Redefining Profit In A World Of Turmoil
Exploding populations, scarce food sources, polluted air and water, low literacy rates, sexual violence, human trafficking, climate change, unrighteous politics…Where’s the social change?
Photo by Sébastien Marchand
Where is the world going? Well, with world leaders nit-picking at each other, women continuing to be abused every day, and hurricanes devouring entire regions, I really don’t know. There has never been a more “unpredictable” time in the history of modern civil society than now, that is, in my opinion.
Nonetheless, not all is dark. There are numerous positive changemakers striving for change everyday, around the world. These are individuals, non-profits, and (some) businesses. Yet, when these changemakers meet corporate leaders of established firms, there’s a gigantic difference in mindsets, intellectual frame of mind, and definition of profit.
How do we go about navigating the battle of the “definitions”? Does it really have to be a battle? A clash? Or can the two actually go together?
According to Bugg-Levine et al, a growing number of social entrepreneurs and investors realize that social enterprises of all sorts can generate financial returns that will make them attractive to the right investors (2012). In order to make financial capital more accessible to social entrepreneurs, investors have been tinkering around with several new innovative funding methods, such as: loan guarantees, quasi-equity debt, pooling, and social impact bonds (Bugg-Levine, 2012).
However, Yunus et al (2010) have taken it a step further by comparing and contrasting traditional and social business models, and contributed to the scholarly study of social entrepreneurship by elucidating five novel and unique lessons learned from practicing the phenomenon.
For example, according to Yunus et al, Danone’s dairy product business model can be analyzed with two separate lenses: conventional and social (2010).
In a conventional business model framework (common in developed countries), Danone’s value proposition would be characterized as high-end products with an emphasis on lifestyle, while it’s value constellation would be characterized by centralized purchasing and production and sales through food retailers.
However, in a social business model framework (common in developing countries), Danone’s value proposition would be characterized as low-price with the fulfillment of basic nutritional needs, whereas their value constellation would be characterized by the local supply of raw products, local production, and direct door-to-door sales by “Grameen” ladies.
The social business model clearly not only financially profits Danone, but also financially AND socially profits the relatively poor local community.
All in all, it is clear to see that social entrepreneurship and/or social-purpose businesses and/or social enterprises have the potential to build brighter futures for both organizations and communities by empowering everyone to make a difference around them.
The five lessons described by Yunus et al. are: challenging conventional wisdom, finding complementary partners, undertaking continuous experimentation, favouring social profit-oriented shareholders, and specifying social profit objectives clearly.
If you’re a social business executive, the most applicable of the five lessons (and perhaps the most perplexing and frustrating) would be “favouring social profit-oriented shareholders”.
The problem is that despite increased awareness of corporate social responsibility (CSR) and social entrepreneurship, “CSR could be viewed as corporate financial irresponsibility unless financial profit-oriented shareholders can be shown that the incurred costs will turn into a positive cash flow in the medium or long term” (Yunus et al., 2010).
A venture, whether social or commercial, or whether small or large, will always require resources to takeoff. When reporting to major stakeholders, managers have to give priority to financial profit. As Yunus et al perfectly state, “reducing profits to promote social welfare might leave…[stakeholders] feeling cheated” (2010).
Therefore, being a social company and changemaker would still require a significant amount of financial resources despite our important social objectives.
In this case, it is highly important for a team to favour those investors who would be more likely to support an organization’s social objectives, as opposed to posing as obstacles.
This will help the group’s social mission to quickly gain “traction” (thanks to social-profit oriented mindsets) as opposed to being halted or slowed down by creating unnecessary “friction” (due to financial-profit oriented mindsets).
At the end of the day, however, a social business, is still in effect, a business.
We will still have to keep an eye on financial metrics.
However, it would be best for like-minded individuals with “hybrid” mindsets that understand the significance of giving equal importance to both social AND financial profits.
Bugg-Levine, A., Kogut, B., & Kulatilaka, N. (2012). A new approach to funding socialenterprises. Harvard Business Review, 90(1/2), 118–123.
Yunus, M., Moingeon, B., & Lehmann-Ortega, L. (2010). Building social business models: Lessons from the grameen experience. Long Range Planning, 43(2), 308–325.