In my posting on the Aga Khan Development Network, I wrote about the organization's efforts to create businesses to put in place sustainable change for people in need. The following post is from a column called 'Fixes' in the New York Times. As reported by Tina Rosenberg, the challenge here was for a non-profit to create a sustainable business while at the same time work with, not try to change, poor mothers' behaviors regarding infant feeding. The aim is to improve their kids' nutrition by providing healthy snacks to choose from instead of fast food with few nutrients (perhaps this model would work in the US?).
Fixes explores solutions to major social problems. Each week, it examines creative initiatives that can tell us about the difference between success and failure. It is written by David Bornstein, author of “How to Change the World,” and founder of dowser.org, and Tina Rosenberg, contributing writer for The New York Times magazine and author of “Join the Club: How Peer Pressure Can Transform the World.”
On Tuesday I wrote about Kedai Balitaku, a for-profit company started last year by the development group Mercy Corps in Indonesia. Mercy Corps took this unusual step because it realized that its programs to educate mothers about nutrition were not changing what mothers fed their children. Healthy food is expensive, and the crowded conditions in the Jakarta slums mean that many families have no place to cook or eat. So they buy their children the cheapest street food, which is usually either sweet or deep fried. Kedai Balitaku, which usually goes by the name KeBal, aims to become a chain of street carts selling low-priced healthy food to children.
KeBal is a social business — one that exists primarily to achieve a social goal. It’s easy to see why the social businesses model has become a popular strategy for attacking the problems of the poor. The impulse to create a business rather than employ traditional nonprofit work comes partly out of the notion — right or wrong — that charity creates dependency and that without the discipline of the market it often doesn’t work. Development groups, moreover, are always looking for ways to make their projects live on once they’ve moved to other things. Creating a business is one solution.
“We were trying to get away from traditional model where everything is implemented by an N.G.O. (a non-governmental group) or by the government, and everything is dependent on the next round of funding,” said Sasha Muench, Mercy Corps’ economic development adviser. “As long as businesses are profitable, they have an inherent sustainability factor.”
But just like any other kind of project, social businesses are useful and successful only some of the time. Not every problem lends itself to a market solution, and many social businesses fail. Social businesses fall roughly into two different categories. Some try to employ people who wouldn’t otherwise have jobs: for example, fair trade groups that buy crafts from indigenous women to sell in wealthy countries. Others provide goods or services to people who otherwise can’t afford them. A few examples: Ecotact, a business started by a Kenyan entrepreneur, operates pay toilets and showers in 29 locations around Nairobi, helping to provide sanitation services to the 50 percent of Kenyans who lack them. LifeSpring runs a chain of low-cost maternity hospitals around South India, so far treating some 70,000 patients. MicroDrip, a spinoff from an Indian development organization, sells drip irrigation systems to small farmers in Pakistan to help them improve crop yields. AllLife in South Africa offers life and disability insurance to people with HIV. Grameen Danone Foods, a joint venture between the Grameen Group and the yogurt maker known to Americans as Dannon, makes nutrient-fortified yogurt for Bangladeshi children.
Many such businesses get financing from impact investment funds — organizations that connect promising social businesses with medium- or long-term investors who give priority to making a difference. One of the best known is the Acumen Fund, which supports Ecotact and MicroDrip, among many other social businesses.
But no nonprofit can prop up a social business which doesn’t get the basics right. “It’s the same thing that makes any business successful. First and foremost they need strong management and a business strategy that understands the needs of customers,” said Randall Kempner, the executive director of the Aspen Network of Development Entrepreneurs. “The thing that typifies most successful social enterprises is that they’re successful enterprises.”
This is usually more difficult for a social business that sells to the poor — their margins are by definition limited. KeBal faces other challenges. There is no established market for healthy food, and it is more expensive to produce — a crucial factor when consumers make decisions based largely on price. In addition, starting a social business is perhaps most difficult for large, traditional N.G.O.’s like Mercy Corps, which have a very different culture than for-profit companies. “With an N.G.O. you get the funds and implement the project, and you get your salary whatever happens,” said Sean Granville-Ross, Mercy Corps’ Indonesia country director. “It’s tough to find people who think like a business and not an N.G.O.”
“There’s always the dichotomy,” said Muench. “You’re thinking about profits and sustainability, and you’re thinking about the humanitarian issues. It can become an internal battle. We’re always inclined to shift back into humanitarian need but have to remember that to be sustainable you have to have a hard business mentality.”
These two imperatives have clashed in the hiring of street vendors. Mercy Corps would like to create jobs for people who need them most — low-skilled single mothers. But the business demands vendors who have the confidence and boldness to sell, and who will take the risk of ordering a lot of inventory — not the usual profile of downtrodden women in this society. KeBal’s health requirement that food must be sold the day it is made has reduced sales. Vendors order less than they think they will sell for fear of being stuck with excess inventory at the end of the day. Mercy Corps has pushed hard to infuse KeBal with a business mentality. It spent two years doing market testing and developing and testing menus. It also had the chance to make low-cost mistakes. The group tried to start a version of KeBal in Aceh, the province in tsunami recovery where Mercy Corps has many projects. It didn’t work well, mainly because Aceh doesn’t have the population density of Jakarta. People have kitchens in Aceh, so the culture of street food is not as strong. KeBal’s challenge now is to find the capital it needs to grow — the only way it can lower the costs of cooking healthy food.
KeBal is probably the riskiest kind of social business. Even if it fails, it’s an admirable idea. There was probably no other way to solve the problem of getting healthy food to Jakarta’s children. Boldness is often lacking in established nongovernmental groups, and in this case, it is something to applaud.
Join Fixes on Facebook and follow updates on twitter.com/nytimesfixes.
Fixes explores solutions to major social problems. Each week, it examines creative initiatives that can tell us about the difference between success and failure. It is written by David Bornstein, author of “How to Change the World,” and founder of dowser.org, and Tina Rosenberg, contributing writer for The New York Times magazine and author of “Join the Club: How Peer Pressure Can Transform the World.”
The Path From Charity to Profit
By TINA ROSENBERG |
Thatcher Cook for Mercy Corps: Indriyati, 31, fed her daughter Aurelia, 20 months, porridge-style chicken and vegetables from the KeBal food cart. |
KeBal is a social business — one that exists primarily to achieve a social goal. It’s easy to see why the social businesses model has become a popular strategy for attacking the problems of the poor. The impulse to create a business rather than employ traditional nonprofit work comes partly out of the notion — right or wrong — that charity creates dependency and that without the discipline of the market it often doesn’t work. Development groups, moreover, are always looking for ways to make their projects live on once they’ve moved to other things. Creating a business is one solution.
“We were trying to get away from traditional model where everything is implemented by an N.G.O. (a non-governmental group) or by the government, and everything is dependent on the next round of funding,” said Sasha Muench, Mercy Corps’ economic development adviser. “As long as businesses are profitable, they have an inherent sustainability factor.”
But just like any other kind of project, social businesses are useful and successful only some of the time. Not every problem lends itself to a market solution, and many social businesses fail. Social businesses fall roughly into two different categories. Some try to employ people who wouldn’t otherwise have jobs: for example, fair trade groups that buy crafts from indigenous women to sell in wealthy countries. Others provide goods or services to people who otherwise can’t afford them. A few examples: Ecotact, a business started by a Kenyan entrepreneur, operates pay toilets and showers in 29 locations around Nairobi, helping to provide sanitation services to the 50 percent of Kenyans who lack them. LifeSpring runs a chain of low-cost maternity hospitals around South India, so far treating some 70,000 patients. MicroDrip, a spinoff from an Indian development organization, sells drip irrigation systems to small farmers in Pakistan to help them improve crop yields. AllLife in South Africa offers life and disability insurance to people with HIV. Grameen Danone Foods, a joint venture between the Grameen Group and the yogurt maker known to Americans as Dannon, makes nutrient-fortified yogurt for Bangladeshi children.
Many such businesses get financing from impact investment funds — organizations that connect promising social businesses with medium- or long-term investors who give priority to making a difference. One of the best known is the Acumen Fund, which supports Ecotact and MicroDrip, among many other social businesses.
Sometimes a hard business approach is needed to accomplish a social good. For a social business, “the obstacles are similar to those of starting and running any new business,” said J. Gregory Dees, a professor of Practice of Social Entrepreneurship at Duke University’s Fuqua School of Business. “New ventures are risky — raising capital, attracting talent, managing the organization, attracting customers, selling your product (ideally at a profit, though most businesses take a while to reach profitability) are all difficult. And the social mission adds to the degree of difficulty by constraining your options.” Dees points out something important — success isn’t instant. Many social businesses spend years receiving donations or relying on a nonprofit for back-office work before they fly solo. Grameen Bank took 18 years to stop accepting donations. This is also the case with Soluciones Comunitarias, a Guatemalan business I wrote about in late January and early February that sells reading glasses, improved cookstoves, solar lamps and other products to rural people. It was founded by a nonprofit called CE Solutions, which continues to help by lending money, proposing new products and carrying out market research and evaluation.
This is usually more difficult for a social business that sells to the poor — their margins are by definition limited. KeBal faces other challenges. There is no established market for healthy food, and it is more expensive to produce — a crucial factor when consumers make decisions based largely on price. In addition, starting a social business is perhaps most difficult for large, traditional N.G.O.’s like Mercy Corps, which have a very different culture than for-profit companies. “With an N.G.O. you get the funds and implement the project, and you get your salary whatever happens,” said Sean Granville-Ross, Mercy Corps’ Indonesia country director. “It’s tough to find people who think like a business and not an N.G.O.”
“There’s always the dichotomy,” said Muench. “You’re thinking about profits and sustainability, and you’re thinking about the humanitarian issues. It can become an internal battle. We’re always inclined to shift back into humanitarian need but have to remember that to be sustainable you have to have a hard business mentality.”
These two imperatives have clashed in the hiring of street vendors. Mercy Corps would like to create jobs for people who need them most — low-skilled single mothers. But the business demands vendors who have the confidence and boldness to sell, and who will take the risk of ordering a lot of inventory — not the usual profile of downtrodden women in this society. KeBal’s health requirement that food must be sold the day it is made has reduced sales. Vendors order less than they think they will sell for fear of being stuck with excess inventory at the end of the day. Mercy Corps has pushed hard to infuse KeBal with a business mentality. It spent two years doing market testing and developing and testing menus. It also had the chance to make low-cost mistakes. The group tried to start a version of KeBal in Aceh, the province in tsunami recovery where Mercy Corps has many projects. It didn’t work well, mainly because Aceh doesn’t have the population density of Jakarta. People have kitchens in Aceh, so the culture of street food is not as strong. KeBal’s challenge now is to find the capital it needs to grow — the only way it can lower the costs of cooking healthy food.
KeBal is probably the riskiest kind of social business. Even if it fails, it’s an admirable idea. There was probably no other way to solve the problem of getting healthy food to Jakarta’s children. Boldness is often lacking in established nongovernmental groups, and in this case, it is something to applaud.
Join Fixes on Facebook and follow updates on twitter.com/nytimesfixes.
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