Saturday, May 12, 2012

On the question of 'Social Entrepreneurship'

Yesterday (11-May-2012) myself and a fellow start up entrepreneur and my good friend Ganesh Shankar checked out "Publics on social entrepreneurship" at the Bangalore campus of Indian institute for Human settlements (IIHS). 
Bangalore campus of the IIHS is situated at RMV extension overlooking the tranquil sankey tank. It is an ideal location for scholarly work and a brainstorm like the publics on social entrepreneurship. 

It was an informal setting and an open house to discuss and debate the whole idea of "Social entrepreneurship". The panelists were people of high repute and achievement who have built successful social ventures. It had A. Suryanarayan; COO of IIHS, Dilip Mehta ; advisor , NSRCEL at IIM Bangalore, Meena Vaidyanathan; Founder and CEO of Niti Consulting and Mr N.K.Ramakrishna; Ashoka fellow and the founder of Rang De

The gathering had about 15 people other than the IIHS staff. About half the participants were entrepreneurs (Or founders of NGOs) and the rest were either planning to start an enterprise or were people who had research interests. 

It was a two hour captive session where the discussions were on what exactly is social entrepreneurship, the challenges and opportunities in it, the values around enterprises, the difference between business and social enterprises and related topics. 
The gathering was pretty vocal and participative. A host of success and failure stories were shared and discussed. 

I am not going to go into the details of the discussion. But i will try to put my thoughts on this whole concept of social entrepreneurship or social business. 

Before i proceed, i must make a disclaimer that i am no expert in business or business writing. 
I have recently decided to write down my thoughts, views and experiences on and about business as i set up and grow my own business. So the blogs on entrepreneurship are in that direction. 

The most famous definition of an entrepreneur comes from Professor Peter Ferdinand Drucker who says "An Entrepreneur is one who creates wealth where it is not present". So irrespective of what prefix we use to a "venture", any venture be it a 'business venture' or a 'social venture', the venture must aim to create and sustain wealth at places where it is not present. 

The term "Social entrepreneurship" is a relatively new term. There is no good definition of it available in the mainstream academia. However, one definition largely used with this term is " A social venture is one which seeks to provide solutions to pressing social problems with a profit driven resource sustainable and resource renewable business model" . The aim of social venture is not "profit maximization" but "tangible positive impact" on social problems. 
Classic examples associated with "Social ventures" are 'Micro-finance' and 'rural electrification'. 

I do not like to distinguish between a "Business venture" and a "Social venture". At the end of the day it is a business. Any business has to survive and sustain. 
Having said that, Every business has a "Social impact". Be it a road side tea stall or a multi-billion dollar corporation or a 'so called' social business like a micro-finance institution. The distinction is essentially coming from the academia and the distinction is more 'academic' than 'real'.

I will try and substantiate ;

I will take two classic examples. Let us look at "Dr Reddy's laboratories limited". It is branded as a "Business venture" and is a public company continuously paying out good dividends to the share holders.  Let us then look at "SKS Microfinance" a classic example of a "Social venture" . 
SKS micro-finance was one of the most talked about Social business in the world. It was funded by Mr Vinod Khosla and Catamaran venture fund (Founded by N.R.Narayan Murthy). At one point it had a market capitalization of about 5000 crores. After its disastrous IPO, it came down to about 300 crores or so. In the process, they let down thousands of rural communities in the north eastern Andhra pradesh. Now 'micro-finance' is not a very welcomed term in Andhra pradesh (There are political reasons as well for this). 
Now SKS has shifted out of Hyderabad to Mumbai. 

On the other hand, Dr Reddy's laboratories have been manufacturing and supplying life sustaining drugs. The company must have saved hundreds of thousands of lives. Founded in the Mid 80's with 25 Lakh investment, it is not only paying out to its share holders but also achieving a great social goal. 
(I have met the great gentlemen Dr Reddy a few times. A man with very few words, he means only Business.) 

In my opinion, Dr Reddy's labs is achieving greater social goal and having a far greater positive social impact on the society that SKS. However, the latter is called "social venture" while the former is called a "business venture".

"Social entrepreneurship" is more an academic construct . Every business must be profit driven and produce dividends on the factors of production. Else it cannot survive. 'Social' or 'non-social', every venture must be run professionally by sound principles of entrepreneurship. 

There can be again little differences. For example an old age home run 'for profit' can be called a social business since it is addressing a social issue directly. 
One can take the example of a small organization educating slum children.  They may choose to charge a very low fees just enough for running the organization. That is a direct customer centric 'social venture'. 

As i said before, every business has a social impact. Take for example retail. Retail business has provided plenty of opportunity to the less educated folks. Plenty of employment is created in logistics and sales area. 

In my opinion, the most critical distinction if at all between a business venture and a social venture is that the latter focuses directly on the issues concerning the less privileged and try to solve the pressing problems of the society directly  by making less privileged as a the consumers as well as beneficiaries (Directly). 

At the end of the day, there is no point "romanticizing" the idea of 'social entrepreneurship'. It is just another business model where the cash flows are diffidently structured and the customers are direct beneficiaries.  Having said that achieving 'scales' become critical for a real measurable social impact.  

If it is an entrepreneurial venture, it has to be grounded on the "reality" that it is profit driven and profitable and sustainable to the investor. 

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