Francisco Noguera

Net Impact: Hype vs. Reality in the Social Enterprise Movement

Matt AustinGuest blogger Matt Austin is a second-year MBA student at Thunderbird School of Global Management focusing on the intersection of international development, entrepreneurship and venture capital. He spent this past summer advising a group of Endeavor High Impact Entrepreneurs in Turkey on their capital raising and expansion efforts.

Prior to Thunderbird, Matt was a private equity and M&A attorney for nearly seven years. He is a graduate of Harvard Law School and the University of Iowa with a degree in Economics.By Matt Austin

The buzz surrounding social enterprise in international development circles has been loud and growing louder.? Hybrid business models that blend private sector and non-profit approaches are becoming increasingly prevalent.? Development NGOs, multilateral institutions and government agencies are all looking for ways to incorporate more private sector approaches into their programs.? In response to this trend and growing demand from socially-minded students, business schools are adding many social entrepreneurship and BoP-focused courses.?

At the Net Impact Conference, a whole series of panels focused solely on social entrepreneurship and innovation.? The kick-off panel for this track asked an important question:? how much of this buzz surrounding the benefits and value of social enterprise is just hype and how much is reality?

The “Hype vs. Reality: Impact and Potential of Social Enterprises in International Development” panel was moderated by Elizabeth Wallace Ellers, the founder of The Globalislocal Fund.? The panel of social enterprise experts included Anne Marie Burgoyne, Portfolio Director for the Draper Richards Foundation, Lisa Nitze, Vice President of Ashoka’s Global Entrepreneur to Entrepreneur Program, and Brian Milder, Director of Strategy and Innovation for Root Capital.

Lisa Nitze of Ashoka began the panel discussion by explaining her view of how development industry participants must move out of their traditional “silos” to make real impact.? The key to this vision, according to Lisa, is collaboration.? Governments, corporations, universities, citizen groups and NGOs must all work together.? In her view, “citizen sector organizations” will be the engines behind the major systemic changes needed to generate significant development impacts.? However, consistent with her theme of collaboration, she stated that these citizen sector organizations must network and partner with all other industry participants to create the change they seek.

After Brian and Anne Marie had an opportunity to explain the Root Capital and Draper Richards Foundation (DRF) models, Anne Marie highlighted three organizations that demonstrate the promise of social enterprise: VisionSpring (formerly Scojo Foundation), Living Goods and One Acre Fund, all of which have been profiled previously on She cited two common reasons for the success of these organizations: first, they help on the individual level but also positively impact the community; and second, they provide easy access to their goods and services (e.g., eye glasses, seed and fertilizer, etc.) by building innovative distribution channels and bringing them directly to the people.?? She was optimistic that if these organizations and others like them can prove their models and show their long term viability, they can attract additional capital to this sector and eliminate a major constraint to the growth of social enterprises.

Brian Milder then described how Root Capital is trying to prove the business case of its model to draw major financial institutions into the rural emerging market finance space.? Root Capital expects that its lending business will generate positive returns by sometime in 2011, which will be a major step in demonstrating the power of its model.? You might ask why Root Capital would be trying to encourage banks to enter the sector and potentially take away its business.? Well that is essentially the systemic change they are trying to create through their work.

The panel then focused on the trends occurring in the social enterprise space.? Anne Marie stated that she is seeing a better, more pragmatic use of technology, rather than organizations simply throwing new technology at problems.? She also remarked on her observations of an increase in product innovations that can be sold in the global market.? Lisa said that she has witnessed more corporations looking at social entrepreneurship and hybrid value chains as part of their business model.? Brian then highlighted the proliferation of investment funds into the social enterprise space.?

A question was raised in the audience regarding the use of a hybrid structure for a social enterprise that involved pairing a for-profit entity with a not-for-profit entity.? Despite the existence of examples of successful hybrid structures such as that employed by Agora Partnerships, the panel expressed some skepticism.? They had concerns about the challenges of dealing with different stakeholders with divergent interests and the potential for lack of clarity on the mission.? Although there are clearly more complexities in a hybrid structure, it also provides access to capital and support from a broader set of stakeholders than either a pure for-profit or not-for-profit model.

The conversation then turned to the much discussed issue of metrics and impact assessment.? All of the panelists talked about the difficulty of utilizing metrics to measure social impact, but also stressed their importance.? Anne Marie brought up One Acre Fund again as an example of the importance of collecting data early on to build a baseline for future evaluation.? Indeed, the organization has collected a significant amount of data from their initial 30 clients regarding nutrition, food consumption and the like, which has proven to be invaluable to One Acre Fund in both improving their model and demonstrating their impact to stakeholders and potential funders.??

Overall, the panel was a very interesting examination of the current state and future of social enterprise.? Given the make-up of the panel, there was clearly a shared belief in the importance of social enterprise in international development.? However, the question of whether all of this buzz is hype or reality was never directly answered.? As a “recovering” attorney, I am accustomed to seeing things in shades of gray and believe the answer lies somewhere in the middle. ?Social enterprise is clearly a very important piece of the development puzzle and will likely be one of the main drivers of innovation in development.?

That being said, the reality has yet to catch up to the hype.? There are a lot of big questions that remain unanswered, including how to manage human resource constraints, how to achieve scale and how to bring more of the resources of the private and public sectors to bear in this space.? Nevertheless, given the talent that is moving into the social enterprise space, I expect the gap between hype and reality to narrow quickly and am excited to see the results.