The Social Entrepreneur’s Scaling Dilemma (and One Solution)

It’s rare for a social entrepreneur to get through the gauntlet of hurdles to reach that amazing milestone she strives for: a functioning, growing, sustainable business that is solving a core problem of humanity.

But even once she gets there, she faces a decision that can be excruciating: I call it the social entrepreneur’s Scaling Dilemma. Scaling strategy is yet another area where impact organizations face an either/or decision that profit-only businesses don’t have to make.

A traditional business has only one thing to maximize: profits. Well-run businesses optimize their prices based on what will produce the greatest profit, not what will produce the greatest number of customers. If a company believes that raising prices will increase profits after taking into account lost customers, then that’s what it will do.

But for a social entrepreneur, raising prices can be heartbreaking when the customer is disadvantaged. Not only are fewer clients served by the mission; those that are no longer able to afford the service will be the most disadvantaged in the pool.

A clean water service that charges just enough to break even will serve the largest possible pool of people that it can reach. It also leaves the most money in those people’s hands as possible. If the facility increases its prices, it will be more profitable – but less people will be served, those that are served will have less money for other survival needs, and those that can’t afford the water at all anymore will be the poorest of the population.

A water business run as a for-profit company with ROI as its primary objective will find the perfect price to maximize its profits, with no care at all to these social negatives. But for an impact organization, the loss of impact is a terrible side effect of increasing profits.

Now here is the dilemma: those profits that the social entrepreneur is foregoing to serve today’s poor are the same profits that would enable the business to scale. Without profits, there is no self-funding capital to build the next water treatment plant. Without returns, there is nothing to entice investment capital either. So the impact organization, by maximizing today’s impact, has limited tomorrow’s impact.

What should the CEO of the impact organization do? Should she maximize profits today, grow through reinvestment, and then accept lower profits later to increase scale? When should that happen? What if she knows that some people will die in the meantime? Should she pass up investors today, because she knows she won’t be able to downshift later to increase reach by lowering prices? This is a difficult moral place to be for the social entrepreneur.

That’s why social enterprises need a model like Good Returns. It solves the Social Entrepreneur’s Scaling Dilemma. Good Returns effectively says, “CEO, offer your services at the lower possible price while maintaining sustainability. Maximize today’s reach. We will provide the scale capital you need so you can maximize tomorrow’s reach, too.”

Good Returns works because it creates new value by providing businesses and their investors with a reason to invest capital into impact organizations. This capital provides a missing piece that solves the Scaling Dilemma.

Profits are the end for traditional business. For impact organizations, profits are not the end – the mission is. But profits are a critical tool that provides the sustainability and scale that the impact organization needs to achieve its mission. This need to focus on both mission and profits creates a multitude of challenges for social entrepreneurs. We need to be working together to find structures and devices that transcend these dilemmas.

If you have struggled with the Scaling Dilemma, please share your thinking process and the decisions you have made. If you have found other solutions to the problem, please share your approach so other social entrepreneurs can learn. Comments are open below.

Stand-Up

Everyone knows the classic joke about the man who complains, “Doctor, it hurts when I do this,” and the doctor says, “Well don’t do that.”

Think about it for a second – why is that funny to us?

The doctor’s advice is actually completely practical. But we all understand the doctor is ignoring the actual problem, and that makes it funny.

So – have you heard the one about the poor villager and the cause marketing business? The villager says, “We have no opportunity.” The business says, “Here, have these shoes.”

This time, it’s not funny. Not only is the problem being ignored, the prescription is creating side effects.

The reason people are without shoes is because they are in poverty. Shoelessness is, “Doctor, it hurts when I do this.” Dumping shoes on the problem is, “Don’t do that.” A real doctor – and a real social entrepreneur – will spend time to understand the root cause, and work with the patient to cure the condition.

Social entrepreneurs have a natural impulse to help others. But when you take large-scale actions, it’s important to look at the side effects of your activity.

What are the side effects when you give away masses of shoes in a poor area?

- What happens to the people who make shoes in the region? What about the people who make the leather or fabric for them? The people who bring them to the village to sell?

- What happens to a child when she wears shoes for six months and then outgrows them, and there is no replacement?

- If only half the children in a village receive free shoes, what is the impact on the other half?

Real, sustainable solutions to poverty focus on empowerment – which in practice means information and access to basic resources. If a social entrepreneur wants to make a healthy impact, she focuses on sustainable ways to increase access to water, nutrition, education, healthcare, capital, employment, and legal rights – the necessary foundations for sustainable prosperity. A family with access to these foundations will buy their own shoes – the right shoes for them, at the right time for them.

It’s important to follow our impulse to help others. It’s also important to be wise about how we go about providing that help. To address the right problems. To use tools of empowerment, so that those in the grip of poverty can stand up their own lives and their own communities. No joke.

The Easy Way

I once told my friend Lucy something I secretly had been thinking about for a while.

I told her I wanted to get rid of the few things I keep around in life, and move to the Dominican Republic to work for Esperanza International – an anti-poverty institution that I love and admire.

I’d spend half my time at headquarters, helping to improve operations and fundraising. And I’d spend half my time in the field, working directly with the women who are empowered by Esperanza.

It’s so compelling to me. For the rest of my life I would know that I had helped, hands-on, some of the most vulnerable people in my human family. I would forever have those memories, being shoulder to shoulder with the women and the field workers, changing lives. I would have the incomparable experience of helping to build a first class poverty fighting institution.

Lucy is one of the most practical people I know, so I thought she was going to tell me that wouldn’t be very wise for my career or retirement plans. But that’s not what she said at all. Her eyes flashed, and she spoke sharply, so I would remember it.

“Salah! You’re being selfish!”

It wasn’t the reaction I expected after just explaining that I wanted to get rid of all my worldly possessions and move to another land to help impoverished women.

Lucy said, “You’re mixing up feeling good about what you do with actual impact. There are many people who can go help the women of Esperanza. There are less that can help improve the operations of Esperanza, but there are still a lot. But you told me that you are working on a business model that could enable thousands of entrepreneurs to impact the lives of millions of people around the globe.”

“Your problem,” she said, “is that you are scared that you might fail. If you strive for something really big and really difficult, the likelihood of failure is high. You might waste precious years in your effort to create a platform to empower millions of lives. You might be left with nothing to show for your work. But if you don’t make the attempt, you will certainly not achieve your potential.”

“If you go to the island, the likelihood that you will help a few people is very high. It will certainly make you feel good. But you will be squandering any chance you have at making a big, worldwide impact. There’s nothing wrong with that – but see it with clear eyes. It’s selfish.”

If you are a social entrepreneur, I hope you have a Lucy in your life. Whenever I have a difficult decision to make, I remember what she showed me that evening. It helps give me the courage to go all-in. It keeps me from accidentally taking the easy way.

Thanks Lucy!

I’d like to hear your stories about risk taking and impact. Comments are open, or e-mail me at salah@soaphope.com, or connect with me on Facebook.

Heroes

Dr. Muhammad Yunus

Dr. Muhammad Yunus

Most entrepreneurs, myself included, are independent spirits.

The “independent” part has always been a big piece of my personality. I’ve never aspired to be “like” someone, and when those stock interview questions show up I’ve always cringed at the one that asks “Who is your hero?”

That is, until 3 years ago.

Three years ago, I found myself with heroes, and someone I want to be like.

In 2010, I heard Dr. Muhammad Yunus speak about humanity. He spoke extemporaneously for 45 minutes, sharing first hand stories of mothers and daughters whose lives had been transformed through education and opportunity; a vision for the end of the man-made condition of poverty; a call to action to all people to end the unacceptable suffering in our worldwide community.

It was the first time I ever had the thought, “I want to be like him.”

Yohaustria Pena, Hero

Yohaustria Pena, Hero

That same year, I went to the Dominican Republic and to Chiapas to see the work of poverty-ending microfinance institutions in the field. I saw for myself the bravery of women standing up against cultural oppression; taking steps that no woman in the history of her family had ever taken before so that her children could go to school; finding the right balance between personal initiative and working as a community; taking risks and succeeding with so little capital and time that they put entrepreneurs like me to shame. I found my heroes.

When I first started Soap Hope, my intention was to create a strong example of social entrepreneurship so that we could make a huge impact in ending poverty, both with our own company and through others adopting the model and learnings that came out of Soap Hope. And while Soap Hope did grow again for the third year in a row, and we did fund over 10,000 days of microlending for women entrepreneurs this year, most days my vision for Soap Hope still seems distant and fragile to me.

As if on cue, this week a friend sent me a video about social entrepreneurs, and when I clicked play I heard the unmistakable compassionate voice of Dr. Yunus – there once again to motivate and inspire. Every time I hear his voice, I hear my calling. And when I go inside and ask what I’m to do, Soap Hope always is the answer I see.

When someone buys one bar of soap from us, it funds one day of microlending for a woman. So I say, “A bar of soap is a day of hope.” This spring, I’m starting a new initiative at Soap Hope called “One Million Days of Hope” – to fund one million days of microlending through sales and partnerships with other companies and organizations.

Everywhere Dr. Yunus goes, he looks for ways to create partnerships with people, companies, and institutions small and large, to further his vision of ending poverty in our world. Yes, I want to be like him. So I will do the same.

One million days of hope would mean 100 times the impact we had last year. It would provide tools and opportunity to thousands of the women who have become my heroes. That’s not something I can do alone. You’ll surely hear me ask you for ideas and action, partnership and participation.

Watch for #onemilliondays. Think about how we can partner together. Expect a call from an independent spirit.

Solving The Puzzle

Jenny is VP of marketing at a $150 million company. Each year for the last three years, her CEO has given the senior team a set of measurable goals. They get a huge bonus when they meet the goals. Every year they’ve met them.

Some of this year’s key goals:

- $30 million in new revenue.
– Double the number of small-business customers.
– Do this without impacting profitability.

Jenny is confident she will meet the goals this year.

And that’s how I know the people in Jenny’s company are passing up a huge opportunity to improve our world.

Huh?

That’s right. Follow me:

Jenny’s company has a simple but powerful formula for financial success that works every year:

- The CEO sets goals that are easy to measure (all numbers).
– He fully empowers his team.
– He pays them a big bonus when they succeed.

The goals are like a puzzle – they only fit together in certain ways, and when the team solves the puzzle they get a big reward. They bring all the creativity and hard work necessary to solve the puzzle.

Last year’s puzzle included, “Do this without impacting profitability.” It would be easy for Jenny to generate the new revenue by lowering prices, or running a massive ad campaign. But the puzzle is harder than that: she has to find ways to reach new customers without spending too much or lowering margins.

Remember, Jenny told me she is confident she will reach her goal. She’s done it three times before. The team has already come up with multiple creative ways to go after new customers.

Now, here’s where Jenny and everyone else in her company is missing an enormous human opportunity.

Jenny’s company will make no measurable impact on any of the biggest challenges in our world: poverty, clean water, clean energy, conflict, education, disease. The company has no social focus at all.

Why? Because there’s no social impact goal tied to their bonus. It’s not a part of the puzzle. Jenny won’t spend any time on it. None of the team’s creative potential will go toward it.

My critic says, “But Salah, it’s not the role of a business to solve social problems. Whatever energy they would use to solve social problems could be used to make more money, which is the purpose of the business. You’re just making the business less effective by injecting extraneous requirements.”

That’s a fallacy that is preventing us from using the vast human capacity in businesses from making big strides toward solving our world’s greatest challenges.

Let me show you how:

Give Jenny this extra goal: “Reduce the number of children who are hungry every day next year by 1,000.” The last part of the CEO’s puzzle is still, “do this without impacting profitability.” Jenny can’t just donate a million dollars to meet the childhood hunger goal, any more than she could just lower prices to meet the sales goal.

The worst possible way to meet this goal is to figure out how to earn more money as a company and then donate the money to organizations that feed children. That will cost over a million dollars. If that were the only way to solve the problem, I would have to agree with my critic.

But that’s not how Jenny is going to solve this puzzle.

Jenny is going to develop creative solutions that integrate the goals – just as you would approach traditional company goals. She will use the social goal as a tool to help meet the financial goals, and use the financial goals as leverage points to meet the social goal.

She might use the requirement about childhood hunger to create new opportunities and tactics for marketing and selling. She might bring opportunity to customers and vendors around the childhood hunger goal that result in a financial benefit. If Jenny is effective, her team will develop a strategy that doesn’t treat the social goal as separate, something outside the main plan, something to figure out at the end. She will use the social goal to help solve the total puzzle.

If Jenny’s CEO will create a social goal that is measurable and clear, and make the team’s bonus dependent on it, he will find what I and other social entrepreneurs have found in our own business experience:

- Brilliant new creative marketing ideas arise from the team.
– New partnership opportunities emerge.
– New dimensions for business appear with customers and vendors.
– A new kind of passion and creativity ignites inside the organization as employees start to see that their work every day is human, not just financial.

Every day millions of people go to work to solve the puzzles presented to them by their company leaders. And almost none of those puzzles include working on the most important problems in our world, because leaders have made the mistake of thinking that the social goal will diminish the business results. That’s an error, and it’s leaving an enormous amount of positive social change on the table.

I challenge every company leader to try this experiment. At your next goal-setting time, add one measurable social goal to your puzzle. Give it teeth: make it as important to the bonus as everything else. Make it impactful: work on the most critical social problem you can. Help your team understand that this goal isn’t a tactic – it’s not a corporate sponsorship donation or a volunteer day. It’s to be integrated into the plan and leveraged, just like the financial and operational goals are.

See the results for yourself. You will never go back, and your whole business will become a part of solving the real puzzle: how our society will cooperate to address the greatest challenges in our world.

Stop Talking About The Poor

  • “I’m looking at the best models out there for using business to solve social problems.”
  • “This is so hard – I’ve been looking for the right organization to work with for almost a year. I don’t want to waste my time working on something that won’t really make a difference.”
  • “One day, I hope to get involved in ending poverty, so I’m studying as much as I can today.”

These are a few of the things I’ve been told by people in the last month who have e-mailed and called because they are passionate about social entrepreneurship and microfinance.

I hate to be the one to break it to them, but talking with other people about helping the poor does not help the poor. While you are talking, they are still hungry.

If you want to discover the best model for combining business and social problems, the very first thing you should do is start a business to solve social problems, or go work for one – right now. Then you will learn what is really involved in a social enterprise. I can tell you from experience, you will be throwing out almost all the ideas and opinions you have about the matter until you do it yourself.

If you want to find the best organization to work with, go work for any organization that is focused on changing any life besides your own – right now. During the year you have been carefully avoiding wasting your time, you have wasted a year.

If you are studying as much as you can today, you have forgotten that while you are studying the problem, a child has missed her opportunity to go to school, so the cycle of poverty is being extended an entire generation in her family. Why are you studying to work on the problem later? The problem is now – work on it right now, and you will learn more than any book could ever teach you.

I’m not saying we shouldn’t talk, reflect, or study. But I have noticed there are too many people who are mostly talking, reflecting and studying. Ask yourself now, am I spending more time talking about changing the world than I am actually working on it? If so, I suggest correcting that imbalance – now.

Stop looking for the perfect way to participate. Go do anything for those in extreme poverty, anywhere – not for you, for them. Not a conference – first provide a meal. Not a study – first send money for medicine. Not a meeting – first fund a water well.

Raise money for Grameen Foundation. Volunteer with Women For Women. Buy a scarf from WORN. Fund a Bank of Hope at Esperanza International. Donate services to CitySquare. Start a weekend business that funds microloans.

Stop talking about it, and do it.

Sometimes It’s A Grind

Cannon Flowers and Serena Connelly are my kind of entrepreneurs. Cannon and Serena wanted to learn – and to demonstrate – how business tools can be used to make a positive impact on society. But they didn’t just talk about social entrepreneurship. They didn’t just convene summits, put on high-profile seminars or publish whitepapers. No – they started an It’s A Grind coffee shop franchise in the Deep Ellum neighborhood of Dallas.

As many of you know, It’s a Grind was no ordinary coffee shop. It was a social enterprise, founded on principles of respect for employees and seeking to meet basic human needs (including a living wage and health insurance for hourly employees). It was a social experiment.

Today we learned that after three years, the Deep Ellum It’s A Grind will be closing because it has not achieved financial sustainability.

Many in the Dallas social entrepreneurship community are expressing sadness about the closing of It’s A Grind. However it’s important for us to focus not on the end of this project, but rather on the successes and lessons that have come from it.

The closing of It’s A Grind says absolutely nothing about the use of entrepreneurship to change our world for the better. It only says that the coffee shop business is a tough competitive environment, like all small businesses in America. All you need to do is listen to Cannon talk for a few minutes about the It’s A Grind experience to realize that the project has provided a deep set of learnings to its founders, employees, and supporters.

Here’s one such lesson: one of the wonderful things about working in a socially conscious business is that every day is full of meaning. Sure, every job is a grind sometimes – but in a socially conscious business each participant is working to change the world for the better, even if what they happen to be doing at the moment is making coffee or washing dishes. So if you are searching for meaningful work, you might join such a business – or start one.

I hope Cannon and Serena will each take their hard-won lessons from this experience and make fresh attempts at new models for improving our society. I hope they will share their learnings with us in writing and in person. Most importantly, I hope others in our community will take inspiration from Cannon and Serena – to stop just talking about social entrepreneurship, and go do it. Yes, some days it’s a grind and sometimes projects must be ended – that’s the reality of a startup. But without taking the risk, there is no chance of success, and there is no progress. If all we do is talk about it, we fail before we even begin.

So hats off to Cannon Flowers and Serena Connelly for working hard, taking big risks, and providing leadership to social entrepreneurs in Dallas. Now let’s show them some respect by picking ourselves up and getting to work!

————
Salah Boukadoum
Co-Founder, Soap Hope
Where 100% of profits lift women from poverty

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