Tuesday, September 8, 2015

Can social enterprises be rich?


 To succeed, these (social) ventures must adhere to both social goals and stiff financial constraints.” [1]

Farmers historically have been severely exploited by a chain of middlemen, but very few existing models sustainably connects them directly with the end consumers. Having worked with a Social Enterprise that directly worked towards bringing marginal farmers (farmers who do not own more than 2 acres of land) and retailers together, I constantly faced several bottlenecks concerning the availability of funds.  Our team was actively seeking funds and grants from the foundations and trusts, working closely with the government to avail tax benefits and subsidies and devising financial models to bring in as much revenue as possible – both to sustain the organization and to provide a fair share to the farmer. The project was ran through a Hybrid model.
There were many challenges with this model.

 A) A disproportionate amount of time was spent in writing donor reports and proposals. Since trusts don’t prefer to work with small numbers, we had to either scale the project (purely to adhere to the foundation’s mandate) or show inflated numbers so we could fall under the “high impact” category.

B) The same was the case with partnering with government agencies. Moreover, the bureaucracy was acutely high in these agencies. Both sources of funding were “difficult to guarantee indefinitely[2]. More often than not, the question of financial viability was in question.

  For social entrepreneurs, the social mission is explicit and central.” [3]

Though definition [1] was most obvious, there was a resistance and a sense of guilt amongst stakeholders (employees, farmer leaders, organization heads) in adhering to “stiff financial constraints”. Ideas on making revenues or engaging in income generation activities were rubbished as ignoring the core mission. I was almost ashamed to ask the question that has been daunting me for the past couple of years, “Is it OK for a Social Enterprise to be rich?” When a fellow classmate brought this question up in a class discussion, Proff Z’s quote, “No Money, No mission”, struck the chord perfectly.  Financial sustainability or sometimes profitability is after all is a key component in maximizing impact. It reiterated that, “by grow­ing (a steady) rev­enue, improv­ing gross and oper­at­ing mar­gins, increas­ing free cash flow, effi­ciently man­ag­ing both cap­i­tal expen­di­tures and work­ing cap­i­tal, and build­ing an asset base [4] the goal of Social impact is not compromised in anyway.
 
                                                            Image from Google
 
One of the classic cases is the Arvind Eye Care Hospital in India. Arvind Eye Care follows a “cross subsidization” approach wherein the rich pay for the services while the poor (BPL population) do not.  Though the same doctor performs surgery on either of the patients, the relatively wealthier patient pays for other value add services such as an exclusive para medical care, better boarding and lodging facilities, etc. while the subsidized patient just avails the very basic amenities.

Though the Hybrid model is not a one size fit all approach (some of the greatest social innovations did come from a government agencies or not for profit models) to solving social problems, this approach is not to be dismissed. The amount of time and resources that needs be dedicated to each (Impact vs Profitability) are variable, but they most certainly are not mutually exclusive. The organization or the enterprise could clearly defines the priority of each while constantly reevaluating the goals and objectives as the project progresses though time, scale and geographical boundaries. In the end, high impact organizations can be rich as long as they build an effective mechanism so that the different stakeholders, while receiving real time market based inputs, do not lose track of the shared Mission and Values of the project.
 
[3] The Meaning of “Social Entrepreneurship” J. Gregory Dees
[4] http://www.northeastern.edu/sei/2013/09/how-to-build-financially-sustainable-social-enterprises/

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