Building Social Ventures

In order to succeed, social entrepreneurs need to focus on sound business practices, just like for-profit entrepreneurs. Success in the social space is not just measured by IRR and the measurement of social impact can be expensive and debatable today

Luis Miranda
Published: 09, Oct 2012

Luis Miranda connects dots. He started investing in India's infrastructure a long, long time ago. He started IDFC Private Equity and was earlier a part of the start-up team of HDFC Bank. Luis has invested in and has been on the boards of companies like GMR Infrastructure, L&T Infrastructure, Delhi International Airport, Gujarat Pipavav Port, Gujarat State Petronet, and Manipal Global Education. Luis today spends most of his time, together with his wife, on non-profits. He is Chairman of CORO and Centre for Civil Society and Managing Trustee for Collective Good Foundation. Other organisations include Take Charge, 17000 Ft Foundation, SNEHA, Sunbird Trust, Operation ASHA and Educate Girls. Luis graduated with an MBA from Chicago Booth and is a Chartered Accountant.

I recently spent two days at TiE Con Delhi, where I participated in a fireside chat with Rob Gertner, Deputy Dean at Chicago Booth (where I studied many moons back). The discussion was on the increasing impact of social entrepreneurship on economies, society and the role education can play in accelerating it. On Day 2 Rob moderated a panel discussion with 3 alumni from the University of Chicago who have founded social enterprises – Sandeep Ahuja of Operation ASHA, Sachi Shenoy of Upaya Social Ventures and Chris Turillo, of Medha. In this blog I will talk about some of the takeaways from these two sessions.

The main challenges facing social enterprises relate to financial capital and human capital. Capital markets don’t work well for social enterprises because it is difficult to measure social impact in the short term. There hasn’t been much academic work done so far in the area of striking a balance between social impact and profitability and a lot more work is needed to be done on the role of incentives in social enterprises. So we are still in early days when analysing the success of social enterprises and till then much of the reports will be anecdotal. Many business schools across the world are building out their capability in analysing social enterprises, prompted by the interest seen from students. Rob is the faculty coordinator for the Chicago Booth Social Enterprise Initiative and is the faculty advisor for the Social New Venture Challenge.

Operation ASHA has done a phenomenal job driving down the cost of TB treatment. Their cost is 5% of what competitors incur. They did this by ‘decluttering’ the process. 80% of their work force doesn’t have a high school certificate - and this may look scary in a medical area. But they work closely with the DOTS initiative of the World Health Organisation and the Government. The Directly Observed Therapy Short (DOTS) Course requires each TB patient to swallow each dose in the presence of a certified healthcare worker. Operation ASHA took steps that in hindsight look simple – they took the treatment to the patients, made their 200-odd centres low-cost, efficient and accessible by training non-medical workers and they used finger-printing technology to track the delivery of the medicine. And these centres are now being used by other organisations to distribute supplies and aid to the slums. Their success metrics are fantastic, reflecting how efficiency, technology and process re-engineering using common sense can build scale, lower costs and have significant impact. Their numbers have been vetted by MIT’s Poverty Action Lab.

Medha aims to work with existing education systems – in their case it is government-aided colleges in Lucknow. They prepare kids to find jobs after college by teaching them sector-agnostic skills. They recently won a 2012 Echoing Green Fellowship in New York. And Upaya works with tiny enterprises in North India to create employment opportunities for the poor. Their first investment has already created 300 jobs in the dairy-related space, with household incomes doubling  and expenditure on food quadrupling in 6 months.

What are the lessons learnt from these social entrepreneurs? One, capital raising is tough. Most organisations that I am involved with raise a significant amount of their funding from overseas. Domestic funders are growing but it is still early days and foreign funding will continue to be critical for this sector. Two, social impact has to be measured properly, and this is expensive. This cost has to be treated as an investment since it will help raise subsequent funding for future projects. Most of the funding to assess impact has been raised overseas and it is hard to get domestic funding for impact assessment. Three, financial incentives work in the social sector also. In the case of Operation ASHA they spend $ 4 to add a patient (where $ 3 goes to the care worker who identifies the patient) versus the WHO standard of $ 450 per patient. Four, technology is critical for enhancing productivity and lowering delivery costs.

These lessons, except for impact assessment, could be the same as those learnt by for-profit entrepreneurs. This highlights the fact that in order to succeed, social entrepreneurs need to focus on sound business practices, just like for-profit entrepreneurs. Success measurement does get muddied because success in the social space is not just measured by IRR and the measurement of social impact can be expensive and debatable today. As this sector grows, we will see more academic research in this area.

(I look forward to having an online discussion on these issues – so please continue to write in with your comments. I spent over a decade in the private equity industry and enjoyed the excitement of working with great colleagues and partnering exceptionally brilliant entrepreneurs to build India’s infrastructure. We had a great ride, but sometimes we got it wrong! I am now experimenting to see how we can transfer the lessons I learnt, and did not learn, in the for-profit world to the incredibly passionate and brilliant social entrepreneurs I now hang out with; the aim is to build sustainable organisations without destroying the soul of their NGOs)

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