Good Business Vs. Bad Business

The Social Capital Markets movement has done some excellent work trying to understand exactly what ‘good’ is in the context of business but I don’t mean this post to be a review of that process. What I would like to discuss is the purpose for quantifying the good that is produced by a social enterprise. Good, or it’s more formal synonym — social impact — resides in the lives of a business’ customers. For a social enterprise, understanding if you are creating social impact is the same as understanding if you are successful. The reason to measure social impact is to see if you are solving the problem that your business was created to solve.

Because it sounds childish to talk about ‘good’ and ‘bad’ let’s replace those generic terms with the one’s that the economists use — positive and negative externalities.

In economics, an externality is the cost or benefit that affects a party who did not choose to incur that cost or benefit. — Wikipedia

Positive externalities (ie honey bees that pollinate neighboring crops) are good. Negative externalities (ie polluted river from a paper mill) are bad. I am stressing these distinctions because we often think that just generating good is what will solve the problems in front of us. However, the problems that are in front of us are to a large extent the result of negative externalities. The best case scenario is that we can build a disruptive innovation where businesses with positive externalities displace those with negative externalities. Social Enterprise is a business model that generates positive externalities. This business model innovation dramatically lowers the cost of having an economy by displacing businesses that generate negative externalities.

Music Should Be a Good Business

First of all it is important to say that Prince rocks. And in this case, so does Stephanie Lenz’s baby. In 2007, Stephanie Lenz posted a video of her baby dancing. Barely audible in the background is playing Let’s Go Crazy — a song that it is impossible not to dance to.

A few months after Stephanie Lenz, the mother who filmed the video, uploaded it to YouTube, Universal Music Group cried copyright infringement under the Digital Millennium Copyright Act. Universal sent YouTube a takedown motion, causing the video to be pulled. - Gizmodo

An appeals court just sided with Ms. Lenz saying not that the video in question falls under fair use laws but something more interesting. The court said that Universal (and others) must consider fair use laws before requesting a content take down. This is better because now they can’t just delegate their dirty work to an algorithm.

And that’s the background and here is the relevance to this post. Music is art. It is also business and it is art. Music ties us together. Music should be a good business — a business with positive externalities. Unfortunately, the way the RIAAcabal run their businesses, music actually has negative externalities as experienced by people like Ms. Lenz who were trying to enjoy music but forbidden from doing so by the music company itself. Good music businesses must displace bad music businesses in order to succeed.

Refugee Resettlement Should be a Good Business

The annual report in 2013 from a multibillion-dollar London private-equity firm that counts a French pastry baker and a Dutch shoemaker among its holdings touted a new opportunity with “promising organic and acquisitive growth potential.” That investment was the management of refugee camps. “The margins are very low,” said Willy Koch, the retired founder of the Swiss company, ORS Service AG, which runs a camp in Austria that overflowed this summer with migrants who crossed from the Balkans and Hungary. “One of the keys is, certainly, volume.” — WSJ

Andrea Armeni of Transform Finance pointed this article out to me and wondered out loud if a“ social justice and non-extractive” lens will be applied to the businesses engaged in this opportunity. If it were, that would certainly be a good start towards building a good business that is working to engage with this opportunity.

It is easy to imagine what a bad business might be in this context.