A Taxonomy for Businesses and Social Impact

Do you understand these terms? Most people don’t.

I’ve spent the past year examining the growing intersection of business and social impact. My partner Justin Rosenstein and I constantly muse at the long list of memes out there to describe this trend: #socialenterprise #consciouscapitalism #sustainablebusiness #benefitcorporation #blabcertified #bcorps #fourthsector #worldpositive #newcos #missiondriven … it seems every week there’s a new one to add to the list.

There are some important nuances underlying in these different definitions, but more problematically, there is a lot of ambiguity. I’ve found myself using the words “mission driven” again and again for months until I realized there was too much room for interpretation with the phrase.

In order to bring clarity to my own thinking and our discussions, I developed a taxonomy of the ways which businesses do good in the world. We’ve found it helpful to draw meaningful distinctions underneath the broad umbrellas of most of the terms above, and it allows us to map company types to various strategies we are considering. In developing the taxonomy, a few high level questions stood out: Does the company have social intent as a part of its core mission? Can I imagine this same company existing without social intent? Is the consumption of a company’s product or service itself addressing an important problem in the world?

The names of the categories can use some work, so I will probably update this over time. Note these they are not mutually exclusive, and it is possible for companies to evolve between types over time.

  1. Extremely World Positive*. These are the companies I get the most excited about. They generally tackle a significant, important problem in the world with the product or service they offer. They are not by any means concessionary (i.e. they don’t realize market returns, though many may not), but they are very complex and often long term oriented, capital intensive, and face challenging regulatory environments. These companies definitely have social intent: a purely money driven entrepreneur would do something else. John Battelle recently wrote about them in his weekly NewCo Shift column. Examples are Tesla, Change.org, GRAIL, Long Term Stock Exchange (LTSE), and AltSchool.
  2. Impactful Products / Services with Heart. These are companies with social purpose at their core, where adoption of their product or service addresses and important challenge in the world. But you can imagine the exact same product or service existing without being purpose driven. The underlying social intent will translate to decisions that optimize for social outcomes over profit, and the values at the core of the business will lead to practices that minimize negative externalities (e.g. energy consumption) and maximize positive ones (e.g. job creation, workplace culture). This means that this type of company will create more social value than its purely profit driven equivalent. Lyft is this type of company, along with Asana, Good Eggs, Affirm, Google, Facebook, Eatsa, and Diamond Foundry.
  3. Integrated Businesses. Integrated businesses have a social objective at their core, but the revenue they generate from selling a product or service is largely instrumental for realizing their goals: the business itself serves as a funding vehicle for social programming. TOMS shoes and other businesses with 1:1 models are obvious examples of this. So are companies that primarily care about employing certain communities, such as Laxmi, a high end beauty product line whose ultimate objective is to create employment in the developing world.
  4. Exceptional Business Practitioners. These are companies that sell widgets but do so in a way that is incredibly conscientious about their business practices. Their product or service exists to meet a consumer demand, not to create social value. They minimize negative externalities and maximize positive externalities through activities such as reducing their environmental footprint as much as possible, creating jobs, treating their employees well, equalizing pay between men and women, engaging in corporate activism (e.g Salesforce pulling out of Indiana), etc. This class of companies is particularly exciting because any company can in theory become one of them — meaning these companies represent a new breed of capitalism, and one I firmly believe we need to move towards. Most B Lab certified companies fall into this category.
  5. Model Corporate Citizens. These are companies that are exemplary in what amounts to traditional CSR. I describe this as using corporate resources to do good in the world, but in ways that are largely orthogonal to the actual business. This can be through creating a foundation to give money away, employee volunteerism, reduced pricing for nonprofits, and more robust programs that draw on the capacities of the company to address social challenges. Salesforce’s 1:1:1 model is hallmark here.
  6. Incidentally Socially Impactful. These are pure profit driven companies that happen to have positive externalities. They don’t optimize for anything other than profit, the social impact is incidental. Uber, I’m looking at you.

Ultimately I am interested in categories 1 through 4. I think there is tremendous opportunity to address big problems with business, which the first three types of businesses are doing (there is a real genius to integrated businesses, I’m working on another post about that). I also think that the form of capitalism dominantly practiced today is unsustainable. We need to move to a new model, which can be represented by how we might define “exceptional business practices” in category 4.

Perhaps surprisingly, I think the Model Corporate Citizens group is problematic. We’ve been talking about CSR for a couple decades now, but these programs largely refer to efforts unrelated to the actual business. It’s great that it has become expected that companies have some initiatives to use their resources to affect positive change in the world. But my concern is such programs obfuscate the real issue: how our companies are run, and what products they are selling us. It pains me to see PepsiCo get a gold star for the good it does for its CSR programming when that is surely far outweighed by the externalities of high fructose corn syrup water consumption. We need to set the bar higher.

I also can’t get behind the incidentally socially impactful companies, for the same reason. I know Uber is reducing emissions and drunk driving deaths. But they also treat their drivers as instruments for profit rather than real people, many of whom have families to support. Celebrating Uber’s social impact is tantamount to endorsing the incentives of capitalism as we know it. We can, and must do better.

*The term “world positive” is problematic, despite our use of it for the first group of companies (I’ll come up with a better term soon). World positive is a utilitarian point of view, implying that bad outcome are ok so long as they are counterbalanced by good. I think we need to set a standard across business practices that all companies are expected to uphold.