The American entrepreneur and venture capitalist Paul Graham has the best advice for anyone who wants to start a business – “The way to get startup ideas is not to try to think of startup ideas. It’s to look for problems…” Every time we give a company money for a product or a service, we are paying them to solve a problem we have (or, in some cases… that we think we have). Do you want to get from point A to B? Uber, Lyft, your local taxis and public transport companies are ready to solve that problem for you. Do you need some cash to grow your business? There are all kinds of banks that can tackle that problem. Hungry? We can fill several pages of text with the options you have. But to get to the point of this post, when distinguishing between Corporate Social Responsibility (CSR) and social entrepreneurship, it is essential to start with a focus on the problem.
So let’s look closer at a business and how it solves these problems by imagining a fictional company called YourBank. YourBank wants to solve the financial problems of the population it serves. Naturally, customers are willing to pay for these services – YourBank would not serve them for free! As YourBank starts to grow, it starts to notice two groups of problems besides the one that it set out to solve. The first group consists of problems caused by YourBank and its business operations. For example, YourBank prints out bank statements and receipts for the customers that visit its branches, and its ATMs produce this paper waste as well. YourBank’s offices consume electricity and cause carbon emissions. Some of YourBank’s customers are approved to receive loans that they will be unable to pay back, sinking them into poverty. These are all side effects of YourBank’s operations – this particular “portion” of the global problem of waste, carbon emissions and poverty would not have happened if YourBank had never existed. Corporate Social Responsibility initially emerged in the late twentieth century through the recognition by the business community that it is the duty of companies to prevent or mitigate the negative impact that may be caused by their operations. As part of the effort to reduce this first group of problems, YourBank offers digital solutions and encourages customers to move to electronic banking, switches to green energy and so on – these are great moves for society, the environment, plus they could also result in long-term savings and new business opportunities for YourBank. It’s a win-win!
Over the years, this understanding of CSR evolved and expanded as the second group of problems faced by companies like YourBank came to the forefront. These consist of issues that exist in society and impact the business and its growth. In the case of YourBank, people without jobs, a stagnant small and medium business sector, lack to access to education – all of these lead to a customer base that is small and has limited financial power. At the same time, these are problems for society, not just for the business, so it is to everyone’s benefit if they are solved. And so, YourBank begins to invest in tackling some of these issues, because it will help grow their customer base and help them on their way to their commercial mission of providing financial services. YourBank supports entrepreneurship training in the community, funds scholarships and runs internship programs, provides affordable seed funding to small business and so on. Because solving such social problems as poverty and low-quality education will help society thrive while also keeping YourBank in business in the long term, CSR has gradually evolved conceptually and in terminology to now be more commonly known as Sustainability or Corporate Citizenship. In fact, if you look at the Corporate Citizenship 2018 report of a financial institution like Citibank, the programs above are exactly the kinds of initiatives you would see – Citibank invest $49 million in a program to prepare youth for twenty-first century jobs, provided more than $11 billion in loans to small businesses, reduced its energy use by 30% over the preceding decade and so on.
Social enterprises are also businesses, just like the commercial entities described above. Their reason for existence is also to solve a problem, but they are different from commercial companies in that they start by focusing on the existing problems in society or the environment. Once they have identified the problem they want to solve, they then figure out the business model of how to make revenues while contributing to the solution of this problem. The revenue, and even profit, earned by a social enterprise is not the end goal – it is the means to keep contributing to the solution of the problem.
Let’s look at one of the problems we considered in an earlier paragraph—access to education—and the story of a real social enterprise. In the Philippines, one of the first things an employer seeks in a potential job applicant is a college degree – if you don’t have a college education, you will not get a decent job. At the same time, many young people that live in poverty do not have the means to pay for a college education, meaning that they are barred from getting good jobs, and are thus stuck in poverty. So two young women in the Philippines decided to start a different kind of financial institution – Invested, a social enterprise that specializes in providing student loans to underprivileged youths. Invested gets its capital through crowdfunding and then provides low-interest, flexible-term loans to underprivileged youths. This basically means that their customers can complete their studies, and get a job before they need to start repaying, and the low interest rates and flexible terms could mean payments as low as 15 EUR a month. Invested is not a charity – it needs to make profits in order to keep delivering on its mission of helping underprivileged youths. But the problem of access to education is its very raison d’etre – if this problem is solved one day, Invested will no longer need to exist in its current form. Contrast this to the social problems that commercial companies tackle through their sustainability programs – when those problems vanish, the business simply continues with its mission to make money.
In many parts of the world, private companies are now engaged in development work in some form or another. When the Sustainable Develop Goals (SDGs) were announced in 2015, one of the biggest steps forward in international development work was the explicit statement that business would become a key stakeholder in the achievement of these objectives. In fact, the Corporate Citizenship report mentioned earlier in this post features a huge image of the SDGs, highlighting the company’s specific areas of focus. Sustainability programs by commercial businesses, as well as the growing sector of social entrepreneurship are both increasing the engagement of the private sector in the solution of global problems. One is therefore not better or worse than the other – they are simply fundamentally different concepts that end up operating in the same space.
They are also, in fact, synergistic. Commercial businesses can partner with social enterprises to increase the positive impact of both companies. For example, when a commercial business has several choices as the supplier of a particular product or service, say catering, choosing a social enterprise means that the commercial business is helping to tackle a social issue while also meeting its own business need of getting food to their staff at work.
These partnerships can work in other ways as well. Here’s the story of a problem in Rwanda and how an innovative social enterprise has tackled it, with initial support from a commercial business. Clinics in all parts of the country would regularly need blood for transfusions, but the poor infrastructure and long distances made it difficult to provide medical personnel with this vital supply in a timely manner. Then a social enterprise called Zipline proposed an alternative approach – using unmanned drones to fly over clinics and parachute the supplies to them. Would the idea work? UPS helped answer the question by supporting Zipline in 2016 with initial funding to launch operations. After some early success, Zipline now has backing from several investment companies, makes several hundred deliveries a day, and is considering an expansion into Tanzania. Why would this interest FedEx from a business point of view? Drone deliveries are actually of strategic importance to the logistics industry and, by supporting Zipline’s initial work, UPS got a lot of important data about the viability of drone deliveries and potential problems that may lie ahead. This is business intelligence that is worth its weight in gold, while the financial support and public exposure that Zipline received from UPS has been vital to its current success today. And, of course, Zipline’s operations are saving lives on the ground on a daily basis, so it’s a win-win-win for everyone involved.
Some of the most innovative solutions to our social and environmental problems today are coming from the private sector. We could be talking about social enterprise, commercial companies and their corporate social responsibility initiatives, or partnerships between the two, but one thing is clear –the focus of the private sector is increasingly on the challenges that our societies and planet face today, and this is an exciting time to be in business!
Nazareth Seferian has been working in sustainable business for more than ten years. He started working in the field of Corporate Social Responsibility (CSR) in Armenia in 2008 and managed sustainability projects at Orange Armenia for four years before shifting to a career as an independent consultant in several countries. Since 2015, he has worked with more than fifty non-profit organizations seeking to transform into social enterprises, as well as the donor organizations that have supported the growing field of social entrepreneurship in Armenia. He also teaches university-level courses and runs training sessions on a range of business topics, including strategic sessions on CSR and SE. Nazareth holds a post-graduate certificate in sustainable business from the University of Cambridge and is currently pursuing an Executive MBA from the European School of Management and Technology (ESMT) in Berlin.
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