Discussion about entrepreneurship

Business/Entrepreneurship

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Edited by Ruth A. Shapiro

Today, "s ocial entrepreneurship" describes a host of new initiatives, and often refers to approaches that are breaking from traditional philanthropic and charitable organizational behavior. Nowhere is this more true than in the United States- where, from 1995- 2005, the number of non-profit organizations registered with the IRS grew by 53 percent. But what types of cha nge have these social entrepreneurial efforts brought to the world of civil society and philanthropy? What works in today's environment? And what barriers are these new efforts breaking down as they endeavor to make the world a better place?

The Real Problem Solvers bring s together lea ding entrepreneurs, funders, investors, thinkers, and champions in the field to answer these questions from their own, first-person perspectives. Contributors include marquee figures , such as Nobel Laureate Muhammad Yunus, Ashoka Founder Bill Drayton, Jacqueline Novogratz, Founder of the Acumen Fund, and Sally Osberg , CEO of the Skoll Foundation. In no other book are so many leaders presented side-by-side. Therefore, this is the ideal accessible and personal introduction to social entrepreneurship.

Ruth A. Shapiro is the Principal of Keyi Strategies. She is Social Entrepreneur in Residence at the Commonwealth Club of California . Shapiro wa s the founder of the Asia Business Counci l whe re she is now Senior Advisor.

'The Real Problem Solvers provides singular insight into the aspirations, challenges, and opportunities of those who are at the front of the social entrepreneurial movement. This is a must-read for the leaders in organizations that seek societal impact at the ' blurred edge' between the non-profit and for-profit worlds."

- Dominic Barton, Global Managing Partner, Mc Kinsey & Company

Cover design: Riezebos Holzbauer I Ben Hopfer

Stanford Business Books An imprint of Stanford University Press www.sup.org

ISBN-10: 0-8047-7441-2 ISBN-13: 978-0-8047-7441-3

111111111111111~ llllllllll Ill 1]1lll11i 1!11 9 780804 774413

THf Rf Al PROBlfM SOlVf AS SOC \AL E,NTREPRENfVR. S {N AN\ trZlcA-

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THf Rf Al PROBlfM SOlVf RS SOCIAL SNTREPRENfvKS IN AAflfre.1cA-

186 BUI LD I NG SOCIAL BUS I NESS

see a good response both from the business area and also from young people

around the world. We also have an enormous amount of technological inno-

vation in the world today. If we can bring together our creative minds, utilize

businesses in a constructive way, and use this technolog y, a ll of the problem s

we have piled up over the years will disappear in no time. So that's a challenge

that we all face: how to bring out the creativity in each individual, each one

of us, rather than waiting for the government to solve everything, rather than

waiting for the international agencies to solve the problems of the world. We

are much better as individuals. We can create much more dynamic and much

more creative things to solve problems that were never solved before. That's what social business empowers us to do.

• THE CHAMPIONS

A Conversation

Shapiro: Within this field of social entrepreneurship, there's a lot of talk about the

morphing between profitable enterprises and nonprofit enterprises. And there is

the focus that is implied by the word entrepreneurship on bringing business rigor

into the equation. Some people have very strict definitions about this term, and

some do not. Where do you see the field moving in terms of private sector initia-

tive versus nonprofit, and what would be a good outcome in this regard?

Drayton: First of all, the idea that business is doing better is highly suspect. We

know, for example, that privately held companies consistently do better than

publicly held companies because they don't have the quarterly focus on finan ce-

only measures. Do we really want to have quarterly measures a nd those sorts

of things? I don't think so. I'm from McKinsey; I like analysis, but that's not the

point. There are a lot of things for which you need judgment. Social entrepre-

neurs have a new idea; there's no comparison. How d o you do a comparative

analysis for Mary Gordon when she's getting started with Roots of Empathy?

You have to use judgment-discipline and judgment. We're afraid of judgment.

Bureaucracies can't do it. Twenty-four-year-old financial analysts don't do it.

This is not a good model. W hen you think about a global team of teams, hav-

ing this division between business and society is incredibly destructive. It's a

leftover from history. Business was the first "everyone a change-maker" sector;

around 1700, it said, "Ever yone with a better idea: If you implement it, we're go- ing to make you really happy, and we're going to copy you:· That set in motion

1 88 T HE CHAMP I ONS

the history of progress and change. The social half of the world got stuck for

300 years, for a variety of reasons. It remained small, fragmented, and unpro-

ducti~e, ~o '.ou had these two worlds that didn't talk, wore different clothing, and d1dn t hke one another. In 1980 a citizen sector broke free from that and

became entrepreneurial and competitive in exactly the same sense as business.

People can enter, and, if you do better, you gain market share and resources and

elan. That's why we set up Ashoka in 1980; we saw the historical moment. Since

then, there has been an explosive catch-up growth in productivity in product,

and scale, and now globalization. So you actually have two sectors that have the

same architecture and have closed most of the productivity gap.

Just one measure of that is that the citizen sector has employment growth

at 2 .5 to 3 times that of the rest of the OECD economies, because we're

catching ~p in productivity so much . Now, we have an incredible strategic opportumty to end the division, and one of the o ther areas of collaborative

~ntrepreneu1:ship that we've been working on for the last four or five years is to do precisely that. We have 500 of the fellows working on ensuring that

every human being can be a full player in the economy. One of the first things

they figured out is how to tear down this barrier and create an entirely new

production and distribution system that takes the best of the citizen sector

~n~ the best of the business sector. This is not moving a product through ex- 1stmg systems. This is completely changi ng the system. To sell this, we figured

we had to demonstrate it in th ree different industries on four continents. We have now done this in six of these cases.

I'll give you just one example. We started fourteen months ago in India.

India has a shortage of 24.7 million h ousing units for informal-sector workers

inside the cities, according to the government. That's before the 700

million

arrive that are about to come into the cities. The current system didn't work

for these people- total market fai lure. Builders and developers and finance

people couldn't deal with informal-sector workers-someone who sells veg-

etables, works every day, and has income but no paperwork. Furthermore,

these sort of elite people don't know these other people. There are probably

class and caste differences and political uncertainties. So it's a total fail ure

~f the market. Now, the citizen sector in the last ten years has come up and is very competent. You have big citizens' groups that know how to deal with

t~ese people; they deal with them a ll the time. The citizen groups are not par- ti~ularly good at building or finance, but they're particularly good at dealing with the market. You put these together, and in fourteen months we have s

120

THE CHAMPIONS 1 89

million financed for more than 15,000 new units for informal-sector workers

in the city. Now, if you divide 15,000 into 24.7 million, you can begin to imag-

ine the size of the market failure that we're beginning to deal with.

The exact same thing is happening in health and irrigation. Irrigation

companies in Mexico don't serve small farmers. It's not profitable. The cutoff

is ten to fifty-five hectares. Well, there's a huge part of the land area of Mexico

that is comprised of sma ller farms that are not included in the market reach

of the irrigation companies. But, if they were, the farmers would have two or

three times the income and less uncertainty because they wouldn't be depen-

dent on the rains to be conserving water. This is a really big deal. Again, it's a

market failure, but in the last ten years, citizens' groups have come up all over

rural Mexico serving 50,000 or 100,000 small farmers. Their cost structure is

low. They understand the politics. You put these together, and all of a sudden

you can actually get drip irrigation to small farmers. We're talking about hun-

dreds of millions of small farmers across the world. For those of you who are

in fina nce, start thinking about the size of the financing opportunities here.

This is not a small deal. This is a fundamental pattern change. Our goal, five

years from now, is that anyone who is thinking about strategy in any sector is

going to ask, "Where is the business-social hybrid that we can build?" That's

one of the stock, strategic questions. They k now the next five questions . Our

strategy that I'm inviting you to join- those of you who are in t he management-

consulting and perhaps financial sectors-this is a whole new practice. Hystra

is a French company that has just been founded to do these hybrid strategies,

and it is doing very well. It's going to be keeping consultants busy for sixty

years, building hybrid value cha ins and improving them. There's tremendous

opportunity and tremendous need. But, again, you have to break the frame-

works of thinking, and that's what collaborative entrepreneurship does .

Shapiro: Can these hybrid models be profitable, for for-profit companies as well?

Drayton: They are highly profitable. Just take the first example. Builders, devel-

opers, and finance companies are all making a lot of profit. They're loving this.

The citizen groups are getting a 30 or 40 percent markup. Think about what

that means for the citizen sector. You don't have to deal with the government or

the foundations anymore. Yo u get to be independent in a couple of years if you

do this. This is really very profitable. We are actually very grateful to one of the

Draper funds being an investor in Healthpoint, which is the health care model.

I'm sure that they thought it was going to be profitable, which it will be.

190 THE CHAMPIONS

Yunus: Grameen bank and social business-one is the offshoot of the other. We

started with Grameen Bank, but we got involved with many, many other com-

pan ies. In the process, we created almost forty different companies with the

Grameen name on it-Grameen energy, Grameen phone, Grameen IT com-

pany, Grameen solutions, Grameen textiles, you name it. Always, whenever I

see a problem that I want to address, that I want to solve, I create a business. I

create a comp any. I think creating a company can solve a problem. This makes

much more sense to me because I can control how the solution is crafted and

put into practice. Through that business, I can address it.

For example, when I saw that information techno logy is such a power-

ful thing happening in the world, I realized that if we could som ehow bring

this technology to th e hands of the poor people, poor women particularly, the

world wou ld change dramatically. Poverty would take care of itself; people

will overcome this poverty because now they wou ld be the master s of their

fate. So I was looking for opportunity, and that opportunity came when we

created the Grameen mobile phone company. It beca me a very successful mo-

bile phone company, bringing mobile phones into the vi llages and putting

them into the hands of the poor women to run busi nesses with their phones.

There are many other examples in addition to this one.

The idea of social business grew out of the idea that bu siness provides so-

lutio ns. I created all those compan ies, and people think that I am a very rich

man. I have so many companies . I try to ex pl ain to them that, yes, though I

created all those compa nies, I'm not a rich man. Then they get very puzzled.

"Why do you have so many compa nies, but you s till say you are not a r ich

man? Don't you own a ll these companies?"

I say, "No, I don't own any one of these companies."

"Then why do you create companies if you do not own them?"

I say, "It never crossed my mind that I have to own them. I creat ed them to

solve problems; I was not thinking of owning them . I don't own a s ingle share

in a ny of the companies that I have created." This really puzzles people!

W hat about Grameen Bank? Does Gra m een Bank make a profit? Do th e

owners m ake mon ey? Yes, it does, because Gra meen Bank is own ed by the

poor people. So there needed to be a second defi nition of social business: I said,

"Any business tha t is owned by the poor people, even if it is a pr ofit-m aking

compa ny, even if they are taking dividend s, that is a social business because it

is collectively owned by the poor people."

TH E CHAMPIONS 19 1

Shapiro: There is now a fair amount of money being put into social investment

vehicles that focus o n profitable efforts to deal with a social challenge. It sounds

as if what you're saying is that there are plenty of opportunities to make money

and that these types of funds a re going to proliferate. Is that right?

Drayton: I'd like to go a little bit further. We have two financial systems: one

that has its problems but is pretty efficient and very adaptive and very competi-

tive; and then we have government gra nt agencies and fou ndations, which are

the main institutional finance for the citizen sector. The chasm bet ween these

two finan cial systems is very unhelpful. McKinsey did a survey that Stanford

Social Inno vation Review published about four years ago. Just the transaction

costs of dealing with foundations and gove rnments was 20 to 45 percent. For

private financial and business financial institutions it was 2 to 5 percent. That's

before you get to being willi ng to deal with lo ng term and so on.

If you thin k about what a social entrepreneur needs and what these two

sets of institutions institutionally are set up to do, there's an almost complete

mism atch . The entrepreneur wants you to really like a new idea. Well, how

does that fit into legislation and rules a nd reg ulat ion s a nd branches a nd d ivi-

sions a nd, for foundations, strategies? It doesn't. It's a huge pain in the neck

for the program officer s because they have to talk to five other people. They

don't wa nt to do that. It t akes time. There's nothing in it. That doesn't work.

You have to bu ild an institution. Causing change in a democratic society is

not instantaneou s. It is not a one-year affair. Well, that doesn't fit their time

on the horizon. The entrepreneur wants you to be loyal to him or her because

this is their life. It's not a one-year project. Well, these institutions don't do

that. That's judgment. How would we deal with that? Bui lding inst itutio n is

overhead. There's a complete serious structural problem h ere.

Now, individuals tr y very hard to overcome this. There are some insti-

tutions that are closer to their founders that do a really good job. But tha t's

the exception, and it's not the structural problem. So I think we need to col-

lapse these fin ancial ins titutions. We actually have s ix projects designed to do

that. O ne of them, to which I invite everyone reading this to cont ribute, is the

social investment entrepreneu r programs. We're looking for people who are

entrepreneurs in social finance. There's a wave that's coming. It's wonderful.

Felipe Vergara from Colombia looked at the education finance system in most

of the world. It's one of the main causes of structural corruption. The gov-

ernment puts whatever money it has in its budget; it h as no market-clearing

192 THE CHAMPIONS

mechani sm to figure out how much is appropriate, let a lone within each areas.

So you have som ething that's hugely valuable and that they then underprice.

So what on earth do you think that leads to? The nice word is influence. The father of a ver y good friend in Mumbai founded nine law colleges there. Every

fifth or six dinner someone comes by late in the dinner, "Oh, you know my

niece-very nice person, really smart, don't you think? Don't you think she should be a lawyer?"

"Oh, yes, why don't you have her come and see me?"

Well, that's nice influence. In Nigeria, it's just priced. It 's very straightfor-

ward. All over the world, young people are entering their adult life in a cor- rupt system, and they know it. Everyone knows it. We don't have enough places

now. So Felipe Vergara has founded a very simple way: He's creating for-profi t

human-capital funds. You can invest in proving undergraduates or a fund for

disabled students going to college in Mexico. You don't know what a ny one

earns, but you do know what the group will earn; very safe. Think where this is

leading. You've done away with the capital shortage. You have a market-clearing

mechanism. If you invest too much in veterinary students, the return will go

down, and it will say "bad fund," and you've cut away the legs of corruption.

There's more to it. I could give you many examples . We're just entering

a wave of change in the financial system that is part of eliminating the gap

between business and society. It's really important; Sa n Francisco is a center

of financial innovation; here is a new opportunit y. I love these new initiatives.

They're pushing the frontier. I just caution that we need to have new fi nancial

systems all across the board, not just in the social enterprise area. That's a little caveat.

Shapiro: What can governments do to faci litate an increase in social entrepre- neurship and social business?

Yunus: As far as conventional business is done, I'm sure we all know what the

government is supposed to do. If it is related to what the government can do to promote social business, then yes, there are a lot of things that government can

do. Government could create a social business fund, so that anyone who wants

to do social business can go to the fund and say, "Here a re my social business

ideas. Would you give us investment money? " For example, somebody said,

"Okay, I have a great idea: I'm going to create a social business. I would like to

take ten people out of welfare thro ugh a social business. I create a business to

take people out of welfare, and I need X amount of money as an investment to

THE CHAMPIONS 1 93

do that; gradually I will pay you back because that's our business-we pay back.

But, in the m eantime, I will take these ten people out of welfare completely:' So

if this government fu nd is available, then it is in the government's interest to

help create the business, remove people from its own budget and help alleviate

poverty. It is a very leveraged investment.

Shapiro: Does that fund exist anywhere?

Yunus: Not yet, but it will come. Any new idea like this needs a little time. Funds

like these are beginning to be created by individuals and soon by governments.

What about governm ent assistance in the international arena of development,

foreign aid? Foreign aid money goes to the government and goes to the agen-

cies and so on. But if you think about it, if governments set up social business

funds instead of giving money to government agencies, they would be m uch

m ore productive. If you take 10 percent of that money, separate out what you

are giving as foreign assistance and use it to create a social business fund so

that people in the cou ntry and outside the country can come and create social

businesses to address health care-health care is an excellent social business

idea; you can solve the problems of health care by creating social businesses-

or forestry or education or environment or renewable energy; these are social

businesses. This fund can be used, and it becomes bigger and bigger because it

doesn't disappear. Each year, you are putting more money in, and it becom es

bigger. The money that you give comes back again. Foreign aid that goes and

then never comes back, at the end of the day, it becomes zero. So you have

to start all over again with a fres h fund. This is better. You are taking only 10

percent of the mon ey. If you think th is is doing good work, you can gradually

make an even bigger one. State governments or city governments can do the

same and create social business funds and encourage their citizens to partici-

pate in solving the problem. To take drug addicts off drugs could be done as a

social business . Taking care of the disabled people could be a social business.

We can help and invest and do that. Foundations can do that. These are the

kind of ways one can come forward and support that.

Shapiro: Dr. Yu nus, you are a Nobel Laureate and rather well known. Please

think back to the time you were convincing people to support your ideas. Could

you discuss some of th e challenges you faced and how you overcam e them?

Yunus: Opposition comes from an entrenched mind -set. People love to be-

lieve what they believe. They don't want to see something different. They reject

194 THE CHAMPIONS

something new right away, and they keep on arguing that it's not right. It takes

a lot of time to change minds. Our mind-sets are created in our educational

institutions. That's where we develop our mind-sets. This is why educational in-

stitutions are so critical. Can the students remain open minded to absorb new

ideas? Creating students with a rigid mind-set, I think, is a damaging thing to

do because then you are sealing it off; it cannot take any other fresh ideas. We

live in a world today [where] new ideas are generated continuously. As a soci-

ety, we have to learn how to absorb new ideas. Otherwise, we will be damaging

ourselves and our society.

Shapiro: What are the characteristics of a person who is going to bring about

social change or start a social business?

Yunus: I guess others will have to find out; I cannot tell. If I see a problem, my

instinct is: I can solve that problem. At least I can try, so I start trying, and usu-

ally I try it in a business way. If it is a health care problem, I create health insur-

ance, health systems. If it doesn't work, I find out the existing thing that I used

is the wrong thing. For example, now we are creating social business in health

care starting with the diagnostic services. We want to bring diagnostic services

to every home in the villages so that we don't have to send people to clinics for

diagnostic services. We saw that existing equipment doesn't allow us to do that.

It was too heavy, too bulky, and too expensive. We realized that the equipment

was not meeting the challenge of village-centered health care. We have all this

bulky, expensive equipment just to make sure you can write a big bill to your

patients so that they can pay you more and they are impressed that you have a

big machine. So why don't we go back to the chips; the simple diagnostic tools

are as efficient as any other bulky machine that you have in your clinics and

hospitals. So we are designing that, and we are collaborating with manufactur-

ers who are doing that.

We are bringing equipment to the villages. For example, for pregnancy,

General Electric designed, in consultation with us, a simple ultrasound that

a girl could carry from house to house with the pregnant mothers and take

images. The doctors are over in another place, and all those images will be

transmitted to the doctors in the big city who will be sitting in front of the

screen. All of these images will transfer through the mobile phones into their

screen. You have an expert watching you, and you are talking to the experts

with the mobile phone; so that distance has not created a problem for us. This

can become a very inexpensive way of providing health services. If you ca n

THE CHAMPIONS 1 95

bring the diagnostic services, the bulk of your problem will dissolve. In our

case, wit h the way we have designed our health care program, we say keep-

ing healthy people healthy is our major objective. Wellness and prevention

and a ll those t hings become second nature. Then women become our highest

priority, and children become our second priority; adolescent girls become

the t hird priority. People ask why we a lways go for women, and I always try

to explain to them that this is t he most difficult segment of the population to

reach. Once you can reach these people, then reaching other people is so easy;

it's no problem at all.

Drayton: If a child doesn't master empathy, you can forget the rest of it. They

must be able to watch themselves understandi ng what is happening to other

people, now and into the future, as individuals and in complex institutions-

and then to guide themselves to contribute to the good and not be hurtful.

We have whole communities where that is not happening because the parents

don't have the skill, and the community doesn't h ave the skill. It's not p art of

the street culture. The schools don't realize it's an issue. Now, in that picture,

where are the children supposed to get that skill? How on earth can we imagine

them being social entrepreneurs if t hey can't function in society? You can't do

teamwork or leadership or change-making if you don't have that basic skill. We

have a large part of our population, a large part of the world's population, that

doesn't have that skill. How many middle and high schools in this country have a youth culture

where it is normal for kids to take the initiative and set up organ izations and

solve problems? In most of our youth culture, the adults are in charge of ev-

erything and, "Please don't get in our way, because we do it better faster, and

besides, we're rather nervous about you irresponsible people." If you treat peo-

ple that way, they don't like it; they resent it; they have a negative peer culture.

In fact, you don't have a culture. Consider the best elite high schools. I visited

Phi llips Academy Andover recently; there's a student organization for every

nine students. The students are absolutely in charge. Well, guess what? The

kids coming out of that school know they have this skill, and they've been

practicing it a lot. The whole pee r culture says, "Yes,'' and the adults have got-

ten used to it a nd actually rather like it. Consider some other high schools

in this country. Leominster High School went from zero student organiza-

tions to almost forty in four years. This is not an elite high school. Just that

one person said, "We don't want everyone moving out of this place. If we can

196 T H E CHAMP I ONS

get people to be change-m akers, okay, they won't leave; they won't have to." I

think he's right. Now, we could do that anywhere, but we have to get l OO,ooo

young Americans every year to do this. That's a big change. If we do that,

those communities will change very quickly. If the kids are doing it, the adults

will learn . The best way for adults to get this is to get them to understand that

it's really important for their kids, and all of a sudden they begin to realize,

"Oh my god, these are the skills that I'd better have, too." Companies ca n help

with this.

Think about your employees. Why not give a challenge to your employees?

Nominate any young person you know, in your family or not, and if he or she

has a drea m and is wi lling to build a team , we'll help with the seed money.

This is what Ashoka's youth venture does. We' ll be happy to wo rk with a com-

pany to do that. Well, that 's a very powerful message to help the compan y

begin to make the journey that it needs these skills. The parents help the kid s;

the parents learn as much as the kids. There are very simple things we can

do, but if we don't do them, we're going to be a society m ore divided, and we

might not make the cut in fifteen years.

Might not make the cut? Let me explain what I m ea n. The level of these

skills that you need every year is going up because of th at exponential curve.

What was enough skill in 1960 isn't enough now. If we've got 20, 25, 30 percent of our population that hasn't even started on empathy, they're getting furth er

a nd furth er behind. The hole is getting deeper. This is a tragedy.

Shapiro: Dr. Yunus, your tenure with Grameen Bank has concluded since writ-

ing your chapter. What are you doing now?

Yunus: Since res igning from my post as managing director of Grameen Bank in

May 20 11 , I have continued to travel the world promoting the concept of social

business and launching social businesses at home a nd abroad. You can find out

more about my activities at www.yunuscentre.org.

Shapiro: In today's world, it is rather easy to be pessimistic, but you both seem

extraordinarily optimistic.

Drayton: Let me use a metaphor, and I apologize to any bio logists in the room.

If you think about an "everyone a change-maker" world, analogize each person

to a really smart white blood cell-that is, they live their life so that whenever

they see anything that's stuck, they not only go and destroy it, but they know

how to make it better. Now, that is a world in which there's no way the problems

THE CHAMPIONS 19 7

can outrun the solutions. If anyon e is able to do that, she or he is going to be a happy, whole person, because what makes people happy is contributing. We

have this ballet of everyone with really strong empathetic skills moving quickly;

it's a very exciting world. The transition is a bit tricky, but we'll get there.

Yu nus: I see the possibility that all of today's challenges can be overcome. Peo-

ple as human beings have enormous capacities; they are packed with unlimited

capacity. It's a question of unleashing this capacity. We did some stupid things;

we did some wrong things that created all these problems. It's not that it is

som ething unalterable-something as if it comes from the h eavens and you

cannot change it. We created this mess; we can clean up this mess. We have the

capacity to clean up this mess. I feel good about it.