In the corporate world, companies compete for profit, but in the social business realm everyone’s incentives are aligned: alleviate poverty. In my previous two posts, I’ve made the case that the best way to fight global poverty is to take what works and roll it out in new geographies. To do this, social businesses should replicate solutions that other companies have developed and tailor them to a different local market. As an aside, I do believe that the industry must strive to create new innovations and products that haven’t been thought of; I’m just pointing out that some portion of the social industry should focus on spreading the best ideas across the globe.
In corporate America, businesses are constantly replicating each other and adding small tweaks to reach different audiences (or in many cases to compete for the same audience). Why do you think we have so many hamburger chains? Capitalism encourages competition because it keeps companies in check and it spurs creativity. To succeed, companies constantly need to evolve and innovate to stay ahead of the curve. As a result, consumers have grown accustomed to progress and advancement of technological limits. Certainly we wouldn’t have the iPhone if Apple wasn’t trying to compete with RIM’s Blackberry and Google’s Android. Competition in the corporate world leads to better products and an improved standard of living.
Partnership or competition?
However, as I mentioned in my opening line, the general goal of social enterprises is to cure global poverty. Therefore, should companies that make similar products partner to share IP? Rather than compete to develop the same thing, social enterprises could educate each other so that they can replicate more easily. This would speed up the process of spreading the best solutions around the world. However, while I do believe that shared knowledge will help companies to reach more people, I think there could also be unwanted adverse effects. If companies are forced to develop their own IP and compete with each other, it will likely generate further innovation, which would be lost if companies shared everything freely. Of course, innovation takes time and energy, which means new companies will take longer to roll out their first product. The question is, does that innovation come at the expense of serving fewer consumers in the mean time?
A hybrid approach
In all likelihood, if social businesses compete in a pure sense, it will take significantly longer for ideas to be replicated. On the other hand, competition spurs innovation, so should social enterprises compete or partner? I propose an alternative: social businesses should share basic IP to help each other get started, after that, let the competition begin. I further believe that this sharing should be controlled by simple economics; companies should have to pay for the right to another business’ IP. Given the new L3C business structure, for-profit social businesses should charge others because it will enable them to use the funds to scale their own business further. This hybrid solution will reward companies that innovate first, but will help all companies utilize the collective learnings of other successful social enterprises.
As I will discuss in my next post, social businesses that replicate and trade IP will eventually establish their own unique valuable asset: their distribution network.