Imagine an enterprise creating value, which isn’t distributed to shareholders but instead reinvested for social purposes. Or an enterprise, which aims at actively working on a specific social problem. Sounds strange to you? Let’s be honest: you’re not alone there – simply because we’re used to the thinking that organizations working for the social good are not supposed to make any profit. Furthermore, we tend to believe that enterprises are supposed to make profit but not work in the social sector. Is our world really that simple?
The answer’s very simple: no. Between two extremes, there’s usually a large grey area, in which different mixes between the two can be found and in which different types of organizations are having disputes about which approach is right instead of celebrating the fact that more and more companies and people are investing their time in doing good.
As this is going to be a somewhat lengthy article, as I am going to work with keywords and links to make the read easy and fun. You can either read the text entirely or simply click on the keyword, which interests you at that point, and get to the corresponding part of the text.
Social good in the past
The role of the government now
Traditional development work
“Know your customer”
The same applies to development work
Know your helpee!
Interview with Muhammad Yunus
How do Social Business/Social Enterprises function?
Investment return Social Business
Investment return Social Enterprises
Definition Social Enterprises/Social Business
Which one is the right goal or problem?
Learn from the experience of others
Get to know your customer
Start small and test the idea
Exchange ideas and give mutual advice
Traditional business plan
Social business plan
Case study Grameen Danone (Start where you are/ Start small/ Know the customer/ Issues/ Reason/ Adaptions )
Why not celebrate the fact that more and more people are investing their time to do good? In fact, the idea of doing social good is not an utterly new concept for enterprises. Many of the older patrons and managers took on social responsibility – caring for their employees as a fatherly figure and investing money into the community, such as building schools, supporting youth projects or presiding over cultural happenings which, in one way or the other, benefited their community. But growing capitalist thinking and economic theories triggered a shift in the way of thinking and enterprises shifted their focus from having their stakeholders benefit to getting the most profit out of each business in order to add value for their shareholders. While allowing a middle class to flourish, the profit-maximizing capitalist system also widened the gap between rich and poor and lacked solutions for the problems of the latter ones. This is where – at least in the richer countries – the government jumped in and established a social system to ease the fall, provide basic support or even prevent unemployment.
Quite unfortunately, poorer countries don’t have the means to provide such a social system. Up until 10 years ago, the answer to this problem was development work. Though, just too often this didn’t work out so well. The major problem was simply, that those programs often were imposed on people without addressing their most pressing needs in a sustainable and suitable way, which also included a cultural dimension.
If you want to sell a product, you have to know your customer, right? This is one of the basic economic principles. “Know your customer.” Of course you can create demand if you’re really good in either talking, lying or both and sell your fridge to the Inuit in Greenland. Though, this will most likely backfire, as you end up with a bad reputation, while your customer continues cooling his Coke in the snow. Had you actually asked him what he needs, you could possibly have found out, that he’s in dire need of a stove, which also helps to heat the living room. It’s so simple: talk to your customer and find out how you can help him.
The same applies to development work. Talk with the people and find out how you can help them – maybe simply with a loan? Maybe also with some specific expertise?
That’s how Grameen Bank, established by Muhammad Yunus, came to be. During a famine in Bangladesh, he noticed that economic theory does in no way explain the phenomenon of poverty. Feeling helpless, he decided to go to a nearby village to find out more about how people lived and, most of all, what they needed most. It came out that people simply needed loans to free themselves from the dependence on local money lenders. And the loans needed in that village, Jobra, totaled only 27$.
Having followed his intuition, he simply acted like an entrepreneur and adapted our economic rule to know your helpee!
As we all know today, Grameen Bank, and the idea of giving micro loans to poor people to help them build and grow enterprises, was hugely successful and led millions of people out of poverty. But while working on this project, Yunus became increasingly aware that there were problems which couldn’t be directly addressed by Grameen. Basically, there wasn’t any health care available for the poor. Also, they needed clean drinking water, education, access to telecommunication and many more things.
This is how he came up with the idea of establishing companies which addressed specific needs of the poor while making a small surplus, which could be invested in expansion or innovation. Those companies worked in exactly the same way as normal companies do. They just charged much less money for their goods, were especially catered to the needs of the poor and served to solve the most pressing problems of the society. Instead of following a money-centered philosophy, they acted in a solution-centered way to bring benefits the poor. That’s what the major difference between the so-called Social Business and traditional enterprises is.
Meanwhile, the idea of Social Business has even made its way to important global meetings, like for example the World Economic Forum in Davos, Switzerland. Click on the video to see an interesting interview with Muhammad Yunus about his concept:
There’s one really important thing to know when dealing with the social sector: as Yunus already mentioned in his video and as mentioned above, there are different types of companies aiming at solving problems of our society. They are all functioning in much the same way as normal enterprises do – they require a vision which is contretized in a business plan, investment, and require expertise and managerial skills. Though, as Social Business is solution-centered, investors are merely getting back the money they invested. There’s no cent more being paid out towards them – their investment return being personal satisfaction from having helped to solve a social problem.
“Social business recognizes that the responsibility for solving a society’s problems is shared between the government and the citizens”
– Muhammad Yunus, Building Social Business –
Social Enterprises on the other hand can pay out a dividend to owners and investors. Given the fact that this type of company is supposed to address social problems, the maximum amount of money which can be paid out is usually limited to a certain percentage of the overall profit.
Social enterprises are basically all the enterprises working with a focus on solving one or several of society’s problems. They can either be non-profit organizations, getting their funds from donations and government, or they can be for-profit organizations and then have to break even after a certain amount of time. Typically, Non-Profit Organizations (NGOs) often have a for-profit branch (also a social enterprise) which brings them income they can spend in projects bringing benefits to the society. Per se, social business is a social enterprise as well. Its major distinction is that no dividends are paid out.
The reason for Yunus’ approach lies in the fact that it was the money-centered type of doing business, and namely greed, which caused a huge part of our problems. Reaching back on known concepts would mean to employ those same concepts to solve the problems they caused…this sounds unwise indeed, doesn’t it?
“Take a problem and do the opposite of what anyone else does.”
– Muhammad Yunus –
Though, imagine a young innovator wanting to solve social problems by founding an enterprise – getting a social business funded might be more challenging, as it doesn’t bring its investors any monetary profit, right? Offering a small dividend might thus make sense?
Establishing for-profit social enterprises may still be a great option in many cases. At least that’s how companies used to work before this immense wave of greed took hold of everything. When talking about “social enterprises”, I am typically referring to the for-profit ones.
Imagine the huge potential of young, innovative people our countries have. And imagine that huge problem-solving-potential which lies within. Why should they not also profit from their ideas? The most important thing is that only a small percentage of the enterprise’s income goes to the owners whereas the rest flows back into the company and society to keep to the solution-centered business-approach.
“Smart, talented, creative individuals can produce innovations that government is rarely capable of developing”
– Muhammad Yunus, Building Social Business –
So – why the heck does she keep repeating herself about “social business”, when the article is actually about “social entrepreneurship”? The reasons are simple: I will come up with the case study of Grameen Danone later on, and social businesses and social enterprises – especially the for-profit ones – basically function in the same way. They require an entrepreneur who comes up with an idea and simply puts it into action. So let’s have a closer look at what an “entrepreneur” actually is. After Dictionary.com, an entrepreneur is:
And Forbes.com adds:
Social entrepreneurs are nearly exactly the same – with one major difference: they are establishing businesses to solve problems and not to maximize their gain. This means that social enterprises, like social businesses, in the most part face the same difficulties as traditional businesses do: entrepreneurs first have to identify a need and have a personal passion to fill that need. Then they need a vision on how to achieve that goal. But which one is the right goal or problem? Yunus puts it like this:
“The right problem to choose is the one you can handle with ease. (…) for now you are just learning the basics of setting up and running a social business.”
“Start where you are.”
So the most important thing as an entrepreneur, be it a traditional one or a social one, is to simply start going. Remember Lao Zi’s saying “Every journey of a thousand miles starts with a single step”. Also, entrepreneurship is a try-and-error game. It’s learning by doing. This also means that it is possible to learn from the experience of others or to copy concepts, which worked somewhere else.
“Examine ways that others have tried to solve the social problem, and try to pinpoint why they failed – and how they could have succeeded. (…) Perhaps a clever concept from the field of transportation or information technology could be applied to healthcare, housing or education – or vice versa.”
– Muhammad Yunus, Building Social Business
Furthermore, an entrepreneur has to get to know his or her customer! Otherwise he’ll possibly miss out on one or more important details, which could make his idea work. Or he’ll overlook a cultural barrier which hinders your idea from working. Remember my example in the beginning of this article – development work or social enterprises are not exempt from this rule. Yunus puts it like this:
“Also spend time with the people you hope to serve. Get to know their interests, needs, abilities and dreams. One of them may have the perfect solution in mind – if only someone like you would take time to listen.”
One really important advice for anyone starting a new business is to start small to see if the idea is going to work, what problems might possibly arise, where the weakpoints and the strongpoints are and whether or not the idea or the approach have to be adapted. Also, that way the risk is reduced.
“As soon as you know what you want to do, you have to test the idea to find out, what its strong- and weakpoints are and where you might encounter problems. Start small and with minimal resources.”
– Muhammad Yunus, Building Social Business –
To get an idea about what an entrepreneur has to think about when establishing a business, it helps to simply look at the questions a business plan should address. Also, those questions help a lot in concretizing an idea and putting it into an action plan. A traditional business plan should address the following issues:
- What product or service will I offer?
- How will I produce this product or service?
- Who are my customers?
- How many are there?
- How do they make their buying decisions?
- How can I find out what price they are willing to pay for the product or service I will offer?
- What is my competition?
- What methods of marketing, distributing, advertising, selling and promoting my product or service will I use?
- What are the initial capital expenses I must meed in order to launch the business?
- What are the monthly expenses I can expect (rent, payroll, employee benefits, utilities, supplies, transportation, and so on)?
- How will my expenses change as my volume of business grows?
- What revenue from sales can I realistically expect during my first month in business? My first six months? My first year? My first three years?
- Based on the figures presented above, when can I expect to reach the break-even point?
- Over what time period can I expect to repay the initial capital (in the form of investment funds or loans) used to launch the business?
But as we are talking about social entrepreneurship, we are widening the scope of any business plan. On top of all the other requirements, a social business plan has to be responsible and address the question as to how the business is going to bring benefit to a society:
- -What is my social objective: Whom do I expect to help with my social business?
- What social benefits do I intend to provide?
- How will the intended beneficiaries of my business participate in planning and shaping the business?
- How will the impact of my social business be measured?
- What social goals do I hope to achieve in my first six months? In my first year? In my first three years?
- If my social business is successful, how can it be replicated or expanded?
- Are there additional social benefits that can be added to the package of offerings I will create?
This all sounds very theoretical now. So let’s have a look at how one of Yunus’ first social businesses, Grameen Danone, came to be (Muhammad Yunus, Building Social Business – The New Kind of Capitalism that Serves Humanity’s Most Pressing Needs, p 34 – 41):
Talented managers from our two organizations (Grameen and Danone) spent the next year or more developing the idea for our social business. Danone’s expertise meant that nutrition would be a natural focus for the business. This was certainly an area of great need among poor people of Bangladesh. Half of all the children in my country suffer from malnutrition, especially in rural areas. Diarrhea, often a byproduct of malnutrition, is much more than the nuisance it is in Western countries – it is often fatal.
After much decision we decided that the best way to start our joint venture would be with a yogurt business. Yogurt is not only a product for which Danone is famous the world over. It’s also a traditional snack in Bangladesh, very popular among all people, including children.(…)
We realized that if we could create a yogurt brand that was fortified with vitamins and other nutrients, appealing to children, and affordable for the poor, we could provide an important benefit to families in Bangladesh. We could reduce rates of illness, improve children’s energy level, and increase their rates of participation in school and other worthwhile activities.
In this part of the case study you see that Danone and Grameen actually really started from “where they were.” Danone did something, in which it was already strong and for which it had the expertise. And Grameen could provide knowledge about the local situation and customs.
A handful of decisions were especially crucial. One was the decision to build a small yogurt factory rather than a large facility like a global company like Danone typically constructs. This would have several benefits. It would minimize the investment risk to Danone by reducing the up-front costs; it would limit the distribution area to a small one, eliminating the need for costly refrigerated trucks and warehouses; and it would simplify the problem of staffing the plant, since a small factory would require only a few workers rather than scores of hundreds.
Most important, a small factory would become part of the local community and economy. It could draw its supply of raw materials, especially milk, from local suppliers, and local consumers would be its chief customers. (…)
Just 7,500 square feet in size, it (the factory) is small but highly efficient as well as eco-friendly. It contains water treatment equipment, recycling facilities, and a biogas unit that converts natural waste into energy, as well as solar panels to minimize the impact on the environment.
Remember the importance to start small and first try out the idea without indulging into too much risk. Grameen Danone achieved that by first building a tiny factory and serving customers in a small area. Also, they adhered to the principle of running their business responsibly, which means they designed it to be highly efficient and eco-friendly. As a plus, they support local suppliers by drawing its supply of raw materials from them. This, in turn, supports local businesses and helps them thrive.
(…) The company came up with the name Shokti Doi, which in the Bengali language means “yogurt for energy”. Based on the results of a survey among local children, it chose a lion as a mascot to symbolize the product. An artist designed a friendly-looking cartoon lion, flexing his muscles, to adorn the lid of the Grameen Danone container. This character quickly became a favorite among local kids.
The yogurt was priced ad 5 taka for an eighty-gram cup. That’s the equivalent of about 7 cents in American currency. By contrast, locally produced yogurt from the shops in Bogra traditionally sold for the equivalent of 30 cents a cup. (…)
See how Grameen Danone involved its customers in finding a recipe and brand strategy after their taste. Also, their pricing reflected the main purpose of Grameen Danone: addressing the needs of the poor. Their yogurt could thus be purchased at a much lower price than traditional yogurt.
But like every business, Grameen Danone had its trial and error phase:
Grameen Danone relied on a “two-legged-stool” to distribute and sell Shokti Doi. One leg was a number of small retail stores located in and around Bogra. (…)
The second leg of Grameen Danone’s sales operation was the “Grameen ladies”. These are female entrepreneurs who have taken loans from Grameen Bank and used the money to start or expand small businesses with which to support themselves and their families. (…) When we launched Grameen Danone, we believed the Grameen ladies would form an important sales network for our yogurt. (…)
But during the early months of 2007, sales by the Grameen ladies were small. Grameen Danone’s recruitment efforts failed to gain traction. Sometimes women would sign on to the program, sell yogurt for a few days, then quit without a word of explanation. As a result, Grameen Danone never had more than thirty saleswomen visiting their neighbors with the yogurt. (…)
What had happened? They had involved their customers in the solution-finding process, hadn’t they? How could it be that their business model didn’t function? As a matter of fact, as social businesses are supposed to be self-sustainable, they needed to break-even. And as sales didn’t go as well as they had planned, they had to take action:
First, the company tried to understand the problem and had discussions with Grameen stuff and NGOs. The local experts they consulted with gave this advice: “The problem is with your management.”
And they explained:
This is particularly true when you are talking about door-to-door selling. In Bangladeshi rural culture, women tend to stay close to home. It is hard for them to step outside the confines of the home without the support of the men in their lives. Most of the ladies who take loans from Grameen Bank operate businesses at home – growing food, weaving cloth, making baskets. But selling door-to-door is a different matter. If the husband does not approve, the wife will feel unable to keep such a job.
This was an eye-opening moment for the Grameen Danone team. They realized that a cultural barrier had prevented them from working most effectively with the village ladies-a barrier that was all the stronger for being unspoken.
Sometimes the answer to a problem is plain simple but not really evident to founders or people involved. This is why it is so important to seek for advice and exchange experiences with fellow entrepreneurs or people who know the field or the community the business is supposed to serve. In this case, Grameen Danone had, despite Grameen’s experience in Bangladesh, overseen a cultural barrier. Though, as establishing a business very much means learning by error, this doesn’t mean that the basic idea is prone to failure. It simply means that the approach has to be changed or that the business plan has to be adapted. That’s exactly what Grameen Danone did:
Under the new leadership, the process for recruiting, selecting, and training saleswomen was completely revamped. Grameen Danone took care to involve the women’s families, especially their husbands, and to make sure that each saleswoman had her community’s support behind her.As a result, the number of saleswomen grew steadily, from just 29 in September 2007 to 270 by the following March.
In addition, Grameen Danone made a minor adjustment to the yogurt recipe. Customers had been complaining that Grameen Danone yogurt was not sweet enough. In response, Grameen Danone added a little more molasses flavoring.(…)
The benefits of all these changes soon became apparent. After seven months of basically stagnant sales, October 2007 saw the biggest sales increase in Grameen Danone’s brief history. (…) In fact, between October 2007 and March 2008, Grameen Danone experienced six consecutive months of sales improvement. Monthly yogurt sales soared during this period.
Ok, let’s go and found a business. Or let’s go work in a social enterprise. I actually did start working in one. Laurence Bakayoko is one of those entrepreneurs our world needs: just going and setting her plans into action. Check out her site “Zèbre Solidaire”, from which also the logo in the beginning of this article comes from. Let’s save the world! 🙂