COVER FEATURE

SUSTAINABLE SOCIAL
ENTERPRISE:
REALITY OR MYTH?
Increasingly, the term social
enterprise is used to refer to
financially sustainable organisations
that cater to a social need. While
some severe social challenges
need a pure philanthropic approach,
most organisations that serve an
unmet need can develop a viable
revenue stream. Philanthropists,
corporates, and sociopreneurs
would do well to understand that
more than financial viability, clarity
in the value proposition should
be the precondition to invest
in a social initiative. Here is a
pragmatic approach.
BY

PARVATHI MENON

s I was putting my thoughts together

for this article, I was returning from a
conclave of 500 mayors and municipal
commissioners in New Delhi, convened to
help them rise to the challenge of participating in Indias urban transformation process.
500 towns and cities with over 100,000
citizens have been brought together for
an urban rejuvenation and transformation mission. These urban clusters have the
potential to function a lot more efficiently and,as
citizens often complain, these towns and cities are now lagging far behind even in basic
service delivery.

22

INDIAN MANAGEMENT

J U LY 2 015

FINANCIAL SUSTAINABILIT Y

Kurien, has demonstrated without doubt that

There was an urgent air of anticipation
social enterprises can be sustainable, have
amongst the participants. Perhaps they were
large-scale social impact, and balance its triseeking magical solutions that could take
ple objectives of people, planet, and profit.
away the massive challenges of delivering
In their insightful book The Solution Revclean drinking water, managing piles of waste,
olution, William Eggers and Paul Macmilor transforming unhygienic slum dwellings in
lan highlight the essence of this approach
their towns. No magical solutions came forto sustainable social impact: A new econoward, am afraid. Instead, I saw many good
my has emerged at the borderlands where
examples and ideas that reflected a different
traditional sectors overlap.
approach by the GovernThis economy trades in soment towards finding susAn efficient government
cial outcomes; its currentainable solutions. Nagpur
cies include public data,
Municipality is piloting a
department in a
reputation, and social im24x7 water delivery idea,
developing country is as
pact. Untapped markets
leveraging a public-private
much a social enterprise
are developed and drive fipartnership. Kolkata has
nancial returns. The busideveloped the New Town
as a young startup team
ness models are unusual,
area entirely through an enthat is delivering a soand the motivations range
trepreneurial PPP route levcially relevant product.
from new notions of public
eraging modern city design
accountability to moral obinputs. Agartala Municipaliligation to even shareholder
ty has created a sustainable
value. New problem-solving innovators and
solution to street lighting by engaging citizens
investors power the solution economy.
and generating savings by shifting to LED
Financial sustainability is a simple conbulbs. Ahmedabad Municipality has cleaned
struct. The money generated by the sale or
up the Sabarmati River and developed a wause of a product or service is more than
terfront through private partnership, where
what is needed to run the project or entercitizens will now contribute through user fees
prise. Or, if you are more focused on the
when they enjoy the public facility.
bottom line, the money needed to run an
enterprise or a project is lesser than the
New solution economy?
money that is generated by the enterprise
It is important to note that a municipality is
through sale of the service or product that
in essence a non-profit entity that is designed
it delivers.
to deliver a sustainable social impact through
The key elements here are:
its service delivery. What was common in all
these examples was the spirit of enterprise
A product or a service that has a real and
of the municipal leadership, the openness to
perceived value for the user
explore different forms of investment, and the
The ability to raise the initial working
focus to ensure that citizens adopted the idea
capital needed to develop the product or
and agreed to pay user fees, once the service
the service
reached them.
The delivery of the product or the service
This context is important because I want to
in a way that it delivers its perceived or real
ensure that we do not fool ourselves to believe
value to the user
that a social enterprise is a new phenome The ability of the enterprise to consistnon. Or that sustainable social enterprise is
ently capture the value in material terms
an impossible construct. Or that social enterpayment, user fee, etc.in a way that it
prise has to involve a for-profit structure for
pays back its original investment over time
it to be sustainable. An efficient government
and has the ability for sustained operations
department in a developing country is as
and management
much a social enterprise as a young startFor every social enterprise or government
up team that is delivering a socially relevant
department that we see succeed, we see a lot
product or service to its market. And probaof social enterprises that find it tough to put
bly Amul, under the leadership of Dr Verghese
these key elements together. I believe that the

Parvathi Menon is
Innovation Facilitator;
Founder and Managing
Director, Innovation
Alchemy.

INDIAN MANAGEMENT

J U LY 2 015

23

FINANCIAL SUSTAINABILIT Y

Steps in Social
Enterprise Innovation

Prototype an idea

challenge lies in defining the value proposition for the consumer and the investor and
encouraging large-scale consumer adoption to
deliver the promise.
Let us start with user adoption. Because
that is where the consistent and continuous
earning will eventually come from. I believe
that for long-term, sustained social impact
to occur, the users/consumers/beneficiaries
of the service need to acknowledge and accept that a particular service or product will
improve their lives. If this is the case, then
users will find ways to raise their own resources to pay for the solutions.

Co-creating success

Develop product

Seek investors

Scale and deliver

24

INDIAN MANAGEMENT

J U LY 2 015

Many innovators and entrepreneurs tend

to underestimate the power of co-creating
solutions with the customers. Too often, a
product or technology gets developed from a
limited set of user insights, primarily driven
by the innovators own perception of what the
user needs. This type of approach assumes
that there are a few, definable user profiles.
But in reality, consumers of a product or a
service are evolutionary.
Microfinance enterprises have seen this
at close quarters. Originally, microfinance
products were crafted to help poor, unbanked families get access to small loans
at reasonable interest rates for microenterprises. However, as women availed themselves of these small loans and learnt to save
money, invest money, and generate wealth
for themselves, the idea grew beyond the
poor community. Women across rural and
urban poor communities began seeking microfinance loans to buy gold, or for their
childrens higher education, or to invest in
solar lighting for their homes. This meant
that managers of microfinance businesses
had to significantly change their due diligence process, spend more on technology,
raise larger funds, and hire expensive skills.
The operations costs grew. But so did the
opportunity to increase revenue, serve more
user profiles, and find multiple revenue
sources. But it is important to note that once
the value of the microfinance product was
accepted by the users, they generated their
own resources to pay for the loans. There
was a connect between the product and its
potential for enhanced earning.

FINANCIAL SUSTAINABILIT Y

Solar lighting solutions have also evolved in

user adoption, and an openness to defining
a similar way. Once a community experiences
user value for boththe consumer and the
the power of simple solar solutions, the faminvestor. This is the crux of social enterprise
ilies within the community will find ways to
sustainability. I use the term pragmatic
access the products. As the ecosystem evolves,
because not all social challenges are conlocal entrepreneurs will make affordable
ducive to social enterprise. A human rights
options and enterprises will collaborate with
issue, for instance, is not one where a soMFIs (microfinance institutions) to ensure
cial enterprise approach will work. However,
that money is available. MFIs will be happy
for any public entitlement productwater,
to provide small loans because they can see a
sanitation, electricity, education, commuway by which the community will pay back the
nity infrastructureall of these have great
loan. Thus, social enterprises such as Greenpotential for sustainable social enterprise
light Planet and d.light have scaled up rapidly
solutions.
in their production and distribution. The value
Having met and worked with severof the solar light is clear for the user; he or she
al social enterprises and entrepreneurs, I
knows how it helps in their lives and is willing
often reflect on the successes and failures
to pay for the product.
to try and understand if
Community units for wathere is a sequence of iniAs the ecosystem
ter purification have seen a
tial steps, in social entersimilar evolution. The capex
prise innovation, that could
evolves, local
for a filtration unit comes
lead to success. I believe
entrepreneurs will
from a philanthropic inthere is.
make affordable
vestment or a government
The first step is to protogrant; a local citizen managtype an idea. Not to build
options and enterprises
es the operations of the unit;
a product as a first step.
will collaborate with
consumers pay a very low
But prototype. Find a gap,
MFIs to ensure that
per-litre fee for the filtered
a challenge and before you
water. The small fee, in large
build a full solution prodmoney is available.
volumes across a commuuct or service, find ways to
nity, pays for the sustained
pilot the essence of your
operations and management of the unit. And
ideaco-create with consumers. With so much
the surplus generated from the fees pays back
technology at our disposal, chances are that as
the philanthropic investment over a period of
a social entrepreneur you can create sample
time. The role of the social entrepreneur in
solutions; it needs creative development.
this is to
Step two is to let a series of prototypes
guide the development of the product,
Identify the appropriate technology for
clearly focusing on identifying the value that
filtration
customers will pay for.
Find the philanthropic investor
Ensure that consumers understand the val Step three is to take the prototype findings
ue of the clean drinking water, and
to investors, showing them clearly how the
rupee invested delivers a promise, which a
[Make] consumers committed to paying for
customer will pay for. The rest of the steps are
the service and the clean water
management of operations, resources, scale,
Waterlife India has worked on this
and delivery to ensure the promise of social
model over the last five years and now delivimpact is delivered.
ers clean drinking water to ten million people.
Financially sustainable social enterprisSocial entrepreneur Sudesh Menon has
es are very much a reality, created with a
demonstrated that over a period of time, most
combination of pragmatic entrepreneurship
of the units are operationally sustainable and
and a passion for long-term, sustained somany of them are now paying back on the inicial impact. And in this age of the solution
tial capex investments.
economy, sociopreneurs are already demonThese enterprises are led by smart social
strating successful examples in partnership
entrepreneurs with a pragmatic approach
with government and corporate philanthropy. IM
to developing the product and creating

INDIAN MANAGEMENT

J U LY 2 015

25