Last week (July 10th) I met with Jeffrey Falkenstein, Vice President for Data Architecture at the Foundation Center. During our conversation, we discussed the philanthropic model, it’s necessary evolution and the changes to the traditional model of philanthropy. To put it in simple terms: (i) The challenge in collecting data about philanthropic dollars: While traditionally the Foundation Center has relied on publicly available data sources such as tax filing of public charities (to provide data about grant making bodies to grant seekers), increasingly this is becoming a challenge with the emergence of new models of philanthropy, which most often are private bodies and do not have a mandatory reporting requirement. (ii) Business and philanthropy are no longer mutually exclusive (Examples: benefit corporations, start up nonprofits, hybrid models): Access to internet, affordable technology platforms and a changing mindset to make a living while still doing good, have empowered individuals and groups of people to donate and/or work towards solving hard problems.
Based on the above I started examining the new models of philanthropy, which roughly fall into the following categories:
Hybrid business model: This is set up to primarily pursue a social mission but relies significantly on commercial revenue to sustain operations. It combines social welfare and revenue generation. The article “In Search of the Hybrid Ideal” in the Stanford Social Innovation Review, talks of three legal structures currently in place for such a model:
o L3C (Low-Profit Limited Liability Company): It is a variant of an LLC, designed primarily to enable companies to access investment from tax-exempt sources such as private foundations.
o Benefit Corporation: It has two purposes – to provide profits to shareholders and to achieve an announced social or environmental goal. The law obligates the corporation to achieve both, and ensures it doesn’t exist only to make money.
o Flexible Purpose Corporation: It requires boards and management to agree on one or more social and environmental purposes with shareholders, while providing additional protection against liability for directors and management
Nonprofit startup: One which is a traditional 501(c)3 non profit, but its operating model is based on how a startup functions.
While these ‘new’ models of business-philanthropy are trending, viewing them in isolation is redundant. Rather they need to be seen as indicators of broader social phenomena which organizations across the board need to understand and adapt to in order to succeed. Here are two such phenomena that I consider to be on top of the list:
The ‘Civic Minded’ Millennial phenomena
o A Pew report defines millennials as those roughly in the age bracket of 18 to 33. According to Barry Salzberg, the global chief executive officer of Deloitte Touche Tohmatsu Limited, “In their insistence on social principle, many millennials are not driven by money or success in quite the way their parents were. This generation wants to know what your organization stands for in improving society”. Furthermore in a research study conducted by TBWA WorldWide produced with support from Take Part, seven in ten young adults aka millennials self-identify as social activists. Of this group three in four seek out employers who support a social cause.
In order to engage with and develop a sustainable relationship with one of the largest consumer bases aka millennials, companies need to understand the civic minded, culturally aware and value driven millennials, their social and cultural drivers and the causes that they care about. Businesses that use this insight to develop authentic initiatives that resonate with the millennial ‘social consciousness’ will succeed the most.
The Crowdfunding phenomena
o In its most simplistic form, crowdfunding is truly the child of the internet economy. It has democratized the financing process for any idea/venture. As opposed to traditional financing, the power in crowdfunding, is in the hands of the public at large to determine the value or merit of a product/idea. There are various models for it, but at its core it is a platform for active engagement and collective participation of large masses of people, with a shared purpose. As an open platform, it allows users to invest in and thereby become advocates of that particular product they now have an interest in.
Organizations can leverage crowdfunding as a vehicle to achieve multiple goals of (i) indirect marketing (ii) CSR: running campaigns that give back to the local community (iii) engaging users in the development of a new product and thereby turning each user into a brand advocate.