Venturing into Social Business

(This article appeared in WA Business News 24 February, 2011)

All over the world people work in companies that generate profits for shareholders. In the 17th century book Wealth of Nations, author Adam Smith encouraged the pursuit of 'rational self-interest' to generate wealth and create a prosperous society. His work became the roadmap for free-market capitalism in which business owners hire workers to produce goods and services which they sell for a profit. As a result, western societies created extraordinary wealth.

However while free-market capitalism has generated considerable material prosperity, due to its focus on profit it has often neglected the social and environmental impact of profit driven behavior, and failed to address the needs of the poor and the environment. While traditionally not-for-profit and government organisations provide services for the social, environmental and “bottom of the pyramid” needs that remain unmet by capitalism, this approach often requires continual funding from grants, donations or taxes and doesn’t lead to sustainable, self-sufficient organisations and people.

Muhammad Yunus, nicknamed ‘Banker to the Poor’’, won the Nobel Peace Prize in 2006 for the pioneering work of the Grameen Bank, which provides microloans to poor women to support their own business and lift their families out of poverty. In the past 30 years, microloans have benefitted more than 100 million families throughout Bangladesh, India and the USA. In his recent book “Building Social Business” Yunus champions ‘social businesses’, which provide value to society and can apply the dynamics of capitalism to solve humanity’s greatest challenges through sustainable business models.

Pamela Hartigan of the World economic Forum’s Schwab Foundation for Social Entrepreneurship in her recent book “The Power of Unreasonable People” describes a wide range of not-for-profit, for-profit and hybrid social businesses providing value to all sectors of society. Companies such as La Fageda (dairy), Better Place (electric cars), Cool NRG (reducing carbon emissions) Sekem (biodynamic farming in Egypt), Grameen Shakti (renewable energy), Aravind Eye Care (ophthalmological hospital in India), LeapFrog (microinsurance), InterfaceFLOR (environmentally sustainable carpets) and Whole Foods Market in the US are providing socially responsible products and services to people with income above the poverty line.

While these social businesses cover the not-for-profit to for-profit (Vikram Akula’s SKS Microfinance) spectrum they all share the primary motive of developing society and or the environment. Hybrid models are also arising such as many of Grameen’s latest ventures where Grameen has partnered with for-profit companies establishing subsidiary social businesses to provide services and products to the poor such as low cost nutritional yoghurt (Danone + Grameen), mobile phone access for the poor (Telnor + Grameen) and social enterprise funds (UK based UnLtd) and schools such as the London and Sydney based School for Social Entrepreneurs (SSE).

So what are the opportunities for West Australian entrepreneurs and organisations?

1. Companies can partner with existing social businesses or NFP to create sustainable social businesses.
2. As the Schwab foundation has only one Australian social entrepreneur fellow on its list, there’s still plenty of room for Australian entrepreneurs to embrace these innovative models making a positive difference in the world.
3. Banks and investment companies can expand their investment portfolios to include social enterprises.
4. Companies could allow staff to work in a social business during company time like Salesforce.com does.
5. Finally, being involved in social business can improve a company’s reputation and boost staff morale and pride.

Encouraging social business is an additional and important alternative that complements profit-centered businesses. Doing well by doing good is smart business as well as good business.