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Social business Introduction

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These slides do given a first introduction to the topic what is social business, which approaches are there and then describe the 5 Types of Social Business .
They are taken from my lecture at the FH Kufstein on Social Business Plan making. For more information on Social Business please visit my website: http://www.monon.eu/en/social-business/

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Social business Introduction

  1. 1. Social Business FH Kufstein 20. – 21.4.2018 & 27. – 28.4.2018
  2. 2. Structure of the lecture Analytical Tools Institutional Theory Systemic Thinking Economic / ecologic system Agriculture Energy Economy Democracy Education Social Business Definitions and Types Business Plan & Pitch
  3. 3. PART II – Social Business • What are social problems • Schools of Social Business • Social Business Theory
  4. 4. Social Problems Robert K. Merton 1. Social problems as discrepancy between social values (standards / norms) and social reality 2. Caused by social factors (i.e. not earth quake) 3. Consensus about social discrepancy exception and NOT norm (power / politics) 4. Manifest and latent problems 5. Biased perception of social problems 6. Social problems can only be a topic in societies, which understand reality as something which can be shaped
  5. 5. Social Problems - Blumer • “social constructivism” • Society defines what are social problems (not objective / not scientific) • What is a social problem is negotiated in democratic discourse
  6. 6. Social Problem • Human needs need to be fulfilled • Humans establish institutions to do so • Norms and Standards serve the bigger mass … certain groups or individual do not get served by the institutions • Complexity is every increasing … everything is dynamic and in constant change
  7. 7. Hypothesis
  8. 8. What is social business • A very young academic field (20 years) • No common definition ▫ Impact investement vs. Responsible business • Some of the repeating elements ▫ Profit secondary / a means ▫ Mission driven ▫ Environment / humans are central
  9. 9. Two Schools Neo-liberal: make social work more financially sustainable Alternative Economic approach: develop a really sustainable alternative
  10. 10. Schools of Social Business Neo-Liberal View Transformation View • Solution lies in commercializing • Business should not only take care of providing commodities but also of solving social problems • Solutions need scaling and financial sustainability • Key-words ▫ Impact Investment ▫ Scaling impact ▫ Leveraging Business • Representatives: ▫ Michael Porter ▫ Mohammed Yunus ▫ Jaqueline Novogratz • We have to rethink economy • Social business (partially) replacing traditional business • Key-Words ▫ Transformation ▫ Sustainability (!) ▫ Human centered design • Representatives ▫ Manfred Max-Neef ▫ Christian Felber ▫ Rob Hopkins
  11. 11. Schools of Social Business Neo Liberal View Transformative View
  12. 12. Not CSR Business & CSR • Separated approach • Social impact as topping • Easier to implement • Impact investment (dividend) SOCIAL BUSINESS • Integrated approach • Social Impact as System • Complex to implement • Only Principle is revolving
  13. 13. Social Business?
  14. 14. Not NGO / business inspired GNO NGO Business inspired NGO • Financially not sustainable ▫ dependent on donations ▫ dependent on governmental funds • No sales of anything • Having sales ▫ Not sufficient to cover operative costs • Else than this same like NGO
  15. 15. Social Business Theories • Yunus ▫ from Microfinance to Social Business: 7 principles • Zahra et al ▫ typology of social entrepreneneurs • Kim Alter ▫ typology of organizational forms • Christian Felber ▫ Common Good Economy • Inge Patsch ▫ 5 Social Business Types – Start-Up
  16. 16. Grameen Family
  17. 17. Yunus‘ Context • Lack of Government ▫ development aid ▫ „Hardcore“ Businesses „A charity Dollar has one life a social business dollar can be invested over and over again.“
  18. 18. Yunus‘s 7 principles • Known for Micro-Financing • several books on Social Business: ▫ Creating a World Without Poverty • Established Grameen Family Social Businesses
  19. 19. Few definitions Revenue - Cost = Profit Possible Use of profit • Reinvest • Create reserve funds • Pay to shareholders  Dividend
  20. 20. Not Microfinance Micro-Finance Social Business •Up to USD 1000 or 2000 •Entrepreneur =owner =beneficiary •Micro-Size enterprises •Family business •Normally no salary •Normally no employees •Simple business models •Goal: increase Livelihood of Entreprenur. •Profit: for Entreprenur •no upper limit •Entrepreneur = owner ≠ beneficiary •SME & bigger organizations •Having employees •Fixed salary for empl. & owner •Also complex business model •Scaling possible •Goal: solve social Problem •Profit: reinvested
  21. 21. Zahra et al • Typology of Social Entrepreneurs ▫ Motive and role social entrepreneurs fullfill in society • Subject: Individual behind an social enterprise • Published ▫ Zahra et al: A Typology of Social Entrepreneurs in Journal of Business Venture, Vol. 24 Sep. 2009, 519 - 532
  22. 22. Zahra – 3 Types Social Bricoleur Local level Improvise solutions Hard to research Social Constructivist Construct & introduce changes Scaleable systemic solutions Lack in institutions Social Engineers Fracturing existing system Sometimes Subversive & illegal Making problems public
  23. 23. Kim Alter – 4 Lenses
  24. 24. Sustainability in Alter‘s Model
  25. 25. Business Program Integration Career Disha Nepal QMILK VHS Bhaktapur VAUDE Sarangi Restaurant Caritas – Schenk eine Ziege
  26. 26. Alter‘s models
  27. 27. Social Responsible Business
  28. 28. Responsible Business Vaude Göttin des Glücks
  29. 29. Merging Alter‘s approach and CGE
  30. 30. Type A – Customer Oriented
  31. 31. Desirable achievements • Products meets fundamental human needs (Max-Neef) • Product designed environmentally friendly • Product contributes to the sustainable development goals • Products made for / accessible to disadvantages customers • Pricing and distribution environmentally & socially friendly • Ethical communication & product information system • Cooperation with businesses from the same field
  32. 32. What can be solved through Type A • Access to basic commodities which improve live ▫ Requires willingness to pay (no merit goods) ▫ Requires ability to pay (financial stability of beneficiary) • Where do commodity serve the fundamental human needs Commodity Fundamental Human Need
  33. 33. Fundam ental Human Needs
  34. 34. 4 Levels of • BEING: ▫ Attributes (Nouns) • HAVING: ▫ Norms, Institutions, Mechanisms • DOING ▫ Actions (Verbs) • INTERACTION ▫ Location / Millieus ▫ De: Befinden Es: estar
  35. 35. Types of Needs Category 1 Category 2 Category 3 Sufficiency Affluence Luxury Simple life Good life Excess Basic Needs Elective Needs Status Symbols
  36. 36. Satisfiers https://www.youtube.com/watch?v=FyT9TMlzC6s
  37. 37. Satisfiers Violators Synergic SingleInhibiting Pseudo
  38. 38. Violators Supp. Satisfier Targeted need Impairs Arms race Protection Subsistence, Affection, participation Cencorship Protection Creation, identity, freedom Bureaucracy Protection Understandin g, Affection, Participation, Creation, Identity, Freedom
  39. 39. Pseudo-Satisfiers Supp. Satisfier Need Stereotypes Understanding Prostitution Affection Charity Subsistence Fashion & Fads Identity Soft drinks* Subsistence
  40. 40. Inhibiting Supposed Satisfiers Need met Inhibited needs Paternalism Protection Understandin g, Participation, Freedome, Identity Autoritarian Classroom Understanding Participation, Creation, Identity Commercial Television Leisure Understandin g, Creation, Identity
  41. 41. Single Satisfiers Satisfier Need Curative Medicine Subsistence Insurance System Protection Ballot Participation Sports Spectacles Leisure Nationality Identity Guided Tours Leisure Gifts Affection
  42. 42. Synergetic Satisfiers Satisfier Primary Need Stimulate d Needs Breastfeeding Subsistence Affection, Protection, Identity Educational Games Leisure Understanding, Creation Self-managed food production Subsistence Understanding, Participation, Creation, Identity, Freedom Direct Democracy Participation Protection, Understanding, Identity, Freedome
  43. 43. Satisfiers and Type A Social Business • A Social Business should not have ANY ▫ Violators ▫ Pseudo-satisfiers ▫ Inhibiting satisfiers • Ideally a Social Business has a majority of synergetic satisfiers
  44. 44. Limitation / Risks • Does the customer “demand” your product / service or is it a merit good? ▫ Awareness Campaigns ▫ Drug rehabilitation ▫ Basic health care • Are you able to produce cheaper than others without a lack in quality? • Was the need served through the field of “social norms” (Ariely) before? ▫ If yes: what will change if you commodify it? price supply demand
  45. 45. A - Customer Oriented Examples Karnali Miteri Udhyog Refugees Work.at
  46. 46. Type A Restaurant Modalities Robin Hood Restaurant Madrid • Serves breakfast and lunch for free to poor • Serves dinner at night for paying clients • Overlapping Type E? ▫ No because it is integrated
  47. 47. Type B – Employment Oriented
  48. 48. Employing “socially” • Work as means to fulfil fundamental human needs ▫ Not only subsistence ▫ Creation ▫ Identity ▫ …. • Give meaning to people • The context matters ▫ Social security system ▫ Degree of poverty ▫ public perception
  49. 49. Measuring the impact • Scale of employment ▫ Measure in: Full time employment in percentage of affected people reached • Investment vs. salary ▫ Ratio (no benchmark yet)
  50. 50. What can be solved through it • People with disabilities ▫ different infrastructure • Employing hard to employ groups: ▫ Competitiveness?  Precht • Bring employment to “dead” regions ▫ Market access? • Work as dignity / empowerment and not just means ▫ Internal structures
  51. 51. Desirable Achievements • Employee-oriented organizationa structure • Payment perceived as fair and ensures good life (working poor) • Fair income distribution • Fair working time distribution • Encourage ecological behaviour and healthy lifestyle of employees • Democracy & transparency
  52. 52. Limitations / Risks • Which product can be produced? ▫ Can you compete with machine production? • High investment in making employees productive ▫ Initial training ▫ Special equipment •
  53. 53. B – Employment Oriented Examples Mondragon Corporation Seeing Hands
  54. 54. Type B Restaurant Method Dialoge in the dark • Employs blind people • Guest experiences blindness
  55. 55. Type C – Supplier Oriented
  56. 56. What can be solved through it • Improving competition of small scale producers ▫ Agriculture ▫ Handicrafts • Promote Regions / Rural Areas ▫ Overlapping Type D / type A • Reduce transaction ▫ Create direct links ▫ Product information instead of advertisment • Make supply chains transparent
  57. 57. Desirable Achievements • Regional, ecological and social aspects and alternatives are considered • Active examination of impact of procured product & services • Basic structure for conditional pricing
  58. 58. Excursion: Transaction Costs “In order to carry out a market transaction it is necessary to discover who it is that one wishes to deal with, to inform people that one wishes to deal and on what terms, to conduct negotiations leading up to a bargain, to draw up the contract, to undertake the inspection needed to make sure that the terms of the contract are being observed, and so on.” Coase, 1961
  59. 59. Excursion: Principle Agent theory Assumption Consequences • In market transactions • Principles hire agents to perform an activity • Information is asymmetrical ▫ Agents have insider knowledge • Principle as well as agent act in self-interest ▫ Hidden agenda • Principle not optimally participating in market transactions ▫ To little payment for suppliers ▫ To high prices for clients ▫ Unnecessary / wrong products for clients • No transaction ▫ Lower welfare for all
  60. 60. Principle-Agent-Theory in Type C SB • Small suppliers have high transaction costs (Coase) • Suppliers therefore require intermediaries to access the market • Those intermediaries are the agents • Intermediaries often have a monopoly (i.e. cafe mafia) • Customers do not have a choice of intermediaries ▫ Fair electronics ▫ Big five in food
  61. 61. Special cases of Type C Sharing economy Cooperatives • Supplier = individuals • Supported by technology • Suppliers = members = customers • Democratic structure • Local proximity ▫ Knowing each other personally
  62. 62. Limits and overlapping Type A – customer oriented With Type D - environmental • In comparison • Focusses more on the impact on the supply side of the chain (in case of conflict) In comparison • More focus on the
  63. 63. C – Supplier Oriented Examples Fair Phone Food Coops
  64. 64. Restaurant Type C Methodology Nobelhart & Schmutzig • Cook only with local ingredients ▫ Not even olive oil, lime or anything else … • Cooking according to the harvesting calendar ▫ Winter … work with • The whole animal / vegetable is eaten ▫ Not only the filet or the root • They know every supplier in person
  65. 65. Type D – Environment Oriented
  66. 66. What can be solved through it • Reduce the footprint of a type of product / service • Encourage more environmentally friendly behaviour
  67. 67. The story of Stuff
  68. 68. Life Cycle Assessment
  69. 69. Desirable Achievements • Producing goods and services more environmentally friendly • Encourage environmentally friendly behaviour of employees • Product designe cradle-to- cradle • Sufficiency-active design for ecological use • Active communication of environmental aspects to customers
  70. 70. D – Environmentally Oriented Examples Cloud & Heat Livin Farms
  71. 71. Type D Restaurant Methodology Flour + water • Heating and cooking with local wood • Local organic food • Member of the zerofoodprint network
  72. 72. Type E – Service Subsidization Model
  73. 73. Desirable outcomes • Enterprise existing for the sake of subsidizing social activities • All profit is ▫ Reinvested or ▫ Invested in social project • High transparency and democratic elements to include the beneficiaries
  74. 74. Limitation / Risks • Integration of mission in business • Transparency of financial flows • Limitation ▫ Subsidization = profit (100 % ?) ▫ Social operations need to run from the profit ▫ Small scale social projects  One time investments (i.e. new school building)  No or low fixed cost (i.e. club work)
  75. 75. E: Service Subsidization Examples Higher Ground (trafficking) Dharma Doo (various projects)
  76. 76. Type E - Restaurant Methodology Sarangi Restaurant, Kathmandu • Vegetarian Restaurant • Tourist Center of Nepal • Has Sarangi Music performance • All profit goes to develop the Ghandarba Community
  77. 77. Tentative Distribution of Social Businesses in Nepal 7 15 4 2 3 3 7 2 4 2 Tentative distribution of Social Business in Nepal Type A – Customer Type B - Employment Type C - Supplier Type D - Environment Type E - Society inside KTM- Valley: 31 outside KTM- valley: 18
  78. 78. Beyond the reach of social business • Merit goods • Lack of Infrastructure ▫ Roads ▫ electricity • Systemic Problems ▫ Poverty through interest rates ▫ Conflicts and armed violence • Problems purely on the social sphere (i.e. discrimination ▫ Discrimination
  79. 79. Upcoming next weekend • Think about a social problem you would like to solve. ▫ You should be familiar with the problem ▫ You should have a certain idea about the business

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