Book Review: The Power of Half

I'd love to meet the Salwen family. The book that Kevin Salwen and his daughter wrote, titled The Power of Half, paints the family as one that has fun together, that loves one another, and that enjoys helping other people. In those regards, I feel that we have a lot in common. In fact, anyone who values fun, love, and family should find the Salwens' story to be heartwarming, though it may take a few chapters to warm up to them.

The reason it may take awhile for readers to relate to the Salwens is that they owned a 6500 square foot mansion that they sold for around $1.5 million, donating half of the funds to The Hunger Project to help with sustainable economic development in Ghana, and using the other half to purchase a "smaller" house about half the size of the first. Since the home I own is less than 3000 square feet to begin with, I have a difficult time relating to "downsizing" to a house greater than 3000 square feet (though I must confess that growing up, our family of eight lived in a house over 3000 square feet). Secondly, the idea of donating around $800,000 to a single charity is something that few people, including very rich people, can relate to. Don't let these facts bog you down; continue reading past the initial stages of shock and you will be rewarded.

Kevin is a former journalist and editor for the Wall Street Journal, and in addition to an engaging writing style, he throws into his prose equal parts humor, humility, and love for his family. The real star of the book is his daughter, Hannah, who is credited with pushing her parents and brother to be a family who does things rather than just talking about them. She co-authors The Power of Half, adding her perspective in two-page segments once or twice per chapter.

It seems that for the Salwens, the "easy" part was deciding to downsize their house and donate the savings to charity. The more difficult parts: selling their house in a bad economy, physically moving (which is always a chore), sharing their story with others who had a hard time relating to what they were doing, and deciding the best way to invest their funds to make an impact.

The Salwens do not try to convince others that everyone should downsize their house and donate large sums of money to organizations fighting poverty in Africa. However, they do try to convince others of "the power of half." For example, take something like television. Say you watch four hours of television per week. Why not cut that in half and use the two hours you saved to serve in your community? Say you buy four cups of gourmet coffee per week. Why not cut that in half for a period of time and donate the difference to charity? The Salwens unabashedly let others know happiness comes, in part, from individual and collective sacrifices to benefit others.

I recommend The Power of Half to anyone who questions whether the pursuit of money, possessions and status will lead to happiness.

Who Will Invest in Social Business?

I find myself very drawn to the concept of social business, as introduced by Nobel Prize winner Muhammad Yunus. In his book Creating a World Without Poverty, Yunus defines a social business as a non-loss, non-dividend company. In this post, I will discuss Yunus' definition of social business and the implications for investors.

So, what exactly is a non-loss company? First of all, it is not a non-profit. The term "non-profit" implies that organizational revenues must not exceed organizational expenses. The term "non-loss," on the other hand, implies that organizational expenses must not exceed organizational revenues. This wording change may seem insignificant to some, but it has huge implications. For example, although some non-profits generate revenue by providing goods or services, most non-profits owe their viability at least in part to charitable donations. Non-loss businesses, however, are intended to be financially self-sufficient, remaining viable because the goods and services provided by their organizations are valued and paid for by their customers, not because of charitable donations. Profit is not a dirty word for non-loss companies, as long as profits are reinvested in the social business.

Although profit is appropriate and necessary for non-loss companies, social businesses are not intended to be profit maximizing businesses. Instead of maximizing financial returns for investors, social businesses maximize social returns. Which brings me to Yunus' second part of his definition: social businesses are non-dividend companies.

Why must social businesses be non-dividend companies? Honestly, I'm not sure that they must be. In fact, Yunus' first social business, Grameen Danone, provided a small dividend to its investors. Presumably, through his experience, Yunus has determined that when trying to balance financial returns with social returns, financial returns are often sought at the expense of social returns. Therefore, in order to reduce the likelihood of mission drift, he prefers to remove financial rewards from the mix altogether. Investors earn back their initial investment, but nothing more. Their returns come in the form of lifting people out of poverty or some alternate social metric viewed as important by investors. The more I consider it, perhaps separating social returns from financial returns is the best approach to avoid organizational and investor frustration.

But then it begs the question, who will invest in social businesses?

On the one hand, it sounds absurd to invest one's retirement funds in a business that may or may not return the initial investment and certainly will not return more than the initial investment. Some socially-responsible investments, such as those offered through Calvert Foundation or MicroPlace, at least offer a one to three percent return on funds invested. When compared with a money market, some investors could reasonably feel that they are getting close to a market return while sacrificing only slightly to make a difference in the world. Not so with social businesses as defined by Yunus.

But on the other hand, investing in a social business may not appeal to human generosity to the same degree as giving to charity. It feels inherently good to give away money to help young children, victims of natural disasters, or people who've otherwise been dealt a bad hand in life. Investing in social businesses may feel downright uncharitable to some.

However, social businesses will draw two types of new investors: 1) socially minded individuals who have never invested in startups, and 2) those whose donations to charity are limited not so much by their lack of financial resources but by their belief that non-profits are inefficient and ineffective. Funds for the first type of new investor will, at first, be diverted from other charitable investments, while funds for the latter type of investment will come largely at the expense of excess consumption. Investors will say, "rather than giving $100 to Nonprofit XYZ or spending it at LuxuryGoods XYZ, either of which has questionable value, I will instead invest in SocialBusiness ABC, which looks very promising and may even return my money to me for future reinvestment." As social businesses begin to prove their effectiveness, the overall pool of philanthrocapital (that is, the combination of philanthropic donations and social investment capital) will grow.

I have recently made donations to two organizations that seek financial self-sufficiency in the near term: Living Goods and One Acre Fund. Today, neither organization is a social business, because neither is a non-loss company. I hope that both Living Goods and One Acre Fund will successfully transition to social businesses within the next several years and that other organizations will follow the same path, building social business into a sustainable, scalable alternative for capital flows, be they human, financial, or otherwise.