I'm proud to have my first blog post up on SocialEarth.org! SocialEarth is an up-and-coming media dedicated to the promotion of social innovation and social entrepreneurship.  They are doing fantastic work, and I'm excited to be taking part. Here's a link to the post, "Making a Profit: A Great Problem to Have."  Check it out and leave comments!

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."

I have been pondering this blog post over the last several days, only to find that I've been beaten to the punch by Nathaniel Whittemore at Change.org and Theresa at the subjectverbobject blog.  (And, much to my pleasure, Nathaniel's post was prompted by a fantastic Fast Company article titled, "Rwanda Rising" - check it out.) Here is Nathaniel's quote that is sparking interest and debate:

1. The difference between "social entrepreneurship" and "entrepreneurship" can break down quickly. When we're talking about African students building new web applications to make it easier to send money to families back home, what should we designate that? Entrepreneurship or Social Entrepreneurship? Or does it not matter? Should it perhaps make us wonder if we should instead be holding up that type of work to argue that real entrepreneurship is about the creation of all types of value - not just about financial wealth. In other words, maybe our view should be about the inseparability of "social" from "entrepreneurship," and perhaps that's easier to understand in the emerging market context.

Indeed. To add a bit of my own perspective... I became aware of the concept of social entrepreneurship back in 2005, while carrying out research in Colombia. Disheartened by the limited amount of management expertise within the NGO community and the lack of clear accountability in how aid dollars were being spent, I found myself strangely gravitating toward for-profit, purpose-driven enterprises. Really, the change was weird for me.  I had spent most of my college days being suspicious of corporations of any size and disgusted by economics and its profit-maximization principles.  I questioned economic globalization and modern-day capitalism. Yet, as I grew increasingly disillusioned with life inside non-profits (NOTE: I do recognize that there are many outstanding, well-managed non-profits out there!), I began to truly appreciate the incentive systems that exist in the free market and within for-profit organizations. In fact, an unwieldy and mildly disturbing appreciation for the concept of "profit" itself began to bubble up from deep within me.  I realized that profit, despite its sullied reputation, plays a hugely meaningful role in the life of corporations. Profit is, for most companies, a measure of the overall health of the organization.  It is the final word on 1) whether you are producing products and services that people value enough to actually pay for and 2) whether the organization is being managed effectively and resources stewarded efficiently. In this sense it truly is the "bottom line."  And of course profit and, more specifically, free cash flow are also the forces that enable growth.  Conversely, lack of profit resulting from mismanagement and/or creative destruction eventually leads to the dissolution of the corporation and allocation of resources to where they can be put to better use.  Generally speaking, all good things. But once we recognize that profit is not inherently evil or something to be minimized, the concept of "social entrepreneurship" starts to break down a bit.  What makes an enterprise "social" if not some aversion to profit or, at least, strict prioritization of doing social good over making money?  It can't simply be the desire to bring about change or have a positive social impact.  By those standards, some corporate behemoths might even be (or once have been) considered social enterprises. Take Google and Ford as examples. Sergey Brin and Larry Page were HUGELY suspicious of traditional corporations when they started tinkering with the PageRank Algorithm. Google was born in part out of their disgust with content portals like Yahoo, who gave the best real estate to the highest bidders, and search engines that were centered around paid-for results.  Since day one, they have aspired to make readily available the entire world of information to anyone and everyone who might care enough to look for it.  They dreamed of democratizing knowledge and, indirectly, knowledge-creation, and that's exactly what they've done.  In the process, they've made billions of dollars and grown at an incredible rate. Ford, on the other hand, had a dream to make an automobile that the average working American could afford. Before the Model-T, automobiles were toys for the rich and famous.  In addition to being superior modes of transport, they were conspicuous signs of wealth and privilege.  In a sense, the success of Ford democratized movement.  And his foresight in understanding that employees can be customers also led him to offer unprecedentedly high wages to Ford assembly-line employees. So are/were Google and Ford social enterprises?  If they once were but are no longer, at what point did they cross over to the dark side?  Where do we draw the line between social entrepreneurship and plain-old entrepreneurship.  Should we even attempt to define that line? To the last question,  I say "no," and for two reasons.  First, who's who will be self-evident the majority of the time. Secondly, and more importantly, trying to carve out a world for social enterprises vs. "other" enterprises will only serve to reinforce what is a false dichotomy and feed our aversion to valuable ideas like "profit." Rather than looking for better ways to categorize and attach labels, let us strive to create a world in which enterprises in general serve the needs of society while behaving responsibly.