My Photo

MIT Sloan Student Blog Archive

  • Thank you for viewing the MIT Sloan student blog archive. We have archived content from previous years so you can still enjoy them. If you are an author and your blog has been archived mistakenly than please email the Strategy & Planning Group at the MIT Sloan Office of Communications.

« Always adventurer and backpacker | Main | What I got from East Africa Study Tour »

04/21/2012

Changing My Perspective on Social Enterprise

When I first joined the study tour, I believed that Social Enterprise can be something really helpful to break through current donation based non-profit organizations’ problems of not being sustainable. I thought that donation-based company or organization cannot survive at the end and that for-profit business model is necessary even for 100% socially driven companies – and I believed this “for-profit” businesses, which aim to make social impact, are called Social Enterprise. I hoped it could tremendously contribute to local economic development by teaching local people how to fish rather than just by feeding them.

However, the first three days of my trip were enough to ruin all my very positive images and expectations on social enterprise. Most of the companies that we visited were not making any positive profit yet and majority of their business model was not even profit driven, meaning that their product or services are not competitive in the market. They are saying that they are for-profit business but they are not fully following market mechanism, meaning that they are not providing their products or services at the equilibrium of demand and supply. For example, “Kick Start,” the farming machine company needs to compete with the alternative solution which provides better products (engine driven vs. hands driven) with slightly higher prices. All of social entrepreneurs there started their business with a very divine purpose to help local people’s lives but this very good motivation sort of restricts their product solution because it should be very affordable. Either it has worse quality than the alternatives or it restricts the size of the market because some people - I assume that it would be majority – would like to spend a little bit more for better quality product. In most cases, people are not able to pay full amount of money for any products anyway regardless of social entrepreneurs’ divine intention to provide the most affordable products; they need financing anyway. Putting a little of exaggeration, there is no “affordable” products from local people’s perspective. Most of the products are way beyond people’s two-or-three-month income.

Slightly shifting a gear, from the perspective of “innovation,” I had an impression that social entrepreneurs are moving the world backward. People out there in other continents are making products better, quicker, and cheaper but Social Entrepreneurs are pulling this trend backward by providing hand-made and labor-intensive products or services as compared to automated machine-driven and high-quality products. I believe that innovative products from outside of Africa will catch up the backward looking products pretty soon by lowering price at higher quality. Given the fact that the only benefit of this old-fashioned product is price, what if very innovative good quality products catch up their prices by innovation, what should the very divine social entrepreneurs do?

Interestingly, however, 100% profit driven company, which is not socially driven, - but try to communicate that they are built on social responsibility - was making even bigger impact than so-called social enterprise. For example, Rwanda Trading Company, which is a coffee wholesaler in Rwanda, purchases coffee beans at a good price, processes them with western machines and technologies, and sells them to global coffee manufacturers, making a lot of profits. They make social impact not by their products but by their internal processes in sense of providing jobs to many of local people and of training them with advanced skills and processes. It is meaningful for this company to transfer westernized business system including HR, employee welfare, and training into Africa – it should be certainly called impact. Looking at what they are doing, I felt that they could be another kind of example of Social Enterprise even though their vision is not totally socially driven.

To summarize, below I tried to classify different types of social enterprise into three categories.

  1. A company whose vision is totally socially driven but whose business model does not 100% fit into market mechanism, most likely not making enough profits
  2. A company whose business model 100% fits into market mechanism but whose vision is not totally socially driven, most likely making enough profits

I think each one has pros and cons and I’m sure that each one can make impact at a certain level. It is totally up to individual which one to pursue as an entrepreneur. If someone would feel terrible by not making enough money doing socially meaningful work, they should go for the second category; if someone would feel so much fulfilled by the impact that they can make even though they cannot make enough money, they can go for the first category. The bottom line is, however, we can always make social impact regardless of what types of business that we are working on, so we rather need to explore how we can make social impact additionally on top of what we are doing at current business to think what a good model is for making social impact. Efforts to enhance employee welfare, to put Corporate Social Responsibility into execution, and to spread the advanced business models into emerging market could be good examples.

Third category, that I would like to propose, is in line with this approach that anyone can make social impact as well as make lots of money. It is a company that perfectly maximizes two different values, social impact and profit, not sacrificing each other.

3. A company which is built on social responsibility but whose business model perfectly fits into market mechanism – or even advance the market by innovative models, most likely making a lot of profits

I’ve seen a perfect example in Kenya, which is called Bridge. It provides better quality education in their primary schools but with 25% lower price. Currently, they run 75 schools and they believe profits come from scales. So, based on their business plan, they can go through break-even point by the year 2014, when they build 850 schools. They are funding from private investors who expect same level of returns on their investments as those in other for-profit businesses. It shows a very obvious contrast with what I’ve seen in other social enterprises; they were rather relying on donation-like investments, which do not require any returns to investors. In this case, it is hard to attract investors, making entrepreneurs to rely on personal connection and to spend more time on attracting investors than making their business more efficient and competitive. I personally admire the management team at Bridge a lot because they spent very long time (6-7 years) of their lives to find out market opportunities and build sustainable business model before they started their businesses, – showing a big contrast again with a lot of other social enterprises that spend 1-2 years on these - and they fully utilize their knowledge and skills that they got from prestigious education to do all of these – some of them were MBAs. I think they can be a great role model for elite groups like MBAs who want to be entrepreneurs who make social impact. Hope this case inspires, challenges, and encourages many people, especially my colleague MBAs, to start to think what they can do for social responsibility with what they have.