The Roadmap For Building A Business With Heart
A business with heart need not be a large corporation with a strong CSR outreach program; it can be a startup that has an embedded purpose to do good. The need to look beyond profits seems to be more relevant today when we look at the tragedies this world of ours is facing. While CSR is often short-lived –often confined to an accounting year- embedding purpose in an organization outlines the way you would want to do business. B-Corporation and many social entrepreneurs, especially those with a for-profit model are revolutionizing the way organizations can act in the context of the broader society. The Better Business Better World report finds that achieving the Global Goals creates at least US$12 trillion market in opportunities for business. There are four billion people living in poverty (incomes below $3,000 in purchasing power) and collectively worth a $5 trillion market with a rapidly growing mobile user base. If the opportunity is so large, why do so many businesses fail in the “Business with Heart” arena? Let me call this type of entrepreneur, for the want of a better word, the social entrepreneur. Here are five steps to help you move forward.
1. Are you focusing on the problem or the solution?
A social entrepreneur should have a well-defined purpose. One of the challenges well-meaning people do, is that when they are in a hurry to find a solution, they identify the wrong problem and hence treat the symptom and not the cause. People or communities maybe blind to what the issue is.
For example, in Palestine, an identified symptom was that there was an employability gap. Jacob Korenblum, founder of Souktel, visited and researched Palestine and found that a big cause for unemployment was the inability to access the internet. Job owners were unable to connect with job seekers through the internet and vice-versa, and so Souktel was born using the power of mobile texting. Through Souktel, the impact of creating jobs was not only in increasing household income but also giving women a chance at economic empowerment. We need to do good but do good well. Be clear the problem you are solving is not the symptom. Be sensitive to culture.
2. Ecosystem approach to problem solving
Lasting change comes from an ecosystem approach. When dealing with the developmental sector you will have to think public private partnerships and that means mapping and managing various and often conflicting stakeholder interests. You will need to classify them based on their ability to help or hinder. Can those who hinder be managed so that they become part of your solution rather than your problem?
Understand the setting in which you are bringing a change. What role are you taking in the community– are you a catalyst or an active part that will always be required to be effective? Do you understand the context? What is the tipping point and how much time and other resources will it take? At what point, will you create a negative dependency? Sougha, of the Khalifa Fund began focusing on remote communities in the Emirate of Abu Dhabi to preserve dying Emirati handicraft traditions. They soon realized that they needed to empower the women of these communities too. So, they did both, focusing on training and helping them find buyers to earn money. Now, they realize the women need to learn business skills to run their own stores. This is an evolving process. Money is the easiest thing to give but long-term ecosystem impact needs people, passion and patience.
3. Managing resources
Jacqueline Novogratz, the founder and CEO of Acumen says: “Today’s world needs more than humanitarians. We need individuals who know to listen and who have real and tangible skills to share. We will succeed only if we fuse a very hardheaded analysis with an equally soft heart.”
Managing resources will be one of the toughest challenges you face. With people, as you grow, your challenges will be maintaining your values and developing the systems and professional competencies needed for long-term growth. While the founding team often comes together driven by the passion for the purpose, they may not stay together the whole time. You need diversity in teams and this often begins with the founding team. Volunteers may be passionate about the cause but may not have the professional skills to grow or even maintain the organization.
Managing human resources for a social startup is also about managing the community of impact. For Gavi, the Vaccine Alliance, vaccine impact depends on mothers remembering to give their children vaccines as per the recommended schedule, on health workers keeping safety standards and political parties putting the interests of their citizens above any other interests and egos. So, it is not just the people of the community of impact, but people in the value chain like manufacturers, regulators, financiers and intermediaries.
You cannot run a business without sound financial principles. There are three simple rules to getting the right type of financing. How rigid is your purpose? How sustainable should the funding be? Are you planning to scale up? Grants, governments and NGOs often have political motivations. This may mean you don't give up equity and pay interest or dividends, but be assured the money comes with strings attached (time lines, purpose, and so on).
4. Mapping impact
Baseline, baseline, baseline! Too many social entrepreneurs begin projects as hobbies or companies create short-term PR CSR initiatives and then they have no clue what the change they are focusing on costs or the impact it is making. To measure impact – you ideally need baseline data before you start. This is not easy (to wait before jumping right in). While anecdotes give you great press coverage, investors (even those who work with patient capital) want concrete numbers – costs, time and results. This is good business sense. Measuring impact gives you control as you grow.
Fadi Ghadour, the Founder of Ruwwad and Aramex, a serial entrepreneur, investor and mentor to many, says developmental change is a generational thing. Ten years after introducing the volunteer for scholarship program in Ruwwad, alumni were able to offer a scholarship to the community, paying it forward. It took ten years, but it works and the impact is lasting. One of those alumni is Ala’a Alsallal of Jamalon, which is now the largest online bookstore in the Middle East.
5. Good governance
Good corporate governance is non-negotiable when doing good. OECD defines corporate governance as: “Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and its shareholders and facilitate effective monitoring.”
It provides legitimacy, accountability, transparency, a framework for responsible decision making and it also provides safeguards for the investor. At the simplest level, good governance is compliance with rules and regulations with embedded structures, controls, systems and processes. The challenge is during rapid growth that the systems and processes break down opening you up for potential liabilities. Do set up an Advisory Board or a Board of Directors with a clear cut role in and outside the organization, who have expertise and have a time frame for their appointment. Make sure you have inbuilt financial checks and a strong reporting system with relevant data being reported. If you are “borrowing” money, getting money “gifted” or “granted” it is even more important that you account for every penny given to the organization, explain where it go and what the returns are. Set up explicit guidelines for sourcing contracts and dealing with other stakeholders. If you set up multiple companies (for some reason many SOCENTs do this) explain what is the relationship between the companies, conflict of interest, if any, and how funds are managed between the companies. Some great information is available in the Social Investment Manual and the Primer on Governance or Social Enterprises in Singapore. Charity Navigator, for example, rates charities on how they spend their money and provides a useful tool for those social entrepreneurs starting out on managing expenses.
Any business with heart must follow these few steps to make sure your impact is lasting and of the right kind. Let me give you a simple analogy. If a child needs 12 years of schooling, how do you financially sustain yourself for 12 years if “education” is your focus? It would be wrong to introduce a child to one year of schooling and then withdraw support. Which is more detrimental? Never having been to school or letting the child glimpse what might have been for one year? Business with Heart must have business sense or we may end up doing more harm than good. One word of caution - communities do change and evolve and so you will have to adapt the processes and business models. Here lies the challenge – to constantly innovate to sustain impact or take it to the next level. Once all the children graduate – what is the next step? Work or University….and this is why you need an ecosystem approach.