What happens when the money runs out? How to secure a long-term impact through philanthropy.
When people want to make a difference, they often reach for their checkbooks. A very public example is Mark Zuckerberg, the co-founder of Facebook, who recently wrote a $100 million check to benefit the Newark public school system. This is a generous act, but individuals and businesses alike would be wise to consider how they can really make the most impact. With so many resources necessary (and available) to make social change happen, is giving money really the best path to making the greatest impact?
Zuckerberg’s action is indicative of an emerging trend. The “new entrepreneur” wants to make money while defining his or her social “footprint.” Unlike the old guard, which waited to donate money post-retirement, the new entrepreneur represents a union of real-time business ambition and social-impact intent. But if new entrepreneurs like Zuckerberg want to achieve the goal of uniting money and meaning, and of shattering the firewall between profit and purpose, they need to understand that philanthropic contributions are inherently different from business investments.
We’ve spent our careers working with companies, foundations, and entrepreneurs on business models that spur social change. Here is what a philanthropic investor who wants to unify business and social purpose should keep in mind:
1. Donations, unlike business investments, do not naturally result in a direct market reaction. Business investments are met with feedback in the form of sales, investment, and consumer opinion. Social investments do not have the same type of organic feedback loop. As a result, it is risky to write a check without establishing reliable mechanisms to measure response, track performance, and analyze outcomes. These mechanisms are not so much about “protecting your investment” (although they have that effect) as they are about creating a genuine partnership with the target of your investment, so you can solve problems together and ensure that you have nimble strategies for social change.
2. Take the long view. Writing a check satisfies an immediate urge to do good, but it might not make the greatest difference long-term. The bottom line is that money eventually runs out. And in the context of complex social problems, money alone is never enough. In the case of Newark's schools, to which Zuckerberg made his donation, what happens when the $100 million is spent? Initially, it will help support programs and strategies that benefit kids across the city, but without a plan to codify what works, transfer that knowledge to others, and surround the investment with a new and robust network to support the change long-term. The exit strategy is as unclear and unattractive as the edge of a cliff on a foggy night.
3. Take a close look at your core assets and figure out how to bring them to the table. A big check often comes without two resources that can be even more valuable: the intellectual capital and network of the donor. Zuckerberg, for instance, understands social media, bringing communities together, and creating new online platforms. Bringing this knowledge and network to Newark could yield incredible progress and sustained social change.
This is the exact approach that Jack Welch, the former CEO of General Electric, took when he was approached by Joel Klein, Chancellor of the New York City Department of Education. Klein wanted Welch’s help to improve New York’s public schools, and he understood that Welch’s unparalleled experience in leadership and operations management would go further than a check. Welch and his team rose to the challenge and, knowing better than anyone what it takes to create a leader, developed a model for a leadership academy for school principals.
The new entrepreneur has a unique perspective and views the world differently, seeing opportunities to spur change through their business models. This impulse is perhaps the most exciting development on the landscape of both social purpose and entrepreneurship. Yet to be successful, the new entrepreneur must recognize that money alone is not a particularly powerful tool for social advancement. Those who understand the anatomy of a philanthropic investment —and appreciate the power of transferring knowledge and supporting contributions with their own networks—will put their signature on the next generation of both entrepreneurship and social change.
Rachel Bellow and Suzanne Muchin are Partners at ROI Ventures, strategic advisors to innovative companies, non-profits, foundations, and entrepreneurs that aim to both maximize their social impact and fuel their core business.