplift.php

I would also put Google up there in this regard, which I blogged at http://www.munnecke.com/blog/archives/2004_05.html#000153

I think that the biggest bang-for-buck for social enterprise would be to make it simpler for people with a vision to take action to make a difference. For example, I know of a family who lost a niece in a window-cord accident, and out of their grief, they want to start a 501(c)3 for child safety. Rather than starting a whole new organization for that purpose, wouldn't it be great if they could activate their vision, based on an array of off-the-shelf services?

This is a lot like the transition from the mini computer to the micro computer industry a few decades back. In the mini era, each company had its own vertical stack of activities, from making CPUs, disks, Operating systems, etc. The microcomputer came along and the industry became "layered" with Intel and AMD doing CPUs, Dell and Gateway doing boxes, Microsoft doing OS, etc.

This same "flip" could happen in philanthropy and social enterprise. Instead of creating 1 million+ "vertically integrated" non-profits (i.e. for which we need capacity building) there would be layers of services, into which service providers could seek their greatest value-added, in accordance with their vision. These layers, much like a protocol stack in communications networks, would be able to evolve independently. Maybe this is the third generation of social enterprise.

Karsten, welcome to omidyar.net. I am very interested in you taking a 'crack' at your own question "what can be done to REALLY help fuel this revolution so that it can run its course?"

Tom, I completely agree that the trend must be towards making the social enterprise / triple-bottom-line business sector more streamlined, structured and unified.

One project we are working on at Social Enterprise Group is the finding partners for a "social franchise incubator". We want to take the cost, risk and need for heroism out of running a social enterprise by identifying excellent busines models and turning them into turn-key franchises that can be rolled out across the country/globe. Imagine running a network of homeless shelters or biodiesel plants on the scale of McDonalds or FedEx.

This just isn't about creating a few massive new organizations, but a ecosystem of integrated groups, all focused on different core competencies. If you haven't, I highly recommend reading Gideon Rosenblatt's "Movement as Network" paper at www.movementasnetwork.org - think "small things well connected".

Hi Jim

Good question about examples of these types of organizations.

I started a new company named SparkPeople.com that is indirectly trying to make your list :)

SparkPeople right now focuses on helping people reach their health, fitness, and weight loss goals. Everything we do is medically-accepted. Our dramatic difference is that we figure out the right motivational "buttons" to push that help people stay consistent with their health and fitness goals so they make a lifestyle change rather than do a "yo-yo diet". The diet industry is currently a $30+ billion industry with a lot of wacky stuff out there that often ends up doing more harm than good (pills, fad diets, etc).

The only way we'll be successful is if our customers are successful. We also teach them to lose weight in a way that helps them learn a process to reach other goals in life. So, I hope to create a bunch of social entrepreneurs along the way! An example is a couple from California that has lost a combined 100+ pounds on our site and has now posted over 1,500 messages in our online community to motivate other people.

We also have a 501(c)3 non-profit version of this company - its goal is to tackle the childhood obesity epidemic that will end up costing our society an unbelievable amount of money if it isn't fixed soon. By licensing much of our content and technology to the non-profit for free, we are essentially creating a "competitive advantage" (that's not the best term, maybe someone can help me with a better one!) for this organization.

I'm happy to have found this site!

Chris/SparkGuy

PS Here's another example that's almost a hybrid between the first and second stages mentioned above (maybe people can give their opinions on whether this comes close to qualifying for the second stage):

A company near me in Cincinnati named LensCrafters is one of the largest eyeglass retailers in the world ("glasses in about an hour"). They have since been acquired by someone, I think Luxxotica.

This company has a program where customers are encouraged to donate their old glasses to LensCrafters. LensCrafters then takes teams of employees to developing countries to distribute the glasses to people in need. This program has created an incredible sense of pride for the employees of the company (leading to increased productivity and loyalty???). Since this program is so intertwined with what the company actually does, it's a lot different than if someone on a high-up committee decides to donate money to some cause that none of the employees are ever involved with.

Any thoughts?

Chris/SparkGuy

How might social enterprize influence appreciative policies to support what citizens(local to global)individually and collectively value?

How can we faciliate "transparency, a bottom-up and empowering approach, and a much higher degree of connectedness between the traditional "company" and its "customers"... to uplift an ecosystem of integrated groups for pervasive benifit?

Dear All: Thanks to Jim Fruchterman for mentioning Pierre Omidyar to me in an email. Social enteprise is such a rich multifaceted topic, for which I'd like to suggest several questions (sometimes rhetorical):

MATHEMATICS OF CAPITALISM - is the world driven by idealism (or pragmatism), by reasoned power and greater wisdom (or by money power and consensus wisdom)? - how much money power can ever be engaged by giving things away for free, or by non-profits, or by open source software? - is there some midpoint between maximal profit capitalism and minimal profit philanthropy? - if the numbers were 0.1% of all corporate profits were channeled to/operating towards philanthropic or progressive ends (responsibility-advancing, or irresponsibility-correcting), and the other 99.9% of profit were retained with half (or 49.5%) behaving irresponsibly, and the other half (or 49.5%) behaving responsibly (ethically, but not necessarily focused on looking out for the irresponsibility of the 49.5% irresponsible), then would irresponsibility have responsibility outfunded? - is it possible that just as we have transitioned from an era of dominance in physical power to dominance in economic power (which transition both maximized and transformed physical power), that we are now transitioning from an era of dominance in economic power to dominance in reasoned power (which transition will both maximize and transform economic power)? - is power good or evil?

GROUP UNDERSTANDING OF GROUP BEHAVIOR - if we looked at the systems of human collaboration and interrelationships with corporate, philanthropic, non-profit, and social enterprise organizations as having three segments (inputs, processes and outputs); what is our approach to considering how well current human systems are doing: do we just consider outputs of collaboration? or do we consider both collboration outputs and the process used to obtain them? or do we consider all three (inputs, processes, and outputs)? - if capitalism is structuring human interactions with legalizing the private ownership of the efforts of others in order to create incentives for industrious efforts, is it possible that sometimes the process is bad while the output is good, or that the process and output is good but the inputs are badly treated (e.g. unjustly exploiting humanity and the environment)? - do new metrics like TBL create the needed change, or must corporations be the change they (their leaders and other constitutents) wish to see? - is capitalism fully matured, and if not, is its maturing involving a choice between changing how capitalism operates and an alternative of major social or ecological catastrophes? - how does capitalism mature? - might it be one corporation at a time? - have folks read The Soul of Capitalism by William Greider? - is profit maximization at odds with social goals (or advancing them) if it brings to the table the lowest cost laborors of foreign countries, hence including them perhaps for the first time in current world economic power structures? - is the current world economic power structure more powerful not only when more are included, but when they are also included more fairly? - if there is not equal protection for workers' rights, is that a problem (especially given the greater likelihood of unjust exploitations with those at a great distance who we do not know), - if workers' rights globally is a problem, how big is the problem, and does it get fixed? - how does it get fixed?

WHERE IS POWER CENTERED TODAY - how much political power is engaged by money power over democratic voices? - how much consensus wisdom through media is engaged by money power over democratic voices?

WHERE IS POWER MOVING - or - GLOBAL CHANGE IN A GLOBAL WORLD - when humans are collaborating at a global level (Kevin Danaher suggests that 51 of the 100 largest economies are not goverments but global corporations), can we rely on social and environmental protections generated at national levels against global social or environmental problems? - if corporations are extremely powerful, do they perhaps do both the most good and bad in the world? - is the social entrepreneur with a world-changing business idea perhaps most world changing if his/her world-changing business idea is embodied in a progressive business vehicle? - do entrepreneurial systems support social entrepreneurship? - have the corporations that exercise both minds and hearts today been celebrated and analyzed in a coherent fashion to provide a model (and systems) for world-changing through business? If not, how does this happen?

EXPANDING UNDERSTANDING AND PRACTICE VIA NEW MAGNA CARTA FOR THE CORPORATION - is it possible that a new model of a corporation, with a new Magna Carta, is also in order -- following the logic of not just turning some portion of profits towards reason/progress, but turning the mind and heart of the business towards reason/progress? - is a world dominated by money power generated by corporations that focus narrowly on profit oft' to the exclusion of social and environmental responsibility the world we want to live in? - is Frank Dixon correct that public corporation executives today really don't have much choice to be responsible because of the system they operate in? - is there a way to grapple with the money power (sometimes greed, sometimes fear, sometimes tradition) that drives world powers today ... grappling in order to advance reason/progress/joy/sustainability instead of solely monetary profit? - Is it possible that this is already happening in small ways?

AIKIDO - does the energy-redirecting martial art of Aikido give any clues? - is it possible that the world is already being changed not so much "one person at a time" but instead "one corporation at a time", Aikido style? - is it possible that such, "Aikido Activism" (*), when celebrated and advanced could accelerate a behavioral shift at the origins of power, to radiate and diffuse more aware and progressive activities throughout much to all of business -- hence to government, media and society? - is it possible that Aikido Activism is pragmatic enough to empower progressive change? - Is "giving it away" idealism sufficiently relevant to where the world is today to truly transform it, or is it possible that transformation will come by joining the current game and winning it, with the goal of transforming the game to an evolutionally advanced game in which winning aligns economic reward with environmental and social responsibilities?

COPYRIGHTS -- IMPORTANT CASE - If copyright and copyleft ( http://www.gnu.org/copyleft/copyleft.html ) are extremes akin to maximal and minimal profit, is the right money-power-grappling mind-cum-heart copyrights approach somewhere in the middle? - Will someone patent a process of worldchanging and hold worldchangers hostage? - Would an "Aikido Copyright" (embracing the concept of Aikido Activism) be helpful for online discussions about transforming the world? - Have you found the ideas shared on Omidyar Network's website as interesting as perhaps those in the most recent book you paid for? (I have) - Can collaborative world-changing discussions be enhanced by targeting central themes of future power that emanate from both mind and heart, vetted through democratic criticism, inspired collectively from the personal challenges and success of many? - Can a Magna Carta for wholistic social enterprises (responsible in ouputs, inputs, and processes) be written collaboratively with ideas shared under such an "Aikido Copyright", and so establish/evolve a more common model and system of social investment and entrepreneurship?

Reed *http://tinyurl.com/4p24d

The Celilo Group (http://www.celilo.net) is a for-profit group in Portland that I find a very interesting example of some of what is highlighted above. These guys have a number of interesting projects underway that are paving the way to sustainability in the Pacific Northwest. Nik Blosser runs Celilo and he and I have ruminated on the potential to connect the for-profit and not-for-profit sectors more easily in the future.

One avenue I am personally very interested in is the notion of using not-for-profit social change organizations as a mechanism for building demand for social enterprises. Imagine a toxics group writing articles about pesticides usage on strawberrys and then, in addition to linking you to online activism tools to curb pesticide subsidies in your state legislature, also enabling you to purchase sustainably grown strawberrys from community supported agricultural co-ops in your area. We're playing with some of these ideas up here now.

Anyone been thinking about this topic out there?

Wonderful discussion for a newcomer, and for someone running a non-profit organization that relies heavily on selling product to keep afloat. We are also in constant need for the private sector to see the value in purchasing our educational materials for schools and youth organizations that don't have adequate funding. Had it not been for our ability to generate income based on for-profit ideals (capitalism at its best), we would no longer be alive. I see that selling product that benefits the world - in our case videos that help children develop healthy body image and teach the Health at Every Size paradigm of weight and health (a sane approach to living in a culture gone mad with the "war against obesity,") - is a way to sustain the work of the non-profit sector at the same time as creating social change.

You might be interested in Bill Shore's, "The Cathedral Within," a great book that discusses social entrepreneurs who are "tapping the vast resources of the private sector to improve public life." A good read for those who want to change the world, but value themselves enough to make a living at the same time!

I tend to disagree with the whole concept that social enterprise is strictly about feeds off profits.

A broader definition should be focused on moving resources into social beneficial activities and the ventures that produce the greatest return (social and revenue) on investment.

It is entirely within the definition of social enterprise to find better uses of existing resources and infrastructure to produce social benefits. Is MoveOn has social enterprise and is lead by social entrepreneurs that are finding new ways to engage people with very low overhead. If the definition is limited to profit streams we are merely businesses.

Is Waste Management Industries a social enterprise? Profits are fuel for removing and hauling junk. Where are the lines of value and "good"?