Tuesday, February 1, 2011

Social Entrepreneurship? Really?

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Social Entrepreneurship is the new buzz word in India and marks a shift in thinking away from non-profit models to market based solutions that can operate at large scale and therefore create social value more systemically.

But what puts the ‘social’ in social entrepreneurship? We all have a notion that it means starting a business that does good for less fortunate folk. So we commonly think of a social entrepreneur as someone who is addressing a low income market with a product that can raise standard of living, either by providing greater opportunity or convenience. However, as I have discovered over the past five years, simply product and market are not sufficient.

Microfinance, for instance, provides a very interesting, and particularly sticky example. The product – basically money – has tremendous potential. Great things have been done with money. You need it for virtually everything. Poor people, by definition, have less of it and therefore want it. It seems simple enough. However, like many products, it can only deliver on its potential if the person who buys the product knows how to use it and is able to use it productively. Figuring out who is able to use it productively is no simple task.

The social value of microfinance is also highly contextual and it’s not always easy to know where the context is right. For instance a village may not have sufficient relationships with larger marketplaces, so good ideas may never pan out. So the product could have social value but it depends where you sell it and who you sell it to.

How much you sell also matters a lot. More is not always better. Just like a drug that treats a disease, there is a dose response curve. Up to a point you have increasing benefits and then the side effects take over as the drug exerts toxic effects.

If you think about money at a systemic level, you realize that the impact depends not just on what the person you lend to creates, but where the money goes. For example, when a local moneylender lends the money, even if he charges greater interest, he actually spends his profits in the same community and therefore supports that local economy. When a corporate microfinance company lends, it takes back the money and it may go out as dividends to international investors. The problem is not simple.

As for-profit enterprise, we can also create, or fail to create, social impact by virtue of numerous micro decisions that are made at every level in the organization. In microfinance, for instance, it matters how each field staff interacts with customers. Value can dissipate if the interaction is not right. And if you are unable to meld your business metrics with measures of social value, it is easy to lose your way.

Over the past several years I have therefore come to think of ‘social’ entrepreneurship not simply as a business that creates more equitable access to a good or service, but an effort in solving large scale systems problems. Adding the ‘social’ to entrepreneurship is to take on a far greater challenge – a challenge to solve a problem, but often one we don’t fully understand. This means we need to be constantly innovating R&D organizations. Like a drug company that puts out treatments for disease, your first product may purely treat symptoms and roll in the money, but your labs are still looking for the cure.

So, don’t just tack the ‘social’ onto entrepreneurship because your intention is good and your customer is barefoot. To be genuine to the promise of social entrepreneurship, we must constantly seek deeper understanding of the problem we are trying to solve, build our enterprises to be thinking, values driven entities and strive to find ways that meld our social and business agendas so that they are synergistic and not at loggerheads with one another. It is a lot harder than simply building a scalable, profitable business.


  1. How do you know that a local moneylender spends his profits in the same community? If this is true then there shouldnt any issues with the moneylenders lending for huge profits... !!!

  2. The 'Local' moneylender is local, which means he lives in the village. When he lives in the village, he is more likely to spend his money there.

    The local moneylender also often serves a very different need than an institutional lender. You can knock on his door in the middle of the night to get a loan for an emergency medical expense. He will often lend for very short terms, sometimes even just a day. Their risks are high, typically.

    They can be reasonable moneylenders (nothing wrong with that) or they can be loan sharks (i.e. exploitative) just the same way an institution can.