Originally posted September 25, 2018
Yes, businesses can do good…and I’m as surprised by this as you are.
When my soon-to-be-husband, Ned, told me that he was applying to business school, I was horrified. We had spent much of our college years together serving the homeless, protesting corporations, and dreaming of social-justice-oriented careers. This single act felt like a repudiation of all that we believed in.
“You’re what?” I screeched. “Why?”
Never mind that Ned was certain God had spoken directly to him, saying, “Go to business school.” I didn’t agree with the Almighty. I was sure that corporations were only vehicles for exploitation and greed, and nothing would change my mind.
Despite my dismay, Ned remained undeterred. “There’s something called social entrepreneurship,” he explained. “I want to start a for-profit business with a social mission.”
“That’s an oxymoron,” I contended stubbornly.
“Sometimes a business can be more sustainable and make a bigger impact than a nonprofit,” Ned replied. “The revenue the company makes can be used to help people on a bigger scale.”
I still didn’t understand. Yes, corporations gave people jobs and provided nice products and services, but ultimately they served their owners, shareholders, and, if they were particularly altruistic, their employees. For the rest of society’s needs—serving the poor, advocating for justice, empowering the disenfranchised—we had the public sector, nonprofits, and ministries.
Having worked for nonprofits for several years, I knew the model wasn’t perfect. Everyone was underpaid and overworked. We spent far too much time courting and reporting to donors. Four years out of college, I was already on my third nonprofit job because of the financial instability and intensity of the work.
But, to me, the small paychecks and knife’s-edge existence only verified the nobleness of our efforts. Why would anyone do this job unless they really cared?
…the small paychecks and knife’s-edge existence only verified the nobleness of our efforts. Why would anyone do this job unless they really cared?
Money, the root of all evil, would taint that. I scoffed at the notion that a business could be anything other than a money-making enterprise.
Confusingly, the term social enterprise has been used to describe both for-profits and nonprofits, and to include anything from providing jobs to corporate social responsibility. But Ned was trying to convince me of the validity of a for-profit company funded by investors who expect good returns, while simultaneously driven by a social mission to address a large-scale need. Such businesses, also called social-benefit corporations, are often said to operate with a triple bottom line: financial, social, and environmental.
The idea of this kind of social enterprise was first developed in the UK in the late 1970s. More than a decade later, Harvard Business School launched a Social Enterprise Initiative.
But the concept truly entered the mainstream when, in his book Banker to the Poor, Nobel Prize laureate Muhammad Yunus called microfinance institution Grameen Bank a social enterprise. Grameen has made a remarkable impact in Bangladesh through microloans. The loans have allowed millions of extremely low-income recipients, primarily women, to start new businesses or expand income-generating activities that have lifted entire families out of extreme poverty.
Banker to the Poor was published in 2009. Ned was trying to convince me that social enterprises were a real thing back in 2004.
I remained wary throughout the two years Ned was in business school, waiting for him to transform into yet another ambitious corporate go-getter. To his credit, he remained committed to his initial goal. He dedicated almost all his waking hours to applying the best business, product design, and entrepreneurship principles to the needs of base-of-the-pyramid families, or the 2.7 billion people who live on less than $2.50 a day.
At the same time, I was learning some hard lessons about how charities and ministries don’t always work well—and can even end up harming the communities they want to help. This is particularly true when we cross borders into the Majority World, bringing with us an abundance of good intentions, ignorance, and naiveté.
Poverty is, unsurprisingly, a complex challenge. According to the authors of Voices of the Poor, the well-regarded 1990s World Bank report, “Poverty is pain. Poor people suffer physical pain that comes with too little food and long hours of work; emotional pain stemming from the daily humiliations of dependency and lack of power; and the moral pain from being forced to make choices such as whether to pay to save the life of an ill family member or to use the money to feed their children.”
Most international aid focuses on alleviating the physical pain of impoverished households—but that assistance usually is only temporary or can lead to unintended consequences. It’s been consistently shown that donated goods from affluent countries, such as clothing and shoes, can put indigenous vendors out of business and undermine the local economy. Short-term volunteers can displace local workers. Potentially life-saving items, like anti-malarial mosquito nets, lose their value when given away for free and can then be misused.
Oftentimes, acts of charity ignore or even exacerbate the emotional and moral pain of those in poverty. Aid can intensify feelings of disempowerment and shame, as it highlights the vast difference in privilege and power between the giver and the recipient.
Oftentimes, acts of charity ignore or even exacerbate the emotional and moral pain of those in poverty.
This, I think, is one of Ned’s favorite aspects of the social enterprise model. When low-income families are offered something in the marketplace, they are given choice: Do you want this product or service? And they are given power: Is this product or service valuable enough to you to spend your hard-earned money?
If the answer to either of these questions is no, the social enterprise will not survive. There are no donors with deep pockets to continue to support an ineffectual program or service. The business requires an ongoing revenue stream from an increasing number of satisfied customers, but this can only happen if what it offers is useful and high-quality enough to stand the test of time.
In the end, it is the customers who have final say over whether something has value to them. They are the ultimate boss, and they make their preferences known through a dignified, respectful process that is not so different from when you and I purchase our smartphones and sneakers.
Despite plenty of naysayers and skeptics, the social enterprise sector has grown considerably in the nearly fifteen years since Ned and I had that conversation. There are 70,000 social enterprises in the U.K. alone, while a census is currently underway to assess how many are in the U.S. In 2016, impact investors around the world made 8,000 investments totaling $22.1 billion, with that amount expected to grow by at least 20 percent a year.
The question today is not if a socially-driven business is a possibility, but when it could be the best option. Social entrepreneurs, as they are called, often consider questions like the following when evaluating the ideal model for tackling a social challenge:
- Is there a significant need that local markets are not meeting?
- Is this something that families value enough to pay for?
- Can the product or service be made affordable enough without compromising on quality?
In Bangladesh, for example, very poor households were already spending about 29 percent of their income on financial outflow, usually in the form of repaying loans, lending to others, or savings. The need for small loans offered at reasonable interest rates was clear. Fortunately, Grameen Bank stepped in to fill the void, establishing the now flourishing microlending sector.
Ned and several classmates came up with their business idea when they learned that more than one billion people in the world today live without any electricity, and another billion only have access to intermittent electricity. One of their greatest needs is for light at night—to illuminate their work, to help kids study, to ward off wild animals, and more.
Kerosene lamps, the most common lighting option for off-grid families, are incredibly dim, cause lung infections and house fires, and release large amounts of carbon emissions. They are also expensive, with families paying as much as 30 percent of their income for kerosene oil.
The gap in the market was there, as was the willingness to pay for an alternative. New and rapid advances in LEDs, solar panels, and batteries made it possible for an environmentally sustainable and technologically advanced solution to be fairly low cost.
True to his word, Ned used his MBA to co-found d.light, which provides solar-powered solutions for off-grid families around the world. They started with affordable solar lanterns and have expanded to solar home systems that can power lights, mobile phones, radios, and even flat-screen televisions.
Since 2007, d.light has provided light and solar power to more than 85 million people across 65 countries. Other strong competitors have also entered the space, serving millions more households and elevating the quality, innovation, and affordability of the entire sector.
During that same time period, the social enterprise sector has gone from being a misunderstood interloper to the darling of businesspeople, policymakers, and do-gooders of all stripes.
But it is still young, and quite imperfect. As investors and entrepreneurs attempt to understand the viability of a market solution, they make mistakes. They’re too aggressive or too cautious. They struggle with sustainability and scale. A stunning 71 percent of social entrepreneurs struggle to make a living from their businesses.
In certain areas, like public health and education, the stakes are so high and the required knowledge so specialized that a for-profit model may not work at all.
There is a time and a place for market solutions. It is possible for businesses to do good.
Yet I have come to understand that there is a time and a place for market solutions. It is possible for businesses to do good—and in some cases, to do even better than their nonprofit counterparts. Having another tool for poverty alleviation is something that even a skeptic like me can heartily celebrate.
Dorcas Cheng-Tozun
is an award-winning writer, an Inc.com columnist, and the author of Start, Love, Repeat: How to Stay in Love with Your Entrepreneur in a Crazy Start-up World. She, her entrepreneur husband, and their two adorable hapa sons currently live in Nairobi, Kenya. Connect with her on Twitter or Instagram @dorcas_ct.
