What are Social Ventures?
Social ventures can be non-profits or for-profits. They have 3 defining characteristics:
- They value people over profits. In other words, they are creating more value for their users than they are capturing for their owners.
- They seek systemic change. They aim to distribute equitable value to all affected by the problem, not just a few.
- They are market-based. Their products are designed based upon maximizing the value to users, not demands of donors.
What makes Social Ventures different to traditional charity?
Social ventures are a form of charity. Their intentions are primarily to help a group of people affected by a problem.
However, charity is generally seen as a gift, or transfer, of value from the rich(er) to the poor(er). Social ventures do not necessarily have this transfer of value, rather they are creating value for their beneficiaries through a product or service.
This reframes the paradigm of how to be altruistic. In the past, an entrepreneur would identify a problem and solve it (/create value) for customers through a business. They would capture as much of that value back from customers as possible, and then maybe give portions of their wealth away through charitable donations.
With social ventures, the business is the charity. The difference is there’s less focus on value capture and more on value creation – actually enhancing the competitiveness of the venture in the marketplace. The result: more value and impact is created for users, and huge underprivileged populations (“the bottom of the pyramid” – who would previously be ignored, or left for often ineffective/insufficient charities) become part of the user base.
Why do Social Ventures represent such an opportunity?
Social ventures provide a third-way between traditional business and charity.
The market-drive aspect of social ventures means that anyone can create meaningful change without the need of huge initial resources. In other words, charity is opened up for a huge demographic of people – especially youth – who may otherwise have felt powerless to significantly contribute to traditional charitable efforts.
Secondly, ventures must strive to maximize their value to users in order to be continuously competitive and earn income. This contrasts with donations which can cause charities to be more donor-facing than user-centered. Small, youth-led organisations in particular can often become ‘schizophrenic’ – jumping between different problems and products in the hope of satisfying multiple donors’ criteria, and thereby failing to develop expertise to deliver significant value to their beneficiaries.
Third, social ventures must consider the systemic nature of problems, and provide solutions that therefore help all affected, not just a few lucky beneficiaries. Most people think that this kind of systemic change must be left to government and so focus their charitable efforts on helping individuals (occasionally increasing inequality for others). With social ventures, this is not the case.
And finally, the idea of social ventures challenges business leaders to go much further down the spectrum of social responsibility. Traditional conversations about corporate social responsibility rarely challenge prioritizing shareholder profits, and therefore often fail to create systemic change. The radical nature of social ventures presents a challenge to what a 21st Century economy can look like.
Can Social Ventures really change the world?
Individual social ventures are already changing the world. Look at Grameen Bank. Founded in 1976, it has dispersed $24 billion in micro-loans, among 9 million borrowers in Bangladesh. They won the Nobel Peace Prize in 2006.
But more excitingly, imagine a world where a significant portion of the economy is made up of social ventures. It would be a much fairer global economy, with many more innovations to serve those in need.
Why aren’t there more successful Social Ventures?
That’s not the only reason. But we believe it’s the biggest one.
Social entrepreneurs need validation in order to commit to their ventures. They often can’t afford to waste significant time and/or money on an initiative which is unlikely to succeed and they might initially regard as an extra-curricular activity.
But there aren’t many social ventures to take inspiration from. So, validation is normally sought – if it is at all – in the form of funding.
But funders (whether giving grants, debt, or equity) aren’t interested in under-developed ideas. And entrepreneurs are unlikely to invest in developing their ideas without some validation. So there’s a vicious circle of ideas not being pursued and complaints of access to finance.
We believe we can break this circle through providing validation in the form of coaching and mentorship – giving technical support in developing products, impact and business models, and emotional validation that professionals believe in the entrepreneur.
Ultimately, we believe with this support we can get social ventures to be ready for financing and, ultimately, scaling into system-changing triumphs.