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Four Gaps in Social Entrepreneurship
This post originally appeared in Echoing Green’s blog and was co-authored with Ignacio Mas.
The increasing attention around social enterprises is powered by a number of mutually reinforcing global socioeconomic trends. Something big and coherent may be brewing, but equally this energy could end up dissipating into myriad unconnected efforts. This begs two questions:
1. What are the gaps that the social enterprise movement will need to bridge?
2. What are the catalysts that can channel the energy in a most constructive, consistent and impactful way?
Here we share our thoughts on four key gaps we have identified, focusing on social entrepreneurship in developing countries. They relate to awareness, skills, credibility and money.
Geographic and Cultural Gap. Social entrepreneurship, like all early stage investment activity, has to be fundamentally home-grown. There is a risk that the social entrepreneurship label—and hence the funding that comes from a new investment class associated with the label—comes to be dominated by an over-achieving, highly educated, globally mobile jet set that have the capability to network between them and command the new social media tools. They can play a critical role in catalyzing interest and demonstrating attitudes and skills, but the opportunity is much larger.
Many enterprises that are locally owned and managed would be considered social if only they were aware of the label. Equally, many successful businessmen in developing countries are ready to contribute smart money to the socioeconomic development of their countries, if only they find good ways of investing responsibly in their own countries. Social entrepreneurship needs to be a platform for indigenous action, grafted with ideas, skills and practices brought from outside—not the other way around. So gap #1 is about pipeline: How can social investors find the hundreds of local enterprises that already look and feel like a social enterprise?
Age and Experience Gap. Social enterprises seem to be populated with young people, for whom innovation and disruption seems more natural. It’s also the demographic with the biggest reserves of idealism, fearlessness and energy—a combination which, if channeled property, produces passion. But youth lack experience: their passion can lead them to misread market needs, underestimate the challenge of taking good products to market, and expect and drive change in too many ways. Running social enterprises has all the challenges of running purely commercial enterprises, plus the added complexity of operating a second bottom line—especially when that second bottom line is not articulated around a set of observable metrics.
So where’s the grey hair? Where are the older, experienced people who can temper younger entrepreneurs’ plans without sapping their passion? The new generation is not being supported by the old. So gap #2 is generational: how can social enterprises tap a bigger pool of experienced managers and businesspeople who, in their middle age comfort, may be interested in contributing their time and expertise rather than necessarily their money?
Expectations and Communications Gap. Movements require a narrative that speaks to a higher purpose, and that is often built out of over-simplified stories. That helps the cause, but there is the risk that the narrative becomes dissociated with reality on the ground. The current batch of social entrepreneur “early adopters” tend to be an optimistic, self-confident and driven lot, and they can easily create over-hype. We’ve seen that happen with microcredit. Now we can marvel at how so many people used to think that putting poor people through continuous debt cycles was a well-trodden path out of poverty. For social entrepreneurship the risk of over-promising is also there: it’s hard to keep the rhetoric in check when there is such strong feel-good air about it, there are no clear definitions or boundaries around the notion of the social enterprise, there are no consistent metrics for impact.
Advocacy and branding are now recognized as key tools for change and development impact. But they need to support action and results rather than developing its own story. So gap #3 relates to communications: how to keep the conversation honest, not confusing the goodness of people and ideas with actual on-the-ground impact.
Funding and Risk Gap. Social capital is most critical to help prove not so much that an idea is socially worthwhile, but that it is sustainable and/or scalable. Developing an idea is fairly cheap, and one is generally able to tap the goodwill of family, friends and socially-minded angels to build some kind of working prototype and do very early market testing of the idea. And once the operational model is proven, normal commercial funding sources become available.
But what about the middle stage, when you can readily convince anyone that you have a good idea but can’t quite prove that you can take it to market efficiently? That’s where social capital is most needed: to propel socially relevant ideas into socially impactful ones. But despite the good intentions, the questions on risk and the expectations of returns posed by social investors seem to be quite similar to those expressed by purely commercial funds. Persistent lack of funding can frustrate the great expectations of social entrepreneurs, and the sector can move from over-hype to over-disillusionment. So gap #4 is about risk-taking: in what ways do social investors propose to absorb enterprise risk in the post-seed but pre-commercial stage of social enterprises?
The social enterprise sector has set a tall agenda for itself. We need social enterprises to help create livelihood opportunities for disadvantaged communities, address health or environmental challenges faced by vulnerable communities, foster universal access to quality education and information-based services, build business connections between the informal and formal sectors, or provide tools and platforms to help microenterprises to flourish.
What do you think are the greatest gaps in social entrepreneurship? Leave your thoughts in the comments below.
A Perfect Storm for Social Enterprises?
The following post originally appeared in the World Bank’s blog Private Sector Development and it was co-authored withIgnacio Mas.
It’s fuzzy, it’s trendy, and it’s not even clear how new the whole concept really is. The passions triggered by the new breed of enterprises we now call social may even appear to some almost cultish.
They operate as private enterprises, often with a strong entrepreneurial and innovation culture, but claim to have a broader purpose than just maximizing financial returns for shareholders. They aim to be sustainable (i.e. commercially viable) though they don’t shun grant money from foundations and aid programs to get them started.
Interest in the social enterprise sector will continue to grow because it lies at the confluence of several powerful trends. There are three inter-linked themes: the search for new approaches to the challenges of development, the spirit of technological innovation, and growing global prosperity and integration.
Donors and multilateral development organizations are increasingly emphasizing private sector development as the preferred path to growth. They have seen that promotion of a stable macroeconomic environment and trade liberalization by themselves may not trigger supply-side responses, and that heavy-handed government action through public enterprises and industrial policies are prone to political capture and often result in a checkerboard of local monopolies. There is therefore much interest in policies that make it easier to do business, remove obstacles to external enterprise financing, and develop a pool of skills that can be readily harnessed by a growing entrepreneurial class.
Alongside the traditional official development players, there is a growing industry of nimbler development organizations which eschew action through government and instead promote the notion of market solutions to poverty. They want to tap the private initiative and associative tradition which typically exist at the base of the pyramid. The vision is one of socioeconomic progress based on poor people bootstrapping themselves rather than through prosperity and jobs trickling down.
With the rise of philanthropy, the development space is filling up with a range of players that are blurring the boundary between public and private action, creating the third or civil society sector. They are like public organizations in that they may not be primarily financially-driven and have broader societal goals in mind, but they are like private organizations in that they govern themselves against specific interests and escape a broader accountability beyond their financial backers.
Have you heard that before? Social enterprise investment has the potential of taking the mantle from microcredit, a movement which galvanized people from the left and the right alike around the notion that poor people could be helped to help themselves. Microcredit ultimately failed to build on its own success: products remained narrow, inflexibly designed and very expensive, and the notion that there was a causal link between microcredit and micro-entrepreneurship is proving tenuous. Social enterprise investment is a much more open-ended –and hence potentially more flexible and holistic—approach to spurring entrepreneurship at the base of the pyramid.
At the same time, there is growing faith in the potential of new technologies to dramatically expand the reach and accelerate the take-up of new ideas, goods and services. More than anything, technology gives us reason to be newly optimistic about changing what’s wrong in the world, because technological innovation quickly replenishes our chest of ideas as older ones are worn out. It gives us a sense of why now, more than ever, we may be able to eradicate poverty.
Embracing technology also affects the way business is conducted. Modern thinking and practice around innovation has a strong component of community, openness and sharing. Investors and entrepreneurs come together in hubs, because they know their own ideas will improve if they are opened up to early scrutiny and cross-fertilized with others’ ideas. Social investors and entrepreneurs feel comfortable competing and at the same time collaborating with their peers, and that’s because beyond making money they aspire to change the way things are done and they know they probably can’t do it on their own. Social enterprises tend to have a strong sense of peerage, of community centered on shared aspirations to change the world.
At a broader societal level, technology has given us immediate access to information, and we now feel society’s shortcomings more vividly and immediately than ever before. The affluent no longer live in a local bubble; instead, there is a more shared planetary conscience. Problems may have gotten more complex, but concerned citizens and problem-solvers are more connected.
People are not just more aware, they are also more eager to help. Growing global economic prosperity in the world has generated a class of privileged people –both in terms of economic wellbeing and education— for whom money is no longer the sole driver. With prosperity, money and happiness become more de-linked, and people search different avenues to give purpose to their talents and toil.
More directly, the global financial crisis has taken the gloss out of banking and finance. Few now think that banking salaries, bonuses and investment returns correlate with socioeconomic contribution in any meaningful way. Many investors and finance professionals are therefore eager to bring back a sense of socioeconomic contribution that is distinct to dollar-based measures of investment success. This trend is particularly strong in business schools, where the budding leaders of tomorrow aspire to do good at the same time as they do well. One is no longer satisfying enough without the other.
When an idea stands at the vortex of so many concurrent trends, you can expect it to come to something. The concept is fluid, and that in itself may be its strength: its meaning will be shaped by powerful forces that are already redefining the development institutional landscape. Social enterprises will come to be defined less but what they do –after all, how can you put clean energy, microfinance and technologies for the base of the pyramid under a single banner—and more by how and why they do it. But for that to be meaningful and sustainable, they will need to code their good intentions, the idea of business with a conscience, into a set of governance, managerial and operational practices.
Frogtek Ranked One of the “Hottest” Global Mobile Companies by Investors
We were extremely psyched to learn that we have been named one of the top 25 “hottest” mobile companies in the world by Informilo, a news site that covers tech sector developments in Europe, the Middle East, Africa, Asia Pacific and the Americas. This list was included in a 32-page print magazine that Informilo produced for the Mobile World Congress, which took place in Barcelona February 27-March 1.
>Echoing Green opens their annual search for social entrepreneurs
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>Exciting video about the Vodafone Mobile Clicks award
>We are still a bit dazed after receiving the first award at VMC, we frankly never expected to be the winners. Vodafone has gone one step further and published an exciting video about the competition and the awards ceremony:
>Frogtek Wins Vodafone’s Mobile Clicks Competition!
> We could not be more thrilled to announce that we are the 2011 winners of the biggest competition for European mobile startups, Vodafone Mobile Clicks. A special congratulations is also in order to our CTO Guillermo who represented us both in Spain and at the European finals in Amsterdam.
More details about this competition and our business model in general can be found in a (very) recent article on the New York Time’s Web site (copied and pasted below).
Metric for Microshops: Frogtek Wins $206,000 to Help Shopkeepers in Emerging Countries
By CIARA BYRNE of VentureBeat
Published: September 16, 2011
Spanish-American startup Frogtek just won the biggest competition for European mobile startups, Vodafone Mobile Clicks, with its app to help small shopkeepers in emerging markets run their businesses.
According to Frogtek, a Mexican stall-like, microretailer stocks an average of 1000 products from 25 vendors and it is often managed with nothing more sophisticated than a paper notebook. Frogtek wants to change all that with the help of the $206,000 (150,000 EUR) prize.
The product consists of a bar code reader connected to a mobile application running on an Android smart phone. Every product sold is scanned and tracked by the application. This means that shopkeepers can, often for the first time, track inventory, calculate daily sales, identify best and worst selling products and order online from vendors. Access to these simple metrics can be nothing short of revolutionary for shopkeepers.
The inspiration for the product came from micro credit agents in Columbia who, 5 or 6 years ago, started using PDAs to record data from credit rating interviews with applicants who ran shops. “For many of the shopkeepers this was the first time they had seen their numbers” says Frogtek CTO Guillermo Caudevilla. “And they said ‘I want something like this for my business’”. Founder David de Ser heard about this project and saw that since Android phones had become available he could make an application accessible to these shopkeepers.
The first market was Columbia, where Frogtek has run pilots for 2 years and the startup hopes to be in 500 shops by the end of the year. Mexico is now also a focus with 120 shops already up and running. According to Caudevilla, 1 in 100 people in Mexico runs a shop and microretailers are responsible for 5 percent of GDP. Worldwide there are more than 40 million microretailers.
Microretailers are of great interest as distribution channels to large vendors like Coca Cola and Procter and Gamble as well as banks, mobile payment companies and micro-credit institutions. However, because of the owners’ informal or non-existent accounting systems, accurate data on their activities can be hard to come by. Frogtek’s business model is based on selling that data as well as getting a commission on online orders made via the application. Big companies will also often purchase or subsidise the phone and bar code reader. “We are starting a trial in Mexico with Coca Cola.” explains Caudevilla. ”We just signed an agreement with the third biggest company in Columbia to have another pilot and the second phase of that would aim to reach 120,000 shops in Columbia within 5 years”.
Subsidization is certainly necessary since the cost of the equipment, $100 for the bar code reader and $200 for an Android smartphone, is still prohibitive for most microretailers. The big challenge for Frogtek in the future is therefore to create partnerships with large companies who reach thousands of microretailers. Frogtek will use the prize money to help grow the network of retailers and partners.
Most of Frogtek’s competitors make applications on PCs for larger retailers like minimarkets. “We are the only people doing this on a phone which is 2 or 3 times cheaper. The application is completely tailored to the needs that they have in emerging markets” insists Caudevilla.
A big issue for all social enterprises is how to measure their social impact. Often they use a combination of breadth, the number of people reached, and depth, the impact on individuals. When it comes to gauging depth, Frogtek has an advantage. “We are making a measuring tool.” Caudevilla says. “At some point we can measure if they are selling more, reducing expenses, increasing margin, whether they have given up selling bad products. What we are doing is giving these people the power to make the best decisions.”
Frogtek was founded in 2009. The 18 employees are based in Spain, Columbia, Mexico and the United States and the company is current angel-funded. One of the investors is Josh Mailman, the first investor in Grameen Phone, the biggest mobile operator in Bangladesh.
>Summer 2011 Update
>Two Years and Counting…
There are different ways to measure the age of a company — for example, from when the founder had the original idea, the first dollar spent or the date of legal incorporation. However, the definition we use most is when we received investment because that is when we ramped up our learning via hiring a team, turning protypes into market-ready products and spending every day with our customers. That date was two years ago this month.
While many challenges lie ahead, we’re proud of our accomplishments so far. First and foremost, our product Tiendatek has repeatedly and demonstrably helped our users to improve the profitability of their businesses. As a social venture this goal is core to everything we do. Second, by demonstrating value to companies and other organizations we are deploying phones more quickly and efficiently via new collaborations. As a for-profit company these partnerships help us scale in a repeatable way. Third, our team, culture and processes have fostered any environment where we continuously innovate. As people this makes Frogtek an exciting place to work.
Of course, none of this would be possible without friends and supporters like you so we want to thank you again for the last two years and the many, many more to come.
Tiendatek in the Top 15 of the Ashoka Changemaker’s Competition
We are thrilled to announce that out of nearly 900 entries from 83 countries, we have been selected as a top 15 semi-finalist in the Changemakers competition co-hosted by eBay Foundation and Ashoka’s Changemakers. The top 10 solutions with the most votes will go on to compete for five cash prizes of $50,000 USD each to invest in scaling their idea.
Collaboration with FEMSA Coca-Cola in Mexico Kicks Off
We are now working closely with FEMSA, the largest bottler for Coca-Cola in Latin America, to deploy Tiendatek in Mexico City. FEMSA regularly visits their best retail partners to provide a range of consulting services and negotiate prices and as part of this program they are now offering Tiendatek as a value-added service. To date the feedback from shopkeepers has been enormously positive and we are delivering phones with our software every week to new users.
Customer Spotlight: Using Information to Give More Power to Shopkeepers
Nearly every day we get feedback from our users about how Tiendatek has helped them to improve their businesses and we want to start sharing more of these stories.
In the case of Sara, a shopkeeper in Mexico, one anecdote in particular illustrates how Tiendatek has given her more power when negotiating with suppliers. A couple of months ago a salesperson was pushing a group of products so he could make his own quotas but through the Tiendatek reports Sara noticed that one of these items was not selling well. When Sara decided not to buy this product, the provider got upset and stopped his visits entirely, leading Sara to call his supervisor. The supervisor was so flabbergasted that he came to Sara’s store personally to apologize and assure her that sales visits would re-start immediately (and we hope he scolded the salesman).
This example about the democratization of market data not only empowers the shopkeeper, it also improves the supply chain by better aligning supply with demand and ensuring that products do not simply sit on a shelf collecting dust.
Operations Team Grows in Mexico and Colombia
We have grown the Operations teams in Mexico and Colombia to help roll out Tiendatek as well as provide additional training and support to our users.
Diego Velasquez, Sales Associate (Colombia). Prior to joining Frogtek Diego worked for 12 years in the sales group for Bavaria, the largest beer company in Colombia, where he sold a range of products to micro-retailers in Bogota. Welcome Diego!
Alberto Quiroz, Sales Associate (Mexico). Prior to joining Frogtek Alberto was a technical support engineer for Apple Computer in Mexico City where he worked on a range of customer service projects. Welcome Alberto!
Roberto Carlos, Sales Associate (Mexico). Prior to joining Frogtek Roberto was a Web and database programmer for InterMexico in Mexico City where he worked on numerous client projects and technologies. Welcome Roberto!
>Please vote for us in an Ashoka – eBay competition!
>We just made it to the semi-finals as one of 15 projects selected. From that pool, the 10 most voted will make it to the final, where 5 prizes of $50K will be allocated. So please help us win all this support and recognition for our shopkeepers! It only takes two clicks, using the widget below, or if you prefer it, you can also use this Facebook application or go straight to Changemaker’s website.
>A tribute to the barcode promoter
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Alan Haberman did not invent the barcode but was the chief responsible person for its wide adoption in its current form. He passed away recently and the New York Times dedicated him a glowing obituary:
Today, trillions of beeps later, what was once a novel technology with uncertain prospects is so widespread as to be almost invisible. It informs nearly every aspect of modern life, providing a means for people to buy and sell things, couriers to track packages and airlines to locate (in principle, anyway) lost luggage.
This transformation, industry experts say, is largely because of the work of one person, a supermarket executive from Massachusetts named Alan L. Haberman, who died on Sunday at 81.
Barcodes underpin our prosperous society by injecting efficiency in so many different ways. They have spread worldwide and can be found on almost all the packaged products consumed anywhere.
We take barcodes for granted but there are still millions of shops who fail to benefit from them. Almost 40 years after the standard was set by Mr Haberman, the vast majority of small retailers in emerging markets don’t have scanners. It is a bit of a tragedy, as 80-90% of the products they sell could be scanned and thus better managed.
Hopefully our Tiendatek and other systems from competitors will help bridge this gap and quickly spread the joyful beeps far and wide!
>Wealth creation and Internet usage in emerging markets
>As you can see in The Economist’s chart below, a gargantuan amount of wealth will be added to the economies of the emerging markets in the next few years. China will be responsible for the largest growth but Russia, Brazil and India also make the global top 6. Further down the list, Mexico will be adding a very impressive $200bn by September 2013.
Breakneck growth in these economies is clearly drawing attention from the world’s economic actors. Many of the largest multinationals see it as their next big source of growth. For instance, Coca Cola’s 2020 Vision calls for a doubling of revenues by that year, which would mostly come from emerging markets.
