I am currently reading a book by Dr. Muhammad Yunus titled Creating a World Without Poverty: Social Business and the Future of Capitalism, and I am left mesmerized both by the brilliance of Dr. Yunus himself and the beauty of the idea which he proposes in his book–the idea of social businesses. Let me start by providing a summary of what Yunus means by a social business. He defines it as an enterprise that has investors who recoup their initial investment but who do not receive dividends or profit from their investment. Thus instead of making their investment based on the company that is most likely to offer them the highest, most secure return, they choose based on the company that offers the greatest social or environmental benefits. Social businesses exist for the sole purpose of addressing social and environmental problems, but they are not charities. Instead, they must achieve self-sufficiency by selling low-cost products and services, or through a myriad of other methods that enable the organizations to pay back the investor’s initial investment, to achieve financial sustainability and to achieve the mission of the organization. In essence, then, what Yunus is proposing is a blending of for-profit and non-profit models, but in a way that I have not seen in the past. He suggests that social businesses will compete with traditional profit maximizing businesses (PMBs) on quality, price, availability, etc. He goes on to propose new innovations such as a stock market for social businesses where the company’s stock price reflects its ability to achieve social good, rather than it’s ability to make profit at any cost.
Perhaps if this idea were to come from anyone but a Nobel Peace prize winner and the founder of the Grameen Bank and the Grameen family of companies in Bangladesh–one of the most remarkable group of organizations ever established–it would be seen as naive. But to illustrate the power of the idea, Yunus starts his book by describing how he convinced the CEO of Dannone Group, one of the largest companies in the world, to launch a social business in Bangladesh that would focus on providing low-cost, healthful food products the poor, rural Bangladeshis. Within a year of proposing the idea, Grameen Dannone, as the new company was called, had completed an environmentally friendly yogurt factory, and were selling their nutritious yogurt through Grameen borrowers. Dannone fronted half the start-up costs and, aside from getting back its initial investment, will make no money on the deal. All profits earned by the company will be reinvested in the company to lower prices or to expand into new markets.
What is so amazing about Yunus’ idea, as well as the numerous real-world examples of social businesses that he has launched, is that it seems to solve so many of the pitfalls of non-profit and corporate social responsibility (CSR) approaches. As Yunus points out, non-profits are perennially hampered by a lack of funding and a lack of accountability to their customers, and CSR almost always falls by the wayside in lean times when a company must choose between people and profits. Thus what social business offers is a way of doing business sustainably, without the challenges of raising donor funds, and in a way that is 100% socially-minded and accountable to its customers. People will invest in social business in much the same way that they currently invest in microentrepreneurs through sites like Kiva.org, where the investor gets her principal back but earns no profit. What’s more, investors in social businesses will have a say in the operations of the company, and could presumably oust the leadership if they feel that social goals are not being achieved efficiently or on a large enough scale.
This idea excites me for a number of reasons, not least of which that it’s something I can experiment with in my own companies. I love the idea of doing something that hasn’t really been done before, experimenting wtih new models, and finding creative approaches to solving challenges. For instance, one of the issues I’ve been struggling with on the energy-efficiency lending model is that if we are to scale up we’ll need private investment, yet to offer a return to private investors we’ll need to charge higher interest rates to our borrowers, making it challenging to ensure that borrower’s utility bills don’t increase as a result of our program. If, however, people invested in our model with the aim of simply getting their principal back, then we could charge lower interest rates, making it more likely that default rates will be low, and maximizing the social benefit of our program. It would also be easy for us to achieve financial self-sufficiency from profit earned through interest payments because less of our revenue would be going to pay back investors.
Muhammad Yunus is a serial entrepreneur who has started over 20 companies, ranging from renewable energy, to health care, to micro credit, to information technology companies, all aimed at ending poverty, improving environmental quality and providing better nutrition to disadvantaged people. The jobs and opportunities created by these and other social businesses enables people to earn a good salary while working on things that they find intellectually challenging and ethically sound and satisfying. For entrepreneurs, social business represents a new way of raising capital and bringing innovation to the market.
What I love about Yunus and his ideas is that they are almost audaciously optimistic about human nature, and somewhat naive in their assumptions. Yet he has proven time and again that his ideas are not optimistic or naive but rather practical and essential. He began by questioning the idea that the poor are credit worthy, and showed how the global financial system cuts out half the world’s population. Since then, he has gone on to question health care, the way in which energy is generated, and even the basic tenets of capitalism–arguing not that capitalism is bad, but rather that at present it is incomplete because it neglects the desire that human beings have for ethical and spiritual satisfaction. As he questions these notions and practices, he develops alternatives and then implements them in ways that are undeniably effective and powerful.
I want to found dozens of social businesses. I want to demonstrate that what is deemed impossible can be done, and I want to do it in a way that is so high quality, so professional, so unyieldingly good, that no one can doubt it.
Such are my thoughts as I read this book, and such are my dreams as I live my life.