Imagine you are walking along a wide sidewalk downtown Your City, USA.  In front of you and to the left you spot a table.  People are handing out vitamin supplement samples... for free. Do you take one?

A block later, you encounter another table set up.  It's a different group, but also handing out vitamin supplements for a small fee - say $0.25 for a mini bottle.  Do you buy one?

Now, guess which table was more successful at encouraging people to try vitamin supplements?

A recent Fast Company article citing a similar experiment conducted by J-PAL has created a bit of a stir in the social enterprise blogosphere this last week.  

First, BOPreneur Paul Hudnut wrote a very thoughtful and somewhat provocative post titled, "Is It Right to Have the Poor Pay?"  Shortly after, Francisco Noguera at NextBillion posted this equally interesting response to Hudnut's comments.

The Fast Company article concluded that J-PAL's experiment, which demonstrated that free mosquito nets were more widely adopted than paid-for nets, had proven false the widely-held belief that it's right to have the poor pay small fees for development-related goods and services because doing so encourages a sense of ownership. Really?

Hudnut's post makes the great point that, while it may not always be appropriate to have the poor pay, "charity doesn't scale."   Noguera agrees that "free" sometimes is the best approach, even though market-based approached are generally preferable.  He also remarks on how cross-subsidies can make the latter possible within a social enterprise model.  Both make wonderful points.

But what about the simple fact that "free" is virtually ALWAYS going to be preferable to consumers!  Especially when the alternative is a small fee. I haven't read the J-PAL study cited in the Fast Company article, but if it's as straightforward as it sounds, the outcome should be no surprise to anyone.

The real question is not, "To free or not to free?"  The real question is, Do you measure success by how many mosquito nets you hand out? If so, maybe free is best. But I'd prefer to measure success based on what % of people are using their mosquito nets six months later.  Or perhaps the % of mosquito nets that are still effective (i.e. in good shape) after 12 months.  Or the change in the number of new malaria cases in the community after 3 years. If these are the outcomes you're trying to impact, maybe selling them a mosquito net at a small fee still is the best solution.

Which brings me to my real point here.  Businesses frequently have to create markets and stimulate demand through consumer education and advertising (though internet startups are increasingly doing this through free).  With effort, they get people to value their product enough to pay for it.

Should international development be any different?

Much of my writing time these days is being dedicated to SocialEarth.org, where I'm a contributing writer.  It's a fantastic site, so please check it out - http://www.socialearth.org. My articles on SocialEarth can be found here - Mike's Posts.  Thanks for reading!

Yesterday I posted my thoughts on a recent article by Nathaniel Whittemore at Change.org.  His article and my reaction spurred some great dialogue, which I thought it worth summarizing here. Here are the key take-aways, from my standpoint.  There are simply two...

• We need to continue working toward a fair, net measure of impact - to include social, environmental, and economic impact - so that we can more holistically judge an organization's success
• Until we have more holistic measures for impact that are reliable and fair, we need to be very careful about placing social enterprise on a pedestal above traditional business.  We can't assume that social enterprises are always generating more positive impact simply because they have grand mission statements and self-identify as "social."  The proof, as they say, is in the pudding, and experience has shown us that even the best of intentions only get you so far.

I started this post many weeks ago after watching this fantastic TED Talk on how we define success:  

I was reminded of it and inspired to finish it - sort of - after reading a recent post from Nathaniel Whittemore on Silicon Valley's future ability to change the world. Nathaniel's post is interesting and insightful, and also a bit provocative. It particularly touches on a hot-button issue for me; that is, whether/how we judge social vs. traditional enterprises. 

I posted a long comment on his post that I am republishing here because it outlines my basic thoughts on the topic.  Enjoy!

"Reading [Nathaniel's post] makes me think there is a storm brewing in Silicon Valley. Is there a growing divide based on the perception that a get-rich-quick culture is starting to replace the idealism of the past?  Where is the angst and animosity coming from?

'...this hyperbole is why the nonprofit sector can have such a hard time interacting with the corporate world. It's hard to spent time with groups like Samasource that are trying to fundamentally shift the paradigm of outsourcing to create real growth and development opportunities for the developing world, or the Acumen Fund that is investing in local market solutions to water distribution, and then to be told that easier, faster, funner consumption of stuff is in the same ballpark. It's not even the same sport.'

I don't agree much with this statement. I'm fine acknowledging they're different, but implicit is that one is inherently always better than the other. Is a social business with 15 employees and 50 customers automatically better than a company like Amazon.com just because it has a nobler mission? Amazon has created employment for 20,000 people and generated enormous wealth that can be re-invested in other businesses, perhaps some "social."  It has also given small booksellers an outlet for making a better living, similar to eBay, which is a primary source of income for 1.3 million people (and being replicated in the developing world). Take intuit as another example.  Why should they be less worthy?  They have in my opinion done an admirable job over their history of democratizing ERP-like applications and giving small business the technology/tools they need to operate more efficiently. You no longer have to be able to afford an Oracle or SAP implementation to manage payroll and a chart of accounts. Likewise, Mint.com may have sold out in some people's estimation, but it has done an admirable job of improving financial literacy and helping individuals (including me) make better financial decisions. Imagine Intuit and Mint.com technology in the hands of social entrepreneurs around the world, allowing them to better run their businesses and make smarter choices. That would be world-changing, even if unsexy because it's payroll and accounting.  In fact, it's not much different than a salesforce automation or internet search and advertising company helping social enterprises better measure their impact. Similarly, you say,"All due respect to Zappos, a better way to buy shoes is not the same as changing the world." But how different is Zappos from Tom's Shoes?  A cynic could say Zappos is giving us a better way to buy shoes and Tom's is making us feel better about buying more shoes. Moreover, Zappos is one business decision away from being Tom's. I agree, however, with your other point. The most ambitious and talented young entrepreneurs are starting to migrate to the social enterprise sector, making it in essence the next "high tech" in its ability to draw the best and brightest. And so we are likely to see more and more amazing things from these individuals. That's fantastic and desirable. But that won't negate the need for innovations that are less strictly "social" in their orientation and more like Zappos and Netflix. Social enterprise may stand apart, but I disagree that we should think it stands above. And I really struggle with the idea that a "holier than thou" mentality might make non-profits and social enterprises look down on the accomplishments of these "other" companies.  This has been the trend in the past, and I see little good that has come of it."

Crutches cast off by those healed at Santurio de Chimayo, Mexico
The idea of "below market returns" has always made me a bit squeamish. For whatever reason, the utterance of the phrase sets off alarms in my brain. Truly, my reaction is quite visceral and 90% negative. For some time, I felt incredibly guilty - like less of a "do-gooder" - for not embracing the philanthropic sentiment that the expressions entails. I felt too hard-nosed, too pragmatic, too business- and market-oriented in my mindset. Recently, I decided to tell the guilt complex in my brain to quiet down so I could think this through a bit more rationally. What I've determined is that I have very good reasons for being suspicious of the idea of "below market returns." Here they are... Flawed Assumptions Underlying "Below Market Returns":

• That a company can't do good by doing good. Or, perhaps, that a company can do OK but should be careful to not do too good, for that would suggest that it's placing financial returns ahead of its social mission.  Also, we seem to assume that making products and services at price points that are affordable to BOP consumers will necessarily lead to smaller profits.  This belies the notion that the BOP is huge and, provided they can reach sufficient scale, BOP businesses are presented with an enormous and very profitable business opportunity.

And, conversely...

• That a company can only do good by doing evil. It seems that the suspicion toward the private sector that has long characterized many non-profits has seeped its way into the social enterprise sector.  For some reason we automatically seem to associate financial gain with greed and unethical business practices.

And also...

• That it's okay to aspire to mediocrity in some aspects of how we manage a business.  This is what really drives me nuts.  Why should any company not strive for excellence in everything that it does?  And, if not in everything, at least those areas that are most critical?  Having a "double bottom line" suggests that both social impact and financial success are crucial to building a strong social business.  So why settle for "below market returns"?!

Assumptions that we must be embracing:

• Financial returns and social good work in tandem. When we believe in and accept this principle, we embrace the idea that employing ethical and sustainable business practices pays off in the long run.  Green practices save money.  Competitive pay and employee benefits attract talent and promote productivity. And being obsessive about customers and their needs - in this case, the needs of BOP consumers - encourages customer loyalty, facilitates customer acquisition, and spurs growth.
• "Profit maximization" will allow us to do more good for more people. Once again, in defense of profit, I want to emphasize that profit maximization plays a massively important role in driving operational efficiencies and overall better business practices, which in turn support scaling and growth. Also, profit as a metric serves as a strong indicator of whether companies are successfully innovating and finding better, more cost-effective ways to  meet customer needs.

Ulitmately, I don't want to suggest that below market returns aren't or won't be the reality for some social businesses. What I'm questioning is the notion that it's OK to have "below market returns" be your point of departure. Social entrepreneurs must aspire to be as, if not more, financially successful as our private sector brethren if we are to thrive. What should be done with the profits that are gained is a discussion we can continue to have. However, we need to put our foot down when it comes not letting the idea of "below market returns" continue to be a crutch that only social entrepreneurs have the privilege of sporting.

As follow-up on my last post, I wanted to share part of Tori Hogan's "Beyond Good Intentions" series. Tori is former aid-worker, filmmaker, and blogger with SocialEdge. Episode seven of Tori's series explores for-profit approaches to development in Madagascar with the company BushProof. In addition to the ingenuity of the founders and employees of BushProof, what's striking about the video is the fact that Adriann Mol, Founder and Director of BushProof, is not ashamed of the fact that he is running a bona fide for-proft business, albeit one with a very explicit social mission that guides its management principles. To paraphrase Adriann: "...You enter into an economic system that gives full sustainability... So it saves these people significant money... it gives us income so we can run the company and grow bigger, sell more of them - it's a win-win."