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04/20/2012

On Social Enterprises...

Can a business model be financially sustainable while generating social impact?

My answer is yes. Such a business model can exist if you define your target customers and product/services and create income stream in an economically affordable way.

One question would be what if the two values – social impact and financial health, conflicts. Which you prioritize over the other? One example would be Rwanda Trading Company, whose ultimate purpose is profit making. I think it is true that the local coffee producer and exporter contributes to improving Rwandan people’s lives through employment of local people, financing processing facility for coffee farmers, and paying tax to the government. However, the social impact is not embedded in its mission. Thus there is always risk of sacrificing social impact for profits. Social enterprise, on the contrary, put the first priority in achieving social impact. The business strategy and management tools and resulting profits are just means to an end to solve social issues. In this sense, Rwanda Trading Company is not a social enterprise. To be a for-profit social enterprise, social cause must be embedded in its mission and the decision making process.

Other question would be how innovative model a social enterprise can introduce to the customer segments and causes that are traditionally regarded as difficult to fit a for-profit model. How to serve the poorest of the poor is included in this question. There are a couple of ways to do this:

  • Combination of for-profit business and nonprofit activities. An example is conservation of national park (People pay fee to enter a limited area of a park. The fees are used to conserve the rest of the park). How different is the for-profit activity from non-profit varies.
  • Serve customers of different level of affordability or price-sensitivity. Aravind Eye Hospital in India and Fred Outa Foundation’s school in Kenya(currently being developed) are the examples.
  • Design so that customers who have been considered to be too poor to afford a produce/service can now able to pay. This can be done through innovation in tools (e.g. financing tools), product development, and communication with customers. Makao’s incremental housing construction is one example.

One more interesting aspect about social enterprise is how to draw an exit strategy. Since the ultimate goal of a social enterprise is to solve a specific problem, it is ideal if the organization eventually becomes unnecessary to the society. It is not good to create a dependent relationship between the organization and clients. Indigo Africa envisions its exit from its current role after local cooperatives are empowered enough to negotiate with their buyers and lead product development by themselves. I hope having this kind of proactive exit attitude continues to affect how Indigo Africa design its service and train cooperative members.

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