One day, in the mid 1970′s, a woman named Sufiya Begum from the rural Bangladeshi village of Jobra told a visiting man of a problem many of the villagers were having. The people, despite being entrepreneurially inclined, were poverty stricken. Local banks refused to lend them money to finance their businesses, claiming that such poor people had no collateral to back the desired loans, and couldn’t be trusted to repay. Having nowhere else to go they were forced to consult local loan sharks who promised to finance their ventures – for Sufiya this was the crafting of bamboo chairs – so long as they agreed to sell him all their goods at a price he would set. Strangely enough, the price always came up somewhat short of the entrepreneurs’ expenses, forcing them to borrow more money, and perpetuating a cycle of never ending poverty. Sufiya spoke of all of this to the visitor and that man, Muhammad Yunus, went on to found Grameen Bank, and change the world.
Grameen Bank is among the oldest, and most successful social enterprises. It was founded on the ideas that conventional business wisdom isn’t always right, and that there is a higher purpose to business than simply maximizing financial profit. There’s a social profit to be had as well by helping people to help themselves out of poverty. Today Grameen Bank lends to more than 7.5 million borrowers. Among those nearly 70% have lifted themselves above the poverty line through their enterprises. Grameen has proven that conventional wisdom can be wrong, with a 98.4% repayment rate on their loans, and has proven that a non-exploitative social enterprise can be financially viable, with profits posted every year of its existence except ’83, ’91, and ’92. Grameen Bank is now part of a larger family of nearly 30 socially responsible enterprises working across a spectrum of problems – access to clean water, healthy food for children, and rural cell phone communication – and is doing a tremendous job in each. What follows is a look at the five key strategies they have found to be necessary for success among their ventures. For full access to their engaging and informative write-up, click here. And for more info on Grameen Bank’s evolution and experimentation in first-world countries check our their film To Catch A Dollar which can be rented on youtube for $4.
Strategy 1: Challenge Conventional Wisdom
The ability to challenge conventional wisdom, to take an accepted idea and entertain the thought of turning it on its head, is among an entrepreneur’s most important skills. This doesn’t mean you must always reject the conventional way of doing a thing. It would likely be difficult to sell all your email contacts on the idea of communicating via, say, smoke signals, because that’s just not conventional right now. But always remember that the only reason we moved past smoke signals in the first place is because someone had the audacity to ask if it could be done better. Entertaining non-conventional ideas is the only way to move forward.
Grameen Bank, and it’s sister organizations have done this time and time again. When they first started, the conventional idea was that you could not offer a loan to someone without collateral. Collateral was all that motivated a person to repay. What Yunus and his associates did was alter the way the loan worked from top to bottom. Rather than a large loan being given to a single person, borrowers needed to create groups of five. The first two would be given a loan, and only when they successfully adhered to the repayment schedule (itself changed to small weekly payments rather than large monthly ones) would the remainder become eligible for loans. To maintain eligibility, the entire group needed to continue making payments on time. In this way every member was invested in every other person’s success. This group support, combined with the associated peer pressure not to fail, has led to a 98.4% repayment rate among people who were considered unfit for even the slightest trust.
Author Tim Ferriss is famous for this kind of thinking. If you’ve never heard of him before I strongly suggest you head on over and check out his website where you’ll find articles on everything from language learning and marketing, to sales and body-building which all seem to break the rules on what’s possible. His books are fantastic too, and have been gifted to more of my friends and family than I can even remember.
Strategy 2: Create Strategic Partnerships
This is another tactic culled straight from the business world, which has crossover appeal no matter what field you work in. Simply put there’s no such thing as a self made man or woman. Even Henry Ford admitted that his most important skill was the ability to get the right group of people into a room.
Cooperating gives you access to resources and knowledge you never had before. For Grameen, this meant partnering with the cell service provider Telenor when working to bring communication access to rural Bangladesh. Remember though that partnerships are about two groups bringing something to the table. In this case, Telenor brought the know-how for building a cellular network, and Grameen brought its decades of experience in developing world markets. Identify those people or groups you think could provide strong opportunities to your enterprise and then, this is the important part, figure out what it is you can offer them in return.
Strong partnerships provide another opportunity too: Barriers to entry for your opposition. Now I know that to some this may seem counter to the good-willed nature of Social Enterprise. But remember that while you may not be competeing for market share in the traditional corporate sense, you are competing against those people who would exploit your market for their own profit. Recall the loan sharks already active in the village of Jobra. It is through strong strategic partnerships, and innovative enterprise structures that you seek to cut off the access of people like this to your market.
Strategy 3: Experimentation
Experimentation is crucial because your business, or project doesn’t exist in a vacuum. Multiple forces – pricing, promotion, distribution network, etc – affect your success. You must constantly observe how changes in each affect overall success in an attempt to find an effective way of doing things. It is one thing to promise yourself that you’ll pay careful attention to such things. It’s quite another to design and run a formal experiment. According to a fantastic article in the Harvard Business Review (Register for free to access the whole piece, including 7 rules for business experiments) a business experiment requires two key ingredients to be useful.
First, it needs a control group, or a group that experiences no change, to serve as a comparison for those that do. Without a control, you can’t establish causality, you can only guess at it. Second, you need a feedback loop. This is another way of saying you need to choose something to measure. There are two types of measurable responses that the article discusses – behavioral, and perceptual. Perceptual is how a member of the experimental group thinks they will respond to your change. This is often obtained via surveys, but can be unreliable if you’re experimenting with an unconventional idea. People may simply not be able to fully grasp, or project accurate feelings for, what you’re talking about. The second, and more conclusive type of feedback is behavioral. This measures someone’s actual response to a change. Planning ahead of time allows you to put measures in place to collect accurate feedback, and maintaining a control group allows you to compare the effects of your experiment more assuredly.
In 1996, when Grameen partnered with Telenor to bring cellular phone service to rural Bangladesh, they received a business forecast from a UK consultant which projected the market to be a paltry 250,000 subscribers in the first decade. They proceeded though, knowing that only experimentation could yield accurate results, and by 2005 had an astonishing 8 million subscribers. That figure rose to 40 million by 2008. In terms of accuracy, experimental data trumps forecasts every time.
Strategy 4: Value Stakeholders, Not Just Shareholders
This is one of the key principles which sets social business apart from conventional. Every business has stakeholders, that is people who have interest in the company’s performance. Conventional business models tend to favor shareholders, who have breathed life into the company through stock purchase, and expect to see a return. But social business recognizes their responsibility to the larger whole. The other participants in the business who may not fit the traditional role of shareholder, but definitely have something staked in the business’s actions. They can include employees, who would otherwise be jobless, clients who rely on the business for a particular good or service, even the general public is considered a stakeholder, and must be taken into account when making business decisions.
R. Edward Freeman, a professor at Darden University in Virginia, is particularly well known his pioneering of stakeholder theory. He literally wrote the book, contributing the chapters on stakeholder theory to the world’s first Dictionary of Corporate Social Responsibility. Below is a fantastic video introduction to the concept, and its application in the real world.
Strategy 5: State Your Objective Clearly
Most of these strategies are useful whether you’re running a non-profit, a for-profit, or a social enterprise, but this one is particularly important to the social enterprise when large sums of cash hang in the balance.
Grameen Phone, an enterprise undertaken by both Grameen Bank and Telenor, began with a unique structure. Rather than selling phones and data plans to each individual villager, many of whom could never afford them, the phones were sold to entrepreneurs called Grameen Ladies. These ladies financed their phone, and the purchasing of bulk minutes through loans from Grameen Bank. They would then rent the phone on a per minute basis to anyone in the village that needed to make a call. The model was an instant success, and quickly grew to surpass all projections of its size. As it grew the idea arose to give the poor the majority shares in the business, allowing them access to its profit margins. However, Grameen’s partner Telenor didn’t agree with the idea and refused to sell. Ever since then, Grameen has been very careful to spell out its objectives before entering into any kind of partnership.
Define your objectives as clearly as you can. In this day and age, when the snuggy is a multi-million dollar idea, its possible to find someone to buy into anything, as long as you’re clear about your goals. Forget whether they’re realistic or not, and don’t be afraid to dream big. Muhammad Yunus, founder of Grameen Bank, has gone on to receive a Congressional Gold Medal, the Presidential Medal of Freedom, a Nobel Peace Prize, Sydney Peace Prize, Seoul Peace Prize, and 50 honorary Doctorates Degrees from schools in twenty countries. These are but a sampling of many, many more honors and awards he’s been recognized with. All of this the result of a simple idea, to lend a woman named Sufiya – from the rural village of Jobra – $27 to buy her freedom from poverty.
ETHAN D. BROOKS
Ethan is a traveler and a story-teller. He is the creator of An American Afoot, where he does all his own stunts, despite public concern for his pretty face. He's got a passion for entrepreneurship, especially when it's working to solve social problems, and hopes to use stories to inform and inspire others who want to make a change.