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Simplistic view on business
on April 1, 2011
Let me say that I assign Yunnus' earlier book to my classes to read. He and the story of microcredit while controversial have clearly inspired much good work in the world. I expected to enjoy this book.
Unfortunately I found this book to be far too simplistic on the business side. The hypothesis boils down to "Businesses make money, and then some rich people profit. Why not give the poor ownership so that they profit?" This would be fine if every business succeeded, but they don't.
- Starting a business takes risk capital. Someone is on the line to lose money. Whoever is on the line to lose money puts their money there because they are gambling they will make money. You can't ask people to risk losing their money without any hope to make more.
- The average new business does not make money. Venture capitalists on average return negative interest to their investors. Investors put their money there because they are gambling that they will win big.
- Yunnus is not an average guy, he can negotiate deals others (even business leaders) can't.
- The Dannon deal does not appear to actually be good business for Dannon, it appears to be good CSR public relations.
All this doesn't take away from the fact that I think Social Business is a good idea. But I find the strict interpretation which completely removes a profit motive to be unrealistic. You need to get your startup capital from somewhere and that person has to want to give it to you.
Despite my lukewarm review, this is an important point in the overall debate about how to get social work done: pure non-profit, for-profit business without profit motive (this book), for-profit startup funded by a Foundation with no expectation of positive return (so far the Foundations aren't too excited to do this, but there are some), for-profit startup funded by a social VC with expectation of return (there are a growing number of these), pure for-profit (most business leaders think their business _is_ producing social good and economists generally would agree with this, but most non-profits wouldn't really agree), joint 501c3 and for-profit in partnership. The jury is still out and I think over the next 10 years we'll start to get enough data points to see what really works.