Venture Development and the Poor

In an article, “How Misinformed Ideas about Profit are Holding Back the World’s Poor,” which focuses on for-profit business with poor West African consumers, the following questions guide the article’s discussion:

• §  Is it taking advantage of the poor people to try to make money from them?
• §  And do they event have any money to give?

The author of the article currently owns a for-profit business that sells products and services to West Africans who receive less than $6/day. According to the author, the notion that profit-making from the poor equates to taking advantage of the poor is “absurd.” The article presents three main arguments to support the author’s argument.

First, West Africans and other poor persons are still consumers who participate in markets and deserve access to meaningful products. Second, the poor often pay higher rates for necessary goods like water or credit. Unscrupulous business owners may take advantage of desperate, poor consumers, but offering new competitive services in the same market helps reduce cost of goods and increases affordability of goods. Lastly, the author references the role of charity and argues charities are not a substitute for the potentially positive impacts of for-profit businesses in low-income markets. Charity contributions at their worst “[encourage] laziness and stymie initiatives.” For these three reasons, the author argues the legitimacy of for-profit-making by selling goods to the poor.

Although, brief in detail and context, comparative examples, recognition of market complexities and relevant externalities, I personally appreciated the author’s argument as a novel one. I hadn’t previously heard of arguments that legitimize for-profit engagement with the poor, but I now have a clearer understanding of its potential validity.

In layman’s conversations, charities are assumed to be the one and only solution to revitalize the poor. Based upon this article’s arguments, I would recommend greater research be conducted in investigating the opportunities for for-profit business to serve the same role.

In class, we have touched upon innovative products that provide sustainable solutions to those in need, but we have barely scratched the surface when addressing sustainable solutions initiated by for-profit businesses that promote economic and social development for the poor. In essence, perhaps there are opportunities to revitalize and reintegrate the poor and needy into a competitive market by bringing the competitive market to the poor and needy.

Are there good examples of this model being done today? What are your thoughts regarding the potential positive impact of for-profit business engagement with the poor as a means to revitalize them?

Non-Profit or For-Profit?

For Profit or Non Profit, this is probably one the toughest decisions for a startup social innovation or venture. Like any field, there is always that one tough difficult starting question like Coke or Pepsi, Mac or PC, Addias or Nike, or IPhone or Android? After reading the “How Misinformed Ideas about Profit Are Holding Back the World’s Poor, ” questioned my beliefs about the notable debate between for-profit or non-profit.

Non-profits have a stigma attached to them, that it for “needy” or low income or Humanitarian efforts. When someone says, “non-profit” the first thought is charity. Inversely, when someone says, “for-profit” the common first thought is businesses getting over. Throughout the course of the semester, my definition of what was right has been challenged. I realized that I probably would have been the person to make the naïve statement about For-profit ventures in low income or impoverish areas.

Often time’s people are caught up in the shock factor or human nature of a situation that we forget that low income and impoverished communities have economies too. They are subject to the same market structures just as everyone else except sometimes they are taken advantage of more. For Example, some the for-profit institutions have been taking advantage of low performing students because of their unfortunate circumstance to be accepted in other universities. President Obama just signed a law forgiving some of the loans taken out for these institutions that charged some students almost double of what other students pay at regular 4-year universities. This question arises, if there would have been an larger market of competition for schools which would include reputable institutions; could it have made an impact?

As I learned throughout the course so far, not all for-profit ventures are bad. Everything has its placed, there is a time when non-profit must step to the plate in dire needs situations. Just as there is a time when For-profit ventures must enter into the market and compete with others to perform the market duties of the invisible hand. “If Coke can sell sugary drinks to villagers who don’t need it, there is plenty of room for companies selling meaningful products.”

 The morality of selling goods to poor rather than given goods is rooted in economic theory, which has proven to work in some cases. People buy goods that they are willing and able to pay for. The answer to the problem is geared around who is selling and how they are selling. We need more people willing to supply to the market in impoverished areas rather than in the big economic zones. Non-profits bring happiness, but happiness does not keep the lights on. In conclusion, How can we as a society change the stigma and/or status quo of what is morally right between the non-profit and for-profit approach of social innovation?

Bloom’s Guideline’s in Action: Spotlight on Heinz Alumnae

Over the past few weeks, we have looked at how to construct a viable idea in terms of social innovation. An idea in social innovation should respond to a pressing need, should solve a problem in a better way than previously done, and should have a framework for sustainability. While ideas are the start of any good initiative, it is important to recognize the complexity and challenges of going on to the next phase: creating and designing an actual venture.

The material in this class had a special place in PPIA’s latest alumni panel featuring three professionals working in international development. Alumnae Ermine Teves, Lingling Zhu, and Jenna Knapp, spoke about their experiences at their respective organizations, Tech Bridge World, Idea Foundry, and Thread International.  Their experiences showed how businesses could be designed and modeled in a way that “do good” for society. Tech Bridge World looks towards solving unique problems facing individuals with disabilities in the developing world through robotics and technology.  The Idea Foundry provides investment, training, and guidance to new businesses. Finally, Thread International provides job opportunities for people in Haiti and Honduras by collecting trash in order to produce textiles.

All these businesses and organizations provide unique examples to put Paul Bloom’s guidelines in “How to Take a Social Venture to Sale” into perspective. Bloom’s points were present in Teve’s, Zhu’s, and Knapp’s stories and experiences. 

Bloom’s points about staffing for example, resonate with Thread International’s journey: “It is hard to take a venture to the next level without knowing how to recruit, train, and retain talented people.” Knapp, as one of the founding members of the company, emphasized that when starting a business, you need “staff and money”, two scarce resources at the infant stages of a business. The Idea Foundry connected Thread with experts, which allowed Thread to make use of this service even though they did not have staff with specific experience.

The Idea Foundry, Thread, and Tech Bridge World all embody Bloom’s point about replication. As a research organization, Tech Bridge World continues to look at ways to use technology to serve the needs of individuals with disabilities. They research with the hopes of replicating these solutions around the world. Providing the necessary resources for businesses to grow, the Idea Foundry must be able to adapt its services with each case and must be able to replicate its results.

Bloom’s guidelines about stimulating market forces also resonated with the speakers’ insight about how to create sustainable change. Knapp and Zhu talked about how social awareness is now shaping the way individuals consume products. Form eating locally to buying fair trade, these consumer movements shape the demands of certain products. Thinking back to one of the core questions of this course—how do we create sustainable change?—Bloom’s article and the alumnae’s experiences imply that influencing the market, rather than work against it, could create positive, long-term results. 

Homeboy's Financial Plight

Social entrepreneurship often takes on many different forms. In my hometown of Los Angeles Homeboy Industries is taking a social justice approach to tackle high re-incarceration rates in the city. Homeboy serves as a rehabilitation program for formerly incarcerated men and women that seek to reintegrate themselves into society through services like tattoo removal, anger management, and job training at Homeboy’s various enterprises. Through Homeboy’s café, bakery, food truck, and silk screen apparel shop the company employs and trains people over an 18-month period. Participants then reenter the workforce with increased confidence and practical vocational skills that assist them in finding and keeping a job. The revenue that is made from these enterprises is then used to support the free social services offered by the company. However, the work Homeboy has been able to accomplish comes at a price. The business itself is suffering a budget deficit of $1 million dollars. Homeboy doesn’t want to sacrifice any of the social services it offers its community, but it is having financial trouble doing so. The money that is made from its various social enterprises is not enough to supplement the cost of the services offered by the company.[1] Homeboy’s financial plight is not new for non-profit social ventures, but Homeboy has an opportunity to capitalize on its success.

Homeboy’s services have worked in quelling increased violence in the city and they have the support of various government officials who constantly praise the effectivity of the program. Homeboy addresses the severe need in Los Angeles County to reintegrate previously incarcerated people into the workforce. Previously incarcerated people have a 2/3 chance of reentering jail in their lifetime.[2] Homeboy’s impact has been recognized by the County of Los Angeles, with the assistant police chief saying he “shuddered” at the thought of Los Angeles without Homeboy. In the last year gang-related crime has fallen by 18% in Los Angeles. It isn’t clear if Homeboy’s efforts are solely responsible for the drop, but government officials say it is a large contributing factor.[3] The city doesn’t hesitate in using their services either. The city has had a history of busing juveniles in detention to Homeboy on the days that they offer free tattoo removals. [4]

Expanding their existing brand would help diminish Homeboy’s costs and allow them to continue providing necessary social services to their community. Relying on donations and government funds doesn’t promote sustainability and if Homeboy wants to continue making an impact, then sustainability should be one of their main concerns. Successful social ventures like Homeboy should focus more of their efforts on their profit making enterprises so they can maintain a level of independence to keep on doing what makes them great.

---

[1] Lopez, Steve. "Homeboy Industries Is a Struggling Success Story." Los Angeles Times. Los Angeles Times, 26 Jan. 2014. Web. 5 July 2015

[2] "Recidivism." National Institute of Justice. Office of Justice Programs, 17 June 2014. Web. 5 July 2015.

[3] Lopez, Steve. "Homeboy Industries Is a Struggling Success Story."

[4] Lopez, Steve. "Homeboy Industries Is a Struggling Success Story."

Hype vs. Reality in Media Representations of Social Innovation

As we investigate the implications of social innovation for the developing world, it is important to keep a skeptical approach. New and intriguing ideas often make compelling news stories, and as the rate of innovation increases we will need to evaluate such news with a critical eye. Many of the innovations highlighted this week speak to my point.

Since most of the articles covered this week were published two or more years ago, we can evaluate the success of such endeavors and determine whether or not they live up to the high expectations set by the all-too-often sensationalistic media. A quick search reveals that most fall short, and a case-by-case comparison reveals a common trend for those that don’t make it: lack of affordability or financial sustainability.

• Brian Silver’s plan to make one billion pairs of adjustable prescription glasses for the developing world has not taken off. Silver began developing his idea in 1985, and although the technological challenges has been handled and surmounted, he has not been able to bring the glasses to enough consumers to make an impact, mostly because they are not affordable for those Silver hopes to serve. Silver’s organization, the Centre for Vision in the Developing World, operates as a nonprofit organization, with most of its funds (around $3 million) coming from silicon technology company Dow Corning in the form of philanthropic donations. Silver’s reliance on donations rather than investment and rigorous R&D mean that he is unable to make the glasses cheaply enough for consumers in developing markets to be willing to buy them.

•  Raspberry Pi, despite seeing remarkable success in the U.S. and U.K., has not lived up to the hopes of the 2013 TechCruch article that praised “the potential of the Pi as a low cost learning-focused computing platform for developing countries.” Again, affordability is the main obstacle, and the vision of millions of students across the African continent using these small computers remains wishful thinking.

•  Of the gadgets featured in “Five Innovative Technologies that Bring Energy to the Developing World,” only one has seen even moderate success. Voto, the biomass-fueled flashlight and charging device, has not taken off. Yanko Design’s window-mounted solar electrical socket remains just a concept that has not yet been sold commercially. Potential Energy, which operates as a nonprofit, has donated a few thousand stoves, but no R&D investments have been made to make the stoves affordable for African consumers. GravityLight has turned to crowdfunding and could see some success in the future, but so far they have not sold any lamps commercially.

These examples carry with them a word of caution – a good idea with a good intention does not guarantee success. Based on this assessment, it would seem that social innovators need to be just as entrepreneurial and profit-driven as they are inventive and socially conscious in order to make a far-reaching, sustainable impact.

IKEA: A Big Business Social Innovator

This week we were tasked with reading about various social innovations to see how an idea can change the world. This is what I noticed.

1. REALLY AWESOME inexpensive PRODUCTS THAT CHANGE LIVES
2. A collection of curious, creative, and geeky individuals bringing seemingly crazy ideas to fruition (world travelers, physics professors, artists, engineers, computer scientists, and industrial designers)

What I found most interesting is that these ideas, products, and innovators seem to be working separate from big businesses in small, start-up, or non-profit business models. The IKEA foundation is the only big exception.

IKEA is the largest furniture distributor in the world. The IKEA foundation is "an independent charitable foundation that overseas IKEA's global philanthropy" [i]. The foundation donates to four causes: improving the lives of refugees, children's rights, emergency response and women and girls empowerment. 

In 2013, the IKEA foundation in partnership with the United Nations High Commissioner for Refugees (UNHCR) debuted a easy to ship and durable refugee shelter that is more practical, safe and sustainable than UN provided fabric refugee shelters, and the structure is expected to cost under $1,000. In addition, the company invested 3.4 million euro into the project from it's inception to 2013 [ii], and IKEA foundation probably invested more in subsequent years, since the newest models include solar panels [iii].

So why did IKEA foundation choose to be apart of this project? 

IKEA has recently been known for their ethical practices. However, no other big businesses made it to our list of readings, which does not make me think IKEA's commitment towards ethical business standards is the only reason why the company decided to participate in the shelter project.

In previous entrepreneurship coursework, my professor drilled the biggest problem with big companies is that they are not innovative, and therefore, they are constantly threatened by the development of new disruptive technologies. In addition, when I google searched "big business and innovation," the first result was a Forbes article entitled "Why Big Companies Fail at Innovative" [iv].  Therefore, IKEA could of participated in the project to reverse this trend and spark innovation and creative thinking within the company. Additionally, political factors could of played a role in the UNHCR and IKEA partnership.

Whatever the reason, I am glad IKEA took on this project and I believe it's role provokes many questions about big businesses and their role in social enterprise. Is it best for new social enterprises to begin as start-up ventures like most of our examples? What would the implications be if other big businesses follow the IKEA model?