Wednesday
February 4
2015

Leticia Gasca

When Awards and Idealism Aren’t Enough: My social enterprise earned a ton of public acclaim – but it was missing something even more important

Editor’s note: This post is the second in our series on social enterprise failures. NextBillion is collaborating with FuckUp Nights on the series, and this post is by that group’s co-founder and director. You can view the other posts in the series here:

Who Moved My Cheese?: A social enterprise discovers that the dairy business is harder than it looks

I have been paying social service visits to indigenous communities in Veracruz and Puebla, Mexico since I was 16. In 2005, when I was a junior in college studying marketing and administration, I traveled to Puebla for one of these visits. There I met a group of women embroiderers from the Sierra Negra, one of the 100 poorest municipalities in Mexico, mostly inhabited by Nahua indians.

Water was a scarce commodity for this indigenous community, who lived in arid lands located in the high mountains and prone to very low night temperatures. Oftentimes, the wind just blew away their makeshift homes built with sticks.

Most of the villagers were women, children and elderly people. Employment in such a remote location is scarce, and that ultimately causes high levels of migration. Most of the men had emigrated to work in the fields in the United States, so the women assumed a key role of leadership in their families. Some of them seek additional income selling tamales, opening up a store, or selling handiwork.

The artisans I met in my visit embroidered exquisite tablecloths. I asked them how much they charged, and to whom they sold them. They said a man came every so often to buy each embroidered canvas for about two dollars each. “And how long does it take to embroider one canvas?” I pressed on. Their response was devastating: 30 days.

The embroidering was of good quality. I knew they could and should receive higher payment for their work. So I asked one of the women to embroider a mermaid on my bag. The next day, I got it back with a perfect, surreal mermaid. Later, back home, I kept receiving compliments for the embroidery. It was then that my training in business and my conviction that I should combat poverty came together, and I decided I needed to develop a business model that allowed fair payment to these artisans.

So together with a group of business partners, I founded Sierra Negra, a social enterprise that produced and marketed handicraft through a fair business model. Our goal was to generate employment alternatives for the artisans – something that paid more than what they currently earned from their work (about 68 cents per working day). The beginning was tough. Product development and marketing were challenging. But it seemed initially that the business was achieving its main goal: the women were improving their and their families’ quality of life. They not only had a dignified source of income, they felt productive, and this improved their self-esteem. Soon, adolescent males showed interest in embroidering to make some money, and they were warmly accepted in the project.

Due to these great early results, my social enterprise was one of the finalists at the World Bank Development Fair in 2007. I was invited by the UN to join the Mexican delegation as a youth ambassador, representing the young people of Mexico for the 62nd meeting of the General Assembly. In 2008, I won Mexico’s National Youth Award.

But despite the awards, the finances of Sierra Negra were not improving. Our financial planning was lousy. Our budget failed to address all costs, and our sales price was too low. We also didn’t consider that 50 percent of the sales value for each bag would go to the stores that had agreed to sell our products.

Month after month, the company struggled to cover costs and pay the artisans fairly. The money was never enough for us co-founders, who were also employees, to receive a salary. Over time, my business partners found paid jobs and I was faced with the most difficult day of my life: I had to go to Puebla and let the artisans know that the project we built together would be no more. And what was worse: it was my own fault.

I had launched the business based on my desire to right a wrong, and to bring income and dignity to artisans who richly deserved both. But though an idealistic vision may be enough to win awards, generate headlines, or even attract some early investor interest, it’s not enough to make a business work financially. And if a company can’t operate sustainably, its social purpose will ultimately remain unfulfilled. Though this sounds like a truism, for a young and idealistic entrepreneur in the first flush of public acclaim, it can be easy to forget. I’m afraid there are many other poorly performing social enterprises like Sierra Negra that have an uncanny ability to win contests. What these companies need more than awards is support in translating their energy and idealism into sustainable business models.

But I believe they also need a bit of leniency from investors and other stakeholders. As I mentioned in my introductory post to this series, the failure of a social enterprise is a much more sensitive issue than that of a traditional company. When a social enterprise goes broke, it not only fails its employees and investors, it fails the population it intended to benefit. That’s why I believe that for social enterprises working in tough environments where most companies fear to operate, Silicon Valley buzzwords like “fail fast” don’t necessarily apply. If all of these green and social companies failed quickly, the consequences for the populations and ecosystems they serve would be devastating. It’s doubtful that more time or “patient capital” would have saved Sierra Negra – at least under our initial model. But for companies with both a compelling mission and a solid business plan, they could make a world of difference.

Leticia Gasca is co-founder and director of the Failure Institute and FuckUp Nights.

This post was translated from Spanish to English by Carlos González-Rivera.

Categories
Entrepreneurship
Tags
business development, business failure, poverty alleviation, social enterprise, social entrepreneur