Tackling Social Problems With For-Profit Solutions

Until fairly recently, people who wanted to tackle social problems such as lack of access to clean water or inadequate affordable housing would create a charity; today, many choose to start for-profit ventures instead, the New York Times reports.

The terms "social entrepreneur" and "social business" are generally used to characterize people and businesses that bring entrepreneurship to ventures with a social mission — though some would limit the social entrepreneur label to ventures that do not have profit as a goal. Then there are "socially responsible" companies whose core business is not necessarily related to a social mission but which exhibit socially responsible characteristics.

Because social ventures can be difficult to define, it's hard to gauge their exact number. But there are signs that interest in using business to tackle the world's big problems is growing. Last year, for instance, more than six hundred people attended a new conference on social venture investing called Social Capital Markets. According to conference creator Kevin Jones, a principal in Good Capital, an investment firm that focuses on social business, two-thirds of the participants signed up after the collapse of Lehman Brothers — a sign, in his words, that people are flocking to a "new asset class."

For Sam Goldman, who spent four years in the Peace Corps in Benin before earning a master's degree in business from Stanford University, the for-profit model made sense. He co-founded a company called D.light with the goal of replacing millions of dangerous, highly ineffective kerosene lamps used in poor rural parts of the world with solar-powered lamps.

According to Goldstein, who witnessed the son of a Benin neighbor nearly die from burns suffered from spilled kerosene, only as a business could the venture become large enough to reach the number of people who use the lamps as their primary source of illumination. Since the venture was incorporated in May 2007, it has raised $6.5 million from a combination of investors. "We could have done it as a nonprofit over a hundred years, but if we wanted to do it in five or ten years, then we believed it needed to be fueled by profit," said Goldman. "That's the way to grow."

Not all social problems respond well to a for-profit approach, however. It comes down to one crucial question, said David Bornstein, author of How to Change the World: "As you grow, will the economics of your business work in favor of your mission, or will they work against it?"

Marci Alboher. "A Social Solution, Without Going the Nonprofit Route." New York Times 03/04/2009.