Monday, July 20, 2009

Social Business and the Future of Capitalism

Highlights from Creating A World Without Poverty - Social Business and the Future of Capitalism by Muhammad Yunus

PMB's = Profit maximizing businesses

CRS = corporate social responsibility takes two primary forms and may be built on good intentions but some misuse the concept:
1.) Do no harm to people or the planet (unless that means sacrificing profit)
2.) Do good for people and the planet (as long a you can do so without sacrificing profits)

"We will do the socially responsible thing - so long as it doesn't prevent us from making the largest possible profit."

By nature - corporations are not equipped to deal with social problems, to make a profit is the goal, not to solve difficult social issues

Social Business = entrepreneurs set up these type of businesses not to achieve unlimited personal gain, but to pursue specific social goals...

New type of business - dedicated to solving social and environmental problems....same as PMB's but they differ in their objectives

Like all businesses - they employ workers, create goods and services, and provide these to customers for a price consistent with their objectives

Primary criterion - emphasis is on creating social benefits for those whose lives it touches

Definition - A social business is a company that is cause driven rather than profit driven, with the potential to act as a change agent for the is not a charity, it is a business in every sense except that investors who support it do not take profits out of the company except to recoup the original investment over a period of time. (on continuum = this could be just recouping the original investment or the original investment plus a minimum rate of interest, 1-3%)

Non-profit / NGO's - are different in that they don't recover their total costs, depending instead on charitable donations, foundation grants, or gov't support to implement their programs. They are forced to spend part of their time fund raising.

Social business - operated in accordance with for-profit management principles...aiming at full recovery, or more, as it concentrates on creating products or services that provide a social benefit. It pursues this goal by charging sustainable market prices/fees for the products and services it creates.

Generate - profitable sales revenues while creating benefits to society....(if it has to rely on subsidies and donations to cover the costs it is not a social business), just another non-profit charity

Expanded definition: "Thus, a social business is designed and operated as a business enterprise, with products, services, customers, markets, expenses, and revenues - but with the profit-maximization principle replaced by the social-benefit principle. Rather than seeking to amass the highest possible level of financial profit to be enjoyed by the investors, the social business seeks to achieve a social objective."....and I might add, while making a profit.

Profits - unlike non-profits/charities , social business has owners who are entitled to recoup their investments.....(can't incur losses indefinitely) - it might be defined as a non-loss, non-dividend business.

Surplus = rather than being passed on to investors, is reinvested in the business. Ultimately it is plowed back into the target market group of beneficiaries in such forms as lower prices, better services, and greater accessibility.

Profitability - is important to social business, first to pay back investors, and secondly to support the pursuit of long-term social goals....

Long term road map - generating a surplus enables the social business to expand its horizons in many ways.....expanding its market share and locations, improving quality, efficiencies, research and development, introducing new technologies, innovations etc....

Bottom line - of social business is to operate without incurring losses while serving the people and the planet - and in particular those among us who are most disadvantaged, in the best possible manner.

Why invest in social business: investors can get the same satisfaction they get from philanthropy, as giving to a charity, but eventually getting their investment back to use again and again.

1.) social business is self-sustaining, self-propelling, self-perpetuating, self-expanding, continuing to grow
2.) investors get their money back and can re-invest
3.) exciting opportunity for business minded people to give back doing what they do best - running a business with the purpose of creatively tackling social problems
4.) investor not only gets money back, but can remain an owner and help the company decide its future course of action
5.) marketplace now has some new and exciting options - as social business enters the market on equal footing, (not public relations window), they operate in the same market place with PMB's
6.) consumers can decide on whether to support social benefits organizations or PMB's in the same marketplace
7.) social businesses also compete with one another, for customers, investors, etc.
8.) adds new kind of competition to the marketplace - one based on social benefits achieved

Key - social business brings the advantages of free-market competition into the world of social improvement....(competition has always been a powerful positive force for change)

Early stage - of social business development without clear outlines - they will unfold over time

Differences between social business and social entrepreneur:
Social entrepreneur - is a very broad idea and is generally defined as any innovative initiative to help people - it may be economic, or non-economic, for-profit or not-for-profit. Best known is Ashoka Foundation and Bill Drayton, Skoll Foundation, Schwab Foundation for Social Entreprenenurship with the mission to find, support and encourage social entrepreneurs around the world

Subset - social business is a specific subset of social entrepreneurship (but not all social entrepreneur's are working in a social business)

Some of my thoughts:
Hybrid - he doesn't think it is possible in the real world to operate business with two conflicting goals of profit maximization and social benefits....he thinks they gradually migrate towards maximizing profit at the expense of social missions....

Another way - some (like Open Hand) have worked at combining the dynamism of self-sufficiency / sustainable business with the pursuit of worthy social goals through the creation of nonprofit organizations that sell socially beneficial products and services. He doesn't see these as true social businesses as defined above. Partly because they generally achieve only partial cost recovery, which means that they do not attain the "lift-off velocity" that would enable them to escape the gravitional pull of dependence on charity.

Main draw back - these organizations don't have the investor-owner feature that distinguishes social businesses, creating a source of funds with an interest in ensuring both the efficiency and effectiveness of the social benefits generated by the business.

Summary = well apparently he hasn't seen the likes of Open Hand - we are a small, ten year hybrid/experimental version of an "international-social-business-mission-emergent-faith- not-for-profit organziation" that is looking to grow into a more robust and innovative global social business with a variety of worldwide marketplace opportunities to serve the less fortunate among us....Amen.
More soon - over and out!

1 comment:


    Rock on, bruva!