Wharton Social Entrepreneurship – Developing the Virtuous Cycle

By Greg Pitter, IT Director, Wharton External Affairs

“So here’s the thing.  Everybody calls what they’re doing social entrepreneurship, though nobody knows what that means.  You literally have people across the spectrum, and everybody has a version that suits their purposes. What we’re trying to do is carve a niche in-between that has a measureable social metric as well as a financial metric.”

Dr. James Thompson, a researcher and staff member with Wharton Entrepreneurship, has spent the past decade carving that niche.  His work with Prof. Ian MacMillan helped form the Wharton Societal Wealth Program, which has evolved into Wharton Social Entrepreneurship, but even they may not have been prepared for the rapid increase in interest in the subject in recent years.

  • A strong combination of social and entrepreneurial goals has driven the success of many new companies, including Wharton-alum founded ventures Warby Parker and Humanistic Robotics.  These ventures now generate huge student interest – for instance, signups for Entrepreneur in Residence sessions with David Gilboa (2012 Wharton MBA and co-founder of Warby Parker) filled up within two minutes of being made available.
  • At the Wharton School, an increasing percentage of student venture ideas in programs like the Venture Initiation Program and Business Plan Competition are directly focused on social issues, such as water quality, literacy, and poverty.  Classes and clubs in the field are all generating high levels of interest.
  • High profile stories, such as Mohammed Yunus‘s Nobel Peace Prize in 2006, continue to raise awareness about social entrepreneurship, as does increased media coverage.

Social Entrepreneurship isn’t in itself a new concept, but when Thompson and MacMillan began working on the subject around the turn of the century, the body of academic research on the subject was slim.  They set out to show how social entrepreneurship could provide an alternative to traditional aid models: a new way of confronting social problems using advanced entrepreneurial methodology with the goal of creating not only a social benefit but a successful business in which financial success and social impact are interdependent.  This in turn creates a “virtuous cycle”: the successful business grows, and in doing so does even more social good even as it produces more profit.

Workers in a Zambia animal feed plant

For example, Thompson traveled to Zambia to meet with The Feed Company, a tiny animal feed producer in a region plagued with famine and poverty, and saw an opportunity to create both a thriving business and a social good.  His team applied modern business ideas like linear programming to the problem of generating better chicken feed, and paired operational and product improvements with a smart business model tailored to the local economic conditions.  The Feed Company became a big success, but more importantly, as affordable high-quality feed became available to local farmers, the whole region saw a resurgence in agricultural activity, and the company is now expanding activity elsewhere in the country and is having an impact even across the border, into the Democratic Republic of Congo.

Following on their success in Zambia, Thompson and MacMillan are investigating whether some of the same technology can be employed by a nonprofit effort in Malawi that seeks to have villages build local poultry farms, with the proceeds going to the education of AIDS orphans.

This represents just one of a number of projects Thompson and MacMillan have been involved with over the past decade, across many countries and many industries.  Not all have had as staggering a success, but all have provided new insights into the larger question of how to take a social entrepreneurship approach to society’s hardest questions.  Some of these insights have developed into papers, such as 2010’s “Making Social Ventures Work” in the Harvard Business Review, and they are currently working on a book of guidelines for the aspiring social entrepreneur.

Looking back on the way his field has caught new attention over the past decade, Thompson points out the greater value of this program and why the growing interest in the field is more than just a passing fad:

“When we started this in 2001, there wasn’t much of this going on… other people were doing stuff, but not in a focused research sense the way we were.  Now, of course, it’s a huge deal in many places… if you look at student registration for our course, the size of the clubs, we see a wave of awareness that you can’t separate profits from society.  They’re intertwined.”

More than Profits: Using Business as a Tool for Good in the World

By Tyler Wry, Assistant Professor, The Wharton School

When he came to Wharton, Dean Thomas Robertson outlined a vision of business as a tool for advancing society and creating economic opportunity for all people.  It’s a wonderful and high-minded ideal and one that I believe to be true.

In many ways, the transformative power of business is encapsulated in microfinance institutions (MFIs) – hybrid organizations that adopt business principles to address poverty by making small loans to impoverished people.  Over the last 20 years, microfinance has become a globally popular anti-poverty intervention and a great example of how business acumen can be applied to help address social problems in sustainable ways.  It is also an area that has benefited from the ingenuity of Wharton student Charlie Javice (Wharton Undergrad Class of 2014), and her team, who have launched PoverUP to help take the microfinance model in exciting new directions.

Now, while business can be a powerful tool for good, the link between the two can sometimes be tenuous.  Although profit is only one aspect of what business does, it tends to be disproportionately emphasized and this creates concerns about how financial and social returns mix.  How this question is answered has implications for the power of business as a force for good.

Some early results from a study that I’m working on with Eric Zhao at the University of Alberta suggest that this deserves some attention.  Looking at over 1800 MFIs in 168 countries, we found that social outreach is increasingly sacrificed in countries where MFIs have more ready access to global capital markets – and thus face pressure to deliver profits (many investment funds value social aims, but they still demand financial returns).  A typical result is that MFIs reduce the number of loans that they make to women, who tend to be the poorest of the poor, and thus less profitable to lend to.  In addition, we found that this is amplified in highly patriarchal countries where the need for loans to women is greatest – it’s hard to make money lending to women when a society is set up to marginalize them.

Women’s Self-Help Microfinance Group, Bangladesh (Photo Credit: Reuters)

So, what does this tell us?  First, it is hard to address long-standing social issues such as poverty and patriarchy regardless of whether or not business is the tool of choice.  Beyond this, though, the tension between doing good and making money is real in many contexts.  Rather than trying to dissolve it in platitudes about win-win scenarios, it is important to bring it front and center, examine tradeoffs, and make hard decisions about what matters to a person, business, or new venture.

In many ways, I think that this encapsulates Dean Robertson’s vision – business is more than profits, more than self-interest, and certainly more than the greed that we’ve witnessed in financial scandals.  It is creativity, passion, compassion, and problem solving.  When these are brought into productive balance, the results can be very powerful.  Just ask Charlie Javice!

 

Wharton’s Young Social Entrepreneurs

By Clare Leinweber

I manage the Wharton Venture Initiation Program (VIP), the educational incubator for Wharton and Penn student entrepreneurs. From my front row seat, I am continually impressed by their dedication. These are students studying full-time at one of the best universities in the world who in their “spare” time generate venture ideas, choose the most promising, write business plans, assemble teams, and ask alums, faculty, and anyone else they can think of for advice. They pull it all together in the hope that the venture will become a full-time job after graduation.

This thriving entrepreneurial community on the Penn campus is generating and sustaining a growing number of social entrepreneurs.  These students are focusing their ventures on solving social problems about which they care deeply. Most use business models that simultaneously address the social problem and generate profits in the hopes that this increases the sustainability of their ventures and creates jobs.  Although broadly termed “social,” these problems are diverse and may focus on the developed or developing world and on environmental, educational, civic, financial, or other issues.

 

Keya Dannenbaum (Photo: ElectNext)

Keya Dannenbaum, a Wharton MBA student (currently on leave) who is co-founder and CEO of ElectNext, followed a civic and political mission.  She wanted to make it easier for voters to select candidates based on their stance on issues rather than the inflated rhetoric of political advertisements and speeches.  ElectNext enables voters to respond to issue-based questions to help them identify candidates (at the local, state, and national levels) who best represent their interests. ElectNext helps cut through the confusion to help educate the electorate.

 

 

Alex Mittal (Photo: BusinessWeek)
Aakash Mathur & Jay Parekh

Two young companies with Wharton or Penn alumni founders were just featured this week in a Forbes article on entrepreneurs who have “turned service into a career.”  Alex Mittal, a 2007 graduate of the Management and Technology Program (a Wharton and Penn Engineering dual degree), is a co-founder of Innova Dynamics which commercializes advanced materials technologies for positive environmental impacts and improved sanitation. Innova began by focusing on developing water pipes that have antimicrobial properties to reduce the transmission of water-borne disease.  This talented undergraduate team placed second in the 2008 Wharton Business Plan Competition and moved out to San Francisco after graduation to continue with the business.  Another company, Hydros Bottle, was spun out of Innova.  In 2009, co-founders Aakash Mathur (Wharton ’09/College ’09) and Jay Parekh (Engineering ’09) joined the Wharton Venture Initiation Program just before they graduated from Penn.  They worked full-time on Hydros to develop their fast-filtering, antimicrobial, individual-sized water bottle during the next five semesters and then moved into offices in Center City Philadelphia.  In addition to providing a clean drinking water solution for people on the go, their mission is to help reduce the mounting problem of plastic waste worldwide.  Furthermore, through Operation Hydros, they allocate $1 from every bottle sold to sustainable water infrastructure projects (currently in Cameroon).

Alejandro Gac-Artigas (Photo: Echoing Green)
Edrizio De La Cruz (Photo: Echoing Green)

Alejandro Gac-Artigas, a 2011 graduate of Penn’s Graduate School of Education, and Edrizio De La Cruz, a 2012 graduate of Wharton’s MBA Program were just named 2012 Echoing Green Fellows in a highly competitive process to select “the world’s most promising social entrepreneurs.” Alejandro has been building his venture, Springboard Collaborative, within the Wharton Venture Initiation Program since spring 2011.  By engaging elementary schools and parents, Springboard Collaborative aims to eliminate the summertime losses in reading progress that so many children suffer. By closing this literacy gap, Alejandro hopes to give kids in underserved areas a leg up that carries them successfully into secondary school and higher education. Edrizio has launched Regalii to disrupt the current system used by US-based immigrants seeking to send money back to family members in other countries (for which they often pay substantial fees).

 

Dave, Jeff, Neal, and Andy (Photo: Warby Parker)

The four Warby Parker co-founders, Neal Blumenthal, Dave Gilboa, Andy Hunt, and Jeff Raider, all 2010 Wharton MBA grads, connected with each other early on as students, and met often to brainstorm business ideas. They decided to focus on disrupting the fashion eyewear industry and a social mission was part of their business model from the very beginning.  Because Neal was a director of VisionSpring prior to Wharton, he knew what a profound difference a pair of glasses could make to a person’s quality of life and productivity in a developing country. From the very start, Warby Parker’s mission was to provide a free pair of glasses to someone in need for every consumer pair sold at a competitive price.  Neal recently spoke about the importance of the Warby Parker social mission at the GrowCo (Grow Your Company) Conference in New Orleans and his interview is available on Inc. Live.  Neal and his co-founders have frequently and graciously returned to campus to mentor and give talks about their entrepreneurial experiences and why an authentic, well-conceived, and well-communicated social mission is critical for social entrepreneurs.

Every one of these young entrepreneurs has received support from Penn in the form of their education, co-curricular program participation (for example, in the Wharton Business Plan Competition or the Wharton Venture Initiation Program), grants and awards (such as the Wharton Venture Award), and mentoring from dedicated Wharton and Penn alums and others in the Philadelphia entrepreneurial eco-system.

While this sampling of recent social entrepreneurs is not comprehensive, I hope that it provides a good idea of the diversity of venture concepts and the level of determination and energy of our student entrepreneurs.  Wharton has a strong commitment to supporting an awe-inspiring group of student entrepreneurs through a wide array of programs and resources, including Wharton Entrepreneurial Programs and the Wharton Program for Social Impact.   These students are intent on using their talents to solve some of the world’s most pressing problems and we want to see them succeed.