Social Enterprise Conference 2006 at Columbia Business School

"In the business for a better world" -- that's the cheesy but catchy motto of the Social Enterprise Club, one of the sponsors of the Social Enterprise Conference at Columbia b-school I attended on Friday, October 6. The theme this year was "Raising the Bar"-- bringing together peepsters from private, non-profit, and public sectors who think outside the box, to parlay entrepreneurial innovation into social and environmental benefits. Do-gooders also interested in making a buck or two.

Underlying this noble, idealistic way of thinking: financial returns. If it sounds uncomfortably and blatantly capitalisic and market-oriented-- it is. But the brain trust gathering of academics, practicioners, industry trailblazers all argue that it's OK, even more rigorously beneficial, to have a profit motive to make the world a better place.

It was a tough sell for me but I kinda agree.

Don't worry, I'm not changing political party affiliation!!! My ethos has stayed the same but now I'm thinking, well let's see if the market can be the vehicle of delivery to improving the lives of millions in the developing world.

Panel 1: "The Role of Private Equity in Emerging Market Development". The line-up Tom Barry of Zephyr Management, Peter Tropper of International Finance Corp (IFC), Bert van der Vaart of Small Enterprise Assistance Funds (SEAF), and Yasmina Zaidman of Acumen Fund.

The most interesting firm for me was Acumen so I'll focus on them. Their concept is simple and familiar to me.

Acumen Fund operates like a venture capital firm for the poor, providing resources, both financial – in the form of loans, equity investments and occasional grants – and intellectual capital.

They focus on three developement areas: water, health, and housing. Yasmina manages the 'water' portfolio for India and Africa-- it is a fund that invests in enterprises that delivers safe and affordable water to populations that need it the most. Essentially, they provide seed capital (which is raised from philanthropic sources) to entrepreneurs working in one of those three areas. But it's not like they dole out money to any ole do-gooder. That's the trick. Instead, it harnesses market forces-- "capital is blind" she insists. It goes for the best return therefore it's the answer if you want to see results and results that are sustainable in the long run.

It's interesting: some studies have shown that if you regress economic growth on several explanatory factors, one in particular we all know about, foreign aid, tends to have NO statistically significant impact. In fact, aid leads more to corruption in the developing world (eg. aid goes into fostering cronyism and fattening the pockets of government bureacrats or the country's elite-- so the argument goes). This is very much the argument of the Easterly school of economic development (as opposed to the the Sachs school that advocates for more development aid).

Simply put, the message is that markets work better in effecting development.

Acumen's presentation reminded me a lot of the social enterprise development work of Unlad Kabayan where I worked this summer, although Acumen aims much more aggressively for financial growth. And the reason is that they believe in volume and scale. They take projects and ventures, groom and cultivate their growth, and finally get them to that tipping point where the companies can access the capital markets on their own. In other words, they get companies to graduate to a point where they can leverage the private capital all by themselves and ditch the training wheels of the fund.

The tradeoff is that when you encourage businesses to upscale, you get them differentiating their products to target different audiences but usually the tendency is to market up-- and you may often lose the poorest of the poor.

"But if you can't make it work as a business, it doesn't matter anyway", according to Yasmina.

Panel 2 "Bottom of the Pyramid: Merging Competitive Strategy with Social Mission" highlights were mostly from the presentation from Erik Simanis on the 'Bottom of the Pyramid Learning Lab' at Cornell U. In his catchy southern drawl (homegrown at UNC-Chapel Hill), Erik described the BOP protocol mission to forge corporate partnerships with income poor communities and form business ventures. The BOP protocol team goes into a community, forms relationships on the ground, and co-generates a business model/plan with the community ("building an ecosystem", he called it). The outcome: a "locally embedded global business network".

They work with local-LOCAL NGOs (he joked that these were groups that you couldn't find even if you Googled them) and do rural homestays. This immersion allows for a kind of social mapping of an area-- to find the stakeholders in a community and make sure no one is excluded (aka "practicing humility" as he put it). Erik made a strident point that they were NOT MFIs merely dropping financial services; they go in and stay in.

So who are the corporate sponsors you ask who work with BOP to do all this?? That's where it gets a little uncomfortable. ScJohnson and Dupont mainly.

This is the point where you say, 'Ah-hah'. What kind of businesses were created?? One was a cleaning service/community clean-up business. Products used? All the name brand stuff produced by aforementioned big companies that you and I use. Hmmm...interesting..... A sweet ethnographic immersion with the locals turns darkly capitalistic.

During the Q&A, a flurry of tough questions were hurtled at Erik. One guy asked, "is this just selling stuff to poor people?"

Erik assured us, no it's not.

"Isn't this just some kind of intelligence gathering project for big multinationals to get feedback back to headquarters so that down the road they can penetrate markets and expand in the developing world?"

Uncomfortable murmur in the crowd.

One woman played hard-ball by basically asking, 'How is this changing capital markets in favor of poor people if you are forming local business ventures in collusion with mega corporations?'

Some food for thought: are we turning poor people into consumers?? In the core development classes at TC, the first thing they make you read is this paper by Rostow who came up with this 'stage development' theory: nation-states develop in five stages, and the final stage (which all nations should aspire to of course) is aptly called, 'High Mass Consumption'. Hah! Sounds all too familiar.

Final impressions: Well, I have to say I came out of the conference very much inspired and very much confused. See-- I liked Acumen's style of roping in and taming market forces by funding ventures already on the ground (very much the model I saw in the Philippines over the summer among NGOs engaged in social enterprise development). But when you start bringing in names like Dupont to be 'local partners' that's when I start wanting to "start up some sh*t with the riot police at WTO conferences", as a few friends would quip.

Still much to learn and debate.