On Profit Maximization, Sustainability, & Social Enterprises

Todd Van Hoosear wrote about how some of our collectively favorite brands are some of the worst offenders when it comes to creating intimacy with their customers.  In both Google & Apple's case, I think they would tell you that if you build a good enough product (or keep them perennially in beta which absolves you of product sins), you don't need to do a lot of marketing or conversing with customers. Well, OK. But is that the corporate image you want? Fortress-like, paranoid, and remote?

The conversation brings up a question that I wonder about a lot which is, Does the mass market care? There is obviously a sub-segment of people that want our businesses more transparent and easier to interact but will the likes of Apple and Google get significantly dinged by users and investors if they don't do it? I'm not sure.

There is a larger structural issue that will limit the number of companies who will really be able to reap the rewards of remaking themselves as a 'social' enterprise. Investors want to maximize profits and, from what I can tell, they seem to care more about short term than sustainable profits...figuring they will eat and run. That is a direct conflict with building communities and investing for the long term. Also in direct conflict is the primacy of profit maximization over other values...and that too will make it very difficult to create passionate communities because a corporations' constituents likely don't get that jazzed about helping an amorphous entity make an extra buck.

My guess is that the companies that will benefit most dramatically from social networking in the coming years will be privately held small and medium size businesses who see an opportunity to make in roads against larger, publicly-held entities because they are driven by a passion.  Examples might be Stoneyfield Farms, Jordan's Furniture (those of you in Boston will know this on), and the like. Big enough to have significant market presence but with enough financial flexibility and vision to invest in energizing their community.

Will investors, and their priorities, limit companies' ability to engage holistically with their customers? If not, how do we get around the trade-off between short-term profits and long-term sustainability?

Comments

[Todd Van Hoosear]

Hi Rachel. Thanks for sharing your thoughts here and on the SocialSphere blog.

There are three questions that I think we're asking here:

1. Do consumers in general (or is it merely the Web 2.0-savvy subset of them that) want the companies that they do business with to be more transparent and responsive?

2. Can companies afford to open themselves up to the risk and cost of greater transparency and responsiveness that come with engaging in social media?

3. Does this scale?

My answers are YES, YES and YES!

I appreciate your words of caution. Sure, there's no reason to jump on the social media bandwagon just because some so-called expert tells you to.

But there is a growing body of successful online social media engagements by large companies, and a VAST majority of these engagements were extremely positive.

So it comes down to measurement, then. Can you prove an ROI for social media. I have a great deal of admiration for companies like HubSpot which are very open about sharing their internal marketing metrics, and folks like K.D. Paine and Beth Kanter who are making social media measurement more understandable to the average business user.

The truth is that doing social media for the sake of social media simply doesn't make sense. And the argument that most of it is free so why NOT do it is equally fallacious. But if you can apply some basic cost/benefit analysis and come up on the positive side, NOT engaging your customers online is just as stupid.

I think you're right: the innovation won't come from the big guys--it usually doesn't. Google is an exception, but I think corporate entropy and loss of inertia is inevitable as the company grows--it's still caching in on its younger, more flexible self.

But that doesn't mean that big companies can't benefit from greater transparency and more responsiveness.

[Rachel Happe]

Hi Todd -

Thanks for stopping by and leaving a note. I want to make sure we are talking about the same thing here. Social media - i.e. using blogs and social networks to engage and audience in conversation - has been proven very valuable and has a lot of good models of how to execute.

What I'm referring to here is transforming businesses to be community oriented which is a much more fundamental shift because it breaks down the way businesses are currently structured.

I believe that social media, and the openness that comes with it, is putting a lot of pressure on the current operating structures but won't necessarily lead to fundamental restructuring but it will cause a lot of internal friction between two camps.

So - back to my perspective that social media and community is not necessarily the same thing.

So you are absolutely right about the value of using social media tools and techniques...but I still see it used as niche business process enhancements...that will eventually start to cause frissons as companies try and reconcile the new environment with their existing practices.

[Todd Van Hoosear]

I tend to use the term social media a little more liberally than some -- probably comes with the territory of being on the Social Media Club board... :-)

What you're calling the process of "transforming businesses to be community oriented" is what I'm calling "scaling", which is why I thought Mike Troiano might have some input.

It's taking the fundamental ideals of social media -- transparency and responsiveness -- and applying it across the organization, not just to the marketing group.

Can you clarify the groups that you see the friction happening between though? Are you talking the investors/business owners versus the marketing team?

I think in a broader sense there's always the conflict between long-term sustainability and short-term profits. In public companies, some would argue that the short-term tends to win over.

I won't go so far as to invoke the cliche about the Chinese character for crisis (http://en.wikipedia.org/wiki/Chinese_translation_of_crisis), but I will say that in times of great economic hardship, important decisions get made about infrastructure investment for the future--look at the U.S. during the depression, and again after the launch of Sputnik.

American business institutions have an opportunity to take advantage of reduced profitability expectations to do some investment spending and plan for the future. If they can convince their boards of the value of more community integration, they have a great opportunity.

[Rachel Happe]

Hi Todd - I very much agree - the chaos we are seeing all around us will also drive some fundamental re-thinking of infrastructure and organization so...it will be interesting to see how corporations respond. I think there is a huge opportunity personally but I'm not entirely sure whether businesses are quite ready to make major leaps. I think companies are still reeling from the changes...but in another 4-6 months they will have picked themselves up, dusted things off, and be ready to make some tough choices.

In regards to the friction, there are a lot of people and systems in place to support predictable business processes and the transparency (or messiness as David Weinburger refers to it) that social media forces doesn't fit in the models that have been created. That forces people responsible for maintaining those processes put in a really tough spot - they are incented to maintain the process but are basically getting assaulted with information that doesn't fit the model...but they don't have authority to change the model and it takes their bosses longer to see the need for it because they are not in the weeds day in day out. So tension and friction.

I think that tension and friction will eventually break things...just not sure how the breaks will happen, what the magnitude will be, and how companies will respond to them.

[MikeTrap]

Dangerous to confuse the tail and the dog.

The dog is the tangible economic benefits that enhanced social business practices and communities of interest can bring to the table, which I've attempted to summarize here: http://scalableintimacy.com/?p=276

The tail is the softer, intangible benefits likely to come along with the more intimate relationships and transparency required by the above.

The bad news is that history shows you won't get the tail without the dog. The good news is that time will demonstrate you can't get the dog without the tail either.