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Symposium 2009

Proposal - "Reverse Engineering" Existing Businesses to have a Social Dimension

The Challenge

In the aftermath of the collapse of the western financial system, many observers agree that neither unfettered financial markets nor invasive regulation are able to ensure that financial and busines ...

In the aftermath of the collapse of the western financial system, many observers agree that neither unfettered financial markets nor invasive regulation are able to ensure that financial and business leaders will necessarily act in the public interest.

The easiest way to explain this idea is by using the example of how our strategy has evolved at Social Capital Partners. We began by funding and working with social enterprises which we defined as businesses where at least half the employees were disadvantaged. Over our first five years we financed and worked with a handful of these companies to help them grow, achieve profitability and attain a sustainable livelihood for the people that were employed.

On the one hand we were very pleased with the results. The social enterprises in our portfolio from this phase are terrific companies that have proven beyond the shadow of a doubt that you can make both the financial and the social dimensions of a social enterprise work. We couldn’t be prouder of being associated with them.

On the other hand it took us more than 5 years to help develop these businesses to provide a few hundred jobs. We knew that a few hundred jobs wasn’t much in the global scheme of things and as Rod mentioned we knew that it can take the better part of 10 years or more to scale companies when you are starting from scratch. That’s when we asked ourselves --- Could we take already scaled businesses and somehow turn them into social enterprises without calling them that?

So we developed a loan product that effectively offers attractive subordinate debt financing to growing private sector companies in return for them committing to using our social hiring program. We actually tie our interest rates to the number of social hires they make so that their financing costs come down as they become more committed to our social purpose. In effect we turn them into social enterprises without having to build from scratch.

That is a micro example of this idea but I believe there are potentially numerous ways to apply it. While the example above is based on building a “product” that accomplishes the goal there is probably much more leverage by mobilizing demand or consumer buying power to bring a social dimension to an existing company. One only needs to look at the Fair Trade movement and how it has created change at such large companies like Starbucks to see the power consumers have to create social good.

The real point is that I think too often those of us who are part of the social entrepreneurship sector look for “purpose built” solutions as opposed to “reverse engineering” solutions. My belief is that sometimes it’s easier to create social entrepreneurs by taking conventional commercial entrepreneurs and give them a reason to become social ones consciously or unconsciously and we should apply more of our creative thinking to figuring out how to do so.

Bill Young

Social Capital Partners

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