February 21, 2008

The 50/50 Corporation

This is an article that describes my recent experience with setting up new projects and relates to Likemind and The Purple List. It’s about a theory that I have come to, having been through the process of developing both properties (the former in partnership with Noah Brier).

My theory is about an emerging business model - the 50/50 Corporation.

The Background - Learning With Likeminds

To start: our classic view of a company could be described as a 100% Profit venture.

When we set up Likemind in 2006, our drive was 100% social. We just wanted to create a morning meeting of likeminded folks over coffee once a month in New York. There was no business idea behind it. The concept was so simple and attractive that others wanted to pick it up and run with the idea too. It spread and now we have Likemind coffee mornings in almost 50 cities around the world.

Likemind is all about being social - even if some of that socializing is driven for business purposes. To support the event, Anomaly gave us enough money in 2007 to pay for everyone’s coffee each month. Revenue that could be described as ‘ambient’.

At the end of last year, Noah and I explored turning Likemind into a business. We even visited a couple of VCs in Seattle and New York. We knew, however, that whatever decision we made would have to be agreed on by the whole global Likemind community - the hosts and attendees - so we proposed some ideas about monetizing Likemind.

The major response from the Likeminders made us realize that we couldn’t insert any major revenue generating system without damaging the reason Likemind was popular: Likemind is a 100% Social venture. The concept started 100% Social and that’s what attendees had bought into. That’s why they came. They hadn’t joined something that was going to make money through their participation.

Noah and I are very protective of Likemind and when we understood this we immediately stepped back and let it continue on its merry social way (actually, we haven’t had any sponsorship funds this year and still more people are coming to the mornings to socialize).

Testing The Theory With The Purple List

Likemind allowed me to to realize that while people are attracted to social projects, if you didn’t let people know from the very start that you intended to make money out of the activity, then it could not become a business.

So when I set up The Purple List - a trusted network of trends and innovation professionals - I decided to try to create an organization that was a 50/50 Corporation. I wanted it to be social for my business advantage and I wanted everyone to know that this was about making money.

On one hand, every member sees The Purple List as a private social network, on the other hand, they also see The Purple List as a way to make money. Hopefully prospective clients will also see the advantage of our approach - we’re being social enough to give away our friends details but if they want some help to find the right expert, we’ll charge that client.

Because we started The Purple List as a 50/50 Corporation, it works on different levels. For example, if we sent an email to the Likemind hosts and said that if they gave us $100 we’d put them at the top of the homepage, there would be uproar. If I sent the trends and innovation experts on TPL that offer, they’d see it as a natural opportunity that they can contend for (I assume if my theory is correct).

The Theory In A Nutshell

So, I suppose the theory is this:

To leverage the opportunities that digital connectivity has fueled a company should be a 50/50 Corporation. 50% about being social, 50% about making profit. By doing so, that organization should attract more profit than a company that follows a 100% Profit strategy.

Being 50% social doesn’t have to be all about having a social network. Having a corporate social responsibility policy that your customers love should work too.

Using The Theory

Using this theory I can look at the challenges I face with PSFK as a business. On review, I’d say that PSFK is an 80/20 Corporation. Our problem is that we set up PSFK as a 100% Social venture - we were (and still are mainly) a collaborative trends site. And that’s why we mainly work here.

It’s taken 4 years to start making money from PSFK and I believe that it’s taken that length of time because we have always been seen as a social venture. It still is vital that we are social: If we didn’t give away free information everyday and create good-value events, no one would care about visiting us. Meanwhile though, my 4 years of plugging away has turned my 100% Social venture into a 80% Social / 20% Profit corporation.

Maybe it’s today I realize that I might never really make much money out of the website and I will never drive that many readers to be our consultancy clients… I won’t admit the number of times I have heard, “Oh, I’ve read your site for ages but I didn’t know you offered consultancy.”

What would have happened if I started the site and from day one had said everything we’re doing here is to make you hire us?

Too late now. But that’s not too big a problem because as I understand that PSFK is a 80/20 Corporation, I just have to adjust how I make money. As PSFK is at its core social, the theory would lead me to believe that I have to make money through social products: from events where people can meet, network and socialize (and maybe from offering reports so cheap the community will think we’re doing them a favor and I hope we will be (more to come next week)).

Who Is A 50/50 Corporation?

So, let’s take that theory and aim it at a few well known ventures.

My Space - 100% Social - It started out as a place for everyone to meet and show off. Beyond ambient profit making activity like advertising, MySpace shouldn’t be able to make money from non-social activity. MySpace’s size of course helps realize a lot of money from advertising.

Google - 80% Profit - The first day you came to Google.com you knew it wasn’t just there for fun. Still, the most profitable revenue generation is ambient - from advertising that’s contextually designed to be more ‘helpful’.

YouTube - 100% Social - It was created by the people for the people. And now Google is trying to change that. And if we follow the theory, it would suggest that as soon as the ‘for profit’ and ‘for the people’ balance gets uncomfortable for the users, it’s going to break the product.

Apple - 100% Profit - You know you’re going to put your hand in your pocket when you go to Apple. But it’s one of the very few ‘old-style’ companies really doing something that people want. And, can it remain that way for ever?

American Apparel - a 50/50 Corporation - Probably. AA hasn’t grown into a global retailer just through sexy ads and bright t-shirts. It’s socially aware approach towards its staffing, partners and raw materials sources has a vast impact on the popularity of the brand.

I could go on and on. What type of company do you work in?

What To Do Now?

Remember that it’s not a big problem if you’re 100% Social - it’s just that you have to realize that you’re not going to make as much money per user/customer/member as a 100% Profit venture and adjust. The question that I pose is: will being a 100% Profit venture be a big problem? Is a 100% Profit venture the sort of company customers want as the consumer-company power balance changes?

Maybe the optimum is to set up a company that is equal in its aims to be social and profitable - a 50/50 Corporation.

Footnote

OK. It’s a theory that I put out there for discussion and debate. I could be totally wrong and feel free to say that - but do consider in your criticism that I’ve come up with this idea due to my first hand experience.

And sure, I can see that you can argue that I could have optimized PSFK to make sales better, that it’s not because of the social nature of my brand.

And no, I didn’t have this theory when I launched the Purple List. Creating a 50/50 Corporation is something I realized I did after the event.

7 Responses to “The 50/50 Corporation”

Francesco
Posted from: 213.140.22.73
February 22nd, 2008 at 4:40 am

I strongly agree with you. The social component is much more important and preminent now then just a few years ago. Showing interest in social gives a more human aspect to the company, which is much more loved both by its employees and its customers.
Nigel Legg
Posted from: 212.248.169.13
February 22nd, 2008 at 12:36 pm

I have to agree… involvement in the Purple List, for me, could well lead to profit for me, but far more important is the social aspect - meeting and getting to know people working in related fields to my own - the social networking side of business is a very important part to me.
Marissa
Posted from: 72.225.215.111
February 24th, 2008 at 12:27 pm

Interesting post…A few random thoughts:
- Check out the TRIPLE BOTTOM LINE theory - Michael and I presented this to Cunning and SCI FI last year - the idea is that businesses should shift from thinking solely about PROFIT + return to shareholders (the single bottom line) and instead think of two other ’segments’ in their analysis of business performance: PEOPLE and PLANET.

In short, corporations should actually be 30 (profit)/30 (people)/30 (planet), right?

Also, what do you exactly mean by ’social’? Does social mean providing people with the opportunity to connect and interact (COMMUNITY) — or could social also mean providing people with something that makes their life better in some way (more vague, but more about value-adding than community-building)?

I think you mean social as in community…and that makes me wonder if I WANT every company to be a 50/50 organization in the way you describe…? I just want Charmin to make soft, comfy TP — not provide me with an opportunity to connect…

I think SCION is an excellent example of a profit-lead venture that has built and is sustaining a strong/active community…

Overall, the question seems to be about the efficacy of monetizing networks and rewarding connectors…Groups like the Purple List have high value…but ‘ideas’ aren’t like ‘things’ — and charging for introductions and contacts isn’t a bad thing…I just think it’s increasingly harder to monetize with technology making sharing and connecting so much easier.

Not a cohesive response…but thanks for posting something thought-provoking.
a. brown
Posted from: 71.148.37.248
February 25th, 2008 at 2:26 pm

i think consumers are looking to support companies who have developed a human side to them. i work for a company that is in the old school approach, kind of a top down styles company. we push our product by means of marketing its coolness, and selling the illusion. thus, we always are trying to create great campaigns, new gimmicks, give this away to sell this, these types of selling methods…..

i think the 50/50 theory is great. as business and minds evolve, i think were just going to see more combinations of balanced companies out there. it will take a while to see it come into the heads running 99 percent of businesses, but it will happen. more and more companies will be providing value more than just a product, if not, theyll have trouble keeping a solid foundation of supporters. we have to remember that companies that provide real value, will always be supported, and more than likely, for the long term. if you can give your customers something that doesnt necessarily need to be sold to them, they just need to be aware that it is there, then youve got customers coming to you on their own action.

a few thoughts, great post.
Gregg Girling
Posted from: 203.37.119.130
February 25th, 2008 at 7:01 pm

Have a look at the book, Firms of Endearment, which has noted a rising trend and attraction on the part of key stakeholders to associate with organisations with a mission that transcends profit. This means customers giving their business, people choosing to become employees and even shareholders preferring to include these companies in their portfolios. A sort of virtuous circle.

This is just one of a series of studies remarking the rise of more values-based organisations.
If you’ve not seen it, another take on the role of companies, more from the perspective of consequences is www.storyofstuff.com which is well worth a look.

Whereas 10 years ago people were more comfortable with working for a company for whom they might not identify with, today companies know that to attract strong talent prospective employees will want to know about what’s important to the company beyond profits.
In a world where climate change and the sub-prime crisis are much in the news, people understand that “profit” as the be all and end all for a company is a blunt, potentially destructive instrument.
Here’s one example, which is based on Environmental behaviour. It shows people prefer to buy from a company with a green commitment, but find it even more attractive by this issue when weighing up employers:
http://marketinggreen.files.wordpress.com/2007/11/employee-retention-charts_v1pdf.gif
(This comes from people saying “agree” to the questions “I would prefer to work for a company that has a good reputation for environmental responsibility” and “I would be more likely to purchase products of services from a company with a good reputation for environmental responsibility” Study: “Corporate Environmental Behavior and the Impact on Brands”, Tangberg and Ipsos MORI survey, October 2007; n = 16,823
I’ve also done research where we’ve looked at the collateral impacts of social responsibility initiatives and found that employees find it a differentiator when they’ve considered competing offers within their chosen sector. As you’d expect, it’s not the main reason, but in a market where there’s the perception that companies have very similar approaches (like banks) it’s a real differentiator.
Gregg Girling
Posted from: 203.37.119.130
February 25th, 2008 at 7:02 pm

Love it. And it’s part of a trend.

Have a look at the book, Firms of Endearment, which has noted a rising trend and attraction on the part of key stakeholders to associate with organisations with a mission that transcends profit. This means customers giving their business, people choosing to become employees and even shareholders preferring to include these companies in their portfolios. A sort of virtuous circle.

This is just one of a series of studies remarking the rise of more values-based organisations.
If you’ve not seen it, another take on the role of companies, more from the perspective of consequences is www.storyofstuff.com which is well worth a look.

Whereas 10 years ago people were more comfortable with working for a company for whom they might not identify with, today companies know that to attract strong talent prospective employees will want to know about what’s important to the company beyond profits.

In a world where climate change and the sub-prime crisis are much in the news, people understand that “profit” as the be all and end all for a company is a blunt, potentially destructive instrument.
Here’s one example, which is based on Environmental behaviour. It shows people prefer to buy from a company with a green commitment, but find it even more attractive by this issue when weighing up employers:
http://marketinggreen.files.wordpress.com/2007/11/employee-retention-charts_v1pdf.gif
(This comes from people saying “agree” to the questions “I would prefer to work for a company that has a good reputation for environmental responsibility” and “I would be more likely to purchase products of services from a company with a good reputation for environmental responsibility” Study: “Corporate Environmental Behavior and the Impact on Brands”, Tangberg and Ipsos MORI survey, October 2007; n = 16,823

I’ve also done research where we’ve looked at the collateral impacts of social responsibility initiatives and found that employees find it a differentiator when they’ve considered competing offers within their chosen sector. As you’d expect, it’s not the main reason, but in a market where there’s the perception that companies have very similar approaches (like banks) it’s a real differentiator.
Gregg Girling
Posted from: 203.37.119.130
February 25th, 2008 at 7:21 pm

Just to clarify - the link I included (above) is not my research, but undertaken by Ipsos MORI