A hands on approach to supply and demand

A hands on approach to supply and demand

Social value is difficult to value, and over the last 40 years, there have been an array of inconsistent ways of approach. Mulgan in the Measuring Social Value article in the Stanford Innovation Review suggests that this is due to a multitude of reasons. First, social value is hard to evaluate hard because it needs to cater to multiple roles involved; accountability to external stakeholders, managing internal operations, and assessing societal impact. Ideas can be hard to translate between these three priorities. From an economic perspective, it can also be difficult to put a return metric on what the social impact would be over time, and agree upon a common desired outcome amongst all parties/stakeholders involved.

The next thing to consider is that coming up with a standard in the social sciences is very different from the approach taken in the sciences, where science is subject to physical laws. Instead, being in the social sciences realm adds a layer of complexity due to human beings’ social, psychological, and environmental forces. Mulgan offers a framework to consider the classic supply and demand theory. However, the focus is not on finding the value at where supply meets demand, but rather forging the links between supply and demand that then generates value. For instance, to make the demand side more transparent, connect the needs of the underrepresented who may not have the ability to voice their needs to the policy makers and entrepreneurs who may have the capability to scale the impact (which Mulgan called turning latent demand into effective demand). From the supply side, leaders can create innovative programs and collect evidence of what is working.

The concept of forging supply and demand resonates well in particular with the work done by Bill Strickland, a community leader from Pittsburgh and president/CEO of the non-profit Manchester Bidwell. Instead of accepting how the community would have viewed where the supply and demand met in the work he took on at the Manchester Bidwell at risk youth program he led, he worked simultaneously to increase both supply and demand by creating an arts based education program, and consistently sharing his work with the private and public sector anecdotal evidence that it was working. 

In a recent talk he gave at the Carnegie Library in a CreativeMorning breakfast series on the topic of empathy, he shared two values that has gotten him to where he is today; “If you treat people like world class citizens, they will act like world class citizens”, and “environment drives change”. In his school, he built classrooms filled with natural light and art pieces so that students could feel belonging to a world-class education. Towards the end of his speech in describing a new education center recently built in Israel where Jews and Arabs would be attending school side by side, he shared with the audience that in working with other leaders driving social impact and positive change, the one similarity to the work is a sense of spirituality in the endeavor; not in the religious sense, but rather in empathy. This intangible force is what differentiates this field and what makes it especially hard to assess any type of “value” to. I am curious if, when, and how we will ever be able to quantify this intangible and unique variable. 

M&A Not Just for Profit

When considering social ventures, the primary organizational focus is impact rather than profits, according to “It’s Not All About Growth for Social Enterprises.”[1] This is in strong contrast to business ventures where the focus is on growth. In industry concerns include growing sales, growing margins, growing revenue, growing market share—the list goes on. How that growth takes place is just as important as whether or not it takes place at all. I am curious about when organizations start to think about growth, or in the case of social ventures, when they consider scaling their impact. New businesses think about growth before the business is launched—business plans require this step. Existing business think about this formally in annual plans and less formally daily. Often whole departments exist—Mergers & Acquisitions—to consider growth by acquiring another company. Do non-profits have M&A departments? Do social ventures?

            Interestingly the article on growth for social enterprises described a dilemma faced by leaders—grow organically or grow through other organizations. However, what struck me was not the dilemma itself, but when the leaders often faced this dilemma, “when an organization has evidence that its innovation and model produce substantial social impact.” So does an organization have to wait to make an impact before it considers making a greater impact?

            The article, “Nonprofit Mergers and Acquisitions: More Than a Tool for Tough Times” confirms my suspicion: non-profits and social ventures need M&A departments.[2] As articulated in this article, a M&A competency is not only useful in reacting to change—economic downturn or a succession vacuum—but it is useful in proactively driving growth and greater impact. New social ventures should not only consider their competition and/or substitutes but also consider who might they merge with to expand their impact in the future or what organizations with which to partner at various milestones.

            This proposal of an M&A competency in non-profit and social venture organizations is aligned with “How to Take a Social Venture to Scale’s” third (of seven) organizational capability to help take an innovation to the next level: Alliance-Building.[3] The focus here is identifying key partnerships.  With partnerships it is important to not only think with whom to partner but for what purpose, period, and potential that partnership has for future endeavors. I love the example of One Degree Solar partnering with Coca-Cola to deliver solar power kits to kiosk owners in Kenya.[4] The mutually beneficial aspect was key to this partnership. Most beneficial to One Degree Solar (more than Coke’s brand) was Coke’s unparalleled supply chain network.

Mergers and acquisitions are not just for the for-profit community. Taking a social venture to scale involves competencies in strategic planning, alliance building, and considering who will be your next partner or next acquisition.

[1] It’s Not All About Growth For Social Enterprises (Harvard Business Review Blog Network, January 21, 2013); http://blogs.hbr.org/cs/2013/01/its_not_all_about_growth_for_s.html

[2] Nonprofit Mergers and Acquisitions: More Than a Tool for Tough Times (The Bridgespan Group, February 25, 2009); http://www.bridgespan.org/Publications-and-Tools/Funding-Strategy/Nonprofit-Mergers-and-Acquisitions-More-Than-a-Too.aspx#.VgF37s7wNe8

[3] How To Take A Social Venture To Scale (Harvard Business Review Blog Network, June 18, 2012); http://blogs.hbr.org/cs/2012/06/how_to_take_a_social_venture_t.html

[4] Why Coke Is Bringing Solar Power To Rural Kenya (Fast Company, June 14, 2013); www.fastcoexist.com/1682126/why-coke-is-bringing-solar-power-to-rural-kenya

Weaving freedom... The "Efficient Way"

One of the best derivatives of a modern & developed economy is the increasing confidence it gives its youth to take risks and venture out to domains which their typical risk-averse parents or forefathers wont have done years ago. 

Coupled with this is an increasing surge of “social empathy” percolating the atmosphere which has resulted in a magnificently large share of these start-ups to go the “social” way. 

One such example of a successful start-up is “ToF” or “Threads of Freedom” whose main objective is to reintegrate victims of Sex-Trafficking into the society by giving them meaningful employment and social support. The enterprise trains and employs rescued women in established manufacturing firms and then collaborates with these firms to produce high quality clothing. These clothes are then sold to consumers at a profit which help the owners maintain the stability of their operating model.

While they are not the only organization operating on this seemingly similar model, they are unique in the way they market themselves as a “for-profit” organization. They believe that this is a successful model which allows them to provide the rescued females with not only employment, but also on-going counselling, training & financial assistance among other comprehensive line of benefits.

Their model works to utilize its earned resources to team with nonprofits, government agencies and garment manufacturers to provide a sustainable source of income for this largely neglected section of our society. It is highly impressive since it effectively redistributes the money from their “buyers” to the many “rescued women” and it is able to do so transparently & effectively, and with profits which can be reinvested further to this cause. 

This is in line with a new stream of enterprises who want to create a way for “for-profits” to enter the market with “social impact” as their main goal. The success of such models is a definite impetus to the many new businesses which want to be recognized for their “good for society outcomes” while also maintaining their for-profit status. That such a need is there is already proven with certifications like the B-Corp(Best for the World certified) gaining huge popularity among both the non-profit & for-profit space of small and big organizations. Interestingly, such a “branding” also taps into the new league of customers who want to know if their purchase is in any way impacting the world. Infact, in most cases, an average buyer is willing to pay a premium for such products. In the end, it is a win-win situation for all the involved parties. 

Citations:

http://www.threadsoffreedom.com/what-we-do.html

http://bestfortheworld.bcorporation.net/index.html

*To buy the “cool” ToF T-shirts & be a part of this change, visit their product website: 

http://mytofu.org/

Innovating Freedom Within the Free Market

If we want to innovate, and to better understand what it means to innovate, one mustn’t hold on to conventional ideas, even those we have known to be the longest standing. Sometimes to innovate means to tear up the very foundation of how innovators and those who feel the effects of the innovation interact. Because the most powerful innovations are those that disrupt the most basic ideas we hold and either completely alters them, or at least blazes a trail for other thinkers to follow. For those who innovate with social impact in mind, this can sometimes include a transformation of how we and those we serve interact with the market.

There would seem to be an overarching conventional idea about markets and social impact, in that those that those companies and organizations which engage with the free market are more interested in profit than a social good, whereas not-for-profit companies are the only organizations making real impacts. The pre-conceived notion then becomes that large private companies will only make decisions to maximize profits and disregard social impact, where non-profits will never really have sufficient enough funds to make the impact they want. So it would then stand to reason that a social need that must be addressed is our own markets themselves. Luckily, innovations aimed at this issue have been happening over the past several years in an attempt to blur the idea of this dichotomy and create new models which integrate these two supposed antithetical views.

One model for social impact that has been growing in a major way is the social enterprise model, wherein a company is designed to have an intentional social investment with their profits. This is a model used by many companies, maybe most famously by Blake Mycoskie of Toms Shoes, which uses a one for one model where a pair of shoes is donated for every pair purchased. While this is an interesting model, it has also been criticized for not address larger issues such as “lack of access to fair-paying, sustainable employment”. But this is only one approach to morphing profit into social impact. Where Mycoskieis criticized for a lack of emphasis on investment in communities, other social ventures are focused solely on the idea of bringing those in need money of their own. For example, Hugh Whalan’s Persistant Energy Ghana, which sells energy to very low income Africans and does so for a profit. But his intention with this is so that the people of Ghana can feel a greater sense of independence and more of a drive to create their own profits by investing in these basic infrastructures such as energy. By being given access to consume, Ghanans are promoting investment in their country. This greater sense of independence for those who are in need of the social impact is also a core component of MuhammadYunus’s famous work in Microfinance, which invests in small enterprises for low income people to create a profit of their own.

Venture development & "The Hybrid Ideal"

Tip4Change is a social enterprise that works on a hybrid model that uses business processes to make a social change. Tip4Change (as shown in the above fig.) partners with Farmer co-operatives, NGOs, Government and global textile giants to produce and supply organic cotton to consumers worldwide. How? The farmer co-operatives sell to Tip4Change while it markets to textile companies worldwide. The company is partnered with Government and other Local organizations so that the co-operatives receive subsidies, input and insurance schemes, training etc. This is a classic case of what Stanford Social Innovation Review calls “The Hybrid Ideal.” (1)

Today, these Hybrid Ideals are organizational set-ups or structures established to take advantage of the existing ecosystem: to tap in to the rigor and discipline of a commercial enterprise and the social ambition of the Not for Profit. Hybrid Ideal is more than just model incorporated in to certain departments or teams of an organization, in fact, it forms the very DNA of the enterprise’s functioning. One model of hybrid execution is hence: the organization develops its idea/venture by establishing key strategic partnerships in execution while lobbying for public policy changes.


Strategic Partnerships:

Strategic Partnerships with local NGOs and Government bodies that are already embedded in to the system enables the hybrid organization to learn from its partners’ successes and failures. They spend less time and resources re-inventing the wheel and duplicating an already tried and tested model. Tip4Change ensures community partnerships in their decision making processes related to crop yields, price points, finance support avenues etc., by working closely with farmer leaders in the region. Partnering with Local Government bodies on another end would ensure transparency of the functioning while sometimes reducing costs. For Example, the government copays for half of the crop insurance value while the farmer pays the rest. Also, the government funds training programs that could have incurred significant costs to the company.

Lobbying for Public Policy changes:

When the company is at the grass-root level and is working in tandem with key stakeholders in the value chain process, it has a greater opportunity to lobby for policy changes than it normally would not have. Tip4Change partners with students in Government Universities and think tanks so there is a constant debate and dialogue between Academic institutes, organizations and government bodies about issues related to beneficiary welfare, impact produced and growth potential.

However, Hybrid models, in the pursuit of “managing and integrating social and commercial activities sustainably struggle to find a suitable place between the for-profit and nonprofit sectors.” (1) Internally, though there is the advantage of tapping in to the resources of multiple financial sources such as funding agencies, private equities and venture capitalists, these very sources act as administrative and management burdens, hindering the venture’s growth. Finally, the strategic partnerships established are based on a complex web of contracts and legal structures, making the process of scaling a tedious process.

Unless and until “a pathway to better outcomes is clearly laid out and the organization understands how other resource providers, allies and rivals, forces and trends could affect its success,” (2) venture development through the hybrid model could prove to be a costly, ineffective affair.



(1) Ideas borrowed from In Search of the Hybrid Ideal: http://ssir.org/articles/entry/in_search_of_the_hybrid_ideal
(2) http://blogs.hbr.org/cs/2012/06/how_to_take_a_social_venture_t.html
(3) Inputs from Tip4Change internal reports 

(4)IIdeas borrowed from http://dastkarandhra.org/policyresearch.htm.

Holding- Hands

There has been a dramatic growth in the awareness and support of social entrepreneurship in the corporate spheres, which is ideal to harness social innovation due to numerous reasons. Not only do these corporate interests bring in stable resources but also act as bridge between community, sectors , institutions and/or cultures[1] Some of the leading change-makers are big corporates that have marketable assets, organizational capacity and a keen eye on the market opportunities.

In Ghana and Tanzania, Unilever is currently working with the local small-scale farmers to source raw materials, providing steady stream of cash flows as well as consultation to such farmers for a better produce. Shell is working in Uganda to catalyze the pro-poor market for solar home systems, tackling both the energy crisis as well as indoor pollution and health problems. EDF is working on off-grid energy access in Madagascar and ABB is working with WWF on energy access in Tanzania. The list of corporates working in this sphere ranges from access to energy and affordable water to pro-poor financial services and economic opportunity

Corporate Philanthropy hits right in the sweet spot of optimal social venture “enterprise-ability”. Such public–facing partnerships announce a social mission and often design a marketing campaign surrounding it. A perfect win-win situation. Cause-marketing campaigns not only spread a word of mouth for the social venture but also provide the perfect tool for scalability.[2] One of the major strengths of such partnerships/alliances is the supply chain strength of companies entering in this arena. Often in the life cycle of a business venture, philanthropy often comes at business maturity. With maturity such businesses have human and technical resources to improve the probability of success of social ventures. 

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[1] HBR Investing in Social Innovation – Jane Nelson and Beth Jenkins

[2] Making Non-profit Corporate Alliances Work – Shayna Samuels

A Social Business is a Business After All

“The question is not how do you grow organizations but how do you scale impact”. This statement from the Harvard Business Review article “It’s not all about Growth for Social Enterprises” perfectly summarizes the essential difference in scaling up a normal company and scaling up a social business. However, many business fundamentals remain valid for social ventures provided they adjust them to the social context and the impact objective. The article “How to take a social venture to scale” lists the most important best practices that a social entrepreneur should keep in mind to successfully take his or her concept to the next level. To add on that, drawing from my own experience working in a service start-up, I would like to emphasize the importance of the following elements as well:

•             Position yourself: What you are doing, where you are doing it and why you are doing it should be crystal clear for you and your stakeholders. When it’s the case, it is much easier to make the right strategic choices and better scan and filter all the possibilities and opportunities that the start-up has. It is also much easier to target the right stakeholders and communicate efficiently towards them. A blurry positioning can quickly lead to a loss of value as the stakeholders may be confused by what it is that you’re trying to do or that you’re trying to help them with, which could lead them to discard your offering. Positioning can be a very difficult thing to do when the activity is complex or when the opportunities are so abundant that you’re afraid on missing out but it is important to have the courage to do so especially at the critical phase of scaling-up.

•        Don’t lose focus: when you start developing a venture, you also start seeing how opportunities can be endless. It is important to keep an eye on them but it’s as important if not more important to keep your focus on your main objectives at least in the first phases of scaling-up. Diversification – in the markets you’re servicing or in your offerings - is a very important step in your company’s growth but you want to build it on solid ground in order to avoid wasting valuable time and resources. However, you can already start developing business ideas and business plans for the future and mature them over time until it’s the right moment to start implementing them. The key is not rushing on anything unless the impact is undeniably worth it or the cost of waiting is too high.

•        Invest in your human resources: your collaborators develop knowledge and expertise that you want to build on. You can think about it as an increasing returns to scale type of investment. Also, you will probably hire smart people, so treat them as so in being transparent and straight-forward regarding the company’s strategy, future plans, performance and everything else that is of interest to them. They will feel more included, more important and more engaged in the company’s growth. It is also important to listen to their ideas and concerns and encourage them to provide as much positive or negative feedback as possible. Your collaborators are in the front with all your stakeholders so they are a goldmine of useful information that can help you grow in a more efficient way.

•       Listen to your stakeholders: sometimes, start-up managers and founders can be so focused on their ideas and their roadmap that they forget to monitor the outside response to their output until it’s too late. Getting early feedback from all the stakeholders should be done on a continuous and thorough basis. Negative feedback shouldn’t be discarded because we think that a client is being difficult or that an investor doesn’t really know what the real market conditions are. It should be embraced and cherished because, at the end, what matters most is not what you’re trying to do but how it is perceived by the rest of your environment. It helps get a fresh and outside perspective on the actions you’re launching which will help you better adapt them to the actual needs and preferences of your stakeholders.

It seems obvious, in theory, that social ventures can benefit for conventional business techniques and should leverage them to maximize value. But how easy and feasible is it when value is about social impact not revenues?

The Poor are People Too

This week's reading was broken down into two categories, the growth of social enterprises and profiting from the poor. I will speak primarily on the latter, while also touching upon some of the key points from the former. 

Normally when we think of social innovations or social enterprises, there is an underlying assumption that the creators of such enterprises do not expect to attain wealth from the ventures. There is also an assumption that because the people being served are "less fortunate" they will reap the benefits for free. The articles makes some excellent points about incentives and the mindset of those "less fortunate" when they do not have to work for the service of products they receive. To take it one step further, by giving away products and services we assume that those being helped lack key human behaviors. Communism failed for a number of reasons (I am not expert on communism), but one reason of failure is the genetic makeup of the human brain. Most humans believe that work leads to reward, or at the very least something to show for your work. If everyone receives the same thing regardless of effort, there is no incentive to work. 

To an extent, the same concept applies to social enterprises. If a social venture offers to provide services that increase quality of life for free, those living in that area will have no motivation to earn it. Yes, maybe it is a basic human right, but it is a human right that they were previously going without - in a way making it a privilege for that community. 

Forcing the poor to pay also allows for some of these social enterprises to grow. Profiting from the poor is not a bad thing - especially if you are improving the overall quality of life amongst that community. The relationship between a community and an enterprise should be mutually beneficially, similar to that of Coke and the rural Kenyan kiosks. Just because the goal is to help, it does not mean one should discard all prior teachings of human behavior and basic business models.

If You're Not Making Money, You're Not Doing it Right

There are two distinct ends to the socio-enterprise system. On one end you have the purely humanitarian organizations whose sole interest is bettering communities by providing goods and services at little to no cost. These organizations may create impact, but could ultimately leave a community dependent and lacking the knowledge to sustain a solution. On the other end of the spectrum, you have pure businesses whose sole interest is making as much profit as possible. More often than not, these businesses lack any true social impact.  So this begs the question – how do you find the right balance to create a successful social venture – one that creates a positive impact, but is also financially sustainable? After reading about many social entrepreneurs, both successful and not, there is one common theme: mutually beneficial relationships.

Mutual benefit is not a novel concept, and is in fact the underpinning of any successful economic system. In essence, the world is one big integrated system, and in order for a social venture to be successful, it needs to be able to create economic opportunities within a community. Think about this in terms of the old saying “give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.” Say an organization provides food for a community, or even teaches the community to produce their own food. This may be beneficial for a community in the short-run (or could even potentially be sustainable), but where does this leave the organization? While they may provide aid to a community, they see very little, if any, return on their investment. To have a better chance of succeeding, they need to also benefit from the relationship, ideally in the form of profit.

To make a profit, a social entrepreneur has two main options, create an individual venture, or partner with another company or organization. As an individual venture, you have the power to drive change and influence the product, while partnering with another company can provide a significant amount of capital and resources. One Degree Solar is a great example of a social venture who was able to partner with Coca-Cola to better a community while still creating profits. In this case, business owners purchase the solar power kits (money for the social venture), which allows them to stay open later and sell more products (money for the community), and as an added benefit they also sell more Coke (money for Coca-Cola). To provide the biggest impact, it’s obvious that members of the community have to be actively involved in the implementation of any solution, and financially invested. Otherwise, there is no real buy-in, and the venture is less likely to succeed. So, what’s the best way to do this? Should non-profits/humanitarian organizations partner with corporations, or would an independent social venture be more successful?  

Poor Profiteering or Social Venture Investment?

The article “How Misinformed Ideas About Profit Are Holding Back the World’s Poor” by Hugh Whalan and the video about the MoneyMaker’s for-profit social entrepreneurship strategy, were eye-opening.  The power of markets to influence decision-making is something that is often overlooked in the philanthropic, humanitarian, and social entrepreneurship fields.  However, in order for social ventures to become more impactful, a better understanding of the for-profit motives of individuals needs to be understood. 

A comprehensive understanding of the motivations of the people social ventures are trying to affect is one of the primary reasons, I believe, many well meaning and innovative social innovations fail.  Many products create efficiencies which did not exist before, allow people access to resources that were previously inaccessible, or solve a basic human need, and yet the people who would most benefit from such social innovation are rarely the ones using them.  Why is this?

I am reminded of a lengthy critique I read recently on volunteer humanitarian aide trips to parts of the developing world, especially Sub-Saharan Africa and South America.  During these trips, participants travel to developing nations and help build hospitals, schools, houses, etc.  This sounds great!  Doesn’t it?  Unfortunately, what is not understood by many of these well-intentioned philanthropists is the severe disruption to economies that donations and volunteering can have.  The affluent kid volunteering in Zimbabwe to build an elementary school means that a Zimbabwean construction worker will not work.  The local contracting company cannot compete with the free labor that volunteer organizations provide.  This means the contracting firms shuts down.  Such humanitarian adventures, which sound so positive, can actually have negative net effects on the local economies of developing nations.  This might seem a crude example but it demonstrates  the larger problem of non-profit and volunteer venturing: they price out for-profit local actors. 

This is the reason the MoneyMaker is such a subtly brilliant endeavor.  Make the product for-profit, suddenly it requires an investment on the part of the farmer, it allows distributors within a given country to sell the product for a profit.  These distributors require labor, so on and so forth.

Hugh Whalan’s article asks the rhetorical question, “Don’t you feel like you are taking advantage of [the people you are trying to help] by making money from them?  What is not considered is the contrary questions of whether charity hurts local economies?

Finally, in my Professional Writing class we discussed strategic messaging.  One of the essential parts of messaging in political and business settings is to get your audience invested in what you have to say.  In the case of the social entrepreneur, getting your audience and potential recipient bases interested in what you are trying to accomplish is half the battle.  By having your audience invest their time, money, and energy in you product, they are incentivized to use or implement the social venture, where if they only receive charity, the incentive disappears.