Paying Your Own Way (Or Not)

It’s important to be able to talk honestly about not achieving self-funding because it will stop impactful-but-not-profitable ideas being distorted into impactless-but-possibly-profitable ideas.

It’s time to be honest about civic tech projects that can pay their own way, and those that can’t.

Some civic tech projects are crafted with sustainable income streams lovingly engineered into their DNA. I used to go slightly green with envy when I thought of the sheer elegance of the business model—charging NGOs to send email to petitioners who are known (thanks to signing a petition) to be highly likely to support those NGOs’ causes. It was obviously a great service, and a great business, and the whole thing grew like a balloon. And their CEO was charismatic and good looking, too. It just wasn’t Fair.

So civic tech businesses with strong revenue models definitely exist, which is awesome. I’m also a big fan of Nationbuilder for this reason. And these successes have led to a certain degree of hope that with some encouragement the civic tech sector might attract a lot more tech-focused capital. The dream is that if it can become recognized as a legitimate field for tech investment, that might will then lead to a load of big, cool civic tech companies with products that people love, and with founders who get discretely rich and make everyone feel like This is definitely a Scene.

I’ve met a few people over the last couple of years who have quietly made it their personal mission to get a lot more capital into the field, so we can see a lot more good companies emerge, drive a lot more innovation in the civic tech space, and deliver the quality of services to citizens that we all know can be achieved if only the money can be found to pay for it.

I hope these advocates succeed—I really do. I’d love to see a new generation of robust, digital-era companies take on and beat the incumbents who gave us and other public disgraces. That simply cannot happen without a lot of cash, and some serious returns to draw in the money. I cross all my fingers and toes that the quiet advocates I’ve met succeed.

But—and of course there’s a but—I think that the widely shared desire to create a strong market of healthy, profitable civic tech companies has to some extent obscured an awkward and inconvenient truth, one that needs dragging out into the light. This truth is that there are, quite simply, some terrific civic tech ideas out there that will always run at a loss.

Some ideas will run at a loss because they cannot come up with viable commercial models. And others will run at a loss because they cannot attract small donors. Others still will run at a loss because they suck and deserve to fail—but this article isn’t really about those.

What I want is for people to be able to say, loud and proud, “I have a great civic tech idea but it simply doesn’t come with a self-funding model.” There are numerous reasons why our field will be stronger and healthier if this becomes a statement people are less embarrassed about making.

First, it’s important to de-stigmatize this statement because there is every reason to expect that valuable civic services will emerge that neither have commercial revenue models, nor are attractive for people to pay for on an individual basis. People’s relationship with the civic realm comes with a strange and historically conditioned set of expectations about money and payment that make it different from markets and other nonprofit sectors where payment or small dollar charitable funding are totally normal. People will happily pay for petrol to drive to the voting booth but they certainly will not happily pay to vote. Everyone knows that the police and fire department cost a great deal of money to run, but nobody expects them to turn up with a credit card machine, once summoned. None of these services are condemned as bad ideas unworthy of funding because people bafflingly refuse to pay at the point of service. There is every reason to think that civic tech projects will emerge that are both highly valued by citizens and yet strangely immune to normal payment strategies. I would argue that these already exist in some places.

Second, it is important that the new wave of general tech investors who are expected to bring capital to the civic tech market understand that civic tech isn’t quite as simple as another tech market, like the sharing economy or VR. Civic tech contains a market of potentially strong companies, but it contains a load of other non-market stuff too. If we’re not really open and honest about this mixed ecosystem and the presence of great organizations that aren’t great businesses, I suspect that some potential investors will be suspicious that they aren’t being given the full picture.

It’s also important to be able to talk honestly about not achieving self-funding because it will stop impactful-but-not-profitable ideas being distorted into impactless-but-possibly-profitable ideas. The rise of social enterprise and impact investing as energized, growing fields has—almost entirely unintentionally—led to a generalized feeling that if you have a socially impactful idea without a cool business model that you’re a failure, that your idea sucks, that you suck and don’t get it. There’s never been a more difficult time to say “Yes, our project is going to have to find external money forever,” even if that is completely true, regardless of whether the project is brilliantly useful and socially important. That stigma makes a lot of people make a lot of bad decisions, and tell a lot of half-truths.

Lastly, it’s important that we can talk openly about civic tech projects that can’t foot their own bills because governments and funders must not be allowed to live with the illusion that there’s something magical about civic tech, some voodoo that will allow us to have amazing public goods for zero ongoing public or philanthropic costs. Yes, there will be amazing companies that will create massive public value at low cost (this is why the civic tech market is exciting) but there will always be plentiful gaps that can only be filled by services that can’t generate their own revenues. You only have to look into the center of any modern city to see what this mix looks like—public goods sit alongside private goods in basically all healthy urban environments.

By way of conclusion, let me explain why I’ve not named any civic tech organizations in this piece except for ones that are self-sustaining businesses. My reason for this omission is that right now the people running those organizations would quite likely consider it harmful to their chances of surviving and raising money, to be labelled as such. Some would probably get quite angry at me for damaging their chances of securing future funding.

This is very essence of the problem—civic tech is a field in which a substantial number of all players feel they have to twist the truth to survive, distort their own missions until they no longer make sense, and in the process disappoint funders and confuse everyone else. If we can be honest and non-judgemental about who should be trying to make their own money and who shouldn’t then we can have a stronger sector with a higher success rate and a clearer story to tell about what we do.

  • Rosa Zubizarreta

    Tom, great article! Thank you for describing so well, the difficulties posed by the lack of legitimacy for civic tech projects that need public funding as they are not suited for a market-based model.

  • Dennis McDonald

    We will continue to have such discussions as long as (a) hype and self deception are critical components in getting tech businesses off the ground and (b) developing new businesses involves risk.

  • kristin wolff

    Yea @Tom! Nail.On.Head. Can I add two points? 1. These projects/enterprises often sit precisely on the line between public and private and when we assume they can be profitable enterprises, we don’t often ask what kind of enterprises they *could* or *should* be — or state explicitly what value they are providing for whom. We just ask, “Is it self-sustaining?” 2. We allow these projects to be *additions* to the existing service ecosystem without looking at what they could replace. Replacing solutions that work less well could free up capital for scaling the new and better. An obvious point, but without acknowledging that some projects might be integrated into the civiv infrastructure (whether by purchase or contract), we miss the opportunity to capture already budgeted resources that could be allocated more effectively. (I’m not even going to touch procurement here, but that’s a big piece of it.)