The Power of Unreasonable People

How Social Entrepreneurs Create Markets That Change the World

John Elkington, Pamela Hartigan

• Publisher: Harvard Business Review Press
• Year: 2008
• ISBN:
  9781422163542
• Topic: Business
• Subtopic: Entrepreneurship
• Index: Business

Renowned playwright George Bernard Shaw once said "The reasonable man adapts himself to the world, the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man." By this definition, some of today's entrepreneurs are decidedly unreasonable--and have even been dubbed crazy. Yet as John Elkington and Pamela Hartigan argue in The Power of Unreasonable People, our very future may hinge on their work.Through vivid stories, the authors identify the highly unconventional entrepreneurs who are solving some of the world's most pressing economic, social, and environmental problems. They also show how these pioneers are disrupting existing industries, value chains, and business models--and in the process creating fast-growing markets around the world.By understanding these entrepreneurs' mindsets and strategies, you gain vital insights into future market opportunities for your own organization. Providing a first-hand, on-the-ground look at a new breed of entrepreneur, this book reveals how apparently unreasonable innovators have built their enterprises, how their work will shape risks and opportunities in the coming years, and what tomorrow's leaders can learn from them.Start investing in, partnering with, and learning from these world-shaping change agents, and you position yourself to not only survive but also thrive in the new business landscape they're helping to define.

Part I

Building Innovative
Enterprises

ONE

Creating Successful Business Models

IT IS IN THE NATURE of their work at the bleeding edge of change that social and environmental entrepreneurs are often seen to be unreasonable; the successful organizations they build, however, are anything but. Of course, people say that anyone could have predicted that a Grameen Bank or a Green Belt Movement would work, but very few people foresaw the longer-term success of Amazon, eBay, or Google. Whether entrepreneurs plan out their futures in great detail or rely on trial and error, these world-changing pioneers are learning to channel their irrepressible convictions, their boundless creativity, and their ability to amass the necessary resources into building sustainable systems and structures that address the most pressing market failures of our time.

Inevitably, many start out by responding to natural disasters (like earthquakes, hurricanes, tsunamis, famine, disease) or man-made ones (like war). The twenty-first century is likely to produce as many—if not more of—such out-of-the-blue stimuli to action. But this isn’t just about responding to existing catastrophes. Many environmental entrepreneurs, for example, are galvanized by the prospect of global climate change or other human-induced insults to the natural world. All seem driven by deeply personal, emotional responses to a disaster (or a sense of impending disaster) that threatens vast populations or ecological treasures both big and small.

Stand back, however, and it is clear that current emergency response activities and the strategies that evolve from them can rarely be called “sustainable.” No matter how innovative and effective these efforts may be, they are still largely band-aid solutions. Nevertheless, a significant number of social entrepreneurs who began their work in response to specific emergencies have evolved their interventions into sustainable, transformational solutions that help prevent further disasters—or, at least, ensure coordinated and effective responses.

Some of the resulting nonprofit ventures have grown into globally respected organizations, notably Henri Dunant’s Red Cross and Bernard Kouchner’s Médecins Sans Frontières. Among the examples profiled in these pages, Fazle Abed’s BRAC in Bangladesh and Joe Madiath’s Gram Vikas in India come to mind, as do Andrea and Barry Coleman’s Riders for Health in Africa, Jeroo Billimoria’s Child Helpline International (which started in India and then went global), and Ibrahim Abouleish’s Sekem in Egypt.

One central goal for such social enterprises—and for those who fund them—is leverage. We use this term not necessarily in the narrow accounting sense of financial leverage, although securing adequate financial resources is a critical concern for these organizations. Rather, it means leveraging all kinds of resources—from indigenous capabilities and social capital to philanthropic and governmental support, business partnerships, and income from previously untapped markets.

Increasingly, small groups of people use multiple kinds of leverage to drive change on a disproportionate scale.¹ As a result, they are able to transform their ventures and, in some cases, the entire system of which they are a part. Their efforts create new markets and new levels of influence, often outpacing established nongovernmental organizations and mainstream business organizations.

Our best social and environmental entrepreneurs tend to excel no matter what organizational principles they adopt, but each typical structure has both advantages and drawbacks in different situations. So—like scientists racing to unlock secrets of the human genome—venture philanthropists, foundations, government agencies, and businesses are trying to uncover these entrepreneurs’ secrets to success. And just as the human genome is constructed from a small number of building blocks, so too leading social enterprises seem to be built from a relatively small number of key ingredients.

The resulting structures tend to fall into three categories, or business models, which we call the “leveraged nonprofit” (model 1), the “hybrid nonprofit” (model 2), and the “social business” (model 3). All pursue social or environmental ends that the markets have largely or totally failed to address, and they use different means to do so. In the process, they may adopt unique leadership, management, and fund-raising styles, each with its own implications and lessons for people working in mainstream organizations in the public, private, or civil society sectors.

Each model offers different challenges and opportunities for would-be partners and other entrepreneurs. In this chapter we examine each one in turn, exploring several compelling examples and describing the ways they have developed. We conclude by describing one social enterprise that has morphed into a fully capitalized and profitable mainstream business without losing sight of its original goal.

Model 1: Leveraged Nonprofit Ventures

Many kinds of market failure are difficult—if not impossible—to tackle using for-profit business models. In such areas nonprofit models are likely to be the only option. The key is to leverage available resources in ways that measure up to the nature and scale of the challenges and to do so when the immediate crises that typically drive emergency responses have faded or have yet to materialize. But nonprofits can be much harder to scale than for-profit ventures. According to the Bridgespan Group, of the 200,000 nonprofits started in the United States since 1970, only 144 have reached $50 million in annual revenue.²

Until recently, many people assumed that social entrepreneurs acted in the nonprofit world because their funding mainly came from the government or foundations. This has been particularly the case in the United States, where the substantial incentives for various forms of charitable giving include clear tax benefits. The paradox is that in the process, nonprofit enterprises have become uncomfortably—and often unproductively—dependent on philanthropic largesse and all the exemptions that accrue to entities operating in the public interest. This dependence generally runs counter to the possibility of expansion. In an increasingly competitive environment, the number of nonprofit organizations seeking funding has rapidly outpaced the supply of donor dollars, while the adequacy and availability of specifically targeted expansion capital has become even more problematic.

Ask most model 1 entrepreneurs why they are not working on a for-profit basis, however, and they will look at you as if you are from another planet. These people aim to meet needs that are ignored by current market mechanisms and businesses. Maybe this blinds them to the occasional opportunity to operate on a for-profit basis, but generally they operate where the market air is too thin for mainstream businesses to even think of venturing.

Model 1 entrepreneurship tends to distinguish sharply between private and public goods. Private goods are ones people can own individually and are typically produced by for-profit businesses. In contrast, a public good is one where the consumption of the good by one individual does not reduce the amount available for consumption by others.³ So if an individual eats a cake, there is no cake left for anyone else; if an individual breathes air or drinks water from a stream, there is still air or water available to others.

Although governments are often involved in producing and ensuring access to public goods, they are not always the only ones; many private firms are involved in so doing, as is the case with health, education, safe drinking water, housing, and the like. Entrepreneurs step in to fill the gap where governments are not able— or willing—to provide a public good and where the private sector cannot justify the risk in relation to the rewards.

The following characteristics are typical of most model 1 enterprises:

• A public good is being delivered to the most economically vulnerable, who do not have access to, or are unable to afford, the service rendered.
• Both the entrepreneur and the organization are change catalysts, with a central goal of enabling direct benefici-aries to assume ownership of the initiative, enhancing its longer-term sustainability.
• Multiple external partners are actively involved in supporting (or are being recruited to support) the venture financially, politically, and in kind.
• The founding entrepreneur morphs into a figurehead, in some cases for the wider movement, as others assume responsibilities and leadership.

You could argue that entrepreneurs applying leveraged nonprofit approaches are modern-day alchemists who, with minimal financing, leverage the power of communities to transform an otherwise grim daily existence. And, while they learn a good deal from their failures, the best of them are proving more successful than the alchemists, whose experiments heralded the dawn of the industrial era—laying the foundations on which “real” science would later be built. In like manner, leading social entrepreneurs signal where the coming years will head. But companies—and other potential mainstream partners—should not be fooled into thinking that these entrepreneurs’ dependence on external funds and in-kind support will make them easy partners. Quite the contrary. Many carry an understandable rage born from years of watching their communities being shortchanged, ignored, or destroyed by greed. That said, mainstream businesses that create successful partnerships with these enterprises will likely find their thinking challenged, their horizons stretched, and their own employees reinvigorated.

It is no accident that much early model 1 entrepreneurship evolved in the context of strong religious convictions, as was the case of Mother Teresa and Habitat for Humanity. Others, like Barefoot College, which we examine next, grew out of a justified sense of rage with a system that locks people into generations of poverty and exclusion.

Bunker Roy and Barefoot College

Let’s start with Barefoot College, a prototypical model 1 enterprise whose founder, Bunker Roy, might seem the quintessence of unreasonableness. Roy was born to the Indian elite, was educated in India’s leading public schools (i.e., nongovernmental schools, the equivalent of private schools in the United States), and even represented India in the squash world championships, for which he is still celebrated by squash aficionados. You might say he had it made, but he turned his back on it all, eschewing the trappings of privilege, and founded Barefoot College, an Indian organization that has had a huge impact in defining and driving what Roy calls the “barefoot” approach to development.

This approach rests on the idea that anyone can become anything—from an architect to a solar engineer—without formal education. So Barefoot College set out to leverage local skills and capabilities. For more than thirty years, Roy’s work has made him a leading figure in the Indian civil society sector, frequently upsetting—generally to his infinite amusement—the powers that be and, in the process, inspiring many younger activists and social entrepreneurs.

Evolving out of the Social Work and Research Centre, Barefoot College was created in 1972 by a group of students from top Indian universities under Roy’s leadership. Based in Tilonia, Rajasthan, it was built around the Gandhian concept of the village as a self-reliant unit. By applying traditional but informal educational processes to manage, control, and own technologies designed to meet basic needs, the college helps illiterate or semiliterate poor people in rural areas learn to use these technologies without relying on outside paper-qualified experts. All staff at the college take a living wage, not a market wage—and the maximum living wage is $100 a month.

The central principle is simple. To improve their quality of life, Roy stresses, the rural poor must be able to satisfy their basic needs, like drinking water, health, education, and employment. Billions of dollars are spent every year to provide these services from the top. Colleges, research institutes, and funding organizations employ urban-trained, paper-qualified professionals to provide these services at tremendous cost, but the Barefoot College team argues that in such cases there will always be a vested interest in applying a top-down approach.

Poverty today is big business, Roy argues: in effect, many mainstream players want to keep the rural population poor because thousands of urban jobs are at stake. By contrast, the Barefoot College thesis is that development programs do not need urban-based professionals because paraprofessionals already exist in the villages, and their wisdom, traditional knowledge, and practical down-to-earth skills are not identified, mobilized, or applied—indeed, such people are generally penalized because they do not have a formal educational qualification.

Barefoot College provides abundant evidence of the capacity of ordinary people to identify, analyze, and solve their own problems. Over the years, it has trained barefoot doctors, teachers, engineers, architects, designers, metal workers, IT specialists, and communicators. And the results speak for themselves. This is the only college based in a rural area that is built by the poor and managed by them. Barefoot engineers have solar-electrified the college: indeed, it is still the only fully solar-electrified college in India. Barefoot solar engineers, many of them illiterate women, have solar-electrified thousands of houses in eight Indian states. Barefoot water engineers installed the first hand pumps ever in Ladakh, fourteen thousand feet up in the Himalayas, something that urban experts had said was technically impossible.

One of the most unusual aspects of the informal education the college provides is the night schools for children whose various responsibilities keep them from attending school in the morning. Over three thousand boys and girls attend 150 night schools. One unique aspect of their education is the emphasis on governance: the management, supervision, and administration of these schools are in the hands of a children’s parliament. Every three years, the children elect a prime minister and a cabinet of ministers, who are between six and fourteen years old. (All three of the prime ministers elected to date have been girls.) The present prime minister looks after twenty goats in the morning but is prime minister in the evening. In the same spirit of democracy and transparency, Barefoot College was the first—and remains one of the few—community-based organizations in India to have conducted a social audit, opening all its accounts to public scrutiny and answering questions from the community in a public hearing.

Meanwhile, traditional barefoot communicators using puppets have changed the attitudes of many communities on issues such as child marriage, the rights of women, equal wages for women, and legal literacy. And Roy loses few opportunities when speaking overseas to tell audiences that the puppets were made from papiermâché produced by recycling World Bank reports. True or not, the story sticks in the audience’s memory and, with it, the fundamental principle of people taking their destinies into their own hands.

A visit to Barefoot College redefines the concept of simple living, as one young Australian engineer put it. While the college is life transforming for all those involved, without Roy’s enormous capacity to raise external resources, it would be dif...