Transformative Potential of Social Entrepreneurship

I went to the AIF-Stanford University event "Transformative Potential of Social Entrepreneurship" not only as a supporter of AIF’s Digital Equalizer (DE) program but also because I wanted to show AIF my support of the topic, especially as it applies to the India growth story. I also hoped I would meet some new people and I did. While the whole program was energising, the bonus came from David Bornstein keynote and discussion. Insights about social entrepreneurship for me were:
1- Heart-driven: the reason why social entrepreneurs were effective and tended to outperform other entrepreneurs - Tolstoy quote :"everything I know, I know only because I love"
2- Profit vs. non-profit: "nothing will work but everything might". For profit structure is highly built so easier. But bringing organic green vegetables to inner cities will only happen for a non-profit at this time.
3- Role of supporters: figure out how government and business can meet regularly to create a friendship model (heart driven) of working together (as opposed to being adversaries doing lip-service)
4- Role of media- find stories of hope to bring about change - its like being a hunter/gatherer - there is so much negative news, the good gets drowned. Media can create a "Yahoo effect" - where a few good examples can get a movement going
5- Role of technologists: what are the technology platforms that can change the game?
6- Academics - create a discipline (minor) in Social Entrepreneurship - is happening but not very common

Other useful tips:
L3C- low profit for benefit hybrid model - now gaining ground in California: http://l3ccalifornia.org/# (also B Corp)
SOCAP - social business capital where funder gets capital back but no return - e.g. Acumen fund; Beyond Profit is a magazine that could have a "yahoo effect".

The message of the panel discussions was - "partner, partner, partner" - this field has been one of pioneers (with the arrows in the back) but now that situation is changed - to scale one must partner.

NRN VC Fund: Help those doing good work

A headline in my TOI (Times of India Friday Oct 23- I'm getting addicted to acronyms like all Indians) has made my day - yes its the one about Murthy (of Infosys fame) setting up a $36 million VC fund saying "entrepreneurship is the only cure for poverty and job creation". In India, family businesses still rule. If its not the M&M saga its headlines like "Prez's son leads the baba log charge" (about Pres. Patil's son winning assembly seat- politics is business) or how 5th generation Kapoor is set to be the next bollywood star (entertainment). So a move like this by one of the most respected people in India signals change. But it is the fine print that excites me. Murthy has said he will invest in the fields of basic health care, education and nutrition signalling that long term investment is also a priority. Additionally his reason for setting up the fund is: "there are people doing good work in India." He wants to support them and help them grow rather than start yet another effort himself and reinvent the wheel.
Good move Mr. Murthy - I am a fan of Good Capital.

Top 3 Entrepreneur Strengths that Become Weaknesses for Scaling

From Idea to IPO- that was the entrepreneurship mantra of the last decade. Get in quick and get out even quicker - with a pile of money - to invest in your next big idea. Scaling comes after IPO, sometimes with new leadership. This business path isn't applicable to social entrepreneurship where the mission is sustainable growth with no clear exit strategy (at least at the start). So one would think that current Wall Street woes would help the cause of the social entrepreneur - maybe divert some capital into long term investments like infrastructure, education, health-care, poverty alleviation - the things that worry the social entrepreneur. While capital is certainly an issue, it is not just about capital. The impact metric of social entrepreneurship is scale. You educate 100 kids, you educate a 100 kids. You educate 1,000,000 kids you change the world. That is the "impact metric". Scale is the equivalent of the IPO for social businesses. But entrepreneurial characteristics, the very ones that allow a company to form (for profit or not-for-profit) may become barriers to scaling or taking the company to the next level. With the fall in the number of recent IPOs there is a timely bit of advice in HBR from Anthony Tjan "Why Do Most Entrepreneurs Fail to Scale?" that I think is especially relevant for social entrepreneurs. The top three double-edged traits to watch for are:
1. Persistence. Willingness to persevere despite obstacles has created many great innovations and is often the foundation for successful start-ups. However, persistence can easily turn to stubbornness. Stick with your ideas when you know you are right and have supporting evidence. Be willing to abandon your position when signs show you need help or redirection.
2. Control. Early phases of company growth require the founder be involved in all operations. But as the company scales, that maniacal attention to detail can be counterproductive. Recognize the importance of delegation and let go when it's time.
3. Loyalty. Close ties inevitably form when people work together day in and out, and loyal relationships can yield great results. However, you need to know when loyalty is clouding your judgment in assessing capabilities and skill gaps.

To this list I would add collaboration - the equivalent of "mergers and acquisitions"- a common growth strategy to take a company to the next level. What do you think? Will the economic downturn be a blessing in the long run? Will social entrepreneurship no longer need the social and just become entrepreneurship?

Technology Solution for Hunger: Akshaya Patra

Studies report more undernourished children in India than in Sub-Saharan Africa. "Give me fish and you feed me for a day; teach me how to fish and you feed me for life" is the mantra for education providers and in recent years, Internet and computer technologies have done much to improve education across the world. But how well do I learn if my stomach is empty? As in the US, the Indian government provides funds for school lunches but unlike the US, those funds are inadequate as well as ineffective. Technology has no immediate answer for hunger; or so I thought till I heard about Akshay Patra and their school lunch program. The Akshaya Patra Foundation has applied technology for efficient meal production by automating large scale kitchens and their meal delivery system involves innovative logistics using custom designed vehicles to transport food from the kitchens to schools according to a strict schedule with optimal storage and minimal spillage. Hence, they have quickly scaled to feeding over one million children every day from a start of 1500 in just a few years. This technology (kitchen video at http://www.youtube.com/watch?v=CQYc8WH9Srs) has resulted in improved attendance and education according to an AC Nielsen survey. What distinguishes Akshaya Patra from other midday meal programs is that the entire food production and delivery system is intelligently designed and engineered to maximize operational and cost efficiency, while adhering to international standards of hygiene and quality. This makes the government funds they get for raw food-grains go much further and cuts out the middle man. Obama has recognised their unique approach: "Your example of using advanced technologies in central kitchens to reach children in 5,700 schools is an imaginative approach that has the potential to serve as a model for other countries." Additionally, they have been able to extend their approach to rural areas where transportation is more expensive and infrastructure minimal, by using smaller kitchens thus providing employment to women who cook meals. Catch the people of Akshaya Patra at Tiecon 2009 in San Jose and be part of the solution.

India’s First Social Enterprise and Investment Forum: Sankalp 2009

Change doesn't just happen - It needs faith and cheerleaders. And I should add Sankalp -Determination.
And institutional change requires changemakers to gather and become catalysts for action. So I am excited about Sankalp 2009 - India’s first Social Enterprise and Investment Forum with the primary goal of bringing together various stakeholders sharing a common conviction that capital should be invested to create multiple bottom-line returns (financial, social and environmental) and not exclusively financial (profit-maximizing) or social (philanthropic) returns. Set against the background in India, where 924.1 million Indians (nearly 95% of India’s population) have incomes below USD 3000 per annum in local purchasing power, and 78% of this from rural India, India has been able to clock growth rates between 6.5% and 7% despite the slowdown. India presents us with questions of development coupled with the unlimited potential of an emerging market. The event is designed to recognise and award truly impactful enterprises and catalyze investments in sectors such as agriculture and rural innovations, affordable education, healthcare inclusion, environment and clean energy, and highly scalable social models. Sankalp 2009 featured Naina Lal Kidawai, CEO of HSBC India, Vijay Mahajan, CEO of Basix, Anthony Bugg Levine of Rockefeller Foundation, Gurcharan Das (former MD P&G), Sarath Naru of Venture East, and Vineet Rai, founder Aavishkar.
Sankalp Forum is the brainchild of Intellecap – a pioneer in the multiple bottom line investment industry. The key partners for the inaugural 2009 event include Rockefeller Foundation from the US, Rianta Capital from UK, National Bank for Rural and Agriculture Development (NABARD) and Rural Innovations Network (RIN). Sankalp Forum (held in Mumbai, April 28th) details at http://www.sankalpforum.com/ .
I have been spending 4 months out of 12 in India for the past 24 months, doing seminars, giving talks, attending conferences and writing (triple bottom line investing article in ISB Insight, Hyderabad) to create mindshare and thought leadership in the area of business creation for social impact so Sankalp 2009 marks a major milestone in my journey. I will be keeping you posted on the actions resulting from Sankalp.

Don't Under-Estimate the Power of the "Cool Factor"

There is much being written about the economic meltdown and how it means that social capital has all but disappeared. But I have a story to tell. We moved from New York to California in the late seventies. My husband, who used to be a chain smoker in New York stopped smoking overnight after we moved. Wow, what self-control! I thought. Then, as we shared stories with fellow recent-Californians, I found many more who also stopped smoking overnight- And why? I think it is the "Cool Factor". California - always a leader in social trends - had already decided at that time that smoking was no longer "cool". The point is that we human beings are social animals and while few can be super heroic, most want to be socially relevant. So I speak with the voice of experience when I say - don't underestimate the "Obama Cool Factor". Yesterday's news is all about Obama chastising Wall Street executives about their "shameful" behavior in taking billions of bonus money even as their companies sought bailouts. Earlier in the month, Jan 19th, Obama asked the nation to devote a day to social service and Californians responded in droves. Yes, all over America, social responsibility is "cool" and self serving smack is out. Big changes come from small people in big numbers. For social entrepreneurs this means looking for capital and support from not just the few "big guys" but also from many smaller investors and yes -Do play upon the "cool factor" - No need to be apologetic about your social agenda as you explain your fiscally conservative business plan. Now if we coulld only get politicians in India to believe that honesty is cool and corruption is out.

Social Capital is Good Economics: Invest in Technology for the Next Billion

This Sunday, reading the Times of India article - What MFIs can teach Wall Street by Swaminathan Aiyer (of Swaminomics fame) made my day! He writes "Big financial institutions of all sorts are in dire straits across the globe. But one category remains unaffected — micro-finance. Even as the global financial system freezes and giants like Lehman Brothers collapse, microfinance institutions (MFIs) are expanding unfazed. Famous financiers face defaults big enough to wipe them out, but MFIs report virtually zero default. This is extraordinary. Big financiers lend against collateral, a back-up if their borrower defaults. But MFIs lend with no collateral at all. Big financiers lend to the most creditworthy corporations. MFIs lend to poor women whom nobody in history considered creditworthy before. Yet, the secured loans to big corporations are bombing, while unsecured loans to poor women are being repaid in full."
And may I add that stimulating the BOP markets besides being a safe bet is also profitable - a double bottom line - social as well as economic good.
I want to build on this article to make two points not made by Mr Aiyar:
1. Portfolio diversification - In my view social capital is a good way of diversifying your investment portfolio and I think there IS a silver lining to this meltdown - I hope investors will go back to thinking about value creation in more than pure dollar terms.
2. Capital Gap - Currently there is a gap in the range covered by MFIs (loans must be under Rs 35,000 or so) and traditional business lending (loan must be above Rs 10 lakhs or so). Entrepreneurs that start technology based social businesses need loans in this range and they have nowhere to go. This is actually the sweet spot for social capital - it is a new area - call it "investing in technology for the next billion". There is great economic potential in this space- like the VCs who invested in technology startups in silicon Valley. It is the same story -except since the new market it is not in the traditional VC backyard, they are not jumping in. Somebody else needs to step in and I am hoping it will be the future leaders - Social Capitalists.
One can see that some new gen leaders who are now big boys (e.g. Google Foudation) are stepping into this space but it is not enough - traditional thinking needs to change too.
From my perspective, the meltdown is a wake up call for change and I hope Mr Aiyar's article is just the start of this new thinking.

TATA Nano, Singur and Social Entrepreneurship

TATA having to pull out of Singur actually has a plus side to it.
It so happens that when TATA fist announced the Nano car (Rs. 1 lakh), I was in India and I authored my most popular (to date) blog page called TATA Nano- Is It Social Entrepreneurship? And now I am in India again when TATA is announcing its pullout from West Bengal (Singur). TATA will relocate its Nano factory to another state in India.
The media is abuzz and Gurcharan Das (an author I admire immensely) has written an article in Times of India called "When Everyone Lost". My view is different. I think this is a battle lost that will win a war. From an economics perspective, yes - everyone lost. But if you think of Nano as a social enterprise, much social value has been created.

The Singur pullout proves my point - that social entrepreneurship - defined as social as well as economic impact - is really difficult. The big win here is that this factory relocation, has engendered an open conversation: who has the best interests of the people at heart? There is data available (increase in number of savings accounts, people trained for new jobs ..) that in one year the Nano plant has already had positive economic impact on life in Singur. As other states line up to offer the best deal to TATA, hopefully the destitute landowners of Singur (ultimately they must benefit) will start thinking for themselves rather than listening to vested political interests and that is a social change that cannot be undone.
So, I hope that TATA will still get the Nano out on schedule and this relocation, while admittedly an economic bump in the road, will prove to be of immeasurable social value in educating India about creating social impact through business methods - the "double bottom line". Next time the people in Singur get a deal like the Nano, they will think twice before agitating. In fact, Ratan Tata was most impressive (I saw this on TV) when he calmly mentioned that West Bengal will be considered for the second Nano plant. West Bengal's short term economic loss is immediate benefit for some other state (evidenced by the offers).
Now that is thinking long term, thinking social entrepreneurship.

Social Entrepreneurship Leadership Myth #1

Social entrepreneurs typically put up with personal economic hardship to launch their dream enterprise. Some work for a while, save money and live off of that or they have small grants, or personal assets, or working spouses or the new trend of limited prize money etc. This breeds a habit of thrift and economy. So far so good. This factor is really important when applying for grants from foundations or public funds. It is a critical personal and organisational leadership skill for running an NGO or other non-profit where one uses limited financial resources - since no new financial resources are being created there is no room for any financial risk-taking. So in my experience social entrepreneurs come to believe in a "how can I save money?" versus "how can I make money?" mindset.

This is where leading a social enterprise is strategically different from leading a non-profit. Corporate or social investors want to know when the organisation will be financially self-sustaining. strategically, a social enterprise looks more like a for-profit venture. Strategic leaders will answer the following questions:
1- how much time to first enterprise revenue dollar
2 - How much time to break even
3 - how much time to first profit dollar (social enterprises typically reinvest revenue)

A business plan that includes a well thought out financial risk (e.g. trying out or investing in a new technology) may be acceptable even if sustainability takes longer. The reason for having the "how can I make money" mindset is that :
1. It makes a more convincing argument that eventually the enterprise will be sustainable. In this mindset, fiscal responsibility is a given as good operations management and positions the entrepreneur as being strategic.
2. Additionally, investors are well versed with for-profit business plan evaluation and thus more likely to commit.

So my recommendation to social entrepreneurs: do put as much energy into your revenue streams as to fiscal operational responsibility when it comes to developing your leadership style.

Social Entrepreneurship Defined

Social entrepreneurship is somewhat new. It is difficult to understand for people new to this area because it is not philanthropy and not quite business though it is known to masquerade as both. Hope the following characterization helps:

1. The motivation is social good and the means is business creation. Typically social good is in the purview of governments, foundations and NGOs. The area lacks financial instruments required by business. Legal structures exist but are not optimal.

2. In a typical social venture, financial return follows social return. Additionally, local social mores play a role in market creation and expansion – making the task operationally more difficult and slower in yielding results.

3. There are successful social entrepreneurs around but none are achieving scale at any significant rate. Possible solution is public-private partnerships but there are few success stories in this area and many failures. Another solution is venture capital but there is low (and slow) financial return to investor. On the plus side I think the risk is lower too.

Example success stories – (mentioned in this blog over time)
Micro finance: SKS, Kiva, Grameen-phone;
Health care – Aravind eye hospitals, Jaipur foot;
Energy – Selco, D.light;
Education- Barefoot College

For organisations interested in participating in this space - Examples of useful services (become a focal “go-to” place for social entrepreneurs and socially motivated investors) are from small to big-

Scholarships to attend conferences/ events
Special track at conference/events
Infrastructure services – create incubator - office space, legal, business plan review
Provide networking opportunities
education opportunities – for investor as well as entrepreneur
sponsored competitions – e.g. best business plan
Mentor services
Technology-social entrepreneur match ups
Social venture fund creation

Three Things I learned From Mohammad Yunus

June is graduation month and I got to double dip -my niece's MIT graduation and commencement speech by Mohammad Yunus, in person - all at once.

For me, it wouldn't have mattered what he said- the symbolism of Yunus, with all that he represents, standing at the podium, was enough. By inviting Yunus, MIT faculty is publicly telling its grads, hey look - we know "Each of you has the power to change the world" and this is the direction - a better world for all. Maybe, I don't give enough credit to MIT but I was surprised when I found out. And maybe Yunus was too - because he started his speech with an ad lib that taught me lesson number one.

Relate first and find common ground: he started by thanking MIT for making him feel right at home by bringing on the rain (yes it was pouring out there), just like the monsoons in his native Bangladesh. I could feel the collective tension of a few thousand people dissipate - hey its only water and we are all in it together!

Individual: The "New" Businessman: "money-making is a means, not an end. But for the businessman in the existing theory money-making is both a means and also an end." Businesses have only one metric of success but humans are multifaceted: as people, he said, we are multidimensional but business has one measure- profit. Don't sell yourself short by identifying too much with the current institution of business - it is not only unidimensional, it is flawed. "Poverty is an artificial imposition of the system." Can you change the system? How about a new kind of business with a new kind of metric? "We can easily reformulate the concept of a businessman to bring him closer to a real human being. In order to take into account the multi-dimensionality of real human being we may assume that there are two distinct sources of happiness in the business world 1) maximizing profit, and 2) achieving some pre-defined social objective. Since there are clear conflicts between the two objectives, the business world will have to be made up of two different kinds of businesses --1) profit-maximizing business, and 2) social business. Specific type of happiness will come from the specific type of business"

Action: Break a big problem into bite sized chunks. "Three basic interventions will make a big difference in the existing system : a) broadening the concept of business by including "social business" into the framework of market place, b) creating inclusive financial and health care services which can reach out to every person on the planet, c) designing appropriate information technology devices, and services for the bottom-most people and making them easily available to them."

Do read the whole speech. His ideas about financial instruments (dow jones for social businesses, partnership with Danone, Intel.. make it all sound not only possible but probable.

Go Grads!