Monday, November 08, 2010

Mind of a social business

Author:- Anurag Behar

The conflict between social and commercial purpose defines the nature of the business. But is this dichotomy necessary?

Commenting on microfinance is the flavor of the season. I will resist that temptation, but I will talk about "social business and social entrepreneurs" (SBEs), broad labels with which microfinance has been associated. I have been intrigued by a human angle in SBEs.

Over the years, Muhammad Yunus has held on to his original notion of SBE. In his words: "Social business is a cause-driven business. In a social business, the investors/owners can gradually recoup the money invested, but cannot take any dividend beyond that point." You can't find fault with him; he has lived and built Grameen by that notion.

I can't say that the (so-called) SBEs that I have known have built their organization with the same steadfast commitment. This has led me to think about the psychological dynamic in an SBE.

The differences revolve around the basic fault line of profit. The fundamental issue is whether or not an SBE can make (and distribute) profits. Yunus' position is clear on this issue. So is that of the other side, which believes that so long as an enterprise serves a social cause, it can make and distribute profits, and still justifiably be called an SBE.

Airtel, for example, is a large, well-run enterprise, and it has served a significant social purpose. Cheap mobile connectivity has changed the lives of millions of people in rural and urban areas. Does that make Airtel a social enterprise? The off-the-bat response to that will be: "It depends on the purpose with which the business was started."

I think some things are unknowable in day-to-day business, and are the stuff on which contemplative fiction or insightful histories are written.

In the past nine years, my work and interest have got me introduced to a number of (so-called) SBEs working in education and environment. Some of these I have watched closely, and some people involved with them have become friends. As I have watched their struggles and tenacity, I have come to admire them more and more.

It's not easy to be any kind of entrepreneur, and the kind that I refer to face even higher odds. They work in domains or markets that are yet not properly "formed". They often offer services or products that are needed, but difficult to value, not the least because they are "new" and "innovative". The economics of those markets can only be discovered through years of toil in grime and dust. I have seen these friends struggle and often make a success of things ranging from rural renewable energy solutions to teacher training in private schools in small town India. Not all have succeeded, though.

As I have watched them build their enterprises, I have seen them take decisions-the kind that most people in any business take. Unlike normal businessmen, however, many of their decisions have a fundamental conflict: between the social purpose that they are trying to serve, versus making profit.

A few simple examples will explain. When deciding pricing, should they price such that they just cover their costs and investment needs, or should they price to the maximum that the market can bear? Should they share their intellectual property freely or should they "price" it? Should they raise private capital or depend on public funding?

I have seen them struggle with what takes priority-profit or purpose. The founder(s) sometimes maintain a fine balance, but often even they are unclear. Sometimes the conflict is not apparent, and the unconscious brush it aside.

As their organizations grow, this conflict becomes sharper and more frequent. And in such larger enterprises, as more people get involved in these key decisions, the balance between purpose and profits sometimes loses relevance.

The even more intriguing human journeys are those of founder(s), who start with "purpose first", but along the way drift to "profit first", without realizing the pass that they have come to, believing that they are serving the purpose through profit. As I said earlier, this is the stuff that needs a contemplative novel-not a newspaper column. It's a matter of hearts and minds of men, which often the individual in question also does not know.

A number of my friends, who a few years ago would have proudly called themselves SBEs, would hesitate to do so now. The hesitation is because of the realization of the treacherous path that they have treaded. They certainly will have satisfaction and pride in building an ethical, high quality business. But what they won't want is the saintly halo associated with the SBE because they know that this is not what they have become.

So, as I have thought about SBEs, I have starting feeling: Why place on entrepreneurs the burden of living up to the image of an SBE? Most businesses serve a social purpose-some bigger, some lesser. So long as they function legally, with fairness and with high quality, we should just value them and their social role, without deifying them. Let's just celebrate the success of these innovative entrepreneurs, and be grateful to them for that.

And those who want to get deified as an SBE should live and die by the definition of Yunus.

(This piece was published as a part of Anurag's fortnightly column, "Other Sphere", in Mint on November 3, 2010.)