Tag Archives: social enterprise

What Do I Think of Social Enterprise?

In the last five posts, I have described in detail how Bridge International Academies has created a scalable model that can profitably serve the poorest segments of the population.  They use data to make decisions, processes to ensure quality, and technology to streamline systems.  In other words, they act like a business.

This is how every social enterprise should work.  In fact, this is how every company should work.  Pilot, test, measure, implement, and repeat.  But this is not how social enterprises typically operate.  There are a few that pushing the bar and doing some really exciting work.  Nairobi happens to be a mecca for innovative social enterprises.  Sanergy, for example, was started by three MIT Sloan graduates.  They are manufacturing toilets, selling them to entrepreneurs in the slums, and collecting the waste to convert to biofuel and fertilizer.  Mobius Motors is building a car for Africa – a cheap, durable, stripped-down beast that looks like a Hummer and is specifically designed for the rough roads in the rural areas of Sub-Saharan Africa.  Healthcare companies like Penda Health, a chain of primary-care clinics, and energy companies like One-Degree Solar and Nuru Energy, understand the importance of profitability above all else.

There are other companies outside of Africa that are doing great work as well.  Aravind Eyecare in India trains healthcare professionals to perform one procedure – removal of cataracts – and have managed to lower the cost to a fraction of a percent of the normal cost of the surgery.  And Hapinoy, the chain of sari-sari stores in the Philippines, uses a hub-and-spoke franchise model to drive down operating costs for the small general stores that are so common among the poor in the country.

These social enterprises are the exception, rather than the rule.  That is largely because the term “social enterprise” is somewhat silly in my opinion.  An organization is either for-profit – focused on the bottom line – or not-for-profit – focused on the social mission.  It is true that hybrid models exist.  Good examples are Samasource, One-Acre Fund, and many microfinance institutions, which are partially subsidized, but perhaps moving toward financial sustainability.  But being firmly in one camp or the other is what separates the wheat from the chaff in this world.

The key to success as a social enterprise is to offer a product or service that is inherently a social good, and make sure that the success of the company is tied to creating the best, most competitive product, and the highest-quality service.  The reason that working for Bridge is so liberating is that there is never any question that what we are doing is a social good.  We avoid the pitfalls of other “social enterprises” because of the very nature of our business model.  As a low-cost school, we couldn’t move upmarket even if we tried, since comparatively wealthier families could easily afford better schools if they had the money to pay for it.  We can’t compromise on quality in order to increase our already-low margins because, if we do our parents will pull their kids from school and the schools will no longer be profitable.

When the profit motive is inseparable from the social mission, a “social enterprise” is liberated from the concern of mission drift.  And at that point, it ceases to become a social enterprise altogether.  It is simply a company that happens to be making the world a better place.

Needless to say, I have tremendous optimism for what Bridge is doing.  If this experiment succeeds, it will change education for the poor across the world.  Aid agencies will continue to pour money into education systems that fail the poorest students, and continue to criticize private education institutions for co-opting the public system that should be providing them.  But people are beginning to come around.  Acumen Fund just launched its education portfolio, and made its first investment with Lok Capital, an Indian impact investor, in Hippocampus Learning Centers, a for-profit chain of education institutions.  The tide is turning, and much of the credit belongs to the founders of Bridge International Academies and the hundreds of people who work in the operations, construction, research, IT, curriculum, and training teams to make the system work.

It was a difficult decision to head back to school when Bridge is on the cusp of something truly great.  I will be watching it and cheering it on from the sidelines.

If you have questions, feel free to email me at josh@developeconomies.com.

A Trip to Bridge International Academies

A child in class at the Bridge International Academy in Embu, Kenya

After one year living in Kenya, my time here is fast approaching its end.  In a few weeks, I finish work with Bridge International Academies.  I am heading to Southeast Asia for a few weeks of rest and relaxation before moving to San Francisco to help my brother launch a start-up for the summer.  After that, I am returning to school to pursue an MBA.  And so ends my two and a half years on the road.  This weekend, as I visited one of our schools, I was reminded about what a rewarding experience this has been.

I have lived in three countries – the Philippines, Ghana, and Kenya – and traveled to many, many more.  I have learned an incredible amount and experienced things I never imagined I would experience.  Much of it is documented on this blog.  But the most rewarding parts have been the work and the people.  Being a part of organizations whose missions have been to make things better for others less fortunate has been a privilege.  Working with the folks who commit themselves and their time to realize the vision has been rich and rewarding.

This weekend, I had a chance to go see the grand opening of our 65th school in the town of Embu in the Central region of Kenya.  I shared a taxi with a group of seven from the head office – members of the IT, research, government relations, training, and marketing departments were present.  Embu is three hours from Nairobi and the scenery was pleasant.  Once you leave Thika Road, the Chinese-built superhighway that is emblematic of the surge in investment in Africa from the East, and pass through Ruiru, the landscape becomes more rural and green.  The rolling green hills felt more like Rwanda and Uganda, where flat ground is hard to find.

Rainfall – particularly during the rainy season in April – is high and the floodplains are ideal for growing rice.  We passed the Del Monte pineapple farm, which made the farms I visited in Ghana look like the herb garden I had on my balcony in Boston.  The lime-green rice paddies that followed reminded me of the rural areas on Negros Island in the Philippines, where I used to ride on the back of motorbikes and tricycles to visit borrowers.  When we finally reached the school, everyone was excited to stretch their legs and get to work.

Construction on half the school continued as we helped with last minute preparations for the grand opening ceremony.  Kids lined up to see the face painters, parents spoke to the teachers to learn more about the school, prospective children sat in class and went through lessons, and the community elders filed in to dedicate the school.  It was great to be a part of such an important event.

Me with the newest teachers at Bridge International Academies

My days at work consist of sitting in an office, analyzing data, managing our longitudinal student testing, and generally sitting in front of my two computer screens, looking at Excel spreadsheets and word documents.  When that is your job, it is easy to lose sight of what you are doing and why you are doing it.  So visiting the school, watching the kids learning and seeing the excitement on the faces of the parents was important for me.

As I wind down my time here in Kenya, I am proud of the work Bridge International Academies is doing and the impact we are having on informal settlements and poor communities.  Bridge has the potential to create a minimum standard of education for every child in the world that is much higher than it is today.  Hands-down, it is the most innovative company in the education space at the base of the pyramid and has created a model that will be studied and replicated by organizations across the world.  I will be sad to leave, but I am optimistic that the company will change the world.  Loyal readers know that a cynic like me is hesitant to use that expression for anything.  Mine has been an exciting and meaningful experience, and the trip yesterday really drove that point home.

Here are some of the photos of the trip:

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The Myths and Realities of Impact Investing

“[Africa] is a wonderful place to really make money. We have one billion people hungry for everything.” Mo Ibrahim

A friend posted an article on his Facebook wall titled “Why Social Impact Investing is a Crock,” leaving much to the imagination.  Here is an excerpt:

Over the last decade the world of do-gooding has seemingly been taken over by MBAs. Social entrepreneurship, a field encompassing both mission-driven businesses and entrepreneurial nonprofits, professes to bring the efficiency, rigor, and cold, hard metrics of business to the most important causes on the planet. Does it really? Not so much, says Dean Karlan, author of the recent book More Than Good Intentions. “The social entrepreneurship world is in a weird spot, to be honest with you. It’s a world full of rhetoric about impact investing, yet I have very rarely seen an investor actually take that seriously. When you look at the actual analysis it lacks rigor.” He distinguishes between the type of scientific research done by his lab, Innovations for Poverty Action, with trials complete with control groups, and the type of data collection done in the vast majority of the nonprofit world, which is nothing more than a “monitoring exercise.”

I think both Karlan and the author have the right idea, but for the wrong reasons.  Later in the article, Karlan explains why the cost of doing a rigorous impact analysis is cost prohibitive for an investor who is focused on financial returns, with impact studies accounting for as much as a third of the investment.  I think the title of the article is excessive and meant to be provocative, but the argument is defensible.

The other day I listened to a presentation from Kentaro Toyama, one of the eminent thinkers in ICT (information, communication, and technology) for development (ICT4D, for short), a school of thought that sees technology as the silver bullet in ending poverty.  His talk was titled “ICT or Development: Why it’s so hard to get rich and help the poor simultaneously.”  It was also meant to be provocative, but for a different reason.  Toyama’s point is not that the absence of verifiable impact makes impact investing a crock.  Rather, he contends that it is difficult, if not impossible, to get rich by providing socially-beneficial goods and services to the base of the economic pyramid.  You can get rich selling products to the poor, but they won’t necessarily be good (alcohol, tobacco, soda, etc.).  Conversely, you can sell products that will address a social need (solar lanterns, cookstoves, etc.), but you won’t get rich doing it.  He challenged the audience to come up with an example, and explained why his thesis holds in each case.

There is a myth of a fortune at the bottom of the pyramid, according to Toyama.  At least, that fortune is purely measured in market size and raw purchasing power.  It should not be confused with an opportunity to offer products that alleviate poverty and make a bundle to boot.  The rural and even urban poor are difficult markets to serve profitably.  A disparate and sometimes non-existent supply chain makes getting products in the hands of consumers a challenge even for the biggest multinationals.  Branding products for the poor, or subsidizing them, makes them less appealing to the middle class, who might pay more and create cross-subsidization opportunities (on this point, I think he is wrong, having seen the same solar lanterns we were selling to microfinance clients in the Philippines being sold in malls in Manila for twice the price).  Not to mention, selling products to the poor is not going to help them out of poverty.  Employment, in the form of manufacturing and labor-intensive work, is the key to growth.  In short, it is possible to serve a social cause, and it is possible to make lots of money selling products to the poor.  But to do both simultaneously?  Very difficult.

My friends and I discussed the talk over lunch.  Most felt that the talk was good, but thought  Toyama oversimplified a complex topic, creating a dichotomy that practitioners don’t really subscribe to.  Anyone who honestly thinks that you can make serious money – young-rich Silicon Valley money – by selling socially-conscious products and services to the poorest segments of the world population is clearly dreaming.  So that conversation should be a non-starter.  You can make money, sure, and you do a lot of good, but if you’re goal is to get rich, then you are in the wrong business.  For that reason, we all concluded that the talk wasn’t meant for people like us.  It was meant for the people in Silicon Valley who have become a little too excited envisioning that Venn diagram.

During the talk, I asked Toyama what he thought of social impact investing.  Basically, he thought it went through a period of irrational exuberance, where people thought they could make high returns and serve a social good, before dipping once people realized that was not the case.  It has made a slight resurgence, as people have checked their expectations and come to sacrifice financial returns for social impact. What Dean Karlan and Kentaro Toyama have in common is that they both believe that it is very difficult to both make good money and help the poor.  Karlan thinks the social impact of many investments is unproven, while Toyama thinks the social impacts are fine, but making money is a challenge.

The legacy of Mo Ibrahim

I happen to disagree with both.  Ten years ago, a telecom industry in Africa barely existed.  Today, most of the population, regardless of whether they are living in poverty, owns a cell phone.  When I brought up this point, Toyama says that the telecoms are entirely profit-oriented, and could care less about helping the poor.  Someone earning a dollar a day, for example, will think nothing of spending a quarter on a ringtone.  But to say that the development of a mobile network that connects the most remote parts of Africa to the rest of the world has not helped the poor by several orders of magnitude is crazy.  It is ironic to me that people interested in this developing products for the poor always leverage the cell phone revolution in Africa, but never seem to give it any credit for laying the groundwork for real, substantive change and improvement – moving the needle over generations, rather the 2-3 year time periods for the randomized control trials being used to measure impact.  (My intention here isn’t to write off RCTs – rather to say that maybe there is a broader way of looking at impact).

There is often a paternalistic attitude (not necessarily among people like Toyama or Karlan, but others less in the know) toward serving the poor.  People try to engineer outcomes, and are dismayed when someone spends the extra income from the dairy cow they bought with help from a microfinance loan on booze, cigarettes, and fast women. Judge not, I say, lest ye be judged.  After all, in the words of Devin the Dude, “you only get one ticket, might as well enjoy the ride.”

Creating more opportunities should be the barometer of success in serving the poor.  Microfinance was about providing access to financial services, which it did.  It has given poor people a place to save their money and borrow money to smooth their irregular consumption.  It created opportunities that did not exist.  In a much less outwardly altruistic example, connecting Africa to the world and putting a cheap cell phone in the hands of every African is helping the poor and making a killing.  If the poor then spend the school fees on ringtones, that is their discretion.  But creating opportunity – in the form of infrastructure or technology – is what moves the needle.

That is why, in my opinion, social impact investors need to move in one of two different directions.  They can either expand the definition of social impact beyond the “directly reach a million poor people” definition that exists today, and accept the fact that there is  highly profitable companies that serve a social cause and are specifically targeted at the poor are few and far between.  Or, they can accept the fact that the returns will be marginal, but the intangible social value created by the product will significantly exceed the financial opportunity cost.  Either way, the current narrative that you can make lots of money and serve the poor at the same time (rather than serially, like Bill Gates, as Toyama suggests) is dangerous.

But where's the impact?

It is dangerous because it breeds unrealistic expectations and creates resentment when they fall short (“Impact investing is a crock!  Those assholes lied to us!”).  Social entrepreneurs shouldn’t feel like they have to be 100% financial sustainable to be successful.  That is a nice-to-have, but there are billions of dollars being spent very poorly on development projects right now.  Money is not an issue (Kiva, for example gets money with 0% returns) – impact is the problem.  Similarly, investors shouldn’t measure success by the direct impact on the lives a certain number of poor people, or hitting specific targets in living standard improvement.  They should invest in Africa, but do it responsibly.  Stay away from oil, cigarettes, alcohol, or any other product that has a net-negative social impact, and focus on telecommunications, manufacturing, or even natural resources (so long as workers are treating well).  Investment will generate employment, which, as Toyama says, is the real engine of poverty alleviation.

Until people recalibrate what it means to a) make money, and b) have an impact, and convey these goals honestly, I’m afraid social impact investing will continue to fall short of the expectations and face the same circular firing squad that has plagued other “silver bullets”, like microfinance.  I think real social entrepreneurs and impact investors understand this push-and-pull.  But Toyama’s intended audience is probably less informed about the realities on the ground, which is why he was giving the talk in the first place.

Mobius Motors and Game-Changing Technologies in Africa

Problems generally have a cause and an effect.  Trying to solve a problem by focusing on the effects may reduce the impact, but, if the solution fails to address the underlying issues that make it a problem in the first place, the problem will continue to exist.  In Africa, there is no shortage of people trying to address the effects of systemic problems without taking into consideration the root cause.  The best example  is food aid, which fights hunger and reduces malnourishment in the short-term, but ultimately creates dependency among recipients and undermines the domestic agriculture sector, further reducing the local food supply.  By addressing the effects, rather than the cause, traditional food aid ends up exacerbating the problem.

There are fewer examples of companies and organizations targeting the underlying the issues that lead to systemic change, but the ones that have been successful have changed the world.  Mo Ibrahim is a Sudanese-British mobile communications entrepreneur.  He founded the company Celtel, a telecommunications company that has sold 24 million mobile phone subscribers in 14 African countries, and, in the process, catalyzed the mobile revolution in Africa.  Before Ibrahim, no one believed that Africa could be a profitable market for mobile phones and cellular technology.  By proving the the concept, Ibrahim spurred the creation of a telecom sector in Africa with price wars that make the U.S. market look like a state-run monopoly.  In doing so, Ibrahim and Celtel addressed the fundamental problem of communication, making every industry in Africa more competitive on a global scale.  (An interesting sidenote: Ibrahim later formed the Ibrahim Foundation and launched the Prize for Achievement in African Leadership.  $5 million is awarded each year to an exemplary African leader who promotes peace and democracy, but only if there is an acceptable candidate.  According to Ibrahim, “good governance is crucial.”)

Another game-changing technology is mobile money.  In 2007, Nick Hughes, a former Vodafone executive, pushed the company to invest in a technology in Kenya that would allow people to transfer money via mobile phone.  That technology would ultimately become M-PESA, a mobile money transfer service offered by Safaricom, in which Vodafone owns a major stake.  Today, M-PESA has 14 million subscribers representing 81% of Safaricom’s subscriber base and 13% of the company’s revenues.  Safaricom, which has ~70% market share in Kenya, has faced intense competition amidst a price war with other telecoms.  Yet, M-PESA revenues have still increased by 50% every single year since 2008.   In the Philippines, SmartMoney and G-Cash followed the same path. Through mobile money, Hughes and others addressed the fundamental problem of providing financial services to the unbanked.  Now, people can transfer money, pay their bills, and save for the future using only their mobile phones.  Mobile money is still young, and the rippling effects it will have on emerging market economies beyond Kenya and the Philippines remains to be seen.

Hello Mobius

This past weekend I met the founder of another company that is trying to address another fundamental problem in the developing world: mobility.  Mobius Motors, based in Mombasa, has the modest goal of revolutionizing transportation in Africa.  Here’s how:

Designing and building affordable, fuel-efficient vehicles for developing regions in Africa, Mobius Motors is galvanizing a different, equally important revolution in transportation. Recognizing that the majority of people residing in remote and rural parts of the continent have no access to transit, the company predicts that great strides in economic development, education, sanitation, etc. will come when more people have mobility.

Mobius’ goal is provide enough cheap, off-road-capable vehicles — they look a lot like mini Jeeps — to build a reliable public transportation system. The company believes that this will allow for better access to schools and health clinics, expedite profitable agricultural activities, foster small businesses, and even empower women who spend so much of their time walking to collect water and firewood.

But Mobius’ ambitions have even broader implications for the world’s changing transportation system. Now that more developing countries are industrializing at a breakneck pace, rapid car production is becoming more important than ever. Look no further than China, where automotive demand has spiked. But the world’s climate can’t afford another stretch of dirty industrialization. The cars built to satisfy this voracious demand need to be different: lighter, smarter, vastly more efficient but with comparable utility.

Goodbye Matatu

Mobius is trying to reduce the cost of manufacturing to an absolute minimum by stripping away everything it considers unnecessary for a car designed for the African bush.  It is creating its second prototype, which is made from off-the-shelf cost-efficient materials and is frill-less, without like air-conditioning or glass windows.  The cars are modular, meaning they can be adjusted to suit any purpose – transporting crops to market, carrying passengers from the rural areas to the cities, or providing an alternative to the ubiquitous matatu system, which is going to be phased out over the next decade.  Right now, access to urban areas and centers of trade and commerce is a major impediment to people in the rural areas.  This is creating a process of urbanization in Kenya that is seeing a mass migration of rural dwellers into the cities.  If the Mobius car provided a cheap means of transporting goods and people to and from the cities,  people living outside the cities will have more and more options and perhaps slow the rate of urbanization.  Think about your own life, and think of all of the ways that transportation makes your life easier and more convenient.  That is what the Mobius car has the potential to do for Africa.

To my mind, the Mobius car, like mobile money and the African telecom sector, is a bit like the iPhone.  It is a basic platform upon which to build something greater.  The Mobius cars will improve mobility, but it may be in ways that no one envisioned.  Right now, there is a fundamental problem of mobility in parts of Africa.  By addressing this problem, Mobius could very well achieve its goal of revolutionizing transportation in Africa.  The ripple effects in other sectors could be huge.

Last year, Next Billion interviewed Joel Jackson, the founder of Mobius Motors.  Here is what he has to say about the company:

I founded Mobius to change the world. Not by making wealthy economies wealthier but by mobilizing emerging markets, starting in Africa. Effective transport underpins development but sadly is often overlooked. It provides access to education, healthcare, markets and employment. It connects families with loved ones and supports the exchange of products, services and ideas. Imagine your life without transport for just one week. How would your children get to school, how would you get to work, what would you eat and what would you do in a medical emergency? Although developing-world transport presents a huge market opportunity it also suffers from acute market failure with misaligned products and services. Mobius aims to readdress the transport imbalance and mobilize the developing world. This is a vision worth dedicating my career towards, which is why I do what I do.

Very cool stuff.