TWO KEYS TO SUSTAINABLE SOCIAL ENTERPRISE

TWO KEYS TO SUSTAINABLE SOCIAL ENTERPRISE
Author: 
Roger L. Martin, Sally R. Osberg
Source: 
Harvard Business Review

Social entrepreneurship has emerged over the past several decades as a way to identify and bring about potentially transformative societal change. A hybrid of government intervention and pure business entrepreneurship, social ventures can address problems that are too narrow in scope to spark legislative activism or to attract private capital.

Social entrepreneurship has emerged over the past several decades as a way to identify and bring about potentially transformative societal change. A hybrid of government intervention and pure business entrepreneurship, social ventures can address problems that are too narrow in scope to spark legislative activism or to attract private capital.

To succeed, these ventures must adhere to both social goals and stiff financial constraints. Typically, the aim is to benefit a specific group of people, permanently transforming their lives by altering a prevailing socioeconomic equilibrium that works to their disadvantage. Sometimes, as with environmental entrepreneurship, the benefit may be extended to a broader group once the project has provided proof of concept. But more often the benefit’s target is an economically disadvantaged or marginalized segment of society that doesn’t have the means to transform its social or economic prospects without help.

The endeavor must also be financially sustainable. Otherwise the new socioeconomic equilibrium will require a constant flow of subsidies from taxpayers or charitable givers, which are difficult to guarantee indefinitely. To achieve sustainability, an enterprise’s costs should fall as the number of its beneficiaries rises, allowing the venture to reduce its dependence on philanthropic or governmental support as it grows.

In some cases a social enterprise may even spawn a profitable business. In the late 1970s, for example, Muhammad Yunus secured funding to conduct an experiment in which very poor borrowers were given tiny loans. The experiment grew into the famed Grameen Bank, a financially sustainable social business serving disadvantaged Bangladeshis. As others around the world saw that it was actually possible to make a tidy profit lending to poor people, they adopted the Grameen model, vastly magnifying the impact of Yunus’s initial innovation.

What can social entrepreneurs do to increase their chances of achieving sustainability—and perhaps even profitability? We think we have an answer. Over the past 15 years we have studied successful social entrepreneurs up close through our work for the Skoll Foundation, which was established in 1999 by the internet entrepreneur Jeffrey Skoll. Each year the foundation confers the Skoll Award for Social Entrepreneurship (SASE) on a small number of people. More than 100 social entrepreneurs representing 91 organizations have received Skoll awards to date.

In studying these leaders and their ventures, we have found that they all focus on changing two features of an existing system—the economic actors involved and the enabling technology applied—to create sustainable financial models that can permanently shift the social and economic equilibrium for their targeted beneficiaries. In the following pages we’ll describe how representative entrepreneurs have successfully made these changes.

The Actors
Social and economic problems often reflect an imbalance of power among the economic actors involved. India’s handwoven-carpet industry offers a prime example of this dynamic. In the early 1980s the children’s rights activist Kailash Satyarthi, joint winner with Malala Yousafzai of the 2014 Nobel Peace Prize, saw that poor children were easy prey for labor brokers who recruited workers for a number of Indian industries, including carpet weaving.

Social entrepreneurs add new actors to an existing system: customers and government.

Captured by these middlemen, the children were sold to business owners who forced them to work 12 or more hours a day under brutal conditions, their small hands producing the handsome but inexpensive rugs retailers demanded. Three groups of players—owners, labor brokers, and retailers—dominated the country’s handmade-rug industry, their interlocking interests perpetuating a particularly ugly equilibrium that benefited them by exploiting children.

In situations like this, we have observed, social entrepreneurs aim to transform the equilibrium by adding new actors to an existing system. These actors fall into two categories: customers, whose role is to shift the power balance; and government, whose role is to alter the economics.

Customers and power.
Satyarthi began his career in activism primarily through advocacy and organizing raids on companies, in the hope that he could raise awareness of child exploitation. He recalls the point at which he forced himself to admit that this approach would never change the system. Following a harrowing but successful raid, he was headed home when he confronted yet another bunch of labor brokers boarding a train with dozens of children bound for a life of servitude. He realized that freeing 10 or 20 or 200 children, when another 200 or 2,000 would come right behind them, was not the solution.

What could make a difference, he discovered, was enlightened consumers who would refuse to buy rugs that had been made with slave labor. Satyarthi’s insight came when an elderly woman told him she had bought a carpet in utter ignorance of how it had been made, but once she learned that it had probably been woven by child laborers, she felt she had no recourse but to throw it out. “I’m very old,” she told the activist, “but you’re very young—you must do something so that I can buy a new carpet.”

Satyarthi realized that this woman represented others who could be educated to shun products produced by exploitation in favor of those produced responsibly. In the mid-1990s he launched Rugmark (now GoodWeave International) as the first voluntary labeling scheme to certify rugs produced without child labor in South Asia.

Today GoodWeave operates globally, focusing on the top retail markets and key rug-producing regions across Asia. More than 130 carpet importers and retailers—including Target—have signed on, pledging to source woven rugs that have been certified by GoodWeave. Satyarthi understood, as have the many other social entrepreneurs introducing certification systems in a wide variety of industries, that consumers represent a potent and sustainable means of altering a suboptimal social equilibrium. As long as certification labels are undergirded by well-conceived and credible efforts, they inform and motivate consumers through increased transparency. When enough consumers vote with their wallets, retailers and suppliers get the message—and entire systems are forever altered.

Government and economics.
A number of successful social entrepreneurs have generated a better equilibrium by moving government from the sidelines to a far more productive place in the system. This new role leverages the effectiveness of citizens’ taxes or, in the case of emerging economies, development aid from wealthy nations, making government services more valuable. The Amazon Conservation Team (ACT), for example, has tackled the problem of Amazon basin deforestation by rendering Brazil’s government a more effective actor in a system that previously pitted primarily indigenous peoples against the loggers, ranchers, and miners who were claiming more and more of the basin for development, razing millions of hectares of forest—often illegally—in the process. Although Amazonian peoples have for generations considered vast tracts of the basin as their own, their existence was increasingly tenuous, and they had few means of asserting control over those lands.

But as Brazil woke up to the massive problem of deforestation, the government could do little given the sheer magnitude of the violations. Again and again it found that by the time illegal use of indigenous peoples’ land in the rain forest was identified, the damage had already been done.

ACT’s core innovation was to equip tribal peoples with handheld GPS devices and train them to chart their ancestral lands. The resulting maps enabled them to advocate more effectively for their own interests by supplying the government with information needed for rain forest conservation. With their territories clearly identified, tribal peoples could monitor and protect the land on which their way of life depended. This distributed system of monitoring and conserving significantly outperformed any centralized approach. The balance of power in the struggle with commercial interests was cost-effectively shifted in favor of the indigenous peoples, contributing to more-efficient and more-effective conservation.

The Technology
Economic and social agents use structures, business models, and tools to achieve their desired ends in an existing equilibrium. The actors and their means of operating—the engagement “technologies” they use—combine to make the equilibrium unjust and suboptimal. A second way, therefore, to effect change is to dramatically improve a system’s technology while leaving the current actors in place. Such improvement is achieved in one of three ways: substitution, creation, or repurposing.

Replace a key technology with a lower-cost one.
A number of SASE winners have succeeded by identifying a lower-cost technology that can substitute for a prevailing standard in a given function or product component.

Bart Weetjens, the founder of APOPO, realized that the greatest hurdle to clearing land mines was the high cost of the prevailing technologies, which included expensive equipment and trained dogs. For countries riddled with mines, de-mining machinery was hard to come by; furthermore, the weight of the dogs made them vulnerable to death from an exploding mine. Consequently, efforts to clear minefields were slow to gain momentum. Having kept rats as childhood pets, Weetjens knew they were smart and trainable enough to sniff out land mines. He showed that African giant pouched rats were perfect for the job, weighing so little that they wouldn’t detonate the mines. Countries and organizations can use APOPO’s services to remove mines at a radically lower cost and thus de-mine more land faster than was previously possible. (Weetjens has also trained his rats to sniff out tuberculosis in sputum samples. This cheap and readily available “technology” enables remote, isolated clinics to identify TB and get patients into treatment sooner.)

In settings where medical professionals are in short supply or strapped for time, many social entrepreneurs have discovered that paraprofessionals can deliver outstanding results. In sub-Saharan Africa the shortage of doctors and nurses is particularly acute, so the nonprofit Medic Mobile equips community health workers’ phones with applications that help the workers do everything from track drug inventories to register new pregnancies—tasks that would otherwise fall to professionals, distracting them from their more specialized, and critical, responsibilities.

In another example, mothers2mothers trains “mentor mothers” to monitor HIV-positive pregnant women. Such help has been shown to increase the latter’s adherence to the demanding treatment regimens required to increase their chances of delivering healthy, HIV-negative babies. As an added benefit, m2m’s mentor mothers leverage the international community’s enormous investment in antiretroviral drugs and other medicines to combat AIDS.

 

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