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The Social Entrepreneur’s Dilemma

“In a social business like mine, it’s about mutual respect between the artisans and me. They are not just a part of my supply chain” says Megha Gupta. She is the founder of Dharavimarket, a social e-commerce venture selling various handcrafted products made by artisans of Dharavi - Mumbai’s and probably Asia’s largest slum. Many others like her in India and the world over who proudly call themselves ‘social entrepreneurs’ are distinguishably different than the more popular entrepreneurs in the rapidly-growing technology and consumer internet industries.

A social entrepreneur’s mission is to solve a complex social problem that has no single solution and is mostly local. For instance raising income of  a disadvantaged community by providing meaningful employment might lead to issues like alcoholism since sometimes male members don’t use their money wisely. In many cases, apart from technology, social problems need to be also addressed from the perspectives of psychology, sociology, ecology, economics and anthropology.  

For a social entrepreneurial venture, in most cases, general business axioms of quick scalability and profit maximization are not necessarily the core objectives. Although profit-making is essential for survival and long-term sustainability of the business, positive social or environmental impact is the basis of existence of such a venture. A social venture is constantly trying to combine the innovation acumen of a business with the attitude of social service of a Non-governmental organization (NGO).

However, uplifting communities while chasing profits makes a social entrepreneur’s task a classic balancing act. As a matter of fact this duality influences most of his decisions related to branding, operations, cost efficiency, scaling up and raising funds from investors.

 

Common challenges of a social entrepreneur:

Not so flexible bottom line

Preserving local arts & culture, poverty reduction through livelihood and income generation, raising educational & health standards, producing environmentally sustainable products & services are some of the major focus areas of social entrepreneurs, especially in developing countries of Asia and Africa. These well-intentioned objectives most often run contrary to popular cost optimization techniques, zealously followed by conventional business enterprises.  Take for example Paaduks - a producer of handcrafted Eco-friendly shoes made by cobblers in slums of Mumbai.  “Cobblers are the backbone of our venture. They need to be fairly remunerated for their hard work and skills. We pay them five times the average industry standard in India in an attempt to stabilize their financial condition and reduce exploitation of a specialized profession” says Jay Rege, its founder. Further, Paaduks shoes use sustainable materials like cotton fabric, jute and up-cycled rubber tires. Clearly, minimizing labor costs or using cheaper alternative materials would violate their core objectives.

[Ashoka](https://www.ashoka.org/), a worldwide network of social entrepreneurs with nearly 3000 fellows in 70 countries have predicted through an [article in Forbes magazine] (http://www.forbes.com/sites/ashoka/2012/11/19/five-predictions-for-the-future-of-social-entrepreneurship/) that apart from a few success stories, social entrepreneurs and impact investors will have to get used to thinner profit margins that generally have an inverse relationship with social impact.

    

Scalability vs. Localization

Scalability in a conventional sense refers to producing more through automation, innovation, and increasing workforce while bringing down the cost of production per unit. Although this applies beautifully to tech, internet and most product businesses, it may not be desirable or practical for a social entrepreneur. His primary mission of addressing social problems by harnessing local resources may get diluted by scaling beyond his original socioeconomic context. The greatest strength of a social entrepreneur lies in his ability to engage and understand the local community and this cannot be replaced by technology or anything else.

Megha Gupta of Dharavimarket.com aims at improving the lives of craftsmen of Dharavi who often live and work in sub-optimal conditions in workshops that have severe paucity of space.  To achieve this goal, she will be soon launching a Social Capital Credits Program that will grant social points to craftsmen for following hygiene or say reducing wastage during production. They could then redeem these points for the educational and health needs of their families.  Although Megha can scale up her venture by sourcing from across the country, her in-depth knowledge of social issues of Dharavi may not be necessarily applicable elsewhere.

In a [2009 TED speech] (https://youtu.be/JHk9YVjhk7c) , professor Anil Gupta of Indian Institute of Management, Ahmedabad says, “Scale should not become the enemy of sustainability. There should be a place in the world for solutions that are only applicable in a locality, and yet one should be able to fund them. One of the greatest tragedies we’ve been finding is that investors would often ask “where is the scalable model“? As if need of a community located in a space and time and has those needs only located in those places have no legitimate right to get those needs fulfilled because they are part of this large scale”.

 

Price competition

Social Brands that drive positive impact or sustainability messages don’t necessarily find an easy way to people’s wallet. Organically-grown, ethically-made or handcrafted products continue to be almost twice as much costly as conventionally manufactured products, and consumers, especially in a price-sensitive country like India, are not willing to pay extra. This represents an added pressure on profitability for social entrepreneurs. Barring a few successful stories like Amul and Fabindia, there has been a conspicuous dearth of mass market socially-responsible brands in India.

“The only way to compete with machine-made bags is to create value through good quality, functional and, user-friendly handcrafted products” says Aarushi Agarwal, founder of [The Initiative](http://theinitiative.in/) - A handmade home products venture that provides sustainable livelihood to women from lower socioeconomic strata of the society. Social entrepreneurs like her are using clever product design & innovation to beat the price competition and build a positive aura around their brands.

 

Shortage of discerning investors

Finding suitable investors is one of the biggest challenges of a social entrepreneurial model. A quick look at the [39 most valuable startups in the World](http://www.businessinsider.in/The-39-Most-Valuable-Startups-In-The-World/1-Tech-company-Xiamoi-is-valued-at-10-billion-/slideshow/32377612.cms) by Business Insider throws up names predominantly from technology & internet industries but none from the social enterprise space. Here’s the sector-wise break-up of funding received by Indian startups in Q2 2014.

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Indian Startup Funding Report: Q2, 2014, Source: NextBigWhat.com

With a trivial INR 19 Million of funds, social startups are certainly not attracting lucrative investments. This could simply be due lack of bright ideas or implementable for-profit social models.

However the situation is quickly changing with a growing number of impact investors and corporates raising funds for the social sector. Angel investors are willing to look at social entrepreneurs with revenue as low as 3-5 Million Rupees.  Social entrepreneurs are being increasingly evaluated on parameters of community impact, scalability of their business model and repeatability.

 

But the future seems bright

In a globalizing world spearheaded by big corporations and aggressive technology startups, social entrepreneurs are trying to bring localization back to business discourse. Especially in a vast country like India with myriad social problems, the potential for social entrepreneurs definitely looks promising.

 

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Cobblers in the slums of Mumbai making shoes for Paaduks


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Aarushi Agarwal of ‘The Initiative’ (far right) with her women workforce from lower social strata
All Photo Credits: Rohan Potdar (www.rohanpotdar.com)


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