Social Entrepreneurs: The Real Changemakers

The past two decades have seen an explosion of healthy competition in the social sector. It appears that there has been a discovery of what the business sector learned from the railroads, the stock markets and the digital revolution: nothing is as powerful as a big new idea if it is in the hands of a first class entrepreneur.

Question is: social entrepreneur or business entrepreneur? Is it important to consider how useful social entrepreneurial models are, particularly in developing countries, where every sort of entrepreneurial venture - power generation, grocery stores, water sewage, housing construction and banking arguably fills a hole in the economy or infrastructure and is at least subconsciously acting as a social enterprise?

We do not consider PECO or British gas, both utilities, as socially entrepreneurial, but if their relatively cost efficient, reliable service delivery model is transported to Accra, Ghana or Pnomn Pehn, Cambodia would this be applauded as the work of social entrepreneurship? After all, what works and what does not for business is often the same regardless of the bottom line, right?

Nevertheless, in a general context, a social entrepreneur specifically identifies and solves social problems on a large scale.

The biggest challenges I would argue for social entrepreneurship are threefold:

1)Operating in an enabling environment.

2) Adopting effective and tailor-made measurements of social impact.

3) Unrealistic time frames.

The dominant driving factor in change-effecting social entrepreneurship will be the integration of innovation systems into social start-ups. It appears that there is one basic method of innovation (as varied as its outputs appear) and the fact that social entrepreneurs have decided not to charge the end-user high prices is not going to change the required method at all.

Social entrepreneurs will have to adopt the most productive methods of the best of the for-profit innovation model. This is because in order for their important ideas to be developed and scaled up, investors need to be assured that effective operational models are already at work.

As a young girl growing up in Soweto, Johannesburg in the 80s, I was reminded consistently of the perils of failing to help the local community in addressing its unmet social needs. We subscribed to the philosophy of “Ubuntu” – the idea that my humanity is inextricably linked to yours, that I am because we are. As such, the socially entrepreneurial spirit though limited by a difficult political environment was alive. Change in its small way was effected.

The same potential to make a change continues to exist today across the world. However, the reality is that the perception of social entrepreneurship as philanthropic in nature will have to change.

Development Beyond Aid: The Next Step?

The interview above with Fareed Zakaria remains one of my favourite from 2009 because it is spot on in addressing the crux of the issue vis-à-vis economic development on the African continent.

One the one hand, there is a growing chorus of voices (refreshingly, many of them from aid-recipient countries) proclaiming the massive failure of international aid to address poverty – especially in Sub-Saharan Africa. Dambisa Moyo (‘Dead Aid’), Hernando DeSoto (‘The Mystery of Capital’) and William Easterly put forward compelling arguments for the scrapping or complete reformation of our current approach to international aid. Despite spending over a trillion dollars on aid to Africa over the past 60 years, we have seen little real growth, and in many cases even contraction and growing poverty.

Aid has too often undermined local businesses by flooding markets with free or subsidized products and created a dysfunctional handout culture, where recipients’ ingenuity and creative energies are diverted elsewhere, rather than creating goods or services of real local value. Whether you believe in reform or wholesale abolition of international aid (Dambisa’s TED talks are fascinating in this regard), there is no question that the current system is broken.

On the other hand unfettered markets have tremendous power to create wealth and are doing so for many formerly impoverished populations. Markets, by definition, treat poor people as customers – listening and responding to their needs and priorities, rather than parachuting in ill-suited ‘solutions’ to grateful ‘beneficiaries’. That said, market also often bypass or ignore particularly vulnerable and poor populations. The truth is that many of the populations – economically disadvantaged, rural families who depend on small parcels of marginal land for their livelihood – live with the reality of market failure. I for one have witnessed how incredibly resourceful, hard-working and savvy farmers in Southern Africa are. However, their communities are a high-risk proposition for most would-be investors and service-providers.

For one, they are poorly served by local communications and transportation infrastructure, they are subject to a variety of nuisance and exploitative policies and engaged in scattered production of low-volume, low-margin products far from major markets. This is by no means “low-hanging fruit” for businesses looking to fill a niche.

This is where I believe the idea of spurring would-be capitalists through social venture capital fits perfectly. According to Business Week at least $7.3 billion has been invested in 100 socially responsible alternative asset funds of which $5 billion is venture capital. It is clear that an increasing number of venture investors are hunting for small enterprises that can yield social benefits as well as high profits.

However, in developing countries in Africa and Asia where populations are notoriously risk-averse and focused on short-term returns, , it is clear that “patient capital” is the best way forward. This essentially entails making investments that are risk-tolerant and long-term. Investments of this type have tremendous potential in that they have all the discipline of venture capital — demanding a return, and therefore rigor in how they are deployed — but they expect a return that is more in the 5 to 10 percent range, rather than the 35 percent that venture capitalists look for, and with a longer payback period.

Patient capitalism can fill the gap between the social aims (but often limited effectiveness) of philanthropy and the power (but often limited social motivation) of the market. In East and Southern Africa, there are good examples of breakthroughs being made in housing, healthcare and agriculture as a result of sound investments by social private equity and venture capital funds. These success stories need to be need to highlighted, celebrated and emulated.


Will patient capital solve everything? No. Firstly, the environment needs to be conducive to growth and development -what good is investment when the business and legal environments are so bad that you cannot guarantee returns? Moreover, it is important to consider the opportunity cost of capital? A mainstream VC obviously will not invest in a fund that's offering 5 percent when he could find something that's delivering 35 percent. The problem clearly for investors and entrepreneurs is how to effectively apply the venture capital model to social enterprise. How do we make it workable and most importantly scalable? That is the challenge.

The Problem With Philanthropy

I've always been struck by the portrayal and advertisement of poverty in the West. Counter-intuitively, the West is also in Africa, or at least in South Africa, where it is neatly contained in a thin film that permeates the surface level of urban life especially. In this "West", the understanding of poverty and how life unfolds for a poor person is quite limited.

Professor Bill Easterly captures the disconnect in a succinct quote offered by Acumen Fund Founder. To paraphrase,"The problem with philanthropy is that none of the rich people know poor people." This may help explain the desperate need for products and services that fully incorporate Base of the Pyramid (BoP) consumers as design partners with scientists, engineers and anyone else charged with meeting the needs of the poor.

The point is that the poor need solutions that are tailored specifically to their own needs. It's is laughable that most Indian cooksters are designed by European males who have probably never cooked. There is so much room for bottom-up destructive innovation that taps into the end consumer as a valuable resource and source of knowledge.

Microsoft Chief of Research and Strategy Craig Mundie thinks of the innovative process at the BoP level as "serve and return"--serve something up and the market returns it back with a yes (high demand)/no response. Disagree. I think for real innovation, to really include the poor--who by capitalists' design have been excluded from the efficiency of the invisible hand--we have to challenge ourselves not just to create goods with the BoP in mind, but to allow the BoP to drive the creative process and start shifting the needle on the power dynamic.

I get quite heated with excitement listening to people acknowledge the skewed power and privilege struggles embedded in how "we" serve the poor. What really gets me going though, is hearing people drive the conversation to why BoP products should not only meet a functional criterion, but they should also be beautiful, sexy, desirable--tipping a nod to the dignity of life at the BoP level, as anywhere else on the food chain.

I think the skill that's hardest to learn is what we call "moral imagination", the idea of truly being able to put yourself in the shoes of other people and build products from that perspective.

I'm reminded of Soweto in Johannesburg and how tough Sowetan consumers are to crack. You have to deliver quality. It has to be practical and sexy, it must be desirable and above all beautiful.

In an economy where income per capita is an average R8,000 per annum--roughly $1,073, people still choose products that, at least subconsciously, reinforce their human dignity. Sara Lee's Kiwi Shoe Polish has its biggest market in Africa. Even if it's the only pair of shoes someone has, you better believe those shoes will shine. And you have never seen so many lace curtains in your life. Walk into any Sowetan home--even in shacks--and I guarantee almost always windows graced with beautiful white lace curtains that befit a bride. The poor want exactly what you want--quality. Innovative social entrepreneurs deliver BoP quality that's equal parts cheap, quality and cheerful.