How Social Ventures can be Learning Laboratories

In a time of economic crisis, it is crucial that business entrepreneurs focus their innovations on the long-term effects.  Previously, capital market innovations have focused on short-term profit, resulting in permanent damage to the economy. In their article, “Social Ventures as Learning Labs,” J. Gregory Dees points to how social ventures can be useful “learning laboratories” in which innovative business ideas can be tested without distorting markets. Rachel Padmanabhan, provides an overview of his article.

A decrease in economic opportunities exacerbates other social problems and in turn reverses progress made by impoverished families.  This financial stress has proven to result in tension within communities, fewer children attending school, and inadequate health care.  In order to make any improvement on these super-sensitive social and environmental problems, the markets must turn to social entrepreneurship.

Innovation by social entrepreneurs can reverse the pattern of destructive markets by focusing on the social impact that innovations can offer.  Social entrepreneurship also allows experimentation of innovations that could potentially solve many issues on a small scale, while effectively working to achieve a larger goal.  Social entrepreneurs, Dees says, provide what has been called a “learning laboratory” for these innovative business methods to be tested without negatively impacting the market.  The resulting successful models can then be replicated and scaled to create a greater social impact.

The primary difference between these social entrepreneurs and others in the business world lies within their motives.  While profit-seeking business entrepreneurs and corporations measure financial success quantitatively, social entrepreneurs measure success by the opportunities they create for the future.  An example Dees points out to is 2006 Nobel Prize winner Muhammed Yunus and Grameen Bank that focused on micro-credit with the goal to alleviate poverty.  While Bangladeshi officials did not see this as a substantial business opportunity, microfinance is now growing in popularity among mainstream business entrepreneurs and financial entities.  Decades after the initial idea of microfinance, markets are beginning to acknowledge the viability of this method as an effective business opportunity.

Implementation of creative business models paired with resourcefulness is necessary in order for entrepreneurs to succeed.  Recently within social venture business models, there has been a growing trend away from reliance on subsidies towards commercial strategies. Reliance on solely either of these funding methods is hardly optimal for social entrepreneurs to succeed.  In order to create sustainable ventures, entrepreneurs must utilize a mixture of both commercial and philanthropic methods.  As proven by VisionSpring, a non-profit organization in China, low-cost technologies paired with innovative business models are an effective way to both provide affordable products and create sustainable job opportunities.

The aforementioned application of these “learning laboratory” experimental innovative models to other businesses requires them to be replicated as well as scaled.  This means that in order to be considered valuable, it is necessary that they be cost-effective and transferable as well as socially-impacting.  However, entrepreneurs can also benefit from recognizing the failures and patterns of these experimental business models and applying new knowledge to future innovations.  As financial crisis pushes businesses towards innovation, it can be expected that the growth trend towards social entrepreneurship will continue due to necessity.  If this trend persists, many of the social and environmental issues that have been attributed to capitalistic markets in the past can be alleviated over time.

Read the original article here.