Updated: Feb 4, 2020
Social entreprenuership uses business models to solve big social problems.
We're all aware that the world today is full of problems. Big problems, scary problems, pressing problems: poor nutrition, access to water, climate change, deforestation, lack of skills, insecurity, hunger, disease, healthcare, pollution.
What separates this time from any other time is our hyper awareness of these problems. We are smarter, richer, and more capable of responding to these problems than any other time in history. So why are we having so much trouble solving these social problems?
Is there any role for business, and if so, what does that role look like?
Before we do that, we need to consider how we've understood and engaged both the problems and the solutions to these massive social challenges.
Traditionally, many of us see business as the problem, or a part of the problem, for many of the social challenges we face. Fast food industry, the drug industry, the banking industry. This is a low point in the respect for business. Business is not even considered a solution, because it is seen - in so many instances - as the problem. And that's probably justified in many cases - there's a lot of bad apples out there, that have done the wrong thing, and made the problems worse.
We tend to see the solutions to these social problems in NGO's, in government, in volunteerism, and in philanthropy. We've been dealing with these problems for decades, have decades of experience with our NGO's and governments, and are now facing an awkward reality: we're not making great progress.
We're helping, we're doing good, but we can't make large scale impact. Why is that? Because we simply don't have the resources, using this current model.. There's not enough money, tax revenue, or donations. And the scarcity of resources for dealing with these problems is only growing.
If it's fundamentally a resource problem, then where are the resources in society? How are these resources created, the resources we need in order to tackle this challenges? They're in business. All wealth is actually generated by business, when it meets needs at a profit. This profit leads to taxes, incomes, charitable donations...but all of these traditional sources of resources originate from business.
"Only business can actually create resources. Other institutions can utilize them to do important work, but only business can create them." -Michael Porter, Business Strategist
The resources are overwhelmingly created by business. Non profits generate $1.2 trillion; governments generate $3.1 trillion; and corporations tower over the two at $20.1 trillion. The question is, how do we tap into this?
The Magic of Profit
Business generate resources when they solve a need for a profit. Profit is the small difference between the cost of production and the price on the tag. Profit allows the solution we've created to be infinitely scalable. Because if we can make a profit at $1, we can do it at $10, $100, $1 million, $1 billion. And the solution becomes self-sustaining.
One thought is, we should deploy these resources at the social problems. Give more. But this path that we've been on is not getting us where we want to go.
If we can tap into the power of business to solve serious social problems, we could scale.
And guess what? That's happening now, finally. There's a fundamental opportunity for business today to impact and address these social problems, and this opportunity is the biggest one that exists in business today.
A New Paradigm
Conventional wisdom says there is a tradeoff between social performance and economic performance. That business makes a profit by causing social problems. (i.e. pollution, unsafe work environments, exploitation). That good business and social good lie at diametrically opposed ends of a spectrum.
The new realization is that business profits come from solving social problems. For example, reducing pollution and emissions saves money and increases efficiency; safe work environments actually minimize risks, reduce costs associated with accidents, and indicates good processes, and therefore more efficiency. There's no tradeoff between social progress and economic efficiency.
Business strategist Michael Porter describes this synergistic relationship as "creating shared value": addressing a social issue with a business model. This is not only capitalism, but a more evolved form of capitalism. This allows us to create social value and economic value simultaneously.
We have to change how we see business, and we have to change the way business sees itself. NGO's and governments should no longer see business as the enemy, and business should no longer view NGO's and governments as annoyances that hamper their economic growth. New NGOs have been able to move the needle through powerful partnerships with business; governments can impact the willingness and ability of companies to compete in this way. And ultimately, by adopting this model of collaboration and shared value, the two camps can and should work together, to tackle scary social issues with smart business models, in order to create solutions that scale.