SocialBiz.org

An article from  Forbes Magazine states:Former President Bill Clinton, in an exclusive interview with Forbes this week, stated adamantly that major multinational companies must put their customers’ and employees’ interests before those of shareholders in order to promote economic development and growth, especially in the emerging markets.Check out the rest of the article.

Social Business Entrepreneurship is an idea popularized by many, including Muhammad Yunus, winner of the 2006 Nobel Peace Prize. It’s based on the premise that there are two types of business out there: 1) Profit-Maximizing Business and 2) Social Business. In the first case, the primary goal of the business is to make as much profit as possible. This is the traditional model of 99% of all businesses today. Based on free market capitalism, a person should try to make as much money as they can for themselves. The second type of business - Social Business - has the primary goal of maximizing benefits to others. It is completely social driven - the objective is to help as many people as possible. At the same time, this is a business, so it cannot withstand losses and therefore cannot simply hand out money for free, or it will go out of business. But instead of optimizing for making more profits, the variable to optimize for is how much you are helping other people.

Is Social Business Entrepreneurship Possible?

Some might ask, why would anyone ever want to start such a business if they can’t ever make any profits? But what is crazier, an organization helping people that makes no money and loses no money, or an organization helping people that makes no money and in addition loses money. That’s what many charities and non-profits do. No, they don’t lose the money in the sense of wasting the money. Of course this money is spent towards great programs that help people. But once that money is spent, it is gone. Take one dollar that is given to a charity: it can be used to buy some goods or services that will help people (perhaps food or water). But once you have spent that one dollar, it is gone. You now have to raise more money in order to sustain this system.

Recycling the Dollar

Now, instead of using that one dollar and simply giving it away for a one-time use, imagine if you could invest that dollar in a system to help people, but not lose it. Eventually you get the dollar back, and you can use it again. Imagine a Social Venture Capitalist. Instead of donating $1 million to a charity to be used one time, they invest it into a Social Business. This social business is run much like a normal business. It has smart people keeping track of the finances, it has calculated its business model and ensure that it’s maximizing the most important variable. Remember in this case, instead of maximizing profit, we are maximizing how much we can help people. Also, we want to ensure a sustainable business, so we calculate operating costs into the future and project our growth rates. 5 years later, the Social Venture Capitalist is ready to “cash out.” The VC has a choice, they can take back his $1 million and use it elsewhere, or they can re-invest it back into the Social Business. Either outcome is fine for the Socal Business - in those 5 years they have become sustainable (in normal business we would call such a business ”profitable,” but here we aren’t concerned about profits). Now, that $1 million is ready to be used in a new Social Business or it can continue to keep growing the existing one. The dollar has been recycled. 

Links:

• Muhammad Yunus : Social Business Entrepreneurs Are the Solution
• Wikipedia: Social Business and Social Entrepreneurship