Avoiding the Neoliberal Trap in Social Entrepreneurship

Last year I wrote an article describing my fear that, fueled by the good intentions of donors looking for sustainable solutions and a promise of limited responsibility, social entrepreneurship seems to be moving away from an emphasis on “social” into the territory of the purely “entrepreneurial.”

Many of the responses to my article, “A Neoliberal Takeover of Social Entrepreneurship,” had a common refrain. Readers—donors and faculty teaching the subject, in particular—felt that walking the tight rope between social welfare and business was a challenge. Many were skeptical that it was even possible to prevent the skew toward the neoliberal ideal of laissez faire in social entrepreneurship. They felt that without a strong profit orientation, social enterprises die a quick death in the difficult markets they serve. This bias was a necessary byproduct of the need to create sustainable social enterprises.

The discussions made me think that the challenge was really in building balanced social enterprises—ones that could survive and thrive without diluting their welfare agenda.

Ideally, the relationship between a social enterprise and the community it serves should be symbiotic. Zeenat Farooq, one of my colleagues at FORCE for Water Security group, introduced me to the dynamic between buffalo and cowbirds—a symbiotic relationship from which we in the social sector can learn.

Historically, wherever there were herds of buffalo or cattle in pasture, cowbirds were right at their feet, snatching up insects stirred up by their hooves. When the buffalo lay down during the day to chew their cuds, the birds perch on their backs to pluck out insects on their skin and in their fur. The birds get food, and the buffalo benefit from the reduced number of insect pests and competing foragers on the ground. 

This co-existence offers some lessons that may help donors and social entrepreneurs identify and build balanced enterprises.

Lesson 1: Look for the “herd advantage”

The cowbird follows a herd—not a lone buffalo. Hundreds of buffaloes, stirring up a pasture, leave grubs no opportunity to find refuge below the soil. This makes for easy and plentiful feeding for the cowbird.

Since social enterprises cater to underserved populations, they cannot usually charge a high unit price for products and services. So they need to make up for the revenue shortfall with high sales volume. A solution targeting a concentrated population has a higher probability of surviving with a low profit margin. In urban slum communities in India we work with at FORCE, the “herd advantage” has helped make house-to-house garbage collection a successful social venture. A slum with 200 households occupies approximately 6,000 square feet. In contrast, the same number of households in a rural area would be spread over a space 300 times as large. While the slum enterprise would be able to collect the garbage in three hours with a two-member team and a cycle rickshaw, the rural one would require a larger team and a high-capacity motorized vehicle. With low input costs and five hours of work time left over for other productive use, the urban effort would be financially viable. The rural effort, netting the same revenue, would require a full day of work as well as higher capital and operating costs.

In the digital age, a concentrated, like-minded virtual community may offer as much of a “herd advantage” as a real community in a concentrated geographical space. When evaluating a social enterprise, donors should check whether the product or service targets a population that offers the “herd advantage.” With low servicing costs and easy access, this reduces the revenue pressure on the enterprise, thereby making it easier to stay true to its welfare agenda.

Lesson 2: Look for models designed around existing behaviors

The cowbird uses common buffalo behavioral patterns of grazing and stirring up the pasture to its advantage.

EcoSan Toilets use less water than conventional toilets, decompose sewage fast, don’t require support infrastructure, and are cheap and easy to construct. Yet despite these advantages, they have not been adopted as much as one might expect. One of the reasons may be because they require users to change their behavior. The toilet seat looks different from what people are accustomed to and requires the user to change the way they squat for different uses. This is a significant barrier to adoption. By contrast, twin pit toilets with rural pans have been widely adopted. This design recognizes the tendency of people living in water-scarce areas to use less water for flushing than required. The steep slope of the rural pan ensures that the toilet flushes well with one-fifth the water of normal toilets. The twin pits create the additional space required to allow for slow decomposition.

Changing behaviors can be a time and resource-intensive process. Social enterprises that capitalize on existing community behaviors are more likely to reach scale and keep operating costs low.

Lesson 3: Trust an idea that emerges from its surroundings

It’s unlikely that a herd stampede would crush a cowbird. Because they co-exist, cowbirds understand buffalo behavior well enough to know how to minimize risks and maximize benefits.

Flow Solutions is a startup social enterprise that aims to provide decentralized water distribution systems to marginalized people with no access to running water. After designing a product prototype, while being incubated at the FORCE Institute of Water Efficiency, the organization’s founders spent several days with residents of a slum community, the potential users of the product. They learned that people’s water usage patterns and expectations from the prototype were significantly different from what they had imagined. This led to a complete overhaul of the product design.

From the outside, social service gaps for those on the margins are often so visible that the solutions seem obvious. However, people’s motivations and behaviors may stem from factors other than simply wanting to plug those gaps. A successful social enterprise is one based on innovation from the bottom up—innovation that generally springs from immersive learning at the earliest states.

Lesson 4: Be flexible and responsive

The small cowbird hops swiftly around the buffalo hooves without hurting itself or creating any obstruction for the buffalo. When the buffalo sits down to chew its cud, the cowbird perches on it to peck away at insects on its body.

The Association for Social Advancement (ASA) was established as a far left-leaning social action group that wanted the poor people in Bangladesh to start a revolution. The founders believed that if the poor were “educated”  to see themselves as a class exploited by the rich, they would start organizing themselves in local, regional, and then national groups. This pyramid of organized resistance, thy thought, would start a people’s revolution that would create an egalitarian society, and the organization liberally funded the creation of these social action groups.

The venture was a failure. People neither organized themselves as expected, nor were they willing to start a revolution. The young founders were quick to understand the social realities of their poor nation: Financial aid would free the poor more than grand political movements would. ASA shifted its focus to microfinance, copied its rivals’ business models, and learned from their failures. One of their most successful innovations was dispensing with formal “joint liability” mandates, where clients were responsible for each other’s loans. It also developed flexible, voluntary savings accounts. These innovations were just what the poor needed and were very successful. And ASA kept its cost of operations low. In a spectacular transformation, the organization became the number one microfinance institution in the world in 2007, and continues to be one of the biggest, most impactful, and most financially viable.

Nimble social enterprises that can constantly adapt solutions to align with a community’s current needs, attitudes, and aspirations have a high chance of success.

Lesson 5: Look for hybrid revenue models

The cowbird eats both seeds and grubs. Depending on the time of the year and the type of pasture, the proportion of each in its diet changes. The cowbird does not suffer because of these changes.

Revenue models that include multiple resource streams can prevent a social enterprise from having to make profit-driven choices. In a hybrid model, the enterprise would have channels that might include charitable donations, sales revenues, and in-kind support that removes a cost element. Current policy frameworks in many countries do not allow for-profit social enterprises to seek charitable gifts or in-kind support. Those registered as nonprofits more often can accept such donations.

Lesson 6: Offer “brood parasite” support

In North America, brown-headed cowbirds are commonly believed to have evolved into “brood parasites,” laying their eggs in the nests of other birds, since herds of bison were always on the move. Their eggs hatch earlier than the other species’ eggs in the nest, so cowbird chick gets the largest share of food from its foster parents.

As with cowbird chicks, the initial years of a social enterprise are the most difficult and important. In its early days, it needs protection from the pressures of having to forage for itself. Support from a donor, in the form of grants to cover critical costs like capital, can help the enterprise find its footing and build momentum. The enterprise might also sell its product for charity projects in its communities. Such bulk purchases give the enterprise easy access to working capital. Like the cowbird chicks that hatch earlier and get a head start over the other chicks, donors can structure their grant or purchase to give them an edge over competitors.

For example, Flow Solutions received a purchase order by a reputable public school and a large nonprofit. This will not only give the social enterprise working capital, but will also serve as a testimonial to the technological strength of its water distribution solution.

Lesson 7: Look for cluster social enterprises

Cowbirds are small and move in clusters. Their smallness allows them to easily weave their way through the herd. Though each bird is small and so cannot eat much, together they can eat most of the food uncovered by the herd's hooves.

Many social enterprises fall into a trap when they become obsessed with scaling. The strength of their offerings comes from their origins in the community they serve and their high value proposition for that community. Social enterprises must aim for scaling up impact, but not necessarily the organization. The latter can increase overhead costs, and the need for standardization can sometimes overshadow community fit.

Social enterprises that take a cluster approach are likely to have higher impact as well as a higher likelihood of survival. In the for-profit sector, licensing and franchising are common legal methods for companies to form clusters that share a brand name, values, and objectives. Each member of the cluster is an independent entity though they are part of the same network. The cluster arrangement allows the collective to benefit from the gestalt theory, taking advantage of a network’s branding at a fraction of the cost of trying to achieve the same reach alone.

Many social enterprises working in the medical and education sectors follow the same or slightly modified versions of this model. Sulabh International, a nonprofit noted for achieving success in cost-effective sanitation solutions, is best known for construction and maintenance of more than 8,000 public toilets in public places and in slums that operate on a pay-per-use basis. Sulabh manages these public toilets through a network of volunteers and community organizations. The volunteers and partners are trained, facilitated, and supported by the parent organization.

The US National School Lunch Program and the Indian Midday Meal Scheme also operate on this cluster principle. The Indian free school meal program was designed to improve the nutritional status of school-age children nationwide. It serves 120 million children in more than 1.2 million educational institutions and is the largest program of its kind in the world. It has a decentralized implementation model where local cooks or self-help groups prepare meals on-site. This system has the advantage of serving local cuisine, providing local jobs, and minimizing food waste. It also allows for better monitoring by parents and teachers.

Using buffalo cowbird lessons as a guide

Donors and mentors can use these lessons to evaluate whether a social enterprise will be able to remain true to its primary purpose of being a social welfare provider. The more the enterprise aligns with these traits, the higher its resilience against neoliberal pressures will be as it delivers social impact.

Donors can also use these lessons to discourage the creep of neoliberalism among their grantees. And academics can share these lessons with early-stage social entrepreneurs and students so that the social enterprise structure and revenue models can be designed to withstand neoliberal pulls.

Read more stories by Jyoti Sharma.