**The Exchange** 21st Century Capitalism

Why terms like “impact business” or “social entrepreneurship” are outdated

Why terms like “impact business” or “social entrepreneurship” are outdated

Article by me, published as an op-ed in The Exchange October 2019 print edition

Henry T. Ford once said “A business that makes nothing but money is a poor business”. The attitude behind his statement remains emblematic for some of the most successful businesses in history. 

Businesses that change the world, have invariably been driven by visions greater than their bottom line. Such businesses typically build on ideas of how they will transform the world, or at least the market they operate in.

A common denominator is also that their greater role in society is in their DNA. Google, Facebook, Microsoft or Amazon always saw themselves as drivers of change, not just cash machines.  

Some companies on the world stage, like Starbucks, have taken it even further, and gone into outright social activism.

This obviously goes for smaller and younger companies too. The companies we see in the media every day (for the right reasons), are more often than not driven by greater visions, and by  the desire to drive and enable change. From hiring staff or enlisting suppliers from marginalized communities, to offering solutions that solve environmental problems while addressing people’s short-term needs, or simply creating amazing work environments to build people’s true potential, companies with a greater sense of purpose are not just in fashion, they are the order of the day.

In the world’s Emerging Markets, and particularly in Africa, there has been a trend since the turn of the century for young companies looking beyond just their EBITDA to refer to themselves as “social entrepreneurships”, or “impact businesses”.  The self-professed “social entrepreneurs” usually tout their approach as the new model for doing business in Emerging Markets, and as the remedy to the failings of development aid. But is there really anything unique or outstanding about having bigger goals in addition to the obvious financial do-or-die?

The social entrepreneurship label is often claimed by businesses addressing social or environmental issues. The term “impact business” often refers to the same, or simply to businesses models explicitly taking into account the wider social and environmental footprint of their operations. 

The “impact” term is even stretched to include startups with far-reaching codes of ethics, zero tolerance on corruption, and ambitious HR policies, etc. 

Investing in people is a no-brainer, though. Any business begins and ends with the people it attracts and retains. Building an enabling environment where people thrive and grow, and where their ideas and contributions are valued, is an age-old recipe for commercial success. It is no coincidence that companies loved by their employees, are also loved by the customers. Going the extra mile for the employees, is simply common business sense.

Ethics is a basic set of guidelines for decent human conduct. Simply put, treat the world the way you want the world to treat you. Some also refer to this as “karma”. It includes observing laws, health and safety standards and environmental caution. Not engaging in corrupt practices, tax evasion or other criminal practices is also part of it, even though it was not always obvious in many Emerging Markets.  This is still common business sense everywhere in a global environment where your reputation takes years to build, and seconds to destroy.  Sure, people still make lots of money fast from unethical business practices. We see them in the headlines all the time, for all the wrong reasons.  Some get away with it too.  Personally, I see it as a safer bet to do the right thing, though.

If you are an entrepreneur, observing high ethical standards simply means you intend to remain in business for the years to come. Not engaging in criminal practices, and not endangering people’s lives and health, or the environment, is simple human decency, not a badge to be worn.  If you don’t think that goes without saying, I would hesitate  to be your customer, let alone your investor.

If by impact you mean making a positive difference, I would be worried if you are not.  The core of any business concept is to create value (you know, the stuff your customers actually pay for).  Your output has to be worth more than the sum of the inputs, otherwise, people wouldn’t buy your product or service.

Your business might be solving a big problem directly, for instance by providing environment-friendly energy to rural off-grid communities. The impact could also be indirect, e.g because you source high-quality products from women groups in remote villages.  In the process, you create jobs, growth and opportunities for people who need it. If you do, or if you help solve any other major issue directly or indirectly, then I admire what you are doing: Not only did you see the problem, you also found a commercially viable way to solve it. 

That is what other entrepreneurs do too, by the way. Every business exists to solve a problem, and making money simply means that the company is likely to stick around. Most entrepreneurs I know are driven by a genuine desire to make a difference, and to make the world a better place.

I have also seen quite a few “social entrepreneurs” who pay suppliers and employees far above market rates, or accept sub-standard products or services, all in the name of “making an impact”.  While the ideas behind such projects may be noble, they rarely stay in business for long.

No matter how well-intended the project, a business is only viable when profitable. The “impact” or “social” labels won’t help if they are mere excuses for lack of a profitable business model. Too many entrepreneurs have tried using those terms in their presentations, hoping to attract “impact investors”, or grants from governments or international institutions.

Impact funding, alas, is no sustainable substitute for a healthy business model.  Investors may look for more than just profits, but the financial bottom line is still a do or die. nonprofit institutions may be enamoured by visions of lasting impact, but eventually, those funds run out too.  If by then, your impact business is not making money, you will find yourself having neither an impact, nor a business.

Emotional intelligence, purpose-driven leadership and humility are often seen as 21st century skills. In the same way, vision beyond profitability, dedication to people, and a commitment to high ethical standards should simply be considered key elements of 21st century capitalism. Those ideas are not new, and they were important before too. In 2019, those are however increasingly prerequisites without which you are unlikely to stay in the game, let alone succeed.

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