A woman living in a rural village in Bangladesh is not feeling well. Getting to the nearest hospital to see a doctor would take two hours and be a considerable expense. Luckily, she lives in the same village as a young man who is a franchisee of Amader Daktar, otherwise known as Doctor in a Tab—an app developed by the Bangladeshi company mPower Social Enterprises. He has been trained in basic health checks, such as measuring blood pressure, and can send the results via his tablet to a hospital-based doctor. He can also help the woman navigate a video consultation with the doctor and, if needed, pass along a prescription she can fill locally.
It might at first seem surprising that this clever combination of technology, training, and public benefit first launched in Bangladesh, because we often expect new technologies to launch in the global North and subsequently move to the rest of the world’s marketplaces. However, some of the most potent and ground-breaking lessons in social enterprise come from the global South.
In many prosperous and developed northern countries, social enterprises do not yet challenge mainstream business, in part because the movement is not yet large enough for the wider economy to notice. But around the world, there are many examples of innovative enterprises in low-income countries that tackle problems at scale, transforming the communities and industries in which they work.
The now-legendary Grameen Bank in Bangladesh, for example, pioneered the microfinance industry, which was entirely new at the time. Today, microlending provides an estimated $102 billion in credit to approximately 132 million individual borrowers, according to the 2017 Microfinance Barometer. Almost all of this funding comes through socially oriented financial institutions.
Northern-based social enterprises could be just as transformational. Our experience has led us to identify how these initiatives can maximize their potential at each stage of development: through innovation, consolidation, scaling, and maturity. Inspiring examples from around the world suggest ways that organizations in the global North might learn from and emulate their Southern peers.
Innovation begins with research
Too many social enterprises are founded on a weak business model. As Glen Mehn, who worked with countless new businesses during his time at the UK social enterprise accelerator Bethnal Green Ventures, describes it, many early-stage start-ups suffer from the same problem: “great team, poor business model.”
A successful social innovation begins with thorough research into the problem it addresses, establishing a clear business case. For example, Frontier Markets, a distributor of solar cooking and lighting products in Rajasthan, conducted extensive field research before it launched. This included interviews and focus groups to understand in depth its intended customers, who were generally women with incomes of less than $2.50 per day. Its research also delved into the reasons why other companies’ efforts to market similar products had failed.
Another instructive lesson comes from M-KOPA, the leading social enterprise working in off-grid energy in Africa. The company brought together an understanding of solar technology, a practical mobile money platform, and knowledge of customer needs around affordable energy. The result was a viable and desirable solution: Customers pay the same amount per day for cutting-edge solar technology as they would for kerosene or firewood.
Successful new businesses clearly articulate how they improve on the competition for their customers—whether nonprofit or commercially motivated. They base their case on empirical evidence from real customers. In developed markets, new social enterprise initiatives often neglect this essential step, assuming they will be able to tap into a latent customer base that will preferentially buy from providers that emphasize public benefits.
Other players in the social economy can also encourage a strong business model right from the start. Funders could incentivize rigor in business planning. Shell Foundation, for instance, supports social enterprises operating in the global South through a range of grant, debt, and equity products, but limits grants to high-risk, early-stage work that is not yet commercially viable. By doing so, these funders encourage evidence-based thinking from the outset.
Social enterprises and charities can also support one another by sharing data, market research and insights on customer needs, which can otherwise be difficult to obtain in many areas. Funders, who in many cases have led the field in promoting monitoring, evaluation and learning, are well placed to facilitate data sharing.
The challenges of consolidation
The innovative, entrepreneurial qualities that get a start-up off the ground can be less suited to consolidation and growth. Any business is likely to encounter this problem, but social enterprises are especially vulnerable, as they often lack the financial rewards that facilitate the exit of founders and other early team members at other fast-growing organizations. Recent research suggests that for growing social enterprises, recruiting the right talent is in fact the greatest difficulty. While challenges such as fundraising, logistics and compliance become easier with scale, larger size only intensifies the problems of finding talent.
Nuru International, which runs poverty eradication programs in Kenya and Ethiopia, set out to avoid this trap from the start, when founder Jake Harrison planned his own obsolescence. Harrison built a strong human resources function early on, which empowered new leadership.
Other stakeholders can help address this problem. Funders often get excited about one visionary individual, but they can use their leverage to help organizations build team capacity from the start. In this case, Nuru’s original investors Bob and Dottie King commissioned external reviews to ensure that the organization developed as an institution separate from the founder.
Social enterprises in emerging markets often have far greater ambitions for growth than those in developed markets. This is partly driven by commercial realities. In mature markets, these organizations typically either serve a niche segment that falls through the cracks of commercial or public markets, or they provide alternatives to existing offerings that create greater public benefit. As a result, scale is often less urgent for the survival of Northern social enterprises.
By contrast, many social businesses in emerging markets target majorities who are either underserved or not served at all. These customers often have very low incomes, resulting in very low margins per customer. In order to succeed, the business must serve many customers to compensate for those low margins.
To take one well-known example, Aravind Eye Care hospitals are the largest provider of eye care in the world, in part because it identified a series of process innovations. These included allowing nurses to carry out some procedures ordinarily done by doctors, and holding multiple operations in the same theater so that surgeons can treat more than one patient at a time. Aravind’s goal goes beyond providing excellent eye care; it plans to eliminate avoidable blindness not just in India, but worldwide. As it increases its own operations, it shares its model with hospitals around the world, multiplying its impact.
The health care provider LifeNet used another original method to scale up. Launched in 2009, it has already expanded its network of health care franchises to include 112 centers across Malawi, Burundi, Uganda, and the Democratic Republic of Congo, reaching an estimated 100,000 patients per month. Its franchise model works through existing health centers run by churches, allowing rapid growth. LifeNet aims to reach 11 million patient visits by 2030. Few Northern social enterprises have customer bases in the hundreds of thousands, let alone millions.
These examples prove that there are many ways to grow, but all require thinking big and require founders to plan for scale from the start.
Encouraging more mainstream investors to see the growth potential in social enterprises could also catalyze more growth. Some analyses suggest that mainstream banks lend more capital to social enterprises than social investors do. Similarly, some large companies are also active in social enterprise, prompted by employee interest, and a heightened sense of their potential to contribute more to a healthy society and environment. This may take the shape of partnerships, such as the one between carpet tile manufacturer Interface and the Zoological Society of London to recycle ocean plastics. Other corporations work on their own: Citigroup, for example, has projects on financial inclusion and microfinance.
Above and beyond
Once they are well-established, the most effective social enterprises actively shape the systems they operate in. The Self-Employed Women's Association (SEWA), which started as a trade union for self-employed women in India, is a prime example. Today it represents and provides services for 1.3 million members. The organization lobbies national and state governments on political issues affecting its members, such as the regulatory regime for street traders. Between 2004 and 2014, the Indian national government introduced a series of policies intended to formalize the economic position of street vendors. Due to its size and political engagement, SEWA was able to include its perspective (and that of its members) in this legislation.
In order to exercise systemic influence, an organization must formulate a clear idea of the high-level change it seeks to bring about. Those goals then suggest new methods of effecting change, including via market influence or shaping markets through advocacy.
In the UK, for instance, the bus operator HCT Group successfully influenced public transport legislation. Along similar lines, the UK’s social enterprise membership body, Social Enterprise UK, helped expand government public-service purchasing criteria so that they include social factors as well as economic ones. Many other such organizations in developed markets could adopt these methods to generate additional social value beyond their own immediate operations.
Social enterprises in the global North can learn from these and other inspiring examples of successful organizations around the world. In many cases, the founding team has rigorously researched how best to meet the customer needs. Recognizing that they face the same challenges as businesses without a social mission, they plan carefully how to achieve a competitive advantage, including investing in and managing the right talent. Once the business model is in place, these leaders apply their innovation to new contexts and so spread it as widely as possible, even if this new effort takes them beyond the capacities of their current organization. They take advantage of their large scale to direct the economy towards achieving their goals.