WOKAI—ENDING POVERTY IN CHINA, ONE LOAN AT A TIME

After read through “the Funding Gap”, Wokai, the first person 2 person micro-finance platform popped into my head and I am really thrilled to introduce you the NGO that uses micro-loans to change lives of people living in rural China.

Wokai Operating metrics:

Financial regulation strictly prohibits private financial institutions in China, therefore privately-operated microfinance institutions are not allowed. (The local MFI that Wokai partners with is “GONGO”, which local counties have a big say.) Seemingly, as a registered 501(c)3 NGO, Wokai is facing to 2 challenges: financial regulation and funding.

From the Wokai operating metrics, Wokai creates a very innovative solution to tackle these 2 problems.

a.  Loan contribution is from petty cash donation, from people inside and outside China.

According to the article, “creative entrepreneurs will find new sources of investment capital to fund its social enterprises; bold investors have pioneered new types of investment vehicles to fill the funding gap.”  Never before a MFI could thought of the idea the each loan be separately add up. Using internet, Wokai attract contributors from all around the world to donate their pocket money to help people in rural China start business: Loaner could follow up the borrower information, track loan repayment progress, from their blog and photos; Borrowers use capitals to start another business or continue their business after repayment. Internet brings loaner and borrower together, and replaced the normal method (eg. Joint liability group).

Attached file is one of my loan recipient’s blog

http://www.wokai.org/borrower/66

This year we have experienced a drought once again. We have to buy grass fodder. -- In March of this year, I borrowed the second portion of a 4,000 yuan microloan. I used the funds to continue my agricultural venture. This year I took my own dairy products to the market in town! Dairy prices are steady, and my income is OK. Because we have experienced another drought this year, I still have to purchase grass fodder.

The direct investor for Wokai is “angel investors” (from “the Funding Gap”), more specifically, individual but not necessarily wealthy. In one word, Wokai takes advantage of internet and find a creative solution to the sustainable funding for borrowers.

b.  Partnering with local MFI (GONGO)

Facing the regulation, Wokai currently works with two Field Partners, both of whom were established in collaboration with United Nations Development Program in the '90s.

Current Field Partners

Chifeng Zhaowuda Women's Sustainable Development Association (CZWSDA)

- Located in Chifeng, Inner Mongolia

- 3120 clients, all female

- Gross loan portfolio more than $1 million USD

- Over 99% on-time repayment

- First recipients uploaded to Wokai in October 2008

Association for Rural Development of Yilong County (ARDY)

- Located in Yilong County, Sichuan

- 2437 clients, 804 of whom are female

- Gross loan portfolio more than $900,000 USD

- Over 98.8% on-time repayment

- First recipients will be uploaded to Wokai in February 2009

WOKAI’s due-diligence team travels to each potential Field Partner to compile a comprehensive report on its governance, information and accounting systems, risk-assessment policies, loan portfolio and lending activities, performance, and efficiency. Once Wokai begins working with a Field Partner, the performance of that partner is continuously monitored. Wokai performs semi-annual on-site monitoring visits in which they conduct a thorough review of the organization and an audit of clients and financial reports.

Through detailed screening process, WOKAI dodge the regulation limit by partnering with local MFI, at the same time making sure the performance, credibility, and efficiency.

To sum up, from “the Funding Gap”, funding shortage for social entrepreneur could be resulted from actual funding and regulation limit. WOKAI created such a innovative pattern and I really want to share with the audience and hope all the readers could refer to the website donate, for the people in rural China.

Question:

Public funding may not be the best way for WOKAI to fast grow up and expand,

Q1: Is it a good idea to expand?

Q2: Should WOKAI reach out to “intermediaries”, personally I disagree because it seems their demand of return does not fit for WOKAI, since it is not a for-profit org?

Call for Financial Social Innovation

After reading the Manchester Bidwell Corporation HBS case study, I started to think about social enterprise replication efforts, and the difficulty that many social businesses/non-profit hybrids have in locating funding for replication. Having worked for a corporate foundation, I thought back to the grant-making process that I experienced, and very rarely were grants given out to scale innovative models. Almost all impact grants went toward demonstration projects. I then wondered how many corporate, private, or public foundations target grants toward replication? This question motivated my lengthy internet search, which proved slightly unsuccessful. I had a very hard time even finding information about replication grants, so I can imagine how much harder it is to actually apply for and receive replication funds. How could such a funding gap exist? This week’s readings were perfectly timed with my quest for replication funding; however, I still feel that a gap exists for helping scale socially innovative models.

Michael Chertok, Jeff Hamoaui, and Eliot Jamison distinguish between two types of funding: direct investors and intermediaries. While there seem to be many options for individuals or organizations to invest their own capital into social enterprises, the capability of intermediaries appears to lag behind. Conversely, intermediaries are investing other people’s money, which creates a conflict for impact investing: Can you focus on social impact over financial returns? Is there a Pareto efficient point at which you are maximizing both social impact and financial return?

In the past, the two traditional ways of financing were through foundations or venture capital. It is exciting to see and hear of new ways and methods to help finance innovation. I was especially intrigued by David’s blog post last week where he posed the question of having a charity stock market. I, too, have had thoughts about what this might look like. Would traditional investors get to use pre-tax profits from existing stock markets and use this money to invest in a social stock market? It seems from this week’s readings that social enterprise capital financing could be headed this way. Is this good for the social sector? Muhammad Yunus might argue no (see Kyle’s post from November 7).

Either way, it looks like all sectors are coming together to collaborate on how to finance these new socially innovative models. Just this past week, at the G-20 Summit in Seoul, South Korea, more than $500 million was committed to supporting the winners of the G-20 SME Finance Challenge. It is great to see that even capital financing has become a competition for innovative solutions. Definitely check out this link to see the winners and to see innovative new forms of financing. When reading through the articles for this week, did you come up with a solution for how to better finance social enterprises? Maybe one size doesn’t fit all – which sources of funding fit better with which types of social enterprises?

Farm Truck -- Driving a Market?

http://dowser.org/fighting-new-york-city-food-deserts-with-mobile-farms/

There have been many stalled attempts to bring fresh produce to ‘food deserts’ – areas where healthy food is often unavailable for purchase. As a result, people end up shopping at convenience stores where options are quite limited.

This article -- about a Farm Truck in NYC -- highlights the fact that even when there’s demand for healthy foods, supply chain costs pose obstacles to financial sustainability: Fresh fruits and vegetables can be expensive to grow and transport at small scales, so a fair price for the farmer is often too high for the low-income consumer.

Holton Farms seems to have found a solution, though, which reminded me of the Aravind Eye Care System example in one of this week’s articles, Creating Successful Business Models. The Farm Truck offsets its losses in lower income neighborhoods with profits from wealthier areas. “It looks for better-off customers who are willing to pay a little more for quality produce (mixed with a social purpose) -- a strategy known as cross-subsidization. And because it is on wheels it can reach different groups of customers easily.”

This ‘cross-subsidization’ sounds like Aravind’s approach: By charging wealthier patients more and poorer patients less, it has developed a sustainable business model. (p.13, Creating Successful Business Models)

Holton Farms has big plans for the future that extend beyond its Farm Truck. They want to partner with like-minded organizations to create “profitable centralized kitchens that prepare farm-fresh foods for low-income families cafeteria style.” This partnership may lead this for-profit farm (model 3) to enter into some hybrid business models (model 2). I imagine that these kitchens could provide a great opportunity for job training and local employment, too -- an idea akin to the Barefoot College business model cited as a model 1 example.

Thulsi Ravill, Dr. Ventkataswamy’s successor as executive director of the Aravind Eye Care System said, “…you have to transcend the stage where you are simply reacting to market demands, shifting instead to ‘market driving.’” It sounds like Holton Farms is headed in this market-driving direction if they can maintain affordable pricing for the new communities they serve. Afterall, “There’s real value in working with local players to drive product, distribution, and sales innovations in that ‘last mile’ before reaching consumers.” (p.5, Capturing the World’s Emerging Middle Class)

I’m interested in the fact that Holton Farms has been around for generations, and recently endeavored to capture this new market and more explicitly share and implement its social mission. I worry, however, that the Farm Truck model may not be sustainable. As organic and local products are more easily found at grocery chains, how will Holton Farms maintain its higher-income customers, who subsidize its lower income customers? Can the Farm rely on the do-good nature of its current customers? If they can prove out a high volume demand from lower-income customers, might they get involved with owning/operating/supporting a brick and mortar establishment (grocery store) in a food desert? Will the brick-and-mortar kitchens serve the same purpose?

America's Emerging Market

As mentioned in this week’s “Danone Expands Its Pantry to Woo the World’s Poor” article, the Danone corporation has recently focused on expanding its focus, from its traditional Western, high-income clients, to new BOP clientele (Passariello). The goal of doing so is to increase its profits through expansion into a relatively untapped market. Specifically, the company has provided, low cost, and often, high-nutrition products to consumers in developing countries such as Bangladesh and Senegal. Focusing on such countries may continue to prove quite profitable for Danone given that they continue to apply the four A’s of social innovation at the bottom of the pyramid: Affordability, Acceptability, Availability, and Awareness, as outlined in the MIT Sloan article (Anderson). In addition, I believe that such strategies can be applied to the development of low cost food products focused on meeting the needs of another type of “emerging” market here within the US. Within recent years, the obesity epidemic within the US has emerged as a new problem. With this problem has emerged a new and relatively untapped market, those that wish to provide healthy food to themselves and their families at a low cost. According to the CDC, nearly 27% of US adults are obese (CDC), with the epidemic most negatively affecting those who suffer from poverty. Trends have shown that “the states that are becoming obese are the states that are low income," (Osterweil). A key reason for this is that healthy foods are often “out of the financial reach of many Americans” thus forcing low income families to “rely on cheaper, high calorie foods to cope with limited money…lead[ing] to over consumption of calories and a less healthful diet” (Osterweil) (Center). Based on this information, I contend that Danone, and similar companies wishing to increase profits by focusing on the developing world, should also consider focusing on the new market of the obese poor within the US and other developed countries. I say “new market” because throughout history, being overweight has been associated with prosperity and being thin, with poverty (Center). Within the US, times have changed to the point where “the lower you go down the socioeconomic status ladder, [the fatter] people tend to be” (Center). To tap in to this market, Danone should consider targeting its products (or their “Americanized” counterparts) currently selling in Senegal, Bangladesh, etc., within the US. Doing so should both help benefit America’s poor obese population and increase Danone’s profits. Fellow classmates, do you agree that this population represents a viable market? Do you feel that doing so would be profitable? If not, what barriers to you foresee blocking profit? Sources: Anderson, Jamie and Markides, Costas. "Strategic Innovation at the Base of the Pyramid." MIT Sloan Management Review (2007): 26. CDC. Vital Signs. 2009. 09 11 2010 . Center, Food Research and Action. Hunger in the US. 07 2006. 09 11 2010 . Osterweil, Neil. MedicineNet.com. 19 03 2004. 09 11 2010 . Passariello, Christina. "Danone Expands its Pantry to Woo the World's Poor." The Wall Street Journal (2010): 4.

Lack of Stamina?

This week we learn 3 types of social enterprises from “Creating Successful Business Models”, and I am more interested in social business ventures.

In the handout, what distinguishes social business ventures from leveraged nonprofit ventures and hybrid nonprofit ventures is that social business ventures are set up as for-profit businesses from the outset, though they tend to think about the question of what to do with any profits very differently than mainstream businesses. Also, the handout talked about the downside of this model: replication. The reason why only a few social businesses managed to replicate and scale, in my opinion, is these businesses that the venture invested has to be profitable to survive. I found an interesting report released by Ernst & Young:

http://green.blogs.nytimes.com/2010/02/12/for-venture-capital-efficiency-is-in-vogue/

In the report, Investors shifted their money from capital intensive solar and biofuel companies into firms that use technology to reduce or monitor energy use, when facing the pressure from recession. Instead of searching high return profit, Venture capitals start to look more into energy efficiency companies because the funding requirements are lower and the returns are often faster.

The sad side from the report is that a well functioned enterprise with a prospective product or idea for the public good could have been killed simply because the investor changed his mind. The deeper message embed in the course handout would be in most case start-up social ventures are just like normal venture capital, they have high requirement of return profit (or they are self-interested). Today’s venture capital money is flowing toward safer bets on the energy front, tomorrow money could flow to even a different field (Biotech, healthcare etc) A sustainable impact is fostered under a sustainable company, the unpredictability of social venture put a shadow on creating social impact.

During my day back in PwC, when talking to venture capitalists who read 20 BP a day, they told me the current market allows less than 10% of successful start-ups. I am deeply worried as intuitively, social ventures take an even higher risk, since part of the utility come from the social impact they help created. We are not able to accuse the social ventures “Lack of Stamina” in the article because they are set up as for-profit businesses from the outset, however, for these investees who create social impact, how to deal with such unexpected change?

My question:

Bigger money from venture=> Bigger moves, promotion…=> Bigger social impact from investee

Is there a preventive way to secure the funding risk for the investee, AKA spread the funding risk out?

Yes you can...Change your business model!

As someone who has founded a social venture, SponsorChange.org, I spun my wheels on the question of how to structure our business. We consulted with many lawyers, advisors, and business leaders. We ultimately found that everyone we spoke to had very different suggestions.

Our business model consists of sponsoring the skill-based service of college graduates who complete short-term projects at non-profits in exchange for student loan pay. The sponsorship money can be raised from donors, host non-profits, foundations and corporations. From the perspective of the donor it is a benefit to give to a non-profit because of the favorable tax credit. Since service sponsorship is at the core of our mission, forming as a non-profit makes sense.

We are currently working to bring to life an online platform that would allow non-profits to use our system to find, recruit, raise online funds to support the student loan rewards for projects, and make direct student loan payments of their volunteers themselves.

This model certainly sounds like a for-profit play - where users pay a subscription fee to use our platform to add value to their volunteer recruitment and retention efforts. In fact, one lawyer we spoke to said non-profits are use to paying for productivity utilities, they are already subscribing to salesforce, constant contact etc. The challenges with this model is determining the right subscription fee, in a manner that generates revenue, without pricing smaller non-profits out of the market. Setting too low of a price at the onstart, then having to raise prices can be detrimental, on the other hand starting too high, can pose problems too. How do you control for this?

Taken together, we have decided to create a hybrid model. The nonprofit model will accept donations and be used to sponsor service and the for-profit side will generate revenue from offering a subscription fee. Revenue generated will be reinvested back into development of our platform.

Even as a type this, it all sounds daunting for anyone starting up a social venture, but after the reading the HBS article, Creating Successful Business Models by Elkington and Hartigan, we should all relies two things. 1# No matter what your business model is you can create social change and make a difference in the lives of many people, and #2 Businesses can and often change there model over time.

I pose the following questions for you?

How will you initially form your social ventures? What are the benefits and drawbacks of each model?

How do these models hurt or help your stakeholders?

Please post your comments.

How will you pay for your next social innovation?

We've talked a lot about innovations that can positively affect the lives of many underserved communities. These projects are critical to improving the lives of these people, but as always there's a bottleneck: money. How will these projects get funded? What creative ways can we come up with to fund new innovations?

Venture firms like Good Capital and Echoing Green try to fund socially innovative projects but there isn't enough money to go around. Creating a nonprofit can provide more access to financial resources but a new interesting idea has surfaced that is getting recognition: investing in an individual in exchange for a portion of their lifetime earnings!

This paradigm shift will definitely cause innovators to think about what they're willing to give up(or gain) by trading future earnings to fund current projects. Is it fair or ethical to accept money now for future earnings? Who will decide how much those earnings will be and how much they are worth now?

This type of financing is similar to NPV projects where we try and calculate the future earnings of a project, discount it back to present value at some rate, and then subtract the startup costs to decide whether or not the project is profitable. Only in this case the project is the person. Would you be willing to trade a portion of your future earnings to fund a current project? How much earning potential do you have and how much would you be willing to sell?

Harlem Children's Zone and the Implementation of the Hybrid Venture Model

Around this time two years ago, many Americans woke up feeling uncertain about their financial secutiry. A major economic crisis in country lead to the bankruptcy of behemoth financial firms, like Lehman Brothers. Lehman Brothers, a firm that had large "socially responsible" investments in non-profit organizations across the country. One notable beneficiary being the Harlem Children's Zone (HCZ). HCZ, founded by a social innovator with the "unreasonable" idea that he could end generational poverty through providing a pipeline of holistic educational services for one the most devastated communities in the country. In order to do this HCZ was heavily reliant on outside funding. As an employee of the HCZ, the news of Lehman Brothers was a real concern for me. Not only was the future of my job at stake but of the programs that relied on funding from Lehman Brothers. We inevitably experience set backs, with HCZ having to lay off 10% of its staff. A difficult decision, but was necessary to buffer the impact on the loss to program funding. Unfortunate as it was, to lay off staff, especially for those who came from the community which the organization served, HCZ fared far better than many other organizations in similar positions. But why? Geoffrey Canada, HCZ President and CEO, believed in scale through "leveraging resources" from private, public, and philanthropic sources (as well as some equity investments to help build an endowment for future generations of HCZ clients). Canada's ability to diversify resources empowered HCZ to be more resilient during times of financial crisis. But could he have done more? I recall a time, in 2007, when Canada spoke to an audience of over 80 college students, who were about to begin a 4-week paid winter internship. He spoke about a missed opportunity to invest in the cheap real estate in Harlem in the early 90's. He was working to expand the organization and at the time he couldn't foresee the kind of gentrification that Harlem is experiencing today. To Canada, this venture would have ensured that Harlem "natives" wouldn't be pushed out by the rising housing costs that come along with gentrification. Maybe he was right, or maybe he was lucky to have missed out. At the time, I thought it was a novel idea, an income generating investment that was aligned with the organization's mission--can't go wrong! However, as hindsight is 20/20, the impending housing market bust, would have been a major crisis to overcome for HCZ, but would it have been worth it?

Social Ventures Founded Under Corporate Auspices Have the Advantage. We Need More Grameens

This week, we read about the social venture, Grameen Danone foods, started jointly by Danone, the French food company, and the Grameen bank, a microfinance bank that extends loans to individuals and organizations looking to start new social ventures. This week’s piece on the three different business models social enterprises tend to follow allowed me to classify Grameen Danone Foods as a social business venture—a for-profit entity with a social mission. Both the Wall Street Journal article we read for this week and a recent article from the U.K. publication, the Guardian, chronicle some of the roadblocks the company hit when it tried to develop and market a low-priced, nutritious yogurt that South Asia’s poor could enjoy. These roadblocks included a rapid, unforeseen spike in the price of milk and difficulty engineering a product that the children of Bangladesh’s rural villages found tasty. All fledgling social ventures undoubtedly encounter these types of setbacks. However, the question arises: Are the ventures created under the auspices of multinational companies such as Danone best equipped to weather these setbacks? If so, can we conclude that the Social Business Venture is the more effective model?

Without question, social ventures founded by financially strapped idealists out of moral outrage over the conditions facing those without access to essential life-sustaining resources and life-improving technologies are laudable. Banks such as Yunus’s Grameen Bank make sure such ventures are able to get off the ground, and thank goodness such institutions exist. I am not sure it can be effectively argued, however, that these sorts of ventures are as likely to eventually fulfill their respective missions as are ones that have the full weight of multinational corporations behind them. Grameen Danone Foods cannot fail. As was mentioned in the WSJ article for this week, both Danone and Grameen have too much invested in the subsidiary company—both in terms of money and public relations—to allow it to fold. Therefore, when the company encounters setbacks, it can count on the resources it needs to overcome them. Upstart social ventures can often be killed by the types of hiccups Grameen Danone have already had, and will most likely continue to have. They are unquestionably less resilient than their corporate supported counterparts due to monetary concerns.

Obviously, a large corporation or corporate partnership with vast monetary resources cannot found every social venture. Yunus would probably say that, even if they all could be, they should not be. If we accept this argument, an important question becomes how to motivate the establishment of more microfinance institutions, such as Yunus’s, that are founded on trust.

Improving the world around you...one neighborhood at a time...

“I believe that you shouldn’t have to leave your neighborhood to live in a better one.” Majora Carter Bill Strickland and Majora Carter have many things in common; both are African Americans who were raised amid poverty, both are MacArthur recipients and both believed in something bigger then what they saw in front of them and took action to bring those dreams to fruition. I firmly believe that people will succeed and thrive if they are given resources to better themselves. I believe that Strickland and Carter are fantastic examples of how social entrepreneurship, social activism, economics and innovation can be combined to positively impact a portion of the world. Growing up in Pittsburgh, Strickland started an arts program in the ghetto believing that beauty could inspire youth to find a creative outlet, to acquire skills and to have a safe place that they could call their own. Creating the Manchester Craftsmen’s Guild, Strickland mission was to keep high school students in school and to see a future in attending college. Initially, Strickland taught the residents to throw pots and be creative. The MCG eventually expanded and merged with Bidwell Training Center and now over 40 years later, offers programs in everything from culinary training to renowned jazz musicians. MBC has become so successful that other cities are adopting Strickland’s model for their own cities to replicate. Carter was tired of the pollution and the hopelessness that surrounded her in her South Bronx neighborhood and vowed to figure out a way to change it. Through grassroots efforts and a small grant, this dynamic woman created the Hunts Point Riverside Park Project that’s goals were to not only clean up the park and allowing the South Bronx’s residents to have green space, but to create green job opportunities for it’s residents in park planning and urban renewal. Carter named this employment initiative the BEST Green Job Training Program. As Executive Director of Sustainable South Bronx’s, Carter saw amazing success, with job placement around 85% working in green careers and 150 students graduated. Hunts Point Riverside Park has become a source of pride in the South Bronx, the first park to exist in the neighborhood in over 60 years. Currently, Carter is running a consultant group that is targeting New Orleans as well as other struggling cities to create green space as well as train young men and women to pursue green careers. How do we view change as a society and really believe that we can take one thing and make a difference? Most people believe that to be an agent of change requires taking on monumental tasks, such as ending world hunger, curing terminal illness or abolishing poverty. However, people like Strickland and Carter show us that to create sustainable change, you simply need to choose one thing that you want to change, whether it's spreading the joy of art or creating a neighborhood park. What do you look around and see in your own neighborhood, in your own community and how would you like it to look? http://www.ted.com/talks/majora_carter_s_tale_of_urban_renewal.html

The Power of Yogurt

While focusing on venture development and growth, this week’s readings further explored the idea of providing social solutions for bottom of the pyramid markets without “going the nonprofit route.” In this post, I would like to highlight one such company that fits this model. Grameen-Danone Foods was launched in 2006 as a social business enterprise union of the international food giant Danon and the Bangladeshi non-profit Grameen, which is primarily known for its work in microfinance. Muhammad Yunus, the founder of Grameen, proposed a joint venture between Grameen and Danone with the objective of supplying nutritious food to poor Bangladeshi children. According to UNICEF’s 2008 State of the World’s Children report, 30% of all Bangladeshis and 56% of Bangladeshi children under the age of 5 suffer from moderate to severe malnutrition. To address this problem, Grameen Danone Foods Ltd. produces a yogurt called “shakti doi” (power yogurt), which is made from pure full cream milk that contains protein, vitamins, iron, calcium, zinc, and other micronutrients. This yogurt is primarily intended for children, but it can be eaten by adults as well. One of the most exciting aspects of this yogurt is its affordability. The price of each 80 gram cup of yogurt is 5 taka or 5 cents. Factories have been set up to produce this “power yogurt” all over Bangladesh, employing large numbers of people, and plans to expand this model to other countries are in the works. The Grameen-Danone Foods model is currently a “no loss, no dividend” one, and the company is confident that investment will remain strong. Because the product is suitable in much of South Asia and the model itself can be adapted all around the world, shareholders continue to invest although they are not currently being paid dividends. The framework for strategic innovation at the base of the pyramid, as discussed in the MIT Sloan Management Review article, stresses affordability, acceptability, availability, and awareness. I believe that Grameen-Danone’s success stems from its business strategy that focuses on these very areas. “Yogurt” for thought: Will paying shareholders dividends change the culture of the organization? If so, in what ways?

Social enterprises targeting the bottom of the pyramid

Building economic opportunity for the bottom of the global economic pyramid is a particularly challenging endeavor, which is probably why it yields such high impact. A few enterprises I have come across recently have been especially interesting to me in both their impact and their potential.

This weekend I had the opportunity to attend the StartingBloc All Fellows' Summit, where I met more humbling and fabulous social innovators than I could count. One of them was the founder of Generation Enterprise, who completed the StartingBloc program in 2005. Generation Enterprise is a youth-led network of small business incubators and community hubs that equip street youth to leave life on the streets, start sustainable businesses, and create jobs. Each site acts as an engine of economic development, integrating so-called "unemployable" young people into the formal economy as entrepreneurs, employers, and community leaders.

Last year, I had the pleasure of attending class with a colleague who was attending the Heinz College on a Fulbright Scholarship, and had interned with Listros. Listros takes a very different approach from Generation Enterprise by providing equipment for child street vendors to help them safeguard their money and goods, and also protect themselves from the hot sun. (I'm sure my colleague could describe the venture in greater detail; I myself must work from memory and Listros' German-only website.)

Both short-term solutions and long-term change are necessary to improve the lives of the world's largest people. These two enterprises seem well-matched in this way. To me, it seems that Listros assumes that the systemic change that gets children off the streets is a long way out, and tries to improve their quality of life now, while Generation Enterprise works for that systemic change.

However, I can easily see how people might complain about either solution. One does little to immediately help people, and the other doesn't make people stop needing help in the long-term. Which leaves the lingering question: how can immediate and systemic solutions work together to accelerate social change?

Could Outsourcing be a Social Business Venture?

This week’s readings help me to clarify which traits define a Leverage Nonprofit, Hybrid Nonprofit, and Social Business organizations. However, I think that Social Innovation field is moving and changing so fast that sometimes it is difficult to place experiences in one of these categories. Why do I say this?

Well, during this week I was thinking in an article that appeared last week in The Economist. I became interested in the case and I did a little bit more research about the mentioned company. The company’s name is txteagle. I classified txteagle according to the rules provided in Creating Succesful Business Models, actually it fits in the Social Business Cathegory.  Nevertheless, txteagle is different in its nature to the other examples provided as Social Business Enterprises. Let me explain you why.

Txteagle is different because is a kind of outsourcing company. The founder is Nathan Eagle. Nathan Eagle is a Phd graduated student of Massachusetts Institute of Technology, he spent some time in East Africa in 2006 teaching over cell phone programming.  Well, Mr. Eagle realized the potential cell phones had in developing countries and founded txteagle.

The potential he discovered was to employ poor people in simple and provisional jobs. Why in poor countries? Because there is a 4.6 billion of mobile phone users living in developing countries, and usually this poor people is unemployed, needs money and have a lot of time free.   The driving idea of txteagle is to enable mobile phone subscribers to earn smalls amounts of money by completing simple tasks for Corporations that pay them in airtime or with money.

What txteagle do?

A Corporation contract txteagle to get a job done. Txteagle breaks down this job into small simple tasks and send them to lots of impoverished individuals. Some examples: one person has the task of checking two street signs, he sends the information by text to txteagle, txteagle gathered it with other’s information, and then send them to a Satellite Navigation Corporation.  Another example, people in Kenya translates a couple of words into Kenyan dialect; then this information will serve companies as Nokia.  Another case, txteagle helped one media firm to monitor its television commercials across Africa; each time a person in rural areas watched a commercial, she texted txteagle.

At this point, it would be easy for txteagle to get into another kind of business, for example using his large pool of cell phones numbers, to sell advertising services from corporations, and probably they will do so for, we don’t know.

Txteagle is an interesting case because it is about outsourcing, which is different to the other types of social business we have seen in class. Txteagle is just the broker, the connection between a corporation and poor people, but we cannot reject they have a social mission.  The texteagle model could be replicated in many countries; it is successful from this point of view. Although, it does not provide a long term solution for poor people, because they can earn only small amounts of money, they cannot live one month only doing this. The jobs are temporal and irregular. So, how do we classify this experience? Do you think txteagle is a Social Innovation? Is it a Social Business Company? Or is only for profit?

These are the pages for txteagle and The Economist's article:

http://txteagle.com/
http://www.economist.com/node/17366137

Soda Pop and Social Enterprise

Coca-Cola is the largest beverage company in the world. In 2009, it was ranked number 73 on the Fortune 100. They had profits of $5.8 billion and revenue of just under $32 billion. Coca-Cola is a money making machine. They are also on the forefront of bringing products and services to the poorest people in the world.

Below is a video of former Coke CEO Neville Isdell talking about Coke's presence in Africa and their commitment to sustaining their company through sustaining local communities.

In 'The Power of Unreasonable People', John Elkington and Pamela Hartigan say that social enterprises usually fall into at least one of three categories:

(1) the "Leveraged Non-Profit" (2) the "Hybrid Non-Profit" (3) the "Social Business"

Coke is a for-profit company so it certainly does not fall into either 1 or 2. It is difficult to argue that Coca-Cola can qualify as a social business; a for-profit entity focused on a social mission. Coke's primary mission is to make money even if they do realize that it's actions have an exponential effect on developing economies.

Coke does not fall seemlessly into Elkington's and Hartigan's definition of a social enterprise but it is committed to the African continent. In the past decade they invested $6 billion in the continent with plans to double investment to $12 billion over the next ten years. Coke see's a market.

Although it does not fall into Elkington's and Hartigan's classic definitions it is following their model for success in emerging markets. Coke's story is particularly interesting because it is a story of sustainability through leverage. Elkington and Hartigan state that "One central goal for such enterprises [social enterprises] -- and those who fund them -- is leverage." In order to make a sustainable business case in Africa, Coke has been successful in leveraging the indigenous labor markets, social capital, philanthropic support (through various entities of the Coca-Cola Foundation ), and business partnerships. Successful leverage has led to vast profits in markets that were previously untapped.

Simultaneously, the local communities are leveraging Coke to produce jobs. In the video above, Isdell comments that for each job Coke creates five additional jobs are created. One could say that where Coke goes commerce grows. Coke presents an enticing opportunity for emerging social entrepreneurs to impact the world on a huge scale.

Nevill Isdell was raised in Africa since age 10. Coke's current CEO, Muhtar Kent, is an American of Turkish decent who spent time in the Turkish military. Africa and the Middle East are both developing economies. As stated, Coca-Cola believes their future growth will come from emerging markets.

As we move forward in the 21st Century, how will the demographics of global executives change to help companies penetrate new markets?

The United States is currently home to the worlds preeminent educational institutions. In the 21st Century, how will formal degrees be weighed against first hand global experiences for business professionals? Will we see global firms recruiting more heavily from USAID and the Foreign Service?

Global experience has always been valuable but I think there will be a premium moving into the future. Those who cut the mustard will find themselves in positions to do both well and good. In the words of Neville Isdell, "There is the business opportunity for you, but that opportunity is for the broader benefit of this whole world and particularly to poor people in this world."

"Wait, we have to pay for this?" Social Innovation and Sustainability

An important defining feature social innovation and entrepreneurship is the ability to be sustainable and transformational.  As anybody starting up a business knows, this takes money... and people and time and resources... People and time can be found fairly easily, however, its that darn money that often gets in the way from many of these amazing organizations getting their feet off the ground. Fortunately, many philanthropist and capital investment firms have begun to realize the benefit that many of these social innovators bring to the table, as well as the potential for many of these project to become sustainable on their own. This appears to be one of the greatest shifts in the field. What use to be primarily the work of charities in providing for the less fortunate, has continued to shift towards organizations with business models that reach towards sustainability in their own delivery of services and goods. 


One of these firms providing capital to startup social ventures is New Profit who defines their organizations as "a national venture philanthropy fund that seeks to harness America's spirit of innovation and entrepreneurship to help solve our country's biggest social problems."  They seek to provide social entrepreneurs the necessary strategic and financial resources to grow their solutions to scale and achieve sustainable, transformative social impact in education, public health, poverty alleviation, and workforce development right here in the US. 


The process of partnering with New Profit requires going through a rigorous selection process that averages 6 months, in which the board at New Profit narrows down their investments to three organizations. The process from their website is as follows: 

Once these organizations have been chosen, New Profit makes a four to six year commitment to helping these start ups get off the ground. Among the criteria:

• Meet demands of a true social entrepreneur (ability to attract resources and channel them to greater, more efficient social purpose)
• Ability to have both a direct and system impact
• A strong capacity for growth
• Clear fit for the mission of New Profit and the potential for growth

Instead of treating these ventures simply like projects with a noble cause (which they all are), New Profit treats them like business partners who have the potential to provide a return on their investment and can strengthen the organization on the whole. Pretty awesome I would say. 

New Profit own funding and their ability to provide capital comes from their own web of investors who have generally receive a 2:1 return on their investment. With the stringent selection process, New Profit insure their own sustainability and continues to draw in more investors, allowing them to expand their goals and mission. For the investors, they are able to give to projects they feel passionate about, while knowing that their investment will go towards what they intend. 

Here is a page of some of New Profits current projects. 

Firms such as New Profit should certainly continue to expand, but we should continue to be cautious that the culture of social change does not slip into a realm where investment return become a necessary feature of the structure. While many of these project do have great potential for increasing their own sustainability, there will continue to be segments of society that cannot meet their basic demands and we should continue looking for ways to make this side of social innovation sustainable not simply based on the returns that can be gained from their service or products. 

A few questions to be left with: 

• What other investment strategies have potential for reaching into the realm of social innovation: a charity stock market? 
• Are there dangers on focusing too much on the business side of social innovation? Does this have the potential of clouding the mission of these organizations?  

Scaling the Local Green Economy

During the readings for this week, I was particularly interested in the hybrid nonprofit ventures described in “Creating Successful Business Models.” Clean Energy Works Portland seems to be this type of enterprise. The organization meets the main characteristics described by the Harvard Business article: They are expanding services to meet previously underserved homeowners in Portland while still intending to make a profit and the enterprise is mobilizing funds from public and private organizations in the forms of grants, loans and investments.

Clean Energy Works Portland is helping homeowners invest in weatherizing their homes with energy efficient upgrades and renovations. While focusing on the environmental impacts of energy efficiency, the organization is also creating job training for many who are unemployed or without profitable skill sets.

The Portland Project was a pilot that will soon be implemented in many other regions. With the help of stimulus money from the government and the investments of non-profits and private companies, the organization has developed a public-private partnership that is working to scale the market. Though the organization is working in the developed world, they are utilizing many of the key strategies discussed in “Capturing the World’s Emerging Middle Class.” Clean Energy Works Portland is working at a local level to gain scale in the Portland region and partnering with knowledgeable local organizations to do this. They are also working to gain customer loyalty and trust. While many homeowners have some idea of the importance of energy efficient housing, they often feel unable or unmotivated to make the investment for renovation. The organization is working to increase consumer understanding of the benefits of renovation, make financing options available, and to streamline the entire process so it is as painless for the consumer as possible.

Clean Energy Works first targets the least efficient homes that could benefit from the most basic and affordable upgrades. Once those consumers begin seeing positive results, the organization hopes to encourage more consumers to invest in the more costly renovations. The organization is utilizing the endorsement of local companies and grassroots organizations to spread the word and try to make energy efficient renovations as sexy as kitchen and bath upgrades.

This organization is a great example of the collaboration of the different sectors. Government initiatives and funding fueled the way for an organization to get started and utilize local non-profit endorsement and private sector expertise. It seems that the organization, while operating in the developed world, utilized many strategies seen in scaling a market in the developing world. What other lessons can organizations in the developed world borrow from the enterprises scaling developing markets?

Leading Socially before Business

I am fascinated by Christopher Columbus (aka Cristobal Colon).  After reading about La Fageda, I became more interested in the 3rd business model of Social Business Ventures. This model appears the most complex & challenging but also the most sustainable.  Although, La Fageda ranks 3rd compared to Danone and Nestle, it certainly stands out on its own due to its social impact and positive leadership. 

Colon expressed how "La Fageda demonstrates that a company that starts with people, putting people before profits, can grow to be a strong organization.  That strength and that culture act as levers in addressing the multiple and seemingly insurmountable challenges that come along."

I really admire how Colon was not intimidated by Nestle and Danone, the leading dairies in the industry.  He firmly believed in his passion to help the mentally ill and kept that at the forefront of the venture. 

I was curious to learn about the insurmountable challenges Colon references.  I found an analysis of Colon's work by the IESE Business School out of the University of Navarra.  It explained how due to the nature of the company, Colon had to be conscious of how they marketed the brand and abide by labor arrangements established for companies working with people with special needs. 
www.ieseinsight.com/doc.aspx?id=984&ar=3&idioma=2


As a business, Colon differentiated La Fageda by focusing on a segment of the population that were willing to pay for a higher quality product including "farm-style yogurt" made from milk produced from their own cows.  Their comprehensive quality control allowed them to produce a less acidic and creamier product.  
Colon was not afraid to recognize shortcomings and turn them into positives; one of the many traits of a strong leader. He stated, "The big multinationals have everything-except they don't have a single cow. And it just so happens that cows are one of the few things La Fageda has."  


Elkington and Hartigan indicate that "The founding entrepreneur (of a Social Business Venture) must exercise a strong leadership role, which may make succession more challenging..." 
Leadership to me means honesty, commitment to your mission, integrity and social responsibility. I would guess that the employees at La Fageda would feel the same way about Colon and be very proud to be a part of his company. If every venture (for profit or not) focused on people first and throughout, imagine the outcomes? 


All of the innovators we've read about thus far have proved to be successful leaders of change in some form. 
What other leadership qualities do you see as necessary to be a successful social innovator? 

The Art of the Start

In this week's reading, we learned three models of social venture, non-profit, hybrid, and for-profit social enterprises to have a comprehensive perception in social enterprises. For BOP market, Strategic Innovation at the Base of the Pyramid has given us a 4A (affordability, acceptability, availability, awareness) method, helping us to design a more appropriate and satisfactory product/service for them.

However, these articles is too theoretical that I feel we need a more specific guide about how to start a real business. I highly recommend this book The Art of the Start written by Guy Kawaski, who made his name at apple in 1980s as the evangelist who helped launch the Macintosh computer. He founded Garage Technology Ventures, and has tested and proven his ideas with dozens of startup.

No matter what kind of model we adopt to realize our social mission, we need a step-by-step, specific guide. That is why I read it and recommend to you.

Contents

Chapter 1: The Art of Starting

Chapter 2: The Art of Positioning

Chapter 3: The Art of Pitching

Chapter 4: The Art of Writing a Business Plan

Chapter 5: The Art of Bootstrapping

Chapter 6: The Art of Recruiting

Chapter 7: The Art of Raising Capital

Chapter 8: The Art of Partnering

Chapter 9: The Art of Branding

Chapter 10: The Art of Rainmaking

Chapter 11: The Art of Being a Mensch

In addition, Here is the top ten tips he gave in this book for anyone start anything.

My question for this week:

I wonder what ways that we can use to secure that profit always returns into social mission?

The Mission of a Social Entrepreneur

As our conversations about Social Entrepreneurship evolve, we continuously talk about the inherent motivation of the entrepreneur. We have begun to differentiate a traditional business entrepreneur and social entrepreneur--as Gregory Dees helped to clarify--

"For social entreprenuers, the social mission is explicit and central....not wealth creation. With business entrepreneurs, wealth creation is a way of measuring value creation." --footnote:a

This analysis makes a lot of sense but as we read about business entrepreneurs with global impact--it makes me question if that inherent motivation is always a necessity to be a social entrepreneur. Danones CEO, Franck Riboud (pictured to above) is a prime example of a business man helping a little while making a little bit lot of money. In the Wall Street Journal Article it is explicitly stated that "none of [Danones] low-income consumer efforts are for charity..." -- footnote:b Even though this traditional capitalist would normally be considered very different from a social entrepreneur, his company has succeeded in creating a $0.07 yogurt fortified with vitamins and minerals for our world's poor. Regardless of his motivation, his impact is largely felt. I propose that a social entrepreneur should be a title designated for those with an entrepreneurial mindset who are ABLE to achieve positive impact in areas where the need is apparent. Frank Riboud regards this mentality as a "double project"--

"ventures that had a chance to both make money and give a lift to the poor"

This project is not frowned uponed by even the most praised social entrepreneurs. Muhammad Yunus has supported Danones initiative and even helped them market it-->See video below.

Frank Riboud has made it clear that this is another profit seeking venture that happens to help people in the process. Muhammad Yunus would agree that--as long as it is helping the people then it is worth supporting. In this case, no one is asking Danone what their intents are.. they are only praising the results. So I ask, does the mission really matter to be a good social entrepreneur?

Footnotes:

a: The Meaning of "Social Entrepreneurship." J. Gregory Dees. 10.31.1998. The Kauffman Center for Entrepreneurial Leadership

b: WallStreetJournal: http://on.wsj.com/brnjix

Grameen Bank vs. SKS Microfinance

After doing the readings I wanted to write a post about Grameen Bank's replication efforts in the U.S. I was curious about the type of changes they made to their lending model and business structure (they're actually set up as a 501c3 nonprofit in the U.S.) and how much of their success would conceivably be tied to these changes versus their stature in the world of micro finance. However, while I was doing research I came across this exchange between Muhammad Yunus of Grameen and Vikram Akula of SKS Microfinance in India and I decided to change course.

In the chapter "Creating Successful Business Models," John Elkington and Pamela Hartigan classified both Grameen and SKS as "model 3 social businesses." Though they never use that exact term, Yunus' and Akula's back-and-forth is an impassioned debate over the finer points of what it means to be a "model 3 social business." Their exchange took place this past September at the Clinton Global Initiative Annual Meeting.

(I'll attempt to provide a brief summary below, but the article/transcript is well worth the read. And it's only 801 words, so there's really no excuse not to read it. Here's the link again.)

Grameen is owned by its borrowers. Their profits are mostly used to expand the bank's services and anything remaining is given back to the borrowers as dividends. In contrast, SKS recently had an IPO and counts several large-scale investors among its ranks. They operate much closer to a Western business model. Through the course of the discussion Yunus and Akula defend the contrasting approaches of their respective organizations and which is more appropriate to serve their countries' poor.

In perhaps their most heated exchange, Yunus says, "Conventional business has its own logic; there's no getting away from that. You get caught up by 'others'--other shareholders and that's the wrong direction. Micro credit should be about local money. When you get outside money, you get the risks, the volatility of it [too]...Microcredit is not about exciting people to make money off the poor. That's what you're doing. That's the wrong message completely." Akula defends SKS' approach by saying, "A woman [taking the loan] is not concerned with who is making a profit but if she's getting her loan. Yours is maybe the more morally pure way but it's a long way away from helping all the people who need it...We need more than one approach with 3 billion people to save."

(The whole discussion is really worth a read. Here's the link one more time.)

So, if SKS is indeed "exciting people to make money off the poor" can it really be considered a social business, "model 3" or otherwise? Is SKS' approach simply in response to issues of scaling and banking laws in India? Are Yunus' allegations off-base and SKS just has a different approach to address the same problem (i.e. "Compete with us to save the world.")? And where does the balance between profit and social mission lie?

Thanks.
-Kyle