Photo: Jaipur Rugs
Scale Up: How do Social Enterprises Meet the Challenge?
Executives from three leading social enterprises—Jaipur Rugs Company, Sproxil, and WaterHealth International—met in New York City on Monday, September 24 to discuss the challenges of scaling up double-bottom line businesses that generate both commercial returns and sustainable development impacts. The Business Call to Action (BCtA), in collaboration with Columbia Business School’s Eugene Lang Entrepreneurship Center, and the Global Business School Network hosted the event “Scale Up: How do Social Enterprises Meet the Challenge?”, which brought together 80 leaders of business, academia, and civil society, as well as graduate students.
Sasha Dichter, Chief Innovations Officer for the Acumen Fund, a social impact investor with $82 million in investments in 65 social enterprises, provided introductory remarks on the role of social impact investing in accelerating the social enterprise movement. According to Sasha, through providing patient capital and other assistance to social enterprises, impact investors seeks to leverage the best of philanthropy and the best of market solutions to instigate large-scale social and environmental change. He noted that investors look for social enterprises that are designed to scale rapidly, with ambitions to reach millions of people: “This is because every single one of these problems—access to water, sanitation, and power—is defined not by millions of people, but billions of people.”
The Acumen Fund currently invests in both WaterHealth International and Sproxil. Professor Murray B. Low, Director of the Eugene Lang Entrepreneurship Center at Columbia Business School, moderated the panel with executives from social enterprises in the textile, health, and water industries. Introducing the three companies, Murray said, “Each of these businesses has the potential to scale dramatically, but they are doing it in very different ways.”
Asha Chaudhary, CEO of Jaipur Rugs Company—a family owned and managed rug manufacturer with operations based in India—spoke about the growth trajectory of her business: “My father started with two looms in the back of his house, and we have scaled up to include about 45,000 artisans in a period of 25 years.” Unique to the artisanal rug industry, Jaipur Rugs is a vertically integrated business that manages its entire supply chain; from employing and training local artisans to marketing and selling their rugs in Europe and the United States. By removing the middle men traditionally involved along the supply chain, Jaipur Rugs is able to pass along cost savings to their artisans, who, according to the company, are paid an average of 33% more than they would be from competitors.
Asha attributes the company’s success to the people-centric model that her father, NK Chaudhary, put in place when founding the organization. In collaboration with the affiliated Jaipur Rugs Foundation, the company provides its employees and artisans with healthcare programs, literacy education, financial and legal support, as well as vocational training. This type of workplace support results in a more talented workforce, and also provides artisans with increased wages, educational opportunities for their families, and improved health as compared to their peers. Jaipur Rugs is preparing for significant growth in the next five years, with plans to not only double the company’s revenue but also to double its base of artisans to 100,000 by 2017. Describing the philosophy of the organization, Asha says “We are focused on making sure that our customers get what they want, but at the same time we are able to do that by providing sustainable livelihoods for our artisans.”
Ashifi Gogo, CEO of Sproxil, described his company’s work to empower consumers to combat counterfeit medication in Nigeria, where over 80% of medications sold through pharmacies and informal vendors have been found to be illicit. Ashifi says, “Counterfeit drugs show up on the pharmacy shelf looking like the original drug, but they contain cornstarch, sugar, or sometimes even cement or brick dust, things that are not helpful, if not harmful.” He states that around 7,000 people die every year from taking counterfeit malaria and tuberculosis drugs, which do not adequately treat their illness.
Sproxil is contracted by pharmaceutical companies to include a scratch-off code with every packet of medication, which customers can then verify as valid through sending the code to Sproxil through SMS text on their mobile phones. This user-friendly solution to combating counterfeit drugs—built on the infrastructure of established telecommunications networks— has allowed Sproxil to expand its operations in 5 countries across 3 continents. As of June 2012, Sproxil achieved two million drug verifications. Ashifi says of this growth, “It took us about a year to get our first million texts, 7 months to reach our next million, and we will likely hit our third million by the end of the year, so we are on quite the growth curve.” One of the key factors in this growth includes developing partnerships with global telecommunications companies to acquire a universal proprietary short-text code that can be used for Sproxil’s services across geographies. Also, Sproxil is increasingly working with clients outside of the pharmaceutical sector who are concerned about the impact of counterfeit goods on their business and their customers, including companies in the agrochemical and skin care sectors, and even companies that make brake pads for cars.
Sameer Mithal, Chief Development Officer of WaterHealth International, discussed his company’s approach to providing clean and affordable water solutions to underserved communities in Africa and India. WaterHealth purification plants provide 20 liters of clean water to customers for the equivalent of 15 cents (USD), less than a cent per liter. Sameer attributes WaterHealth’s success to its rigorous adherence to World Health Organization (WHO) quality standards for drinking water, and to its dedication to maintaining its equipment for continuous use. Sameer says of WaterHealth’s value proposition, “Many water projects construct a facility and then hand it over to the community. We don’t believe in doing that, primarily because we see that the system will break down with overuse.” Instead, WaterHealth works with the community to maintain the equipment, ensuring that it continues to operate and meet the company’s high quality standards. Taking into consideration the cost of the water purification plants, WaterHealth international is able to serve its beneficiaries at 1/3 the typical cost per person for sustainable, long-term water supply.
Waterhealth has begun to sell water purification plants to companies like Coca Cola and Diageo, who then retain WaterHealth employees on a 15 year contract to maintain the equipment. “We are trying to use corporate partnerships as a way to scale our business,” says Mithal. “It is a way for companies to work with a single company across geographies, which alleviates managerial hassles, and provides a single point of contact for them for sourcing clean water.” Combined with consumer education on the importance of clean water and sanitation, WaterHealth International aspires to serve over 100 million customers by 2015 in Bangladesh, India, Liberia, and Nigeria, up from 5 million today.
While each company has a different growth trajectory, all three participants commented on the importance of strong relationships with governmental institutions for scaling their social enterprise. For example, one of the success factors for Sproxil was its ability to broker partnerships between pharmaceutical companies and local governments, which have the mandate to ensure that medical products are safe. Sproxil acted as an intermediary to provide a solution that was mutually beneficial.
The three panelists also agreed on the importance of finding the right mix of financial capital for growth. Originally funded through a combination of personal investments and patient capital from social impact investors, all three companies have recently been able to attract venture capital investments and loans to grow their business, which is a litmus test for the viability of their business. At this point in the growth curve of their organizations, when all three companies are facing the simultaneous pressures to grow, make profit, and achieve wide-scale social impact— the panelists agreed that social impact is the least challenging of the three goals. Sameer says, “Impact is embedded in our business model: we don’t have to do anything from a financial perspective to achieve the impact. Rather, the impact manifests itself in how we report. It is not a financial constraint.”
Just as important as the scale of impact that these social enterprises can achieve is the hope that they bring to the low-income populations that they serve. As Sasha Dichter summarized, “In these communities, where hope comes from is when people show up and deliver on their promises, because too often what happens is that people come and people go. This notion of being there for the long haul and making true on what they you say you will deliver, is where the possibility for change comes from.”
Sahba Sobhani, Acting Program Manager of the Business Call to Action, observed, “Social enterprises are often the first organizations to prove that there is a market in serving low-income communities with goods and services. They lead the way in developing innovative business models that exclusively serve the poor.”
For more information on the event, please contact Ms. Sara Enright
This blog was first published on Business Call to Action's website and is reproduced with permission.