Fighting For the Middle Ground

Investing responsibly can help promote the growth of socially responsible businesses and your money can go to work for you, for a good cause.  Your money will help provide the financing for social entrepreneurs to grow and expand their missions.  While there are tons of people out there who take environmental, social, educational, and civil rights factors into consideration when investing their money, for the vast majority of investors these ideas would never cross their minds.  So, until the New York Stock Exchange (NYSE) and NASDAQ are replaced by social stock exchanges (SSE) like the one in Sao Paolo (not likely anytime soon), when it comes to financing, social entrepreneurs are stuck fighting for the middle ground.  They are too business-oriented for charitable donations, and too charitable for normal investors.

            And this is the subject of today’s post.  Because of the awkward limbo social entrepreneurs often reside in, they have to piece together a mixture of financing that can be confusing, stressful, and time consuming.  Since social businesses fall in the middle ground, their sources of financing don’t fall into neat categories like “philanthropic donations,” or “government funding,” or “private investors,”  but rather, a hodgepodge of all of these.  This raises many difficulties as often times the CEO of a social business is forever chasing the next source of financing, which distracts from the mission.  Instead of managing the day to day duties, he or she is on the phone with philanthropic organizations, organizing fundraisers, or lobbying Congress for this years tax incentive – which may decide whether or not they can continue operating.  Nevertheless, this is the reality of businesses with social missions.  Unless they are selling products or providing paid services that finance their social causes, social entrepreneurs will have to deal with these hurdles.

            I will focus on the various different sources of financing, one by one, in future posts.  But here is a quick run down of the patchwork of financing options for social businesses. 

• Personal Funding – since social entrepreneurs believe in their mission, many invest their own savings in starting up.
• Government Grants – because of the social benefits of ceretain social businesses, government grants are potential sources of financing.
• Angel Investors – often times a very wealthy individual believes in a certain cause, and donates large amounts of money.
• Philanthropic Organizations – they may be reluctant to donate to for-profits, but a big source of financing for non-profits and some semi-profits.
• Venture Capitalists – they probably won’t invest in either non-profits or semi-profits, but venture capitalists are a huge source of financing for for-profits.  The most obvious example is the abundance of venture capital money in the renewable energy sector.
• Going Public – Once a social business gets big enough, it can list on a stock exchange and rapidly raise capital from individual investors.  But, this also brings risks, such as losing sight of the mission.

Since their is often a gray area of where a social business operates, many social businesses tap into two, or three, or many of these sources.  Having multiple sources of financing may allow for flexibility, but it also brings difficulty and uncertainty. 

Business Profile: Barefoot College

A new segment that will become a regular feature on this blog will be the Business Profile.  I will take an in depth look at an example of a social business – it’s structure, its financing, its goals, how it works, how it helps the community, etc.  This feature will appear each week.

 

Back in the first post on this blog I discussed Barefoot College.  This is a non-profit that was started in India by a man named Bunker Roy.  India is a land of many hierarchies; where it is not possible for certain people to receive advanced degrees from prestigious universities.  Bunker Roy setup this non-profit to bypass the necessity of degrees and certificates for achieving success.  Barefoot College believes that ordinary people can be self-reliant and can solve complex problems on their own.  It believes in the power of local communities and villages. 

 

Therefore Barefoot College teaches the poor how to develop their own communities, their own way.  All too often, large aid organizations drop in on desperate communities and dictate how to develop a community without taking into consideration local tradition or local knowledge.  Bunker Roy and Barefoot (with obvious resentment towards the elite telling people what to do) believe that “professionals” exist within communities, and highly educated urban professionals are not needed to develop communities.  The rural poor are able to learn how to solve complex problems without needing to be educated, or even literate.

 

The most important factor in successful development, Barefoot argues, is meeting basic needs: clean water, health, education, and work.  Not only are these issues solved by the poor themselves, but they are taught to tackle even tougher problems to increase their quality of life.  Often illiterate and lacking formal education, these villagers are audaciously trained to be solar engineers, local doctors, teachers, and architects.  There is even a children’s parliament in their school.  As the only non-profit that operates for the rural poor and also maintained by the rural poor, students of Barefoot College are responsible for:

 

• Providing solar electricity for over 870 schools across India
• Transforming over 500 hectares of wasteland into usable farmland
• Establishing over 200 health centers in rural India
• Building over 200 homes
• Creating handicraft jobs for over 300 women

 

Picture from Barefoot College website 

 

As a traditional non-profit, Barefoot College gets most of its funding from international aid organizations and the grants from the Indian government.  But they develop with their own local strategies, from the ground up.  Large aid organizations and the government do not have a say in how to develop these communities.  In an effort to promote transparency in India, Barefoot College is also one of the few community organizations that conducts an entirely open audit of its finances for the public to see. 

 

Bunker Roy takes pride in action instead of talk, in results instead of theories.  On the Barefoot College website, it says rather bluntly that there are certain people that should not participate in Barefoot College – “those who hold paper degrees and call themselves experts.  Those who hide behind those degrees and qualifications and are unable to work with their hands.”  And as for the people that should participate?  “Those who are drop outs, cop outs, wash outs and rejected by society because they cannot pass an exam and show a degree next to their name.  Those who have no possibility of getting the lowest of the low government job. They have no choice but to stay and the investment in the training is not wasted. They will earn the respect of the communities they serve because of the service they will provide.” 

 

Redefining traditional theories on international development, Barefoot College is making incredible progress for the rural poor in India. 

What is a Social Entrepreneur?

What is a Social Entrepreneur? According to Ashoka International, social entrepreneurs are “individuals with innovative solutions to society’s most pressing problems.” They may come in the form of non-profits, for-profit companies, and venture capitalists, as well as any mixture of the three. Contrary to most social outreach efforts, social entrepreneurs don’t approach a problem by dispensing welfare or providing temporary relief from the problem. Instead they seek to solve the problem where it starts, at its roots. For example, instead of giving out checks to the unemployed, a social entrepreneur would seek to solve the problems creating unemployment. Through sustainable, long-term business models, social entrepreneurs can:

• Address gaps in healthcare systems.
  • Aravind Eye Clinic charges patients based on their income, allowing them to make a profit while also treating low-income patients.
• Lift people from poverty and welfare dependence through job training.
  • DC Central Kitchen, a food pantry and a meal program for the city’s homeless, provides on-site job training and future employment in the food service industry for many of the homeless they feed.
• Taylor the education institutions to fit the needs of the community.
  • Barefoot College, a non-profit in India, trains the rural poor to more efficiently develop their basic necessities, such as drinking water, sanitation, and electricity. Trainees are not formally educated and are often illiterate. Problems are solved locally, without the help of urban professionals because these trained “para-professionals” already exist within the community, making these communities self-sufficient.
• Making “green-fueled” business cost-effective and competitive.
  • Vestas, the world’s leading wind turbine manufacturer, has installed over 35,000 wind turbines in more than 63 countries, while reducing CO2 emissions by over 40 million tons per year. (This company is doing a lot of good while pulling in 291 million euros in 2007. Not bad.)
• Training the next generation of social entrepreneurs.
  • InnerCity Entrepreneurs works with its urban partnerships to provide business education, networking channels, and research to the people of these communities, people that were previously denied easy access from such resources.

The idea of social entrepreneurship is that by investing in people, you can improve the lives of millions. Whether the social entrepreneur works for profit or not, each one seeks a social return on their investment. This idea dismantles the often accepted notion that governments are responsible for the disadvantaged while private companies are responsible for profit. Social entrepreneurs teach us that responsible market-based solutions can be implemented to alleviate social problems as well as turning a profit. Perhaps the most obvious example of this is for-profit companies helping slow climate change while making money at the same time.

This blog is dedicated to the idea that many of society’s ills can be solved through entrepreneurship. By using innovative ideas, sustainable business models can be implemented and replicated across the world. Each post will give examples of how this is done.