SCALING SOCIAL ENTREPRENEURSHIP

1. SCALING SOCIAL ENTREPRENEURSHIP IAP 15.S59 MIT Sloan School of Management January 2015 Robert H. Hacker Rhhfla@gmail.com C|305-742-8222

2. COURSE OVERVIEW • SE DEFINED; CURRENT STATUS OF SE • SCALER MODEL; CASE STUDY MX • BUSINESS MODEL (OSTERWALDER/HACKER) CASE STUDY OLPC • ANALYSIS OF GS 10KSB

3. READINGS • Reading: A Positive Theory of Social Entrepreneurship by Felipe Santos • Reading: Osterwalder Business Model Canvas • Reading: Identifying the Drivers of Social Entrepreneurial Impact: • Reading: Scaling Social Entrepreneurshipby Robert H. Hacker • Reading: Learning to Change the World • WEF ‘From the Margins to the Mainstream”   Reading List 2015 MIT Sloan SE

4. 10,000 SMALL BUSINESSES  Goldman Sachs10,000 Small Businesses is a $500 million investment to help small businesses create jobs and economic opportunity by providing them with greater access to business education, financial capital, and business support services. The program is based on the broadly held view of leading experts that greater access to this combination of education, capital and support services best addresses barriers to growth. 10,000 Small Businesses is funded by Goldman Sachs and The Goldman Sachs Foundation. The program is currently operating in Cleveland, Chicago, Detroit, Houston, Long Beach, Los Angeles, Miami, New Orleans, New York, Philadelphia, Salt Lake City and nationally at Babson College. It will continue to expand on a city-by-city basis. HOW THE PROGRAM WORKS The program has three main components: • Practical Business and Management Education.  Goldman Sachs10,000 Small Businesses is contributing $200 million to program partners, including local community colleges and business schools. Funds go towards scholarships, faculty training and technical assistance to help build the organizations’ capacity. Students receive a practical education that focuses on skills they can apply immediately, including accounting, marketing and human resources management. • Access to Capital. Goldman Sachs 10,000 Small Businesses has committed $300 million through a combination of lending and philanthropic support to Community Development Financial Institutions (CDFIs). The investment will increase the amount of growth capital available to small businesses in underserved communities and expand the capacity of CDFIs to deliver financing and technical assistance to small businesses. • Business Support Services. Small business owners often face challenges finding networking opportunities and expert advice. The initiative provides these vital support services through partnerships with national and local business organizations, professional services firms and the people of Goldman Sachs. SELECTION CRITERIA Goldman Sachs 10,000 Small Businesses is designed for business owners with limited resources who have a business poised for growth. Applicants must demonstrate a commitment to growing their business and creating jobs within their community. Applicants should meet the following criteria: • Applicant must be an owner or co-owner of a business • Business in operation for at least two years • Business revenues between $150,000 and $4.0 million in the most recent fiscal year • At least 4 employees (including the owner) and no more than 100 http://www.icic.org/resources-for-inner-city-ceos/10000-small-businesses

5. Social Entrepreneurship “If your conduct is determined solely by considerations of profit you will arouse great resentment.”-Confucius

6. WHAT IS SOCIAL ENTREPRENEURSHIP? • Non-profit organizations that apply business expertise to become more efficient in providing and delivering their social services • For-profit businesses run by non-profits to help offset costs and become independent from grants and subsidies • High donor control philanthropy, where donors pursue their own personal social vision • Socially responsible businesses that offer innovative solutions to persistent social, economic, and ecological problems using market-based models Brigitte Hoogendoorn, (2011), A Conceptual Overview of What We Know About Social Entrepreneurship, EIM Research Reports

7. SOCIAL ENTREPRENEURSHIP A commercially sustainable, scalable solution to a social problem Hacker

8. VALUE CREATION-VALUE CAPTURE VALUE CAPTURE Note: RBT economist

9. VALUE CREATION-VALUE CAPTURE Or expand the circle

10. SEV SE Entrepreneurship

11. When For-Profit is the Right Answer for a Social Enterprise NextBillionNet has an article of the same name, “When For-profit is the Right Answer for a Social Enterprise.”. Guidelines for when a social enterprise should be for-profit are:  • A commercially-driven earned-income strategy [sell product or service] • The potential to be high impact, high-growth [scalable] • A real solution to a real problem [value proposition] • A product or service designed to meet their customers’ needs, customs and culture [customer need] • A realistic combination of price, distribution and sales to ensure their offerings get to those that need it most at the right price. [pricing/distribution] So, with an unrealistic combination of price, distribution and sales do a non-profit? Of course, the question becomes "why social enterprises by default are not for-profit”.

12. A Vote of No Confidence “When self-made billionaire Tony Elumelu founded the foundation that bears his name, he did so with the stated goal of proving "that the African private sector can itself be the primary generator of economic development." The hope was that The Tony Elumelu Foundation could help spur some of that development. Earlier this week, Elumelu really put his money where his mouth is: "Nigerian billionaire investor and philanthropist Tony Elumelu has committed $100 million to create 10,000 entrepreneurs across Africa over the next 10 years. Elumelu made the commitment on Monday during a press conference in Lagos to announce the launch of The Tony Elumelu Foundation Entrepreneurship Programme (TEEP)." Elumeluis a champion of Africapitalism, an economic philosophy in which the African private sector drives social and economic growth throughout the continent. Since the end of colonialism, African state leaders have a checkered past when it comes to making decisions compromising the continent's long-term welfare. Elumelu's $100m investment is as much a tacit vote of no confidence in Africa's public sector as it is a philanthropic act in support the continent's rising business class.” (Emphasis added) Forbes

13. Other Alternatives A Public Company has finally become aB Corp In December, B Lab reached a big certification milestone: Natura, the biggest cosmetics maker in Latin America, became the world's largest B Corp (based on revenue and employees) and the first public company to get certified (another public company, Rally, was certified while it was still private). Natura is valued at over $6 billion, according to Forbes. Donate to a Corporation? "Google CEO Larry Page has an unusual idea about what should happen to his billions should he die. Instead of giving it to a philanthropic organization, he'd rather hand over his cash to Elon Musk, the founder of Tesla, SpaceX, and SolarCity. In a conversation with Charlie Rose at a TED conference on Wednesday, Page said he wanted his money going to capitalists like Musk — those with big ideas for changing the world.” Business Insider

14. B Corp Principles? • We hold these truths to be self-evident: • That we must be the change we seek in the world. • That all business ought to be conducted as if people and place mattered. • That, through their products, practices, and profits, businesses should aspire to do no harm and benefit all. • To do so, requires that we act with the understanding that we are each dependent upon another https://www.bcorporation.net/what-are-b-corps/the-b-corp-declaration

15. Capitalism's Future is Already Here? “HBR Blog Network has an interesting article today, "Capitalism’s Future Is Already Here". The thesis of the article is that we should reject Milton Friedman's dictum,"the purpose of the corporation is to maximize shareholder returns", which first appeared in the New York Times in 1970. This type of thinking lead to a now outdated set of management practices according to the author because Friedman does not recognize the growing needs of society. The focus of management should now be the customer and by serving the customer well, you serve the shareholder's best interest. This concept was first presented by Roger Martin. …..Yes, a corporation should always make the customer the priority and the focus of management. (As I tell my students, if it does not affect the customer or put you out of business, it is not an important decision.) Focusing on the customer gives the corporation the flexibility (opening) to consider societal issues, but what is the framework for selecting the issues? Simon Synek of Golden Circle fame would probably say to pick the societal issues and let the customers pick your corporation/product to identify with. The problem with this logic is that homeless dogs and homeless children would be equally valid social objectives for a corporation.” from Sophisticated Finance

16. A Better View • “As they built their businesses against obstacles, all three leaders evolved a passionate belief that their firms needed to be major contributors to solving the problems which had kept their countries and people poor compared to the West.” • "There are those with whom I don't agree…who say our job is to run industry, and to hell with corporate social responsibility or philanthropy. We have to take care of all stakeholders—I say customers, vendors, employees, shareholders, and the society in which you work. You can't produce a bad quality and high cost product and then say, 'I go to the temple and pray' or that 'I do charity'; that's no good and that won't last, because that won't be a sustainable company. You have to run the best possible company. That's your primary job as a businessman. But in addition you have to take care of the society in which you operate, which enables you to earn that money.” Rahul Bajaj http://hbswk.hbs.edu/item/7702.html

17. Research Shows • Socially responsible corporations have: • Better ROI • More motivated employees • More loyal customers • According to a 2011 Harvard study of 180 large U.S. companies, the stock price of companies with robust CSR programs outperformed those with a low CSR commitment by 65 percent over an 18-year period (1992-2010.) • Social responsibility increases shareholder returns, but we need more evidence • It is much harder to operate this way, but “customer experience” helps Image: Social Earth

18. ANALYSIS “CGAP, ThinkPlace, Grameen Foundation and the Citi Foundation created a workshop to focus on analyzing the shortcomings of product launches and their inability to gain market traction [for social problems]. The team of forty brainstormed numerous challenges, which included: • A lack of sufficient resources, including both staff capacity and monetary resources • The tension between creating stability and change • Internal processes that get in the way • Complex partnerships with many moving parts • User illiteracy and discomfort with technology” NextBillion.net | Getting Innovations to Market

19. TACTICS “Some broad tactics that may help overcome these challenges: • Merging commercial and social needs • Increasing awareness among banks, governments and educational organizations • Identifying new markets to reduce costs and risks • Effectively utilizing “big data” NextBillion.net | Getting Innovations to Market

20. TAKEAWAYS “Our brainstorming sessions also led to some more unorthodox (some might say crazy) ideas to help get innovations out to market. We developed ideas around six themes: • Creating new architectures [??] • Working iteratively [Is there capital to be iterative?] • Having more effective partnerships • Creating new [business] models • Focusing on innovation leadership, and [innovation has to be commercialized?] • Getting fresh perspectives” NextBillion.net | Getting Innovations to Market “Business architecture--a blueprint of the enterprise that provides a common understanding of the organization and is used to align strategic objectives and tactical demands” Object Management Group

21. SCALERS MODEL • Staffing--"the effectiveness of the organization at filling its labor needs, including its managerial posts, with people who have the requisite skills for the needed positions, whether they be paid staff or volunteers" • Communicating--"the effectiveness with which the organization is able to persuade key stakeholders that its change strategy is worth adopting and/or supporting" • Alliance building--" the effectiveness with which the organization has forged partnerships, coalitions, joint ventures, and other linkages to bring about desired social changes” • Lobbying--"the effectiveness with which the organization is able to advocate for government actions that may work in its favor" • Earnings generation--"the effectiveness with which the organization generates a stream of revenue that exceeds its expenses" • Replicating--"the effectiveness with which the organization can reproduce the programs and initiatives that it has originated"  • Stimulating market force--"the effectiveness with which the organization can create incentives that encourage people or institutions to pursue private interests while also serving the public good" Source: Paul N. Bloom—Fuqua School of Business

22. A PRINCIPLE! • People acting in their self-interest such that they serve the public good

23. MOVEMENT “As a leader, you are alone — and accountable for the needs of the whole. The whole is the product. And you’re making it. You own it. And you succeed and fail by it… True creative leaders recognize that they live and die by their team.” John Maeda "That puts pressure on us to create other activities that they [customers] can do, events, activism. They are really looking at us more as a movement than as a company.” [Customer experience] Blake Mycoskie, FounderToms Shoes

24. MEXICO CITY One of the major problems in Latin America is a high drop out rate amongst students, which in some countries begins with graduation from primary school. In classic economic development thinking this problem has many dimensions: • Political--unemployed youth can be easily encouraged to protest or join criminal enterprises • Social--uneducated youth are likely to enter a life of poverty • Cultural--uneducated youth frequently come from minority groups • Structural--uneducated, unemployed parents tend to have children with the same future • Economic--uneducated youth provide no economic contribution and may become a burden on the society As you can hopefully see, this drop out problem can be analyzed in quite a complex way and the solutions developed typically incorporate this complexity to be responsive to all the objectives.

25. MEXICO CITY On the other hand consider the simple but elegant solution used by Mexico City’s Education Secretary Mario Delgado Carrillo. In the program's three year history the drop out rate has decreased from 20 to 6 percent and grades have also improved. What did Delgado do? [Paid the students directly to go to school. Nothing more.]

26. WHY SE REQUIRES ITS OWN BUSINESS MODEL • IF SE IS JUST ENTREPRENEURSHIP DIRECTED AT SOCIAL PROBLEMS, WHY DO WE NEED TO CONSIDER DIFFERENT BUSINESS MODELS? • BECAUSE THE MARKETS LACK TRADITIONAL RESOURCES, WHICH REQUIRE DIFFERENT EMPHASIS IN BUSINESS MODEL

27. HACKER SE BUSINESS MODEL • Partners • Customer segments • Sales strategy • Distribution • Pricing • Value proposition • Capital

28. BUSINESS MODEL • PARTNERS • GOVERNMENT (AGENCY) • LOCAL FOUNDATIONS (EXISTING OR NEW) • PRIVATE SECTOR COMPANIES • UNIVERSITIES • FAITH-BASED ORGANIZATIONS • MULTI-LATERALS (SOME FOUNDATIONS)

29. BUSINESS MODEL • DISTRIBUTION • ARMY • WORLD FOOD PROGRAM (UN) • PRIVATE SECTOR COMPANIES • CSR (CELLULAR, CONSUMER PRODUCTS)

30. BUSINESS MODEL • CAPITAL • FOR-PROFIT • “BIGGEST LOCAL PROBLEM” • MICRO-FINANCE

31. OLPC

32. OLPC TAKEAWAYS • CREATED A MOVEMENT—1:1 COMPUTING IN SCHOOLS • UNLEASHED MARKET FORCES—INTEL, MICROSOFT, HP, DELL, ETC. • FOCUS ON MISSION (xELECTRICITY, xOPEN SOURCE, xSUNLIGHT READABLE) • BUILD IN EVALUATION UPFRONT

33. GS 10KSB

34. GS • PROBLEM—HOW TO MAKE SMBs GROW • SOLUTION—COMMUNITY COLLEGES, BABSON, COMMUNITY DEVELOPMENT BANKS, ICIC AS PARTNERS; • APPROACH: EDUCATING, ADVISORS/MENTORING, CAPITAL ACCESS FOR SMBs