Yes, I’ve been non-posting, as an admirably prolific (and worth reading) friend prodded me today. Time to lower my standards and share some of the memes flying by.
Today I told a friend the story – as I have heard it retold – of how Muhummad Yunus started Grameen Bank. I’ve just started reading his book (Banker to the Poor), so from his pen I know that he was teaching economics when famine hit Bangladesh and he decided that he needed to ditch the fancy book learning and get out in the field to see what was really going on in the world. Presumably, in a chapter or two I’ll hit The Story. The retelling is that he goes into the village and observes a woman making stools from something like bamboo. He asks her how much she makes a day and it’s pennies. Turns out she has to borrow capital from the local moneylender to buy supplies, and he lends her the capital on the condition that she re-sell him the finished stools at a fixed price. A price which he sets, low and behold, and only pennies above her costs. Yunus asks her if she could make more selling the stools elsewhere and she says she can, but she’s trapped in this loop. He does a survey of the village and discovers he can free several folks from such bondage for less than $50, which he decides to just lend out of his own pocket. I would prefer to do my readers the service of verifying this is actually his story, but it’s close enough for the purpose of this post which is not so much about his story but my friend’s response, which was: “He’s lucky the moneylender didn’t break his leg!”
Not something that came up at the series of micro credit events I attended recently, but a pretty interesting commentary on the difference between doing business here and doing business in a little village. As civilized as we may like to think the U.S. is, an aggressive countermove from the competition would likely have snuffed such a budding enterprise here. I was immediately reminded of comments by friends in the biodiesel industry about how the collection of waste oil is aggressively competitive. Waste management contracts are apparently fairly lucrative and therefore highly defended which in some cases includes physical intimidation. Some newer waste oil collection companies have had problems with their cans being dumped and run-over and flattened.
At the much more common, legal level, my spouse and I a couple years got to observe one company essentially snuff another with a nuisance lawsuit. (I’m surprised I haven’t already told that story, but I don’t see it in my blog.) Sure the instigator lost eventually, but in the meantime they had used their superior financial resources to drain and distract the market leader while they caught up and innovated ahead. Since this was a situation where network effects kicked in, company 2 moved into number 1 and was able to strengthen that position. Once strong enough, they used their market power to put the squeeze on all the participating suppliers. As a supplier, we were frustrated, but pretty helpless because on the Internet it’s all about ability to draw traffic, you need those intermediaries who can act as congregation points. Money as Power is really a problem of capital markets – you need to aggregate capital so you have power so your capital (and thus your investors) can ensure favorable treatment and a better return, but not many folks make it to be big and still play nice. Seems like folks get burned so much on the way there that any intentions for good are gone. I have another blog on this topic that I’ve held back because it’s depressing, but I’ll post it this week.
On a related front of why we don’t get more socially responsible business here, I had the honor of meeting David Green at a recent BGI session. He’s an Ashoka Fellow and successful practitioner of “compassionate capitalism”. He helped establish a self-funded non-profit in India that does cataract surgery, revolutionized the supply chain for the needed lenses, and is now working on doing something similar with hearing aids. He commented that it would be difficult to set up such a company in the U.S. because non-profits quickly run into tax issues with unrelated business income, and if that doesn’t happen they’re likely to get sued for unfair competition by their for-profit counterparts. That’s assuming he could successfully grow the business on its own revenue. From other enterprises I’ve seen that the reason to start out as non-profit is because it is possible to get startup capital as grants. It’s when you have some revenue and need expansion capital that grants dry up.
The challenge of finding growth capital for successful earned-revenue social-service organizations is a topic discussed by Jed Emerson, Tim Freundlich and Jim Fruchterman in their paper “Nothing Ventured, Nothing Gained” about gaps in the capital markets for social enterprise. Tim has co-founded a company to try to address those gaps, called Good Capital that will work to fund socially-rewarding revenue-generating enterprise across for-profit and non-profit, while generating a return on capital. I will be working there this summer: mid-June to the end of September. I look forward to learning and sharing some more rays of hope.