About two percent of America’s GDP is fueled by donations to charities — just two percent.
If you really want to get serious about fighting poverty, you need to follow in the footsteps of Starbucks, Apple, and Exxon: Find someone who has a reason to pay you to fulfill your mission, whether that mission is making coffee, selling gadgets, filling gas tanks, or fighting poverty.
Nonprofits can’t solve large-scale problems because they can’t scale, and poverty – like many big social problems – can’t be addressed without scale. Profit-driven ventures will drive the repetition of a behavior or transaction as long as that transaction has a financial benefit for the people involved. The challenge is to direct the profit-making engine at a social problem.
Many companies have addressed social problems by promising that every sale will deliver a benefit to those who are less fortunate, such as Toms.
My company, BeneStream, took a different approach. Tens of billions of dollars in Medicaid and food stamp benefits are unclaimed each year. The benefit of that transaction to its recipient is insufficient to drive utilization, so we asked, “Who else would benefit from this transaction?” and “Would they pay for it?” Answering “yes” to the second question meant the formation of a transaction that would drive a market and create change. We saw a need in the market, and we created Benestream to offer Medicaid-enrollment services to employers looking to provide healthcare solutions to their low-income employees.
Fighting Poverty With Profit
Here are the three biggest reasons for-profits are key to solving America’s poverty problem:
- Market Strength: As long as people will pay for it, more businesses will repeat the transaction, and the transaction will have a life of its own and create a market. If the transaction has a powerfully good result like providing a family with healthcare, that result will be repeated until the market is saturated.
- Scalable Sustainability: Many organizations that address poverty must pursue charitable dollars every year. They’ll survive as long as they please donors — whether their programs are the best way to help those in need or not. But if a company can help someone after paying to reduce poverty in some way with a replicable and profitable transaction, it can put a dent in poverty. More success breeds more profit and provides the organization the ability to continue to do its work.
- Mission Alignment: When a company achieves a high level of alignment, its profit and impact become correlated. The more impact it has, the more revenue it generates. That revenue can then be re-invested into the operation. This is the epitome of “doing well by doing good” — a philosophy that underpins much of the work in the social venture space.Because fundraising — not social reach or revenue — is the primary driver of nonprofits, these organizations can’t achieve this type of growth correlation.
Increasing Social Value Without Decreasing Profit
A number of for-profits have begun to emerge and prove that this model has social value.
Pigeonly, for example, provides prison inmates and their families with a variety of communication options that make it easier and more affordable to keep in touch. The company meets a demand that’s disproportionately found among low-income people, and its services are offered at a more reasonable price point than traditional means, such as collect calls. The result is a direct correlation between impact and revenue: The more lives it touches, the more revenue it brings in.
So how can we launch for-profit companies that help fight poverty without sacrificing revenue?
- Fund the creation of thoughtful business plans. Building business plans requires time-consuming, expensive market research. Building these plans to do good requires thoughtful consideration of problems that business doesn’t usually tackle. Innovative foundations spending millions to combat poverty should direct a portion of that funding to entrepreneurs to consider how these problems can be solved with market interventions.
- Build social innovation incubators. Incubators are the most powerful tools for building businesses by investing in entrepreneurs. Social entrepreneurship must embrace incubators that bring together talented individuals and support them with money and experts that can help them go from idea to replicable prototype. People starting a business for the first time need access to lawyers, marketers, graphic designers, accountants, etc.
- Find the right people. There’s no greater force than talented people pursuing a mission. They must be cultivated and given outlets for their work.
- Fund projects that build markets or connect people to existing markets. There’s still a role for philanthropy in this new vision. Philanthropists should fund projects that attempt to build new markets or connect people to the larger market around them. These projects need to start from a place of understanding that they’re entering the rough-and-tumble world of fighting for dollars.
The war on poverty is a struggle worth fighting, but if we’re going to win, we have to use every tool at our disposal — not just two percent of them.