In a year where we have already seen Uber, Lyft, and Zoom go public, as well as African e-commerce platform Jumia, it’s clear that 2019 is shaping up to be the year of the tech IPO. These tech IPOs are going to mint hundreds of new millionaires and the occasional billionaire. Many of these newly rich will end up starting their own companies, joining countless thousands of other aspiring entrepreneurs with stars in their eyes, inspired to try to start the “next big thing.” We are already seeing story after story about VCs jostling to invest in this new wave of entrepreneurs.
One thing all of these businesses have in common, however, is that they mostly serve the interests of higher-income customers, helping them order taxis, book accommodations, and hold business meetings more efficiently. This does little to help billions of the world’s poorest escape poverty or improve their lives.
Social enterprise offers a way to address this, but I worry that the world’s big social problems are a long way from attracting as much entrepreneurial and investor enthusiasm as the next Airbnb or Uber, even though the world’s poor and underserved desperately need social enterprises serving them to see some of the same success.
The importance of social enterprise
Social enterprise is the use of business to solve social problems. This may mean selling solar home systems in African villages to replace expensive, polluting fuels, or aggregating smallholder farmers in Latin America to improve their buying power and increase income from the sale of their produce, or providing small businesses in rural Asia a reasonably priced working capital alternative to local loan sharks. Social enterprise takes a broken ecosystem, often where money is already inefficiently exchanging hands, and tries to make it better—with the ultimate goal of improving the life of the target population in a financially sustainable way.
A lot of these social ills are so big, and so challenging, that the only way for a social enterprise to make a real dent in them is to reach a massive scale, on the order of serving tens or hundreds of millions of people.
Take energy in Africa for example, which is the focus of my business, PEG Africa. There are more than 600 million people in Sub-Saharan Africa with no access to electricity. Most earn just a few dollars a day and spend up to 30% of their income on energy, often on polluting fuels like kerosene for lighting. PEG sells them a solar home system that is 40 times brighter than kerosene and allows them to pay it off in small amounts over a period of up to three years. This repayment approach is designed to mimic the way they currently spend money on kerosene, making it affordable for them. After paying off the solar system, the family then has access to free energy. The impact on each family is groundbreaking.
But social enterprise is hard . . .
While in some cases, such as energy access, social enterprise is making tangible progress, the reality is that it is happening much too slowly. There is a moral imperative that we start putting a real dent in the world’s biggest social problems, and the fact they often represent gigantic business opportunities presents a way to use capitalism to tackle them.
The problem is that building a massive social enterprise to tackle intractable social problems is infinitely harder than building a similar-size tech business in a developed market. The know-how is scarcer, the social enterprise business models are all basically new and mostly unproven at scale, and investors are less numerous. In addition, key infrastructure is missing: internet is patchy, roads often don’t exist outside of capitals (and sometimes not even in the capitals!), corruption is rife, politics can be unpredictable, and human capital is a massive challenge. Problems are so much harder to solve in social enterprise, which makes the need for the best and the brightest so much greater.
Are you opting for the easy choice?
This brings me back to the tech IPOs. Many of them talk about how they are “changing the world.” The question is: Who are they changing the world for, and who benefits? Most often the “change” they are making is targeting people like you—making your life marginally easier or more convenient—in the service of profit, not impact. If there is impact at all, it is either corporate social responsibility (often an afterthought) or coincidental.
Do we really think the talented founders and staff at these companies are making their greatest possible impact on the world by shaving a minute or two off the time that people wait for a taxi, or making it easier to post a photo to your friends? The answer is obviously no.
We need to be realistic that these companies rarely “change the world” for those on the margins. For the billions of the world’s poor who have no running water, no or unreliable access to electricity, who live hand-to-mouth, or who barely finished primary school, the idea of eating vegan burgers that taste like meat, hailing an Uber, or using videoconferencing for business is completely meaningless.
I can certainly understand those who join a tech startup because of the status, money, and power that comes from working for a fast-growing company. There is also no doubt that starting or joining a social enterprise today involves sacrifices that you don’t need to make if you join a tech startup: it involves less pay and less of an obvious upside if the social enterprise is successful. Many people are not in a position to take less money, and others don’t believe they should have to. Making a real difference in the world feels great, but it doesn’t pay off your student loans or buy you the house that you want your family to grow up in. I am not dismissing these inherent challenges. But these kinds of sacrifices may be necessary if we really want to build businesses that actually change the world.
Do social enterprises need to make you rich to get you to notice them?
If you choose a job with a high-flying tech company because it’s exciting, then that’s fine, but at least be honest with yourself about the world you are “changing.”
Today, the true path to success for social enterprise (and for changing the lives of more and more people) is big time financial success. A few multibillion-dollar IPOs would excite investors and get entrepreneurs and talent seriously considering social enterprise as their next step. In the long term, to achieve real and lasting change, we need to ask ourselves if money is the only measure of success, and why we don’t seem to care that, in the frenzy of tech progress, billions of people are being ignored.
Hugh Whalan is the CEO of PEG Africa.