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New Horizons: For-Benefit Business; For-Benefit World

December 6, 2012
Illustration by Dean Connors from mywheelsareturning

Illustration by Dean Connors from mywheelsareturning

Economic efficiency began well with growing prosperity; however, every good thing comes to an end and too much of anything becomes saturated. Rising unemployment rates and accumulating social and environmental debris from blinded profit-driven goals demand evolution–conventional capitalism is failing us as the fiscal cliff looms over a dire economy.

On the upside, increasing numbers of concerned, proactive, creative types have been discombobulating a system confined to for-profit, nonprofit or governmental restrictive organization and piecing together an evolved and adapted fourth economic sector emerging as an all-star, profit raising, social and environmentally enhancing meta-structure for success.

Last year the Harvard Business Review published an article introducing just this:     The For-Benefit Enterprise. Author Heerad Sabeti discusses entrepreneurial restraints and faults within the current tri-sector economy, while presenting the power this fourth sector wields to reshape the future of capitalism.

Now, Let’s explore the for-benefit business model presented by Sabeti. Read through to link concepts in conclusion–this model is ripe with potential to burst anew economic, social and environmental vitality with entirely fresh and fruitful avenues for new age entrepreneurs to endeavor.

Balance calls for a fourth leg      

When starting a business, traditional boundaries generally restrict entrepreneurs to choose either for-profit or nonprofit entities–for-benefit is not currently recognized as a legal organizational structure. This architectural legality restricts for-benefit formation and operational choices.

As social and environmental considerations surmount among growing numbers concerned with creating a sustainable future, conventional businesses are strategizing to boost profits from adhering to public concerns and nonprofits are creating robust business models–blurring once clearly defined sectors of the economy.

Those mingling beyond historically instilled boundaries in efforts to both generate income and serve social and environmental ends are then faced with legal restrictions, challenges and compromise.

We see innovative minds pushing these boundaries through masked terminology: corporate social responsibility, sustainable business, social investing, micro-finance, etc. Rising initiatives, growing public concern for social and environmental responsibility and increasingly innovative entrepreneurs are laying necessary groundwork for the for-benefit sector.

A three-legged dog can run, but only for so long as unequal distribution becomes a learned way of life. Much like a dog with three legs, our economic system has learned to run well with three legs, engraving unnatural habits into everyday function and belief. Advanced innovative pursuits have rendered a new leg ready to restore true balance and optimal functionality; it’s time to bite down and go in for the operation. Lucky for us, we’ve already been training with the idea of a fourth leg, setting for a smooth transition and quick recovery.

It cannot replace for-profits, nonprofits, or government, but will free them from blurred, contrasting efforts and provide a fourth leg to the capitalist system–creating a more resilient economy.

Nuts and bolts

For-benefit business is the Dream Team of the economic system; it uses what works to create a powerhouse reaping social and/or environmental and profit driven benefits.

Sabeti refers to for-benefit enterprises as a new kind of organization that combines a social mission with a business engine, where social or environmental outcomes are their ultimate bottom line and they derive their income mostly from the sale of goods and services rather than from grants and donations, defying classification as pure business or nonprofit in a blend of the two.

In order to be a for-benefit, an organization must both withhold a commitment to social or environmental purpose and rely on generated income. Although these are the primary requirements, Sabeti lists eight possible secondary characteristics being considered in newly forming legal structures, such as inclusive ownership or stakeholder governance.

Signs of success

Back in 2009, the health care reform consisted of proponents of a government run health insurance public option plan debating status quo supporters of private insurance–neither won; but an interesting, wholly new, seminal outcome arose that serves to model a successful for-benefit.

When bipartisan lawmakers wanted to stir competition, they crafted a provision of the Patient Protection and Affordable Care Act encouraging creation of “community operated and oriented plans” (COOPs). These health insurance entities, as Sabeti notes, combined the best of nonprofit, for-profit, cooperative, and public models, as ‘private, consumer-governed health plans designed to serve the social purpose of furthering the well-being of their members.’

Sabeti continues that the COOP solution seemed obvious once in place–serving as a ‘market-based approach that addresses concerns about government bureaucracy and inefficiency, yet is driven by a social purpose and has a governance structure that puts the health of members before the maximization of profits.’

Bringing for-benefits into reality on a more diverse economic scale, to which they are apt to apply, requires restructuring systems engraved within the status quo. Sabeti notes two key areas necessary for a broad emergence of for-benefits: organizational architecture and ecosystems of support.

Organizational structure often evades entrepreneurs eager to launch their idea, but defining what your enterprise will do and how it will be able to reach those ends should not come with a for or not for-profit conundrum. This decision, made early on, then leads to strewn organizational complications. The referred to ‘ecosystems of success’ mark a system of regulations and legal support that allow and bolster dual-purpose systems.

Combining social, environmental and economic goals are not new, but the redefinition of ‘fiduciary duty, governance, ownership, and stakeholder relationships,’ are what will allow ambitious and innovative entrepreneurs to reach combined ends through a system legally supported and organized for balanced success.

COOPs lit the torch that has been passed along to an array of endeavoring entrepreneurs leading the way, while others mobilize to join the race.

A system rigged for success: piecing it together

The for-benefit garners recognition as is, but in light of 2012 being accredited the International Year of Co-operatives by the United Nations, it enters the limelight as a compromising strategy to ease out of a current capitalist system driving inequality and vast disparities. I say compromising in lieu of a full-blown co-operative based social and economic alternative to conventional capitalism.

For more on co-operatives, read my article Nascent Cooperation illuminating co-operatives as a promising alternative economic system and the benefits they bring beyond mere profits. Social and environmental responsibilities are co-operative fundamentals, while earned profit distribution and use are democratically regulated and transparent.

Although for-benefits take after the co-operative business model in many ways, for-benefits prove more pragmatic in the grand scheme. They are more readily accepted and recognized by powers that be, while gaining momentum garnering legal reform, marking their structure the model candidate to stir up the status quo and catalyze change for the better.

If surfaced as legally recognized entities they will embrace, as Einstein put it, those looking “upon social problems as so many opportunities for joyous service towards a better life,” widening opportunity to do so.

His quote poses a dilemma: that many searching to do just that are ferreting without success because authoritative powers and institutionalized ways are both creating social and environmental problems and inhibiting efforts to fix them. You’re encouraged to read my article Einstein’s Optimistic Paradox to explore further. The concept is apposite to reasoning the level of importance a solid for-benefit organizational structure and support system are.

We need an environment welcoming innovative minds to create entities that generate and employ like-minded individuals seeking to work positively towards bettering social and environmental goals, while generating income and balancing economic security.

Breaking through barriers built under different circumstances and successfully overcoming social and environmental issues created by a currently unsustainable, detrimental, unbalanced tri-legged system is paramount.

The for-benefit model brings warranted hope and excitement for social and environmental responsibility, welcoming and requiring innovative use of technology, ideas and creation of legally recognized entities to make bold strides through accumulated muck.

It’s time to recognize nascent signs of future potential co-operatives and for-benefits hold; to restructure entrenched principles and legalities conceived as unchangeable; for government and lawmakers to evolve for the sake of posterity; and for Einstein’s optimistic words of insight to break paradox, allowing myriad individuals to work positively towards righting social and environmental woes through innovative initiatives with real potential for success.

To access a free preview of The For-Benefit Enterprise article online, please visit HBR.org. Find HBR’s November 2011 print issue for the full, hard copy article.

Please share comments and this post. Further discussion, awareness, inspiration and application are intended.

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