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Entrepreneurship Development & Social Business

Entrepreneurship Development & Social Business:

Conceptual Framework

Farzana Alam*

 

Key Words: Entrepreneurship, Development, Social Business

Abstract: This paper gives a brief narration of the conceptual framework of Social Business and Entrepreneurship Development with particular reference to the experiments of Grameen Telecom Trust (GTT). The paper highlights that social business is a “non-loss non dividend company”, dedicated entirely to achieving a social goal; while entrepreneur refer to the person who organizes, manages and assumes the risk of business. This paper covers the theoretical and practical issues covering social business, entrepreneurship, experiments of social business by Grameen Telecom Trust (GTT) and various other technical issues as innovated by Nobel Laurel Prof Dr. Mohammed. Yunus. This paper is a part of an ongoing Ph.D thesis of the author. The paper also covers the problems, issues and future of social business projects sponsored and implemented both by GTT and other organizations both at home and abroad. 

 

Chapter-I: Introduction

“I shall send poverty to museum”- was the bold declaration of Nobel Laurel Prof. Dr. Yunus [1]. This may appear meaningless slogan. But when one comes across the success stories of Grameen Bank from 1983 to-date in a poverty-stricken country like Bangladesh, this slogan sounds highly meaningful. This has been expressed through the recognition of the world community by awarding Nobel Peace Prize to Grameen Bank and its propounder Prof. Dr. Mohammad Yunus.  Entrepreneurship Development through Social Business is one of his many great innovations. A modest attempt has been made here to briefly review the Entrepreneurship Development and Social Business initiated by Prof. Yunus through Grameen Telecom Trust (GTT).

 

 

Chapter-II: Social Business and its Conceptual Framework

While trying out various approaches, Prof. Yunus, the exponent of Social Business, moved from one level to another level of his conceptual framework. He moved from microcredit to a much broader concept, which neatly includes microcredit itself. His new concept, Social Business, brought about fundamental change in the architecture of our capitalist economy by bringing it closer to a complete and satisfactory framework, freeing it from the basic flaws which lead to poverty and other social and environmental ills. It may be mentioned here that the economists have built their whole theory of business on the assumption that human beings do nothing in their economic lives besides pursue selfish interests. The theory concludes that the optimal result for society will occur when each individual’s search for selfish benefit is given free rein. This interpretation of human beings denies any role to other aspects of life-political, social, emotional, spiritual, environmental, and so on. While criticizing the traditional theory of capitalist economy, he states that once we recognize this flaw in our theoretical structure, the solution is obvious. We must replace the one-dimensional person in economic theory with a multidimensional person –a person who has both selfish and selfless interests at the same time.

 

When we do this, our picture of the business world immediately changes. We see the need for two kinds of businesses: one for personal gain, another dedicated to helping others. In one kind of business, the objective is to maximize profits for the owners with little or no consideration for others. (In fact, in the pursuit of maximum profit, many people do not mind even harming people’s lives knowingly.) In the other kind of business, everything is for the benefit of others and nothing is for the owners – except the pleasure of serving humanity.  The second kind of business, built on the selfless part of human nature, has been named as social business by Prof. Yunus. This is what the traditional capitalist economic theory has been lacking.

 

 

In a social business an investor aims to help others without making any financial gain himself. The social business is a business because it must be self-sustaining – that is, it generates enough income to cover its own costs. Part of the economic surplus the social business creates is invested in expanding the business, and a part is kept in reserve to cover uncertainties. Thus, the social business might be described as a “non-loss, non-dividend Company,” dedicated entirely to achieving a social goal.

 

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Social business has been conceived by its propounder as a selfless business whose purpose is to bring an end to a social problem. In this kind of business, the company makes a profit – but no one takes the profit. Because the company is dedicated entirely to the social cause, the whole idea of making personal profit is removed from this business. The owner can take back over a period of time only the amount invested.

 

 

There are two kinds of Social Business. One is a non-loss, Non-dividend Company devoted to solving a social problem and owned by investors who invest all profits in expanding and improving the business. Grameen Danone is an example of this type of Social Business. The whole objective of this company is to solve the problem of malnutrition by selling affordable yogurt fortified with micronutrients. Grameen Veolia water, which addresses the problem of arsenic-contaminated water by selling pure water at a price the poor can afford, is another example of this type of social business.

 

 

The second kind is a profit-making company owned by poor people, either directly or through a trust that is dedicated to a predefined social cause. Since profits that flow to poor people are alleviating poverty, such a business is by definition helping to solve a social problem. Grameen Bank, which is owned by the poor people who are its depositors and customers, is an example of this kind of social business.

 

 

Social Business Vs Social Entrepreneurship

“Social entrepreneurship” relates to a person. It describes an initiative of social consequences created by an entrepreneur with a social vision. [2] This initiative may be a non-economic initiative, a charity initiative, or a business initiative with or without personal profit. Some social entrepreneurs house their projects within traditional non-governmental organizations (NGOs), while others are involved in for-profit activities. In contrast with social entrepreneurship, social business is a very specific type of business – a non-loss, non dividend company with a social objective. A social business may pursue goals similar to those sought by some social entrepreneurs, but the specific business structure of social business makes it distinctive and unique.

 

 

A foundation, for example, is a charitable organization created to disburse funds from one or more donors who seek to create social benefits through their giving. A foundation is not a social business: It is not financially self-sustaining, it normally does not generate any income through business activities, and it does not have an “owner” the way a social business does. Under the laws of most countries, foundations and other non-profits are not owned but rather governed by boards of directors under guidelines established by the state.

 

 

However, a foundation could own a social business. In fact, it could be an excellent use of foundation monies to establish social businesses within the organization’s sphere of interest. When a foundation gives a grant to a traditional NGO, the money is spent to establish or support charitable programs, and hopefully it provides some benefits to the community. But in any case, the money is soon spent, and in most cases the NGO is soon applying for another grant to continue its work.

 

 

By contrast, if a foundation were to provide investment money with which to launch a social business, the business could create social benefits while generating the income to sustain itself. Over time it would repay the original investment, which means the foundation would get its money back and be able to use it for some other worthy purpose. Meanwhile, the social business would chug along, doing good in the world and, if it is well run, expanding and spreading its influence in ever-widening circles throughout the society.

 

 

In a similar way, a traditional NGO, which is a non-profit, charitable organization, could also own a social business. It would need to be separated from the NGO for legal, tax, and accounting purposes. But as long as the social business shares the same social objectives as the NGO, it seems that such an investment would be a wise and potentially powerful tool for pursuing the NGO’s charitable goals.

 

 

Social Business is thus defined by Professor Yunus as a financially sustainable organization created to solve a social problem. Whereas original investments may be recouped, all potential profits are reinvested to further increase the organization’s social impact. [3]. In order to make the concept of Social Business more clear, seven golden rules have been put forward by its propounder. These are as follows:

 

 

 

An analysis of these Seven Principles, a number of critical issues came forward. First Choice of the right Focus Area. Like any other business, Social Business focuses also three critical issues while choosing right focus are, namely, (a) clear idea about core capabilities and potential business interest of the company; (b) clear understanding of the problems and the pressing needs of the targeted geographical area and (c) clear understanding of the land scope of stakeholder, legal issues and activities of players.  Thus, Social Business is always about funding the right balance, the best solution between the contradicting requirements of social and business all the times. [5].

 

 

Second Critical Stage is the designing a Successful Business Model. This model was initiated by Yunus Centre in January 2013 through its well-acclaimed First Design Lab. Encouraged by its success; Yunus Centre decided to organize Design Lab every month. During the Design Lab, a good number of young entrepreneurs used to present their social business design in front of experienced business executives and social activists, to seek their advice. This would do two things, it would encourage people to come up with social business ideas; and develop this platform as a sounding board for getting the concept of social business more business-ready through its application in concrete situations. The Third Stage is continuously Learning and Adapting. Social Business evolves a process of continuous experiments of learning and adaptation process involving time, efforts, trial and error. The Fourth Stage is the Building of Efficient and Sustainable Operations. Social Business aim to translate initial investments into self-perpetuating impact well into the future, but such long-run benefits can only be achieved if efficient, sustainable operations are put in place. To remain viable over the long term and increase the social impact they deliver, social businesses must structure operations and partnerships effectively, hire and retain the right talent, and design operations to be as lean and efficient as possible. Although these objectives are the same as in any business, social businesses face particular challenges in addressing them effectively. The Fifth and final stage is Managing for Impact.  The moment of truth for a social business is finding out whether success has been achieved – and can be sustained and increased. Success means two things: delivering real social impact and doing so self-sustainably, without the financial support of corporate partner or outside donations. Both of these outcomes can and should be measured and managed. While most companies are used to managing financial returns, managing social impact is often new undertaking.

 

 

Measure and Manage social impact as rigorously as Financial Results. Although social-impact outcomes may seem intangible or difficult to evaluate, clear metrics can help quantify the impact of a social business on the target population. As a minimum, social impact should be measured along two dimensions: the impact on each beneficiary and the number of targeted beneficiaries reached.

 

 Chapter-III: Entrepreneurship Development & Social Business of                              

                          Grameen Telecom Trust (GTT)

 

Although Entrepreneur is defined as the person who organizes, manages and assumes the risk of a business, Grameen has added a set of new connotations to the term.  In the perlance of Grameen, new entrepreneurs are called “Nobin Udyokta (NU)”. NU refers to the potential entrepreneurs, who are selected through a process of identification of potential of potential investors and making them self-reliant through traditional profitable business following the social business model. This model was initiated by Grameen Telecom Trust (GTT) in the year 2013. The well-pronounced slogan for this programme runs: “We are not job-seekers, we are job givers” and “Turning unemployment into Entrepreneurship”.  This NU programme was in fact, undertaken by GTT to solve a serious unemployment problem created amongst thousands of educated youths, who were children of the beneficiaries of the country-wide micro-credit programme of Grameen Bank and were educated under its Education Loan Programme.  The children of the existing members of Grameen Bank (who are continuing for last 3 yrs.) or who were members of GB for 7 yrs. in the past, were eligible to become N.U. initiated by GTT. The main objectives of the N.U. Programmed were:

 

 

 

While guiding the NU, the GTT specified the following types of business:

 

 

While specifying the modality of converting the loan into equity, GTT included in its charter the following conceptual framework:

 

 

From Loans to Equity

 

Impact of this shift from loans to equity to create social businesses is far reaching. This has a possibility of addressing the issue of global problem of youth unemployment, or unemployment for that matter, in a sustainable and a replicable way. It is simple, but very effective. It has moved the issue from traditional prescription of job creation through promoting profit-maximizing investments or investments in large infrastructure projects by governments, to simple, sustainable, and direct micro equity financing of the business of the unemployed person himself within a social business format. Here the action directly aims at the very person whose problem is to be solved. It is not an uncertain by-product of an enterprise intended for profit maximization. In a social business the investor solves problem by creating a business. In this NU case the investor solves the problem of youth unemployment (needless to say, the method can be used in any type of unemployment situation whether the young, or the old). Investor, in a social business, does not take any profit from his investment, except for getting his investment money back. The NU is responsible for paying back whatever money he received as equity within an agreed period. This offers an exciting opportunity for any entrepreneur. Imagine what a thrill it is for a young entrepreneur entering the business world for the first time.

 

 

Since entrepreneur is getting fund from its investor-GTT, there arises the questions of relationship between Investor and entrepreneur i.e. NU. GTT specifies this issue very clearly.

 

 

Relationship between Investor and NU

 

The entrepreneur may have some or no shares in his business. He can be the managing partner or a paid manager of the business owned by the investor. Investor will be monitoring the performance of the manger/ managing partner, but will not get involved in the actual running of the business. As the business makes profit, the investor receives his dividend. When he has received enough dividends to equal the amount of equity he has invested, he stops taking further dividend. It is time for him to move on to the next investment with the money he got back. But his objective will not be achieved until he establishes the entrepreneur as the owner, because his intention was to transform a job-seeker into a job-giver. This was his objective. If his intention had been merely to create job for a young unemployed person, his objective would have been achieved right at the start. Even if he holds on to ownership of the business, the business would already be a successful social business. But his objective was bigger than just providing employment; it was to transform a job-seeker into a job-giver that is, creating an entrepreneur. This he does by selling the shares to the entrepreneur following social business guidelines.

 

 

Question comes, what price would he charge to the entrepreneur for his shares? He is entitled to sell them at the book value, or at the market value of the shares. Both these values are higher than the face value because the business has already paid back the original investment amount. According to social business guidelines, investor can sell his shares at the market value, but he has to reinvest the additional money he receives beyond the face value, into another social business, or in the same social business. In other words the investor cannot enjoy additional value created by his investment. In selling the shares of a NU business, the investor will take an amount equivalent to the original investment amount plus additional fixed sum of 20% over it. This additional amount is called “share transfer fee”. The entrepreneur finds it very attractive offer, because, firstly he is buying the shares at the face value, not at the book value. That itself is a big gain for him. Secondly, fixed charge of 20% on the original equity over the entire payback period is a rather modest amount to pay to the own shares. For example, if the entrepreneur is paying back the investment amount of Tk. 1.0million he will have to pay back a total fixed amount of Tk. 1.2 million irrespective of how many years it takes to pay back the money. Instead, if he had borrowed the money from a bank his interest burden will grow each day, making the total repayment burden twice or thrice the original loan amount in a few years.

 

 

What would be the justification for charging the “share transfer free” in the NU programme? Two reasons were put forward:  one, in social business shares are transferred at market value. In NU programme the entrepreneur is asked to pay the amount equivalent to face value, which would be much smaller than the market value in a successful business. Two, investor in the case of NU programme is not a passive investor. He is very active investor. He prepares the entrepreneur to become an efficient entrepreneur, arranging training for him, providing guidance to him, monitoring his business performance, providing support services, bearing the business risk, helping him to handle emergencies etc. Fixed amount of 20% is only a small fee for covering all these services over a period of several years.

 

 

Identification and Implementation

 

Whole process begins with the identification of potential NU. The implementation structure of the investor, which has village level staff to work with the entrepreneurs, is responsible for identification of the potential entrepreneurs, helps them develop their business plans, and prepare the Nus to make presentation of their plans to the participants of the Design Lab.

 

 

The whole process starts with the home visit of the potential entrepreneur and getting to know him and his family in all details, captures his dreams and fears, and tries to build confidence in him. Informal discussion in small groups of 4 or 5 takes place to let them get to know each other. Once a sizable number (say 30 to 35) of young men or women have been contacted the village staff will organize an orientation and identification camp in a village. Experienced camp leaders will attend the camp to carry out the identification and confidence building process. Participants learn the rules and procedures of NU programme, ask questions to get a clear picture of the programme. They assess each other’s business plans, strength of their business will. Camp leaders give them business games to play and test their problem solving quality.

 

 

At the end of an intensive get-to-know-your-entrepreneur exercise, camp leaders make a short list of the participants who have impressed them as entrepreneurs likely to succeed, in the first round of selection. The rest are assured that they are kept in the waiting list they’ll be invited in the next camp. In the mean time they can prepare themselves to present a better performance next time.

 

 

The short-listed candidates then go through second round of project development exercises, in another convenient location, on a later date. Entrepreneurs selected in this round are invited to Dhaka where they’ll give final shape to their business plans and give them a professional appearance with the help of trained staff of the investors. Project summaries are prepared in English for a five minute presentations at the Design Lab where the entrepreneur has to defend his project. Usually after all this long process of preparation Design Lab does not find any ground to reject any project. Participants give some good advice and flat some issues to help better implementation. In rare cases an entrepreneur is asked to modify his plan to make further improvement and present it to the next Lab.

 

 

Once the project is approved, handholding process for implementation begins. Investor and the entrepreneur now go through a process of bonding together for a successful journey ahead. All regulatory issues are thrashed out, necessary documentation is completed. Monitoring and accounting training are completed. Funds are released and business starts rolling. Grameen Communication, a Grameen software company, has developed an accounting and monitoring software to collect MIS and accounting information from every NU business on a daily, weekly and monthly basis. Daily figures are sent via text messages. All information accumulates at the central server, which produces reports for each investor on daily, weekly, monthly or for any other period as the investor would like to have.

 

 

Social Business Village

Next step in NU programme is to deepen it by giving it an institutional structure and vision. This is to be done by creating Social Business Villages (SBV). To make it an autonomous and economically viable entity, GTT starts with a Union, lowest local government unit in Bangladesh, covering a cluster of about 20 villages, as the “greater village”.  This village unit is being developed as a Social Business Village.

 

 

Each SBV will have a Social Business Fund and a Social Business Incubation Company. Incubation company will promote the idea of social business, help develop business plans, bring successful social businesses from outside to replicate, create joint ventures with companies from outside the village, network with other Social Business Villages, invite non-resident villagers who are engaged in professional activities outside the village, or the country, to help build up the Social Business Fund and invest in social businesses in their own village. Bangladeshi people have a very strong emotional attachment to their own villages.  No matter how long they are away, how far they are away, from their villages, they still feel a strong bond with village. SBV programme may reconnect them to their villages in meaningful ways.

 

 

A Social Business Village will qualify to call itself as such only after it is formally recognized at the annual Social Business Day celebration which is held regularly on June 28 every year. Minimum qualification requirement for applying for this recognition is to create at least 25 NU projects and 5 other types of social business successfully.

 

 

In respect to the invitation, individuals, foundations, and businesses contact GTT, if they are interested in creating their own Social Business Villages. GTT helps them set up appropriate structures to do that, like Social Business Fund, and Incubation Company. Services are offered to manage the Fund and the company under management contracts. Grameen Telecom trust will select three unions among those who will contact GTT, to provide matching funds. For these three unions, Grameen Telecom Trust will invest an amount of money equal to whatever amount the union can mobilize on its own. In these cases both the Social Business Fund and the Incubation Company will be managed by Grameen Telecom Trust.

 

 

This will be an interesting experience of joint venture between Grameen Telecom Trust and the unions in creating Social Business Villages.

 

New Solution for an Age-old Problem

 

When promotional activities were carried out for distribution of credit amongst the poor women in early years of Grameen Bank, many experts around the world insisted that credit may work for only very limited number of entrepreneurial poor people.  Entrepreneurship is a rare quality in people.  It is rarer in poor people; they claimed to counter the proposition that “Al1 human beings are entrepreneurs, with no exception”. But the experiment of GB and GTT has established that poor people have all the capabilities of becoming viable entrepreneurs.

 

 

Social Business may bring a fail-proof new solution for an age-old problem, i.e. the problem of unemployment. It has application everywhere – poor countries, rich countries, urban areas, rural areas, tribal areas, isolated areas, anywhere. It does not have to be restricted to any particular group. The young, the old, men, women, the literate, the illiterate, all are good candidates for becoming entrepreneurs. All human beings have their basic creative power. That, backed up by social business framework is all it needs for the success of “turning unemployed into entrepreneurs [6].

 

 

Not only would this save people from extreme frustration and the depression of being unemployed, it would give people a new life, new hope and new mode of enjoyment. Everyone would become an active and productive citizen. In the process it would create a new economy. There would be no wastage of human creativity. It would save people from state dependency.

 

 

As the first step in this process we may begin by getting busy with turning unemployment into entrepreneurship in social business villages to solve the human problems with efforts of their own people. If we succeed in doing it, we can move confidently in the direction of creating a world without unemployment and without dependence.

 

 

References

 

Prof. Mohammad Yunus, with Karl Weber: “Building Social Business”: The New Kind of Capitalism that Serves Humanity’s Most Pressing Needs, The University Press Ltd, Dhaka, 2010

 

Prof. Dr. Mohammad Yunus, The Power of Social Business: Lessons from Corporate Engagements with Grameen, BCG/Yunus Social Business / 2013, P-8.

 

Prof. Dr. Mohammad Yunus, Seven Principles of Social Business, GTT, 2013

.

Emmanuel Marchant, The Power of Social Business: Lessons from Corporate Engagements with Grameen, BCG / Yunus Social Business / 2013, P-13.

 

Prof. Dr. Mohammad Yunus Social Business, “Investing for Social Benefit: Yunus Social Business Incubator Funds,” 2013.

 

Building Social Business, Mohammad Yunus, The University Press Limited, Dhaka, Bangladesh, 2013.

* Director, Faculty Development & Evaluation Department and Assistant Professor, Business Administration Department, European University of Bangladesh.