Enter Capitalism 2.0 – a revolutionary approach to business that not only creates wealth but also strives to save our planet. It offers a clear path to tackling many of our world’s most significant problems.
In this blog, we’ll explore the concept of social entrepreneurship, where profit motives harmoniously coexist with solving social issues. Businesses go beyond selling products; they aim to alleviate poverty, combat diseases, and provide essential infrastructure. It’s a win-win situation for everyone – companies and customers alike.
Balancing profit and social good
Social entrepreneurship is about making money while also making a positive impact on society and growing a business. You might wonder if this is possible because solving big problems like climate change or poverty usually costs a lot of money.
Social entrepreneurs look for investors who want to make a difference in the world while also earning a financial return on their investment. These special investments are called “impact investments.” They’re different from regular investments because they are driven by a desire to create positive social change.
To measure success, we need to consider both profits and the positive changes the investment brings to society. A study by the Global Impact Investing Network and JPMorgan Chase found that in 2014, 146 impact investors put $10.6 billion into projects. Remarkably, 91% of them got the returns they expected, and 98% saw the social impact they aimed for.
So, from an investor’s perspective, impact investments work well. But businesses can also make a positive impact while earning money. Instead of just having a sustainability department or donating to charity, social entrepreneurship makes the social impact as important as making a profit.
The pitfalls of mindless charitable giving
Giving to charities might seem like a good thing, but not all charities are as effective as we hope. Sometimes, they focus too much on reducing their own costs rather than making a real difference in people’s lives.
When we donate to a charity, we want our money to help those in need, not disappear into bureaucracy. This pressure to cut costs can make charities skimp on necessary expenses that actually help them achieve their goals.
In short, trying to save money can harm a charity’s mission. Instead, charities should concentrate on measuring the positive changes they make in people’s lives rather than just cutting down on administrative costs.
When charities don’t track the impact of their donations, it can make people feel like they’re throwing their money into a black hole with no visible results. This can discourage potential donors from giving.
Furthermore, some charities can unintentionally harm the communities they are trying to help. For example, giving free T-shirts from the losing Super Bowl team to Africa may seem like a kind gesture, but it has hurt local clothing industries in some places, making people even poorer.
Learning from these mistakes, organizations like the NFL now work with local distributors to ensure that aid goes to communities that genuinely need and want it, instead of causing unintended harm.
Social entrepreneurship in developing countries
Poor communities around the world offer a big opportunity for social entrepreneurs. These are the four billion people living in developing countries, making less than $1,500 a year. Despite their low incomes, they make up more than 50 percent of the world’s population, making them the largest untapped market globally, worth around $5 trillion.
This means that creating products to meet the needs of these people isn’t a bad idea at all. Even though they have limited funds, they still desire products that make their lives easier and safer. Some companies have already recognized this market’s potential. For example, Unilever, a big multinational company, earns over $60 billion in annual revenue, with 60 percent of its sales coming from emerging markets.
Another example is from Vietnam, where doctors were using donated phototherapy devices to treat jaundiced babies but weren’t achieving great results. A for-profit company, Medical Technology Transfer and Services (MTTS), realized that the problem was that the doctors were trying to treat two babies with one machine, so neither baby got enough light for a cure. MTTS designed a device that could only hold one baby, and it worked well. The doctors and patients liked the new machines, and more babies got the right treatment.
In essence, people at the bottom of the pyramid desire the same things as everyone else: quality products with simple designs. If your product can meet these criteria, you can tap into a huge market while helping those who need these products.
Socially-minded investing and millennial entrepreneurship
Socially-minded investors, often referred to as “kickstarters,” play a significant role in helping millennials make a positive impact on the world. Think of it like trying to quit a habit, such as smoking. Changing behavior is challenging, and there’s always a risk of going back to old ways. But in today’s world, two groups have the potential to reshape capitalism into something more meaningful: kickstarters and millennials.
Kickstarters are different from traditional wealthy donors. They aren’t just interested in giving money and moving on. They’ve learned from the past and want to see real results. They want to ensure that their money makes a genuine difference in the world. So, they actively support social entrepreneurs, providing them with the tools they need to succeed. For example, Jeff Skoll, a co-founder of eBay, established the Skoll Foundation, which has invested over $500 million in social ventures. Recipients of the Skoll Awards not only receive financial support but also benefit from a network of like-minded individuals.
On the other hand, millennials, those born between 1980 and 2000, grew up in a world filled with technology like smartphones, allowing instant connections and quick results. They also witnessed pressing global issues like climate change. This has motivated many millennials to want to change the world and make a difference right away. As a result, a significant number of them are interested in entrepreneurship rather than traditional corporate careers.
Key principles for aspiring social entrepreneurs
Successful social entrepreneurs don’t just treat the surface symptoms of a problem; they dig deep to understand the real cause and measure the impact of their actions. Imagine you want to make a carrot cake, you can’t use a cheesecake recipe because different problems require different solutions. Similarly, when starting a social enterprise, you need to consider two important things.
First, focus on the root cause of the problem, not just the visible issues. To create a lasting impact, it’s crucial to address the core of the problem. For example, in Africa, many people were getting sick due to unsafe indoor air caused by open cooking fires. African Clean Energy didn’t just treat the illnesses; they developed an eco-friendly stove to replace the polluting fires. By providing a solution to the underlying issue, they attracted customers who wanted a healthy and efficient way to cook.
Second, measuring the impact of your work is essential. Think of metrics as your guiding light. A responsible social entrepreneur should know how effective and efficient their actions are. Effectiveness means how well you’re solving the problem, while efficiency looks at how much you spent compared to the results achieved. For instance, if you aim to bring electricity to an off-grid community, your effectiveness is the number of people with working lights, and your efficiency is the cost compared to the income generated from selling your product.
Once you’ve measured your success, the final step is to expand and reach more people with your solution.
Overcoming fear of failure in social entrepreneurship
To make a real and long-lasting difference with your socially-minded business, you need to overcome the fear of failing and find a way to reach more people. No matter what kind of business you have, there will always be challenges. But for social entrepreneurs, the big challenge is ensuring that their efforts have a lasting impact.
If you don’t expand your business and reach more people, the problem you’re trying to solve won’t go away, and it might even get worse. To create a positive change, you have to make your product or service accessible to many people. One way to do this is by making a low-cost product and offering it to people with lower incomes.
For example, a company called d.light designed an affordable solar-powered light for people who live without electricity. They used the decreasing costs of solar panels, batteries, and LEDs to create a product that many could afford. Today, d.light has over 51 million customers in 60 countries because they made their product widely available.
It’s also important to let go of the fear of failure. Remember that failure can be a stepping stone to a better future. For instance, in New York City, they tried a program to reduce the number of young offenders returning to jail. Even though the program didn’t achieve the desired results, it sparked interest in innovative ideas like social impact bonds, which led to more efforts to make positive social changes, such as improving preschoolers’ reading skills.
In conclusion, it’s entirely achievable to earn money while making a positive impact on social issues, and countless investors and business-minded individuals are already doing just that, reaping substantial profits in the process. The era of social entrepreneurship in today’s upgraded version of capitalism is firmly established, and it promises to bring benefits to society on a global scale.
Inspired by a book “The Business of Good”; Jason Haber”