March 31, 2023
The Challenges of Making Money Serving the Poor: Why We Need to Redefine Success in Social Impact
Social impact enterprises and social entrepreneurship have become buzzwords in recent years. Entrepreneurs, investors, and philanthropists alike are increasingly drawn to the idea of using business as a tool for social good. This is, of course, a laudable goal, but it is also one that comes with many challenges and I am speaking from my personal experience looking at my own impact journey.
One of the main challenges of social impact entrepreneurship is making money while serving the poor. Many social impact enterprises focus on providing physical products to those in need, such as clean energy solutions or cook stove, etc…. While these solutions may look great on paper, they are often not profitable. This is because the populations that social impact enterprises aim to serve often lack the purchasing power to pay for these services at market rates.
The conventional wisdom in the business world is that companies need to make a profit to be successful. This is certainly true for most for-profit businesses. However, for social impact enterprises, the situation is more complicated. The whole point of these businesses is to make a positive social impact, and this often requires sacrificing some profit in the short term.
Despite this, many social impact enterprises still operate under the assumption that they need to be profitable to be successful. This is not only unrealistic, but it is also counterproductive. Social impact enterprises need to redefine what success means for them if they are to make a real difference.
One potential solution is to focus on vertical integration and diversification. By integrating all aspects of their supply chain, social impact enterprises can reduce costs and become more efficient. Diversifying their offerings, meanwhile, can help them reach more customers and increase revenue. These approaches are not without their challenges, but they offer a way forward for social impact enterprises that want to make a real difference.
Another potential solution is to increase government involvement in social impact enterprises. One way to do this is by creating a new tax category for social enterprises. Currently, these companies are taxed like regular for-profit entities, despite the fact that they are focused on making a positive social impact. A new tax category could provide the financial incentives that social impact enterprises need to succeed.
Despite the fact that investors state they are seeking for green solutions or wish to invest in impact companies, the returns from these investments are just not as attractive as those from fintech or other sectors that can experience growth rates of 20 or 30%. What we need to do is make improvements to the current conventional programs and transform them into ones that have a lot more impact.
Partnerships and engagement from large corporations are also essential for social impact enterprises. These partnerships could take many forms, such as transforming CSR programs into partnership programs with social impact companies. By partnering with these companies, large corporations can provide much-needed support, including funding, expertise, and access to markets.
Easier certification and adoption of carbon credits for SMEs would also be a significant step forward. Currently, the process of obtaining carbon credits is long, expensive, and inefficient. Simplifying this process could provide much-needed financial incentives for social impact enterprises.
Finally, NGOs need to develop more partnerships with social impact enterprises and avoid competitiveness within the space. Rather than competing with each other, NGOs and social impact enterprises should work together to achieve their common goals. This could involve sharing resources, expertise, and best practices.
The challenges of making money while serving the poor are real, and they are not going away anytime soon. However, social impact enterprises have the potential to make a real difference in the world. By redefining what success means for them, increasing government involvement, partnering with large corporations, simplifying the process of obtaining carbon credits, and working together with NGOs, social impact enterprises can overcome these challenges and achieve their goals.
In conclusion, we need to rethink what success means for social impact enterprises. Profitability is important, but it should not be the only metric of success. By focusing on vertical integration and diversification, increasing government involvement, partnering with large corporations, simplifying the process of obtaining carbon credits, and working together with NGOs, social impact enterprises can overcome the challenges of making money while serving the poor and achieve their goals of creating a positive social impact.
It is important to remember that social impact enterprises are not charities, nor are they traditional for-profit businesses. They operate in a space where social and environmental goals are just as important as financial ones. As such, they require a unique set of tools and resources to succeed.
Governments, corporations, and investors all have a role to play in supporting social impact enterprises. We need to create policies and systems that incentivize and reward businesses for creating social and environmental impact, and not just financial gain. We also need to support these enterprises by providing funding, expertise, and access to markets.
Ultimately, the success of social impact enterprises will depend on our collective willingness to invest in them and redefine what success means for businesses. If we can do this, we can create a world where business is a force for good, and where making a positive social impact is not only possible, but also profitable.