THE BLOG
05/03/2016 04:30 pm ET Updated May 03, 2017

Funding the Future: Social Enterprise on the Rise

If the term social enterprise is new to you, don't worry, you're not alone. Social enterprise can refer to a variety of organizational types, with a multitude of purposes and structures. What these organizations have in common, however, is that they address a need in the marketplace but focus on using the value captured through commerce to benefit employees, customers and the community, rather than seeking strictly to maximize shareholder returns.

Social enterprises and the social entrepreneurs who run them often find solutions to problems where previous attempts have failed.

Governments and NGOs frequently fall short in alleviating the problems of developing nations, because they focus on "supply-side" solutions instead of harnessing market forces. The aid that global charities, NGOs and government agencies provide is paramount- positively impacting millions of lives. However, it is unlikely that these interventions alone will be sufficient to lift the 1.5 billion people living in urban slums out of poverty. In contrast social enterprises have the potential to be more successful than other types of aid, because they combine traits from both corporations and NGOs. Their operating model is also rooted in the economic, logistical and social realities of the region in which they operate. Since attempting to define or categorize social entrepreneurship entities can be exhausting, (for profit, non-profit, co-operative, mutual organization, disregarded entity, social business, benefit corporation, community interest company), it is easier to illustrate the power of these organizations by sharing the success story of a social enterprise.

NanoHealth is a social enterprise that was founded by a student team from the Indian School of Business, winners of the 2014 Hult Prize competition. NanoHealth created a business solution to address the needs of the 230 million slum dwellers living with chronic diabetes and heart disease. They developed the "doc-in-a-bag", a mobile medical unit that can be used to monitor blood sugar and blood pressure. The firm employs local women as "saathis" or "friends" to act as door-to-door nurses, monitoring the blood pressure and blood sugar of slum dwellers.

NanoHealth is an excellent example of what a social enterprise can do; this firm is directly improving the lives of people in their community, creating jobs for locals, generating incremental revenue for other businesses in the community (doctors, medical equipment suppliers) and they do so while creating enough revenue and profit to sustain their efforts. They charge their customers $1.50 for their monthly monitoring services. By utilizing a subscription model with their medical equipment supplier rather than an outright purchase of equipment, NanoHealth's capital expenditure decreased from a one-time $500 capital expenditure to a 7 cents / use expense. According to a Financial Express article, per 100 patients they service, they generate a monthly net income of $38.

This example brings to light an important distinction between social enterprise and traditional corporations. For most healthcare companies, a profit of $38/month per 100 patients would be an insufficient return on capital for them to pursue this business. But, in areas where the monthly household income is roughly $75 or less, this can represent a sustainable business for a social entrepreneur.

Over the past decade, many Ivy Leagues and top-ranked business schools have taken an increased interest in social entrepreneurship. Between 2003 and 2009, the number of social entrepreneurship courses offered at top MBA programs across the US increased by 110 percent. At Harvard, the number of students enrolled in the Social Enterprise Career Program has nearly doubled since 2006. Stanford's Social Innovation Review has become a leading source of cutting-edge research in the sector.

Business schools develop some of the world's most dynamic and skilled leaders. Companies pay top dollar for MBA graduates, because they are effective communicators, analytically skilled problem solvers and team builders. This MBA skill set can be equally effective at solving societal problems. For this reason, MBA graduates represent a valuable and still largely untapped talent pool with the potential to revolutionize society.

While this may seem like a critique of business, government, and charity, it's far from it. In the 21st century, customers increasingly choose to do business with companies that strive for a "triple bottom line;" measuring success in social, environmental and financial terms. Many corporations also give back to their community through public works and charitable donations. However, as we've seen in the example of NanoHealth, there are many needs in society that will not be served by traditional corporations, and it is in these situations where social entrepreneurs can thrive.

I myself am an MBA student and an entrepreneur. I am grateful to live in a country where I can work hard to create innovative products and services while being rewarded financially for my efforts. At the same time, I believe there is an important space in our society for social entrepreneurs to fill. Traditionally, entrepreneurs create value by inventing new things, by combining existing things or from reducing waste and inefficiency. They often create products and services that weren't conceived of by large, established corporations because of the entrepreneurs' agility, flexibility and fresh perspective.

In this same tradition, social entrepreneurs can look at old problems in a new light and find novel solutions to the world's most challenging problems. As the Purdue Krannert School of Management's Dean David Hummels said recently:

"Solving complex social problems requires more than an intention to do good.  It requires a portfolio of functional skills and an understanding of the business and economic context in which those social problems arise.   It requires an entrepreneurial mind set, applied with the same vigor and ingenuity as we see in the most successful business startups.  That's why we see an increasing number of our students, at Purdue, and in business programs nationwide, looking to apply their talents to solve social problems in the US and around the world.  And heck, if you can do that and make millions in the process, why not?"

I couldn't have said it better.