SaafWater (a social enterprise in Pakistan) had a vision to tackle
the huge problem of access to affordable clean water across the developing
world and their noble objective was to systematically use social
entrepreneurship to solve this problem that was faced mainly by the world’s
poor. They saw the opportunity to leverage existing ideas and technologies in
achieving their objective. Just as any business would do, they did their market
research and felt rest assured that a total addressable market of over 4
billion people more than validated the business case for their socially
beneficial for-profit venture.
Even better, they didn’t have to build their
product from the ground up; the CDC had a water purification technology that had
been waiting to be harnessed. Choosing a beachhead market wasn’t difficult either.
Karachi, a large city in Pakistan had a ready consumer market with over 15
million residents, and the SaafWater team didn’t have to try too hard to find a
willing sales-force. They only had to bear the initial cost of providing
training plus performance-based incentives to get them moving.
SaafWater’s key innovation was
around the business model and supply chain network. This is often the hard nut
to crack in emerging markets, so they focused on this and grew the business
organically. They sought to achieve a simple and straightforward two-fold
objective: build a profitable company and prevent 500,000 cases of diarrhea per
year per city.
In my opinion, they took a
smart approach in pursuing this objective by using a for-profit vehicle. This
allowed (or forced) them to apply the rigor and outcome based approach that
characterizes private sector driven investments. It is obvious the problem of
access to safe drinking water isn’t new, but has certainly seen (and continues
to see) a lot of activity and investment from foundations, governments and
non-profit organizations over the years. Sadly, this problem has just refused to
go away. Why is the reason for this, you might ask?
The reason is not far fetched.
These non-profit approaches have failed simply because they’ve lacked
consistency and sustainability, and do not have the right incentive structure.
Governments, foundations and non-profits have limited budgets and often have other
bureaucratic and donor-related constraints that make it difficult to pursue
their programs to logical conclusions. In addition, they have different
incentive structures from non-profits. Non-profit organizations are often
judged by how much they are able to raise and spend, and evaluated less by how
effective they have been at tackling development issues. Their focus is often
on popularity and acceptability, rather than on fact based results and quantifiable
performance, so the problems seem to stick around despite huge investments.
I believe for-profit ventures
and the private sector play the most critical role in advancing society. All
other actors simply play hygiene or enabling roles. I also believe that nearly
all social problems in the world today are amenable to some type of for-profit
venture. Private sector organizations have very clear measures of success that
everyone understands. When they fail, they are effectively punished by the market
and when they succeed, they are rewarded with more resources and better access
to markets. This is how Coca-Cola, Google, Microsoft and Toyota conquered the
world. Could you imagine if we left drug development and biotech development to
non-profit ventures? Where would medical practice be today?….. unthinkable!
What
are the limits to social entrepreneurship?
Social entrepreneurship
currently suffers from a perception problem. Even though social enterprises are
technically classified as for-profit ventures, they are still seen by much of
the world, and by many investors as belonging to the same broad category of
non-profit ventures and NGOs. The reason is many people (including investors)
have mental models that interpret doing
good and doing business as two
mutually exclusive endeavors. Social entrepreneurship is however a
revolutionary attempt to bridge these two perhaps, distinct objectives and
craft out visions that marry both into a harmonious union.
21st century
capitalism may have also contributed to the dichotomy between doing business and doing good. Few can argue against the great technology and economic
gains that capitalism has delivered to the world in the last 50 or more years. However,
many also believe capitalism has fueled narcissistic and/or acquisitive
tendencies that have produced few billionaires and countless peasants, and the
Forbes list has a great way of reminding us that half of the world’s wealth is still
controlled by less than 100 people.
Therefore, the investment
community tends to look towards “pure” business ideas when they want to make
huge capital investments, while they continue to reserve smaller amounts of
capital for “social” entrepreneurs who they still consider as next-door neighbors
to non-profits.
This problem of access to
capital will continue to prevent social entrepreneurs from scaling up their
ventures in ways that could deliver huge global impact comparable to global
for-profit success stories such as Google and Amazon.
The good news is that there are
more opportunities today than before with the increasing acceptance of the social entrepreneurship model and the creation of more social
enterprise and impact investment funds across globe. Overall, the future of
social entrepreneurship seems bright, but there are significant challenges to
overcome.
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