The Business of Good Summary

Capitalism must evolve, or it will fail; the planet cannot afford runaway greed at the cost of human and environmental well-being.

1. Blend Profit with Purpose

The concept of social entrepreneurship intertwines financial success with the mission to address societal problems. In today’s world, businesses can no longer solely aim for profit while ignoring issues like poverty, pollution, or inequality. Social entrepreneurship fosters solutions that make money while responding to global challenges.

Impact investment is central to social entrepreneurship. These are investments designed to generate measurable social outcomes along with financial returns. Businesses with social missions can attract funds from investors who care about making a difference and seek both social and financial benefits. This hybrid approach allows entrepreneurs to remain profitable while doing good.

The author’s real estate agency integrated charity into its operations. For every deal it closed, a portion of the revenue funded the construction of water wells in communities lacking clean water. This approach not only tackled a social issue but also gave the business a competitive edge in finding clients.

Examples

• Impact investors financed $10.6 billion in projects in 2014, with 91% reporting satisfactory financial returns.
• Companies like Patagonia blend sustainability with profitability, contributing to social change with every product sold.
• The real estate model donating to water wells shows how entrepreneurship can support communities directly.

2. Weaknesses of Traditional Charity

Charity has long been seen as a remedy for social problems, but sometimes it does more harm than good. Charities often prioritize minimizing overhead and cutting costs, which hinders their ability to create genuine change. The focus on cost-efficiency can prevent them from making lasting impacts.

When charity is misdirected or unchecked, it can harm local economies instead of helping. For example, free goods distributed to impoverished communities can undercut local businesses, leaving residents worse off. This illustrates how well-intentioned donations can have negative effects when not thought through carefully.

Moreover, the failure to measure social outcomes leaves a void where donors lack evidence of their contributions’ effectiveness. This issue makes charity less attractive to potential donors who want to see tangible results from their efforts.

Examples

• Muhammad Yunus critiqued charity for perpetuating dependency rather than solving poverty.
• The NFL’s free T-shirt donations in Africa hurt local clothing industries.
• Charities cutting essential administrative costs weakened their long-term social impact.

3. Recognizing Opportunity in Underserved Markets

The bottom of the economic pyramid—millions of people in poverty—is an untapped market worth $5 trillion. These populations crave affordable products that make life safer, healthier, and easier. Meeting their needs can be both impactful and profitable.

Poorer populations often live without access to basic services like clean energy or proper medical equipment. Offering solutions tailored to this demographic allows entrepreneurs to expand their reach while addressing pressing societal problems.

Companies like MTTS in Vietnam reshaped how babies were treated for jaundice by designing an innovative, efficient machine that properly served the community's needs. Businesses targeting this market must deliver quality products that positively impact people’s daily lives.

Examples

• MTTS created a functional medical device to serve low-income hospitals in Vietnam.
• Unilever amassed 60% of its 2015 sales revenue from emerging markets.
• Social enterprise d.light sold solar-powered lights to families without electricity.

4. Young Innovators Will Drive Change

Millennials, raised in an era of global connectivity, are uniquely equipped to push capitalism toward solving societal issues. This generation is motivated to act on growing problems like climate change and inequality, challenging traditional business practices.

Surveys reveal millennials overwhelmingly aspire to start their own ventures, favoring social enterprises over traditional corporate roles. This focus has inspired innovative solutions that emphasize ethics alongside profitability, turning entrepreneurship into a force for the global good.

Meanwhile, kickstarter investors provide the funding millennials need to drive these changes. Platforms like the Skoll Foundation not only give social entrepreneurs financial backing but connect them to networks of like-minded influencers who can amplify their impact.

Examples

• Millennials prioritize social good more than any generation before, with 67% wanting to start their own enterprises.
• The Skoll Foundation channels $500 million and offers mentorship to social enterprises.
• EBay co-founder Jeff Skoll exemplifies how personal wealth can fuel broader social change.

5. Solve Root Problems, Not Symptoms

Effective social enterprises dig deep to address the causes of problems instead of merely treating surface-level issues. This proactive approach creates enduring solutions rather than temporary fixes.

African Clean Energy exemplified this by creating stoves that lowered air pollution inside homes. They addressed the root cause—unsafe open flames—rather than just managing the health impacts of polluted air. Identifying and solving the underlying issues builds trust, demand, and long-term success.

To measure progress, social entrepreneurs must track both effectiveness (whether the problem is solved) and efficiency (whether resources were used wisely). Honest measurement empowers them to understand and refine their approach.

Examples

• African Clean Energy reduced indoor air pollution with eco-friendly stoves.
• Organizations measure the number of affected people to gauge impact.
• Metrics like IRIS help social businesses ensure they’re solving the right problems.

6. Scale for Wider Impact

Small-scale solutions cannot solve global problems. Achieving long-lasting change requires scaling efforts to reach more people and create a ripple effect that impacts entire communities.

Expanding a social business means designing affordable and replicable products. Lowering costs, improving distribution methods, and tailoring solutions for low-income markets are strategies that foster scalability.

d.light’s solar-powered light reached millions globally by embracing affordable materials like solar panels and LEDs. This model exemplifies how exponential growth ensures that the positive effects of social entrepreneurship truly leave a global footprint.

Examples

• d.light’s solar lights are now in use in 60 different countries.
• Affordable stoves in Africa help countless families while reducing pollution.
• Scaling up ensures that real solutions continue to grow and adapt.

7. Failure as a Stepping Stone

Failure isn’t an endpoint but a valuable lesson. The nature of social entrepreneurship involves risk, experimentation, and innovation. When a project falls short, the data can still inform better approaches moving forward.

Goldman Sachs’ experiment with social impact bonds in reducing youth recidivism didn’t succeed, but it illuminated pathways for more refined efforts. Mistakes pave the way for stronger systems and smarter interventions in the future.

Social entrepreneurs should focus on adapting quickly, reflecting on setbacks, and testing new angles to foster lasting improvements. Courage in the face of failure defines the entrepreneurs of capitalism 2.0.

Examples

• Goldman Sachs turned recidivism data into learning for future programs.
• Entrepreneurs evolve through trial-and-error methods, strengthening their work.
• Failed experiments often spearhead industry innovation or societal advances.

8. Kickstart Social Ventures

Kickstarter platforms and like-minded investors fuel modern social ventures. In addition to funding, these networks provide support systems, mentorship, and community, which enable entrepreneurs to start strong projects.

Recognizing that communities want to partner rather than passively receive aid, investors empower grassroots transformation. People are more motivated when they lead solutions rather than accept external aid.

The Skoll Foundation leverages networking and mentorship, not just funding. Such approaches ensure entrepreneurs are empowered to sustain lasting programs globally.

Examples

• Skoll Foundation recipients gain access to a network of previous innovators.
• Millennial entrepreneurs thrive when networks connect them to passionate backers.
• Kickstarter funding supports rural entrepreneurs tackling clean energy challenges.

9. IRIS and Social Impact Measurement

One game-changing tool for measuring progress is IRIS (Impact Reporting and Investment Standards). IRIS equips businesses to track outcomes quantitatively and demonstrate effectiveness to stakeholders and investors alike.

Well-organized data and tracking promote transparency, attract investors, and verify that businesses make real differences in people’s lives. Tools like these redefine accountability in modern entrepreneurship.

Metrics systems inspire businesses to continuously refine their models based on what generates the most significant change. Accurate tracking empowers entrepreneurs while furthering global problem-solving efforts.

Examples

• IRIS provides performance metrics for global impact businesses and investors.
• Measurable metrics inspire investor confidence and commitments.
• Reporting breakthroughs help business leaders scale ethically and transparently.

Takeaways

1. Leverage impact investment to tie measurable social progress to financial gains in your business model.
2. Use tools like IRIS to meticulously measure the effectiveness of your projects and communicate results to stakeholders.
3. Focus on systemic solutions rather than short-term fixes when tackling social problems.