Category Archives: Real Life Example

For-profit, social benefit: oxymoron or smart choice?

Ten-dollar bill obverse/reverse

Profit and social benefit can go together.

Several years ago, a friend of mine came up with a very innovative way to motivate low-income kids to work hard on improving their vocabulary. Sounds like a great non-profit, right?

But here’s the surprise: he very intentionally formed his company as a for-profit. There are no deep pocketed donors, no fundraising drives. Rather the company is supported by government funding that goes to provide low-income kids with supplemental tutoring. Furthermore in many areas, his company gets paid for actual improvement of reading scores—results—rather than just delivery of service.

Taking a step back, if the societal goal is “raising highly literate kids”, beautiful things happen when a market is set up to pay for outcomes. That’s when entrepreneurs bring their creativity, talent, and energy to effectively meeting that need. And structuring as a for-profit gives him many advantages in serving this market.

Let’s consider the potential advantages of being a for-profit here, rather than a not-for-profit:

  • A for-profit can pay its staff competitive market rates, rather than the lower “nonprofit salaries” that are considered “appropriate.”
  • A for-profit can afford to hire a highly talented CEO with experience scaling services nationally, rather than someone less experienced.
  • A for-profit can avoid the criticism and scrutiny of the non-profit “overhead police” who don’t understand the connection between expenses and impact.
  • A for-profit is accountable to the market—in this case the kids and their reading scores—rather than simply needing to please donors to keep getting funding.
  • A for-profit doesn’t have to spend time on fundraising, and has much more control over future income.

I have to admit that when I first heard about my friend’s company, I just couldn’t understand why he turned away from the benefits of being a non-profit. But the more I learn about the field, and read books like Dan Pallotta’s Uncharitable, the more I see that there are real trade-offs to be had in structuring a social benefit organization.

One last thing: it’s worth noting that my friend is extremely committed to the cause of education. He’s not in it for the money. For many years he has put all of his earnings back into the growing company, so that he can reach more kids. For years, in spite of running a company that employs hundreds, he hasn’t owned a car. Clearly his motive is impact, not personal profit—which makes his choice of a for-profit structure all the more fascinating. Cases like this lead me to wonder if the assumptions behind “non-profit” are in fact a hindrance.

Struggling business or highly effective development effort? A social enterprise dilemma.

Developing 0.750–0.799 0.700–0.749 0.650–0.699...

Social venture and global competition

Suppose I told you about an investment opportunity with an outsourcing business based in a developing country. They’re the first of their kind in that country, which is an unknown in this particular industry. Furthermore none of their local employees speak English natively, and so all must study English and do their best in working with English-speaking clients on projects that are usually in English. Oh and by the way, this business’s main competitors are based in English-speaking developing countries with a history in the industry, and much more developed base of management talent. Would you like to invest?

Now let’s say I told you about an opportunity to support an innovative nonprofit
that provides top-notch training to underprivileged people in developing countries, and provides them three times their prior salary—plus benefits—to work in teams working on real projects, for real clients? And furthermore, after three to four years of work experience, employees are able to find even higher paying jobs, paying three times again what they made during training. Oh and by the way, this organization takes every dollar you donate and stretches it to be three dollars of impact, because of the income generated by the real world projects that are the heart of this training program. Would you like to invest?

Social enterprise, at the outset, is a great story to tell: running a real business that provides training and employment opportunities for disadvantaged people. But such businesses face the real-world challenge of competition from regular, for-profit businesses. When it comes to a local business, such as a restaurant, where the “delivery of value” is necessarily local and in-person, such social enterprises have a relatively even playing field on which to compete.

However when it comes to a global business, the playing field can be much more uneven. Whereas a competitor to a local restaurant faces similar costs for rent, personnel, and materials, a competitor to a global outsourcing firm might enjoy better English skills, a more highly educated talent pool, along with the ability to recruit highly skilled senior management locally, instead of from abroad.  Thus it can be very challenging to compete, sustainably, against such advantages.

So does this mean businesses shouldn’t set up shop in said developing country, because of those disadvantages? It depends on the goals and expectations of the business.

If the goal is to make bottom-line profit, then it doesn’t make sense to  “fight the current” on such a critical point such as the talent pool. You’re going to have to spend extra money to make up for the education system and bring people up to speed. Plus, to ensure that your organization can compete in the global space, you’re going to have to pay good money to hire for key strategic positions, whether you are hiring from the limited pool of locals, or you’re bringing in expats.

But if the goal is development, then the very sources of these disadvantages gives the justification for investment in such a social business. Because through such investment, the “disadvantaged” developing country can start on the road towards building a globally competitive talent pool. How else are they going to do it? Furthermore it’s a fair bet that in a country which has had much less investment in the talent pool, there are a lot undiscovered—and highly motivated—people looking for an opportunity. And this spark of enthusiastic hidden talent can be a real advantage for a business.

So yes, such extra costs to running a social venture in a “competitively disadvantaged” country make for a challenging business opportunity. However as a development opportunity, the ability to create a lively new industry that trains locals in relevant global skills can make for a highly impactful, highly relevant social investment.

The key question to me is, will traditional funders of development efforts have the insight and the courage to support a business-looking engine of economic development for the disadvantaged?

And at the end of the day, does the “developed” world actually welcome the competition?

There’s hidden talent in those rice fields

Given the chance, what might he be capable of?

I recently wrote about DDD Battambang which is bringing IT jobs to rural Cambodia, a place traditionally known for farming. In response to this business, one could reasonably raise a concern about the talent pool. Will the people really be there to make such a business work, and furthermore will they have had sufficient experience and education to get up to speed?

These are certainly valid questions, and they bring to mind an important but relatively unknown book about talent written by a gentleman named Elliott Jacques. In his book Human Capability, Jacques makes a point which is of great interest to social enterprise. He states that one’s talent trajectory, for instance how far ability-wise one can get as a manager, is as intrinsic as one’s eventual height. That as long as a person isn’t malnourished or abused, their leadership talent will develop as they age, whether or not they have had education or leadership opportunities.

Thus in disadvantaged areas, we can expect that there are a number of undiscovered, under-leveraged people who could be doing great work on the global business stage, if they just had the opportunity. That even though they may not have had great education or work opportunities, their innate talent lies ready and waiting for action. This is great news for social enterprise, which faces a variety of challenges in competing with a normal for-profit company. The ready availability of such a talent pool can really make a social enterprise competitive in the market place.

When I was in Cambodia, I had the pleasure of meeting several people like this, who are talented, who hadn’t had good work opportunities before DDD, and who are very happy to have the opportunity to do global work in a rural setting near their families.

I believe there is great potential for a variety of other service delivery businesses to base in rural locations. It will take dedication, problem solving, and knowledge sharing to help move these efforts forward.

btw If you’re interested in learning more about the book “Human Capability,” check out my Amazon review that describes his unique way of identifying leadership talent.

From farmers to information workers: DDD Battambang brings IT jobs to the heartland

Rice farming in Cambodia

Potential information workers?

Last November I was in Battambang, Cambodia facilitating public speaking workshops for the local management staff of the local Digital Divide Data (DDD) office. Although DDD has several other offices, the Battambang office is the only one located in the countryside, and as such is very interesting from a development point of view.

Much of staff comes from the countryside, either around Battambang or from neighboring provinces, and thus grew up in a farming family. People from these backgrounds typically have limited employment options. They are faced with either continuing the family business in farming, finding a factory job, or moving away from family in search of employment. But for high achieving people these aren’t great options.

Furthermore my informal conversations revealed that farming just “ain’t what it used to be” in terms of its predictability and profitability as a business. Say what you will about climate change—the farmers are noticing changes that are directly impacting them, making farming a riskier and more complicated venture. Plus I have to wonder how lucrative small-scale, small investment farming can be on a sustainable basis, with farm products being sold more and more as a global market.

As I was travelling between Phnom Penh and Battambang I noticed a few factories along the way in rural areas. And yes, while factories are a way to employ a large number of people, they aren’t going to properly tap into the latent talent that is in the community, looking for an outlet.

And moving to the big city, while it may sound promising, is a decidedly mixed bag for many people. Consider that in a family oriented culture such as Cambodia, it’s particularly tough to leave family behind and move away to a big city where accommodation is expensive and where the traditional family safety net isn’t there. Nonetheless your smartest folks, who would be natural community and family leaders, will be that much more likely to move away from the countryside to the big city in search of employment opportunities. The result is a brain drain.

Now in this day and age of technology and remote working arrangements, in theory it ought to be possible to locate outsourcing centers in rural areas. There should be an opportunity to tap into attractive cost structures and a smart, motivated, untapped workforce.

But there are barriers to overcome. How would one jump-start the talent pool, in order to get such an organization off on the right foot? What special challenges would come up from training a rural workforce? And would international clients be comfortable trusting work to a location that was difficult to visit?

And yet one way or another, DDD Battambang has managed to overcome these hurdles and create a thriving rural BPO office in the countryside of Cambodia. It’s quiet, it’s peaceful, there’s fresh air. It’s a pleasant place to live.

I think this is just the beginning—rural BPO could have a big impact for many other places, and other services as well.

 

From farmers to information workers: DDD Battambang brings IT jobs to the heartland

Last November I was in Battambang, Cambodia facilitating public speaking workshops for the local management staff of the local Digital Divide Data (DDD) office. Although DDD has several other offices, the Battambang office is the only one located in the countryside, and as such is very interesting from a development point of view.

Much of staff comes from the countryside, either around Battambang or from neighboring provinces, and thus grew up in a farming family. People from these backgrounds typically have limited employment options. They are faced with either continuing the family business in farming, finding a factory job, or moving away from family in search of employment. But for high achieving people these aren’t great options.

Furthermore my informal conversations revealed that farming just “ain’t what it used to be” in terms of its predictability and profitability as a business. Say what you will about climate change—the farmers are noticing changes that are directly impacting them, making farming a riskier and more complicated venture. Plus I have to wonder how lucrative small scale, small investment farming can be on a sustainable basis, with farm products being sold more and more as a global market.

As I was travelling between Phnom Penh and Battambang I noticed a few factories along the way in rural areas. And yes, while factories are a way to employ a large number of people, they aren’t going to properly tap into the latent talent that is in the community, looking for an outlet.

And moving to the big city, while it may sound promising, is a decidedly mixed bag for many people. Consider that in a family-oriented culture such as Cambodia, it’s particularly tough to leave family behind and move away to a big city where accommodation is expensive and where the traditional family safety net isn’t there. Nonetheless your smartest folks, who would be natural community and family leaders, will be that much more likely to move away from the countryside to the big city in search of employment opportunities. The result is a brain drain.

Now in this day and age of technology and remote working arrangements, in theory it ought to be possible to locate outsourcing centers in rural areas. There should be an opportunity to tap into attractive cost structures and a smart, motivated, untapped workforce.

But there are barriers to overcome. How would one jump start the talent pool, in order to get such an organization off on the right foot? What special challenges would come up from training a rural workforce? And would international clients be comfortable trusting work to a location that was difficult to visit?

And yet one way or another, DDD Battambang has managed to overcome these hurdles and create a thriving rural BPO office in the countryside of Cambodia. It’s quiet, it’s peaceful, there’s fresh air. It’s a pleasant place to live.

I think this is just the beginning—rural BPO could have a big impact for many other places, and other services as well.

 

Key questions to understanding a nonprofit.

People before profit

but both are important

In looking to quickly understand the nonprofits that I was meeting with at San Francisco Board Match, I found myself coming back to a few questions over and over. Before you make the big commitment to join a board, you need to understand the “bigger picture” of how the organization works, and how it fits into the broader community.

“Who do you work with and how do they find your organization?”

I was talking with Maria Nicolacoudis, the ED of TransAccess, a nonprofit that helps people with disabilities get training and employment. It would seem straightforward enough to understand who they work with, until I learned that the lion’s share of the people they work with have no physical disabilities. Then I really got curious about what disabilities they mostly work with and why.

In asking the “how do people find you?” question, I learned that they do a lot of proactive outreach in high schools, a key point I might have missed otherwise.

“What impact are you looking to have, and how do you measure your success at having that impact?”

Everyone in the nonprofit world is working with the impact question, and so it’s quite interesting to hear how different nonprofits think about it. For The Bread Project, job placement is a key statistic they track. Which naturally led me to ask “where are the jobs for your graduates?” which kicked off another great discussion of the many opportunities that are finding for their people.

“How do you actually create the impact you have?” which if you’re technical is similar to asking “What’s your theory of change?”

I talked with the Dagmar Schröder-Huse, ED of The Bread Project, a nonprofit that trains disadvantaged people in bakery skills. The actual skill of baking is relatively straightforward compared to skills like reliably showing up for work on time, working effectively as part of the team, and efficiently dealing with interpersonal conflict. And so it was very interesting to talk with Dagmar to find out how they actually create the change through hands-on learning and experience rather than through class-room learning.

“How are you funded? How cumbersome is it for you to receive that funding?”

I spoke with André Chapman, the very dynamic leader of the Unity Care Group, which provides a broad array of services for foster children. It turns out that much of their funding comes from a number of different government agencies. And that they have to be very efficient about how they comply with the paperwork and reporting requirements of those agencies, so that there’s as much money as possible to apply to programs!

Helping Talent Bubble to the Top

I had the pleasure of meeting Socheat at Digital Divide Data. He joined DDD 9 years ago as an operator, and today as an HR assistant is clearly a DDD success story. I first got to know Socheat through his dedicated participation in the communications workshops that I led for the DDD Phnom Penh office. And it was on the way to visiting the home of Bunthy, a DDD operator, that Socheat told me of his journey to DDD.

Socheat’s parents, like many of his generation, were displaced by war and moved around several times. With the economy in tough shape, Socheat was sent to Phnom Penh to try to find work. And he did, as a security guard. His ease with people and responsible nature helped him land this job, which by chance was at an English school.

Now here’s the really interesting part. You might guess, correctly, that the security guard job at the English school was a key launching point for Socheat to learn English and one day join DDD. But what surprised me was that the other four security guards did not learn English—they played soccer while he was learning.

Every chance that he got, Socheat would look over the wall at the classroom and strain to hear as much as he could. He’d take notes and do his best to learn. Fortunately a kind teacher noticed his efforts and invited him to sit in on the class whenever he had a chance.

Socheat took on this opportunity with gusto, and pushed himself to learn and use new vocabulary, writing 7 sentences for 5 new words every day. And in so doing he laid the foundation for his future success.

One day Socheat heard about DDD from a friend—he didn’t know what they did, but heard they were hiring. Unfortunately he had been given the wrong address however he searched for four days until finally he found the office.

The rest, as they say, is history as Socheat rose through the organization into his current position as assistant HR manager. I can attest, as well, that his English now is great—it was a real treat to have him helping me on the home visit.

Now this story leaves me wondering, what is it about Socheat that made him different from the other guards, in his energy to study English and better himself?

Any ideas, about what makes some people like Socheat decide to rise above the crowd and distinguish themselves? If so, please share your thoughts in the comments section.

What motivates some to succeed academically?

Today I had a very unique opportunity to travel to a remote Cambodian village with Arun Sothea, Executive Director of Sovann Komar, an orphanage in Phnom Penh.

To get there we drove about 45 minutes outside of Phnom Penh, boarded a ferry that crossed a large river, went overland by motorbike another 10 minutes, took a small boat for another 15 minutes over seasonally flooded land, and finally drove another 10 minutes by motorbike. Needless to say I wasn’t clear at all where we were.

Arun was visiting families that he works with in various capacities, such as education and health, to see how they are doing and to hear their ideas of what they need in order to better their lives.

When we were boarding the small spot for the 15 minute ride, Arun informed me that when he was a child that boat service didn’t exist. However he needed to cross that water in order to get to school every day and so he *swam* to school. He said that the snakes and scorpions in the water weren’t so bothersome–it was the centipedes that would bite. OK so if you’ve heard the “when I was a kid I had to walk 5 miles in the snow uphill both ways” story then I think this one ups the ante.

So I couldn’t resist but to ask Arun “What motivated you to swim to school every day, and stick with it, when most of the kids dropped out?” And his reply made me laugh: “My relatives told me that I was too skinny to be a good farmer, and so I’d better study.” I can relate to that!

Arun continued on to say that he was told that his parents (who were killed in the Khmer Rouge regime) were smart, educated people, and so it made sense for him to also become educated. So here we have a similar story to DDD operator Bunthy’s story, where there is a “runs in the family” theme to education.

That makes me wonder–can family’s attitudes to the value of education be changed? If so, how? I’d love to hear your thoughts.