Paul Klein is the president and founder of Impakt and the founder of HireUp, a social enterprise and the world's first job portal to connect employers to youth who have experienced homelessness.
A revolution is under way: The profits of large corporations are being jeopardized by social enterprises that use technology and innovation to solve social problems. The speed with which social entrepreneurs are pulling ahead is astonishing, and there's an urgent need for big businesses to understand why this happening and what they should do differently.
Lucky Iron Fish is a five-year-old social enterprise that has the potential to eradicate iron deficiency, a condition that affects almost 3.5 billion people around the world. The Web-based business sells fish-shaped iron ingots that are placed in cooking water for 10 minutes and can provide an entire family with as much as 90 per cent of their daily iron intake for up to five years. According to the company, iron deficiency can cause anemia, cognitive deficiencies and fatigue; it's responsible for an annual loss of $70-billion of global GDP. Needless to say, the success of Lucky Iron Fish is a threat to the sales of medications that treat anemia caused by iron deficiency.
Four factors are contributing to a new competitive context that's giving companies such as Lucky Iron Fish a considerable advantage – and giving some of the world's largest corporations a genuine cause for concern.
First, technology is providing entrepreneurs with the ability to monetize social products and services and scale quickly. "Organizations with very few resources can now achieve a reach and scale that once would have required hundreds of employees and millions of dollars," LinkedIn founder Reid Hoffman says.
For instance, Enrou is a new online marketplace that sells products handcrafted by artisans in developing communities around the world. Even a relatively new company such as Amazon.com seems far behind Enrou's model, where every purchase empowers communities by creating jobs and providing training, health education, financial coaching and business mentorships.
Social entrepreneurs also operate without the constraints of head-office bureaucracy or outdated mindsets. It's not likely that Mondelez International , the owner of Trident gum, sees chewing gum as a way to change the world. Not so with Sweet Bites, a new company that makes chewing gum sweetened with xylitol, a natural sugar substitute scientifically proven to prevent and reverse tooth decay. Sweet Bites are distributed to kids in urban slums and sold in corner stores to fight cavities and promote long-term dental health.
Risk avoidance has become the common denominator for decision-making in corporations and is limiting innovation at a time when it's needed most. The two most important questions for corporate decision-making: What is the risk of taking action? And what is the risk of not taking action? With this constraint, it's a small miracle that anything new happens, let alone something such as Aspire, a company founded in 2013 that is fighting food insecurity and malnutrition by advancing the eating of insects.
Finally, according to the Intelligence Group, 64 per cent of millennials say it's a priority to make the world a better place. Millennials are the people corporations are at the greatest risk of losing as employees and as customers. They are also the people who are starting companies such as Lucky Iron Fish, Sweet Bites and Enrou and the ones most likely to purchase from them.
"If you want to be a great company, think about what social problem you could solve," says Jack Ma, founder of Alibaba. Big businesses need to ask themselves: What is our new social purpose? What can we learn from social enterprises? And what should we do differently – on our own and in collaboration with today's new generation of competitors? Clearly, expecting large bureaucratic organizations to start acting like entrepreneurial startups isn't realistic. However, action can be taken in ways that are possible within the constraints of big business. Here's a three-part manifesto for how corporations can compete with and complement entrepreneurs who are making money and making a difference.
- Stand for something big. More than ever, corporations have the opportunity to take a bold stand on solving social issues. Under the leadership of Howard Schultz, Starbucks has been courageous in its support of same-sex marriage and the importance of employing opportunity youth. By being focused and unequivocal in their leadership, corporations can create a climate in which their own actions have more value and raise the bar for others .
- Involve the social sector and social entrepreneurs. “To really address social challenges in ways that contribute to the success of the business, companies need to find a way to combine the expertise of those who lead business strategy and operations with those who understand the social sector,” says Mark Kramer, managing director of FSG. I suggest that companies go one step further and include the expertise of social entrepreneurs. LinkedIn did this by hiring Alison Dorsey, who had founded two social startups before joining LinkedIn. There, she built a program that has helped more than 100,000 veterans find work and developed a marketplace that has connected more than seven million professionals with volunteer opportunities.
- Create a social change ecosystem. This involves supporting supply-chain partners who have a shared interest in a corporation’s social-change objective and the ability to be entrepreneurial in ways that aren’t possible within a slow-moving, risk-averse corporate bureaucracy. For example, providing suppliers who develop innovative social products and services with financing and access to markets, reallocating corporate philanthropy to support social enterprise innovation and creating opportunities for employees to incubate and invest in new social ventures instead of donating to charities.
"If you put charity on one side and for-profit business on the other, we see the beautiful hybrid models in the middle as the greatest opportunity of our lifetime," Sir Richard Branson said recently. Will Amgen and Johnson & Johnson stop making anemia medicine in favour of selling small iron fish? Not likely. That's exactly why social enterprises are revolutionizing social change and why corporations need to start working with them in new ways or risk falling even further behind.