Tuesday
September 22
2009

Beth Jenkins

Reconciling Social Motives and Profitable Means

Reconciling social motives with profitable means of achieving them is a fundamental, underlying tension – a constructive one, I think – in the development through enterprise space. We’re far short of consensus, but more and more people seem to buy the “why” and the “whether.” What we’re discussing is increasingly the “how.” This was reflected in many of the blogs from SoCap, and it was front and center at the IFCTempleton FoundationDalberg Franchising in Frontier Markets workshop I attended last week.

In the roundtable discussions that dominated the agenda, participants returned time and again to what the organizers called “franchising public goods and services” – not public goods in the economic sense, but rather those high social value, often low margin products and services like health care. The participant list was particularly heavy on health care franchisors (including HealthStore Foundation, Living Goods, and MicroClinic) and researchers specializing in the subject (like UCSF’s Dominic Montagu).

Obviously there are lots of differences between franchising hamburger restaurants and health care provision. A big one is financing. In contrast with ventures that are purely commercial or purely social, those pursuing social objectives through profitable business models have their choice of commercial and philanthropic funding. Participants’ experience showed that the choice is not straightforward.

Ventures like HealthStores, Living Goods, and MicroClinics need financing that allows them their desired balance between social and financial goals, and that imposes a healthy pressure for efficiency and results. Commercial financing imposes that pressure but may constrain a venture in terms of its social objectives – from serving the poorest, for example, or meeting the most acute needs. Philanthropic funding permits more of a focus on social value creation, but doesn’t always impose the same degree of financial discipline. And this doesn’t always mean it’s more flexible: as the Templeton Foundation’s Steve Beck observed, grantmakers “tend to take strategy out of the hands of management,” and complying with an array of different reporting requirements takes a significant amount of time.

Luckily, there’s a lot of innovation happening between the extremes of purely commercial financing and traditional philanthropic funding. For example, the David Weekley Family Foundation – which has invested in HealthStores, Living Goods, and MicroClinics -always has an exit strategy and asks grantees to demonstrate progress toward sustainability along the way. Ashoka Fellow David Green’s new eye fund brings in foundations as first loss investors, reducing the risk in order to attract more commercial money. Many clinical social franchises use subsidies from the government to treat the poorest patients for free, while charging those further up the income pyramid.

Innovative hybrid financing and revenue models hold a lot of promise, but the devil is always in the details. Those of us in the development through enterprise space need to pay attention and learn from them in real time. We need to figure out how to formalize and mainstream the ones that work – for example, through enabling regulatory frameworks like the Low Profit Limited Liability Company (L3C).

And we need to monitor results. The debate on mixing social motives and profitable means is far from closed, especially when it comes to products and services – like health care and safe water – which many consider human rights. Even the participants at last week’s workshop, many of them pioneers in this mixing process, ended up questioning whether, from an ethical point of view, we should entrust health care provision to the private sector – or whether the public sector shouldn’t be the one to provide for at least some needs, for some populations. The battle over health care reform in the United States right now shows that the issue is as pertinent as ever.

Whether it’s “right” to mix social motives and profitable means is a philosophical question, but the practical answer depends on whether it achieves better results than other approaches. To find out will require bold experimentation and relentless measurement of results.

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