Challenge: Use Good Business Practices Without Losing Social Purpose

As the saying goes, "assume" makes an ass of you and me.

In a recent "debate" posted on the McKinsey & Company website, I think some asinine assumptions were made by both sides.

At issue: Should social entrepreneurs adopt the language and practices of business? On one side, Matthew Bishop argues for the proposition, largely on the assumption that you can't solve the world's problems one village at a time. In other words, success is measured by size.

His unfortunate example was microfinance, now under a cloud because profit motives have, in some instances, overtaken social goals. Yes, they've scaled up but they've lost all sense of social purpose in the process.

Arguing against using business practices in social enterprise was Bunker Roy, who said that using business practices means you are no longer a social entrepreneur and that the only people profiting from your enterprise should be those you serve.

Talk about assumptions! The first assumes that only big enterprises can effect social good. We know that the effects of small efforts can be cumulative. Village farming co-ops may collaborate with others but can still be small, locally run and effective.

Of course, Bishop's position also assumes that it's an all-or-nothing world. If you can't clean up all the water in the world, why invest in just one village, he seems to be saying. I've discussed this scale thing before, in Do You Have To Move Mountains or is Kicking a Pebble Out of the Road Enough?

Let's look at Roy, who assumes that if you make a profit, you lose your soul. Not so. Large corporations – Patagonia, Whole Foods come to mind – have grown while retaining their interest in environmentally sound, socially responsible business practices.

Roy also assumes that good business practice and economies of scale automatically mean top-down decision making, that social enterprise who use good business practice will lose touch with the people they are trying to serve.

Well, first off, good business practice requires that you keep in touch with your customers and suppliers.

And he ignores the many successful, growing businesses who use a team/one-big-happy family approach to management, as evidenced by award-winning workplaces.

I think what the McKinsey debate reveals is the very real fear that tools used by business will be adopted but not adapted by social enterprise.

We need to use tools that promote efficiency, make us eligible for loans, help us treat employees well, and market our products: the business part of social enterprise.

But those tools need to be adapted to measure more than profit. And I think that is what Bunker Roy is really afraid of: Not just the top-down approach that business models often generate but a focus on financial profit to the exclusion of the other two bottom lines: people and planet.

Social entrepreneurs must use good business practices, whether it's keeping on top of cash flow or monitoring the marketplace. But they must also find ways to set goals and measure success that go beyond dollars and cents.

This same issue is being faced – and dealt with – by nonprofits that have suffered for years under the overhead ratio method of evaluation. That, too, is changing as rating agencies quantify outcomes and effectiveness.

As social enterprises become larger and go public, easily quantifiable goals become tempting. After all, you're competing for investment dollars with guys who report only dollars and cents. Therein lies the risk: Can we grow social enterprises into large-scale corporations without losing the "social" part of "social enterprise?" Can we develop a way of quantifying the social good, of measuring success that gives equal value to people, planet and profits?

Business practices must be adapted, not just adopted. They must expand to include triple bottom line evaluation. That's a big change. And it's why universities now offer programs in social entrepreneurship.

Yes, it's business but it's not as usual.

And our challenge is to use business skills without losing heart.

Have you had to choose between traditional "good business practices" and your social goal? How did you resolve the situation? Do you think that good business and business that does good are mutually exclusive?