COMPASS MAGAZINE #11
COMPASS MAGAZINE #11

SOCIAL ENTREPRENEURS Philanthropists find that good business practices make bigger impact

Social entrepreneurs don’t give away their services, but they deliver them in ways and at prices that low-income consumers in remote locations can afford. From providing affordable lighting in regions the electrical grid doesn’t reach, to driving out counterfeiters by offering authentic anti-malarial drugs at affordable prices, these change agents find that rigorous business practices help them to do more good works.

In rural India, hundreds of women fan out each day offering middle-aged customers a product that can transform their lives, help them get ahead in their chosen professions and enjoy a happier life. A technological breakthrough? Not at all. The product is a pair of simple reading glasses, available to most people in the developed world at the corner store. But in countries like India, the lack of these glasses has kept millions with poor close-up vision mired in poverty because they can no longer work at their jobs – or even prepare dinner.

Sales of these inexpensive reading glasses are now booming in a growing number of developing countries thanks to a nonprofit organization called VisionSpring, which is the brainchild of New York optometrist Jordan Kassalow. When Kassalow was a college student, he worked as a volunteer at eye clinics in Mexico and Colombia and was shocked to discover that a quarter of the patients needed no special surgery or treatment, just simple reading glasses. They suffered from late adult onset myopia, or the kind of shortsightedness that affects many people after the age of 40. For many, it meant they could no longer be weavers or tailors or silversmiths. VisionSpring seeks to change that.

PROFITING BUYERS AND BUSINESSES

Kassalow is among a new breed of philanthropists known as social entrepreneurs, people who adopt the traditional business techniques of the multinational corporation to do good in the world. These social entrepreneurs sell products rather than give them away, as charities traditionally do, creating a class of empowered customers who provide crucial feedback. The entrepreneurs then use the profits generated by their businesses to expand their charitable work to other countries, carefully tracking results just like consumer-product companies do to ensure their strategy is working.

“IF PEOPLE ARE EXPECTED TO PAY FOR OUR PRODUCT, IT PUTS PRESSURE ON US TO ENSURE IT PROVIDES VALUE.”

JORDAN KASSALOW FOUNDER, VISIONSPRING

“The key point is that we prefer a handshake to a handout,” Kassalow said. “If people are expected to pay for our product, it puts pressure on us to ensure it provides value, is aspirational and has the right price point and style. We get better at what we do and hone in on what meets the customer’s needs.”

Jim Ayala, a former director at business management consulting firm McKinsey & Company, now runs Hybrid Social Solutions (HSS), a nongovernmental organization (NGO) in the Philippines that is bringing affordable energy alternatives to the millions of people who live “off the grid” without electricity. HSS sells products like solar-powered lights that enable fishermen to fish at night and helps students study without burning expensive candles or fossil-fuel-based lanterns.

“WE GATHER A LOT OF DATA TO MAKE SURE WE UNDERSTAND
THE NEEDS AND BUDGETS OF OUR CUSTOMERS.”

JIM AYALA FOUNDER, HYBRID SOCIAL SOLUTIONS

“Like traditional businesses, we gather a lot of data to make sure we understand the needs and budgets of our customers,” Ayala said. A typical kerosene lantern can cost US$100, far above the reach of most rural poor. Ayala’s nonprofit has partnered with microfinance organizations to provide short-term loans, which are paid back from the savings consumers enjoy by not having to purchase lantern fuel. After three or four months, the product is paid for and the customer can pocket substantial savings for the rest of the solar lantern’s useful life.

DOING GOOD IS NOT ENOUGH

Techniques such as microcredit, which was pioneered by 2006 Nobel Peace Prize-winner Muhammad Yunus at the Grameen Bank in Bangladesh beginning in 1983, have been working successfully in the developing world for decades, long before the term “social entrepreneurship” was even coined.

So what sets Kassalow and Ayala’s approaches apart? Like J. Gregory Dees, considered by many as the intellectual guiding force behind social entrepreneurship, they understand that it’s not enough to run a business that does good. The business also must relentlessly pursue new opportunities to serve its social mission, engage in continuous innovation and show heightened accountability, not only to its constituents but also to the outcomes created – and the best way to do that is to manage and measure the business in much the same way that for-profit companies do.

The idea has now blossomed to the extent that Jeff Skoll, the billionaire founder of online auction site eBay, has established the Skoll Centre for Social Entrepreneurship at Britain’s Oxford University. Social entrepreneurship programs are now offered at many schools, including Duke University in Durham, North Carolina, and Stanford University in Palo Alto, California, as well as the Institut d’études politiques de Paris (“Science Po”) in Paris.

“SOCIAL ENTREPRENEURS FOCUS ON TRANSFORMING SYSTEMS AND PRACTICES THAT ARE THE ROOT CAUSES OF POVERTY, MARGINALIZATION, ENVIRONMENTAL DETERIORATION AND ACCOMPANYING LOSS OF HUMAN DIGNITY.”

SKOLL FOUNDATION A SOCIAL ENTREPRENEURSHIP ORGANIZATION

“Social entrepreneurs focus on transforming systems and practices that are the root causes of poverty, marginalization, environmental deterioration and accompanying loss of human dignity,” according to the Skoll Foundation, a social entrepreneurship organization that Skoll also created.

SMALL SEEDS BEGIN TO GROW

Another successful social entrepreneur is Andrew Youn, formerly a management consultant at Oliver Wyman. Youn now runs a nonprofit in Africa called the One Acre Fund, which helps small farmers in Kenya, Rwanda, Burundi and Tanzania increase their income by providing financing for seeds, training in farming techniques and help in shipping the farmers’ products to market.

“With us the adage is ‘the customer is king,’” Youn said. “We have more than 1,000 service points, and if any of them start performing poorly the payment stops immediately. We use revenue as a way of identifying ways we can improve.” As a result of such innovations, Youn’s One Acre Fund has reinvested its profits and grown to serve 278,000 farmers with 3,100 full-time staff.

278,000

By reinvesting its profits, the One Acre Fund has grown to serve 278,000 farmers with 3,100 full-time staff members.

Another nonprofit in Africa, Living Goods, was set up by American Chuck Slaughter, who made a fortune by founding online travel clothing company TravelSmith. Living Goods uses teams of women trained like Avon Ladies, the iconic door-to-door cosmetic saleswomen, to bring medicines to African homes at affordable prices. Slaughter then studies a number of business metrics, such as retail sales per agent and revenue per product, to determine if the business model needs tweaking.

Living Goods not only helps its customers, but other consumers as well: A 2013 study by researchers from Stockholm University, the Stockholm School of Economics, and Harvard University found that when Living Goods entered the market in Uganda, fake anti-malarial drug sales at private drug shops dropped and so did the prices charged for authentic drugs. Overall use of authentic anti-malarial drugs increased by nearly 40%.

All of these social entrepreneurs have one thing in common: a conviction that the billion people who live at “the base of the pyramid” of world incomes constitute a potentially powerful class of consumers – consumers who are willing to spend their hard-earned money when offered appropriate and appealing goods. VisionSpring’s Kassalow cites the example of a multinational consumer goods company that initially failed to sell shampoo by offering it in the discounted, economy-size bottles common in European and US stores. But when the firm started selling shampoo in single-use aluminum foil packs at a price local consumers could scrape together week to week, its products began to fly off the shelves.

Similarly, cellphones didn’t gain wide acceptance in Africa until providers began offering rechargeable cards at kiosks for the equivalent of US$1, which enabled even the poorest consumers to access phone service on an as-needed basis. By focusing on their customers’ limited cash flows rather than the per-unit price of their product, the companies found a counterintuitive pricing formula that worked.

KNOW YOUR CUSTOMER

Youn said another lesson he has learned is that consumers at the base of the pyramid often live too far from towns to shop in stores. One Acre Fund overcomes this by having “drop-off points” that serve extremely remote areas.

Companies also shouldn’t assume that low-income consumers want cheap products, Hybrid Social Solutions’ Ayala said. Even the poorest have an eye for quality and style and will often opt for more expensive products that will do a job better, last longer or provide hard-to-quantify fashion appeal.

“When it comes to buying products, an aesthetic sense is not monopolized by rich people,” Kassalow said. “It’s really critical to make sure that products we sell are culturally appropriate and aspirational for our customers, because they too want to look their best and they don’t want to be ostracized. Even at the base of the pyramid, fashion matters.” ◆

by Charles Wallace Back to top