Expect No Less Than Explosive Change From Social Enterprises

06/07/2010 04:26 pm ET | Updated May 25, 2011

Scott Schwaitzberg and I attended Investors' Circle Spring Fair this past April. I was selected to pitch Catchafire at the event, and Scott joined me as one of Catchafire's advisers. As an an engagement manager at McKinsey & Company, Scott consults for-profit companies on becoming more profitable and efficient. After the Investors' Circle Spring Fair, Scott shared his interesting perspective on social enterprise. Here's that perspective, in his own words:

My friend and I have opposing viewpoints on change; he sees himself as the Colorado river that carved out the Grand Canyon over millions of years; I want to be the dynamite and bulldozers that created the Panama Canal.

As I look across the social entrepreneurship space, this analogy comes to mind. For better or worse, I find myself inevitably bored with "Colorado River" companies, leading by example one product at a time.
- The twenty-fifth entry into the fair trade coffee/chocolate space.
- The fiftieth company to give a charitable donation for every shoe, bottle, case, handbag or t-shirt it sells.
- The thousandth company to use biodegradable packaging.

These companies are doing fantastic things, but the "lead by example" model of social entrepreneurship just doesn't strike me as noteworthy anymore. I wholeheartedly believe that consumers should be able to buy healthier, fairer, greener products and that every company should consider a social and environmental bottom line in addition to its economic bottom line. But too often, this "lead by example" model results in incremental movements, not big changes.

So what does excite me? Companies that eliminate market inefficiencies with scalable solutions to societal problems. Generally you'd describe these companies as "the first to successfully do... blank":
- The first company to successfully...provide unsecured credit to the rural poor.
- The first company to successfully...offer a payday loan alternative.
- The first company to successfully...create a marketing halo for charitable product tie-ins.
- The first company to skilled volunteers to the nonprofit organizations that need them.

The danger here is that "lead by example" model gets confused with the truly game-changing companies in the social venture space.

At an industry level, it's easier for investors and partners to wrap their heads around the business models of "lead by example" companies than new theories of change. In a binary world of either success or failure,"greenwashing" an existing product or service sounds like a safer bet than "eliminating a market inefficiency" or otherwise fundamentally changing the way participants behave in the marketplace. In some ways it makes sense because the failure rate of "game changers" is probably higher than those "lead by example" companies precisely because they are doing something new.

However, the impact of a "game changers" success for society (and I believe, financially) will dwarf any "lead by example" venture dollar for dollar.

While it's normal for investor dollars to go into areas with a proven track record of making money, we should expect greater things of social enterprises. By definition, we expect this new type of business to change the world, and changing the world requires bolder (even explosive) strokes.