Social enterprise can sometimes go big on promises and deliver little in results. However, the business models outlined below are attracting big dollars and a lot of attention. Most importantly, they look like they have the potential to deliver the results that match the interest, creating good and value at the same time.
If you are currently thinking of starting a business in social enterprise, or trying to figure out how to position your career in social enterprise to take advantage of growing markets, this is where you should consider looking:
The simple idea that allows a poor customer to pay for something over time rather than pay for the product upfront. This market is being pioneered by M-Kopa, which is growing at a remarkable rate in Kenya. Having achieved the 10,000-customer mark in April 2013, they hit 40,000 customers in November 2013 and are now adding 1,000 households every week.
As Jesse Moore, the founder of M-Kopa writes:
“Our original business plan when we went to raise capital from investors was to get 1,000 customers a week or about 50,000 customers a year. That would be our five-year plan, but we reached that in about April . So, it took us just a year and a half to get there.”
There are already companies replicating the model. The really intriguing thing is that the pay-as-you-go business approach is potentially applicable to a wide range of markets, not just energy services.
These tiny insurance products serve people in underserved markets, often people earning less than $10 per day. Leapfrog Insurance has shown that a lot of money can be deployed in this space--they now have $300 million under management--and it is my guess that groups will be starting to follow in their footsteps. To kick off the investment frenzy, Prudential announced it is buying one of Leapfrog’s investees. At the same time, Old Mutual, another large global insurance company, has stated they are setting aside $550 million for micro-insurance acquisitions. Let the buying begin!
Who is going to offer these prospective buyers the companies they want to buy if you don’t get out there and do it yourself?!
The United Nations Environment Program estimates that 2.5 billion people work on 500 million smallholder farms worldwide. Dalberg, an international consultancy, estimates the demand for financing from smallholder farms is $450 billion, most of which is unmet. Smallholder farms have been largely ignored by product and service providers, but some companies are showing the enormous and scalable potential that exists in these markets.
One Acre Fund is a good example of this as it currently provides financing, training and sales support to a rapidly growing network of smallholder farmers in East Africa. It currently reaches 163,000 farmers, and their revenues have increased from $1.6 million in 2010 to $14 million in 2012. Farmers in their network make twice as much money from each acre of land as farmers out of their network.
That sounds like a win for everyone involved. I know of companies working on the supply chains for honey and forestry and I am sure there are others. Could you be the next supply chain king I hear about?
SIBs (also known as the Pay for Success Bond or Social Benefit Bonds) are getting a lot of attention right now as a way to channel private capital from investors into social issues, such as education for low-income families, re-offending rate for criminals, and so forth.
Here is how it works:
The investors receive a financial return from the government based on whether the project they've invested in achieves certain measurable milestones--for example 5% better education outcomes or 10% lower re-offending rates. In this way, the SIBs helps the government achieve its aims, often a lower cost than it could achieve itself, and the investors make a return on their money.
The real beauty of SIBs is that investors receive a return, social sector organizations receive revenue based on identifiable results, and the government saves money on social issues. For social sector organizations, if successful, SIBs represent a way to generate earned revenue, and in the long run, the more successful the social sector organization is, the more earned revenue they will receive--building a financially sustainable organization that no longer has to kowtow to donors, but can focus on impact and expect to get routinely paid for it.
Goldman Sachs has already launched two bonds, Merrill Lynch has just launched its first, the U.S. government committed $500 million in its 2014 budget, and SIBs are well underway in the U.K. (where they were first used) and Australia. For more insight, you should check out the excellent analysis that Tracy Palandjian and Jane Hughes of Social Finance USA just published.
There will be a huge array of opportunities to service the growing SIB industry. This will present lots of possibilities for those savvy enough to take advantage.
Did I miss any? Add your thoughts below.