Sunday, June 10, 2007

Social Entrepreneurship, MIT, and the eco-system

Social Development has emerged as a "legitimate area" for investment - with business plan competitions and venture capital funds being setup specifically for development. This raises an interesting question: is Social Entrepreneurship really different than so-called "regular" Entrepreneurship?

A few weeks ago, I was at the MIT 100K Business Plan competition finals in Cambridge, MA. Some of you may know that this is billed as the “world's leading business plan competition” and is part of the “ecosystem of entrepreneurship” around MIT.

So what did I notice this year? Other than the inflation of the prize to 100K, the biggest visible change was the addition of a “social development” track in addition to the regular entrepreneurship track.

I find this encouraging because there seems to be the growing recognition the purpose of entrepreneurship is more than to just “make money” – it’s to provide something valuable to the societies that they serve. The winning team in this track, Bagazo, provided an alternative to using wood for cooking in the entrepreneur’s native country, Haiti. Another finalist, Saafwater, came up with a new distribution system to provide clean water to areas in Pakistan which don’t have it at the moment. Another finalist wanted to provide a website for micro-lending, and another provided a system for alternative/renewable energy.

I was actually a finalist back in 1992 when it was known as the 10K competition (In between and for a long time it was the 50K) and have stopped by every few years to tap into this ecosystem. One of the things that I like most about this competition is that it’s a microcosm of trends in the world of entrepreneurship and venture capital.

During the late nineties, when the dot-com boom was in full force, the finalists (and winners) were often internet and IT companies. A few very well-known companies came out of the competition during this time, including Akamai, Direct Hit, and netGenesis. Tellingly, after the boom, the number of IT companies; pharma and biotech were all the rage. When I spoke at the semi-finals in 2005, the downward trend in the percentage of IT companies vs. biotech was starting to slowly reverse itself.

But what I found most thought-provoking about what I saw this year was that renewable energy and medical technologies fields took top prizes in both tracks - not just in the in the development track.

This raises several very intersting questions: Is Social Entrepreneurship something new? Is it something different then regular entrepreneurship? Are the two mutually exclusive or do they overlap in fundamental ways?

My most read post on this blog was about Mohammad Younas, from Bangladesh, who started the micro-financing trend – which was a way to invest very small amounts of money in “village entrepreneurs” on a small scale. This was a valuable service to the communities that he served, but it also turned out to be very good business.

I believe that all entrepreneurship should provide some valuable service to the communities that it’s serving; all social development tries to do the same, perhaps without the profit motive at the center. But it’s unclear whether the NGO and non-profit model, while providing great short term benefits, can really help to lift poverty levels and basic services over the long term. I read a book about China recently, and they called the economic development of China over the last 15-20 years the “greatest anti-poverty program in the history of the world” – because it lifted millions of individuals out of poverty and into the middle-class. And what was at the center of this program? You guessed it: Entrepreneurship.

Do the “desire for wealth” and the “desire to do good” go hand in hand? I believe they do: Every great (and even not-so –great) entrepreneur envisions that their product or service will help someone - their "target market". Perhaps one key difference is who is helped - villagers in Bangladesh, middle-class kids in suburban America, or people working in large corporations . Another key difference is the priority of the profit motive - it is often second in a social development venture, but it's still there.

The emergence of the Development track at the MIT competition is a welcome thing and evidence of a much larger trend. But I would argue that these two aren’t mutually exclusive - after all, the winners in the development track were for profit companies, not non-profit organizations.

Maybe in a few years they’ll merge these two tracks and there won’t really be any difference at all between “Entrepreneurship” and “Social Entreprenuership’.

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