L3C & the Future of Capitalism

September 18, 2009
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The term social entrepreneur refers to individuals who start a company or organization with a mission to create a social good.  Historically, the majority of social entrepreneurs have found it easiest to start non-profit organizations with 501(c)(3) status to achieve their social mission.  While non-profits have provided a significant boost to the rise of the pyramid over the years, leaders of non-profits often need to divide their attention between achieving their social mission and securing funding from grants & foundations.  Not only does this detract from the ultimate impact that non-profits have, it also means that non-profits are competing for a limited pool of grant dollars.  Thus, non-profit organizations as a group can only achieve so much (as an aside-there are many successful non-profits out there that have found ways to be financially sustainable while achieving their mission, but this is inherently difficult).

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So, how can social entrepreneurs achieve the desired social impact while running a financially sustainable organization?
Enter social business.  Social businesses fall under the umbrella term “social entrepreneurship” much like Kleenex falls under the umbrella term “tissues”; all social businesses are part of social entrepreneurship, but not all social entrepreneurship ventures are social businesses .  Any for-profit company whose primary goal is to achieve a social mission could be considered a social business, but several individuals have offered more specific definitions.   In The Power of Unreasonable People , Pamela Hartigan & John Elkington define the main characteristic of social businesses as  “profits are generated, but the main aim is not to maximize financial returns for shareholders but instead to financially benefit low-income groups and to grow the social venture by reinvestment, enabling it to reach and serve more people”.

If social businesses can unlock market forces & use them to solve social issues, why don’t more exist?
Until recently, it has been difficult for social entrepreneurs to choose to start a for-profit social business.  I believe social entrepreneurs have been afraid that others in the industry will eye their for-profit status & perceive the social mission of their venture as a guise for making money.  Perhaps more compelling, social entrepreneurs may anticipate that investors in for-profit ventures might force them to abandon the social mission whenever the mission gets in the way of profits.

Introducing L3C, aka the <3
Fortunately there is now a wonderful new corporate structure, the L3C, which has recently been passed into legislation in Illinois as well as a few other states.  The L3C structure will allow social entrepreneurs to start for-profit organizations without the stigmas attached to a typical LLC.  During the “New corporate structures” panel at SOCAP09, Rick Zwetsh from Intersector Partners described the difference in emotional attachment between an L3C and an LLC well, “Back in the old days automobiles had a hood ornament.  With a LLC for-profit organization, the hood ornament is a dollar sign.  When you pull into the driveway or pull into the parking lot, the first thing people see is a dollar sign; with an L3C, it’s a heart.”

I believe the introduction of the L3C corporate structure is a watershed moment for the future of social entrepreneurship & the plight to raise living standards at the bottom of the pyramid.  L3C corporations will be able to take advantage of grant & foundation investments as well as typical financial instruments to scale rapidly & make a greater impact.   This truly is the beginning of a new era of capitalism.

- Bryan

Education as a Way to Fertilize the Seed of Microfinance

September 15, 2009
By

An interesting article by the New York Times highlights the takeaways from a report published by Innovations for Poverty Action and The Financial Access Initiative that the impact made by micro loans was amplified by minor business training efforts.

“…the treatment led to improved business knowledge, practices and revenues. The program also improved repayment and client retention rates for the microfinance institution. There is some evidence that effects were larger for those that expressed less interest in training before the program began. This has important implications for implementing similar market-based interventions with a goal of recovering costs.”

By not only providing the financial jumpstart necessary to ensure growth but also to nourish that investment with basic business know-how, a new powerful combination has the chance to develop. It might not simply be enough to provide capital where desired, but instead to act with that capital and provide consulting which has the chance to drastically increase the spread of intellectual capital at a local level.  Taking it a step further – is this a potential new marketplace for consultants or educational organizations?  Would a Teach-for-India have a new volunteering model here associating themselves with microlending institutions to teach business basics?  I think there’s something here.

– Chris

Introducing Rising Pyramid

September 13, 2009
By

Welcome!

Rising Pyramid is about the gradual improvement of life for the world’s poorest, living at the Bottom of the Pyramid (BoP).  Despite setbacks, social entrepreneurs who set goals on hitting the triple bottom line have been challenging global poverty head on and have succeeded in many cases.  We believe that both the successes and challenges faced by these entrepreneurs are leading to the rise of those at the bottom of the pyramid.

The title, “Rising Pyramid”, is meant to reflect an optimistic perspective of the promising progress made by social entrepreneurs and to elevate interest in the bottom of the pyramid. This blog is meant to celebrate social entrepreneurs and to explore the issues they face as they attempt to solve the world’s largest problem: poverty.

We encourage discussion, comments and feedback on the topics and ideas we highlight and investigate here on Rising Pyramid.

A little information on the two authors of Rising Pyramid:

Bryan Farris

Currently a strategy consultant at Bain & Company, Bryan has long aspired to be a social entrepreneur with an aim to contribute to long term economic growth and progress in developing countries.  He is a graduate of University of California at Berkeley with a major in Industrial Engineering & Operations Research.

Christopher Cuellar

Chris is a technical consultant with San Francisco Consulting Group, and he has a unique passion for engineering solutions that combine environmental benefits with social progress.   Prior to working with SFCG, Chris worked with Booz & Company as a strategy consultant. He is a graduate of Northwestern University with a major in Industrial Engineering and Economics.

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