Monetizing Berkeley

by JenniferCobb on 01/25/2011

Last night Berkeleyside, Berkeley’s independent local news site, hosted its first Berkeley Business Forum.  Why?   Berkeley has for years presented a conundrum.  We are home to one of the leading research institutions in the world and yet have not spawned our version of Silicon Valley, the Research Triangle, Kendall Square.  Why do all the good ideas leave town?

The easy, and largely correct, answer has been that Berkeley as a city has not been wildly hospitable to business.  Zoning ordinances, a preference for community over commerce, and local politics have all hampered growth.  Many of us are frustrated and turned out last night to hear two Berkeley residents, Carl Bass, CEO of Autodesk, and Chris Anderson, Editor-in-Chief of Wired, talk about some ideas for generating new business activity in Berkeley.

The conversation quickly converged on identifying a niche that has not yet constellated a cluster of new businesses and creating the conditions in Berkeley for it to thrive.   Anderson argued that IT is done – the Valley has that locked up.  Biotech was ceded to Emeryville in the 80s.  The likely candidate that both speakers identified  is the explosion of small-scale design, prototyping and manufacturing businesses that are growing out of the hobbyist  maker movement.  While I do not disagree that this could indeed be a very viable and exciting vertical to pursue, and the city could build services and tailor zoning to help it thrive, I want to throw another theme into the mix.

We tend to think verticals when we think of attracting new industry clusters.  We think about the shared types of needs within an industry and the talent pool that goes along with them as primary factors for the care and feeding of clusters.  But there is another layer we should be considering that may indeed form its own less verticalized but still allied set of businesses.  This is the idea of shared value capitalism, a term I borrow from a fresh-off-the-presses article by Michael Porter and Mark Kramer in this month’s HBR.

The concept of shared value capitalism has been building for some time and is a summation of a number of ideas that are in the air– social entrepreneurship, impact investing, social investing, blended value investing and more.  What all of these notions share is the desire to combine the creation of social and business value in one package.  The formal definition offered by Porter and Kramer is, “The concept of shared value can be defined as policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. Shared value creation focuses on identifying and expanding the connections between societal and economic progress.”

They argue that we are at a turning point in capitalism.  The strategies and management practices of the past two decades have delivered us to a place where business is often reviled and where innovation and strategic advantage have largely ground to a halt.  The accepted corporate practices of pursuing profits by squeezing margins have resulted in greater commoditization, the widespread adoption of outsourcing (which hurts communities), slow organic growth and reduced competitive advantage.

Their proposal is that the successful businesses of the future will begin by thinking about unmet social needs, and that economic value will naturally flow from the creation of social value.   The premise is simple.  Sustained economic value is generated by creating products and services that meet genuine market needs.  This is marketing strategy 101.  The twist is that they define market needs as social needs, not the creation of desire for products that may or may not actually be of use or that do not serve larger social goals.  They go on to argue that the pursuit of efficiency has blinded businesses to the massive social needs that surround them – needs that, if well met, have the potential to generate significant economic value.  Food and nutrition, healthcare, financial products, organic products of all types, energy efficient anything, services across all of these areas – the list of innovative and profitable products that can generate both social and economic value is long and growing longer every day.

There is much more of significance in this article about the importance of local clusters (an early Porter idea that he resuscitates with a new social lens here), of reconceiving value chains, the role of government, the imperative of collaboration between the private sector and civil society, the demise of CSR and more.  I commend the full article to your attention if you are interested.

The primary point in the current context is this.  Berkeley has been for the past 50 years one of the most powerful magnets on the planet for the best and the brightest thinkers and practitioners about social issues.  We have in residence embarrassing riches of expertise in policy, NGOs, government, and civil society.  And this is precisely the expertise that will be needed to build shared value capitalism.  Creative and insightful thinking about social problems – nuanced enough to birth effective products and solutions – is a piece the traditional business community largely lacks.  And dare I say, it is also something the big university to our south also lacks at the level we have it here in Berkeley.  I speak as a Berkeley native when I say social awareness is in our bones.  And we are proud of it.

We have the social know-how.  Now we need to learn to monetize it.

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