Is Recession a Good Time to Invest in Social Enterprises?

Linda Rottenberg is CEO and Co-founder of Endeavor, a non-profit that identifies and supports High-Impact Entrepreneurs in emerging markets. Since 1997, Linda has pioneered a new model for development that engages the private sector in mentoring and advising the most promising-yet-undiscovered entrepreneurs as well as jumpstarts entrepreneurial support networks in these economies. Headquartered in New York, with established operations in Argentina, Brazil, Chile, Colombia, Mexico, Uruguay, Turkey and South Africa, Endeavor is currently launching its model in Egypt, Jordan, and India.

Social entrepreneurs are problem-solvers, not idealists. We’re driven by innovation, not by charity. And we don’t believe in hand-outs. We use entrepreneurial strategies to achieve social change. Most notably, social entrepreneurs solve problems that governments and the private sector fail to adequately address.

In this current recession – in which more questions than answers have arisen about how to restart the global economy – social entrepreneurs are the voices of hope and the agents of change that we need.

Endeavor, the non-profit that I co-founded in 1997 which supports the most promising-yet-undiscovered High-Impact Entrepreneurs in emerging economies, addresses a pressing challenge common to all emerging markets: wealth is not meritocratically distributed. Entrepreneurs with the best ideas face significant barriers to scale their business: a lack of mentors, a lack of trust, a lack of networks, a lack of good management, and a lack of smart capital. Endeavor helps these entrepreneurs break down these barriers by offering the soft power of the private sector: mentorship, networks, talent, leadership skills, and inspiration. With Endeavor’s support, these entrepreneurs scale their businesses to create jobs, create wealth, and build a prosperous future for their economies.

One such entrepreneur is Shane Immelman from South Africa. Shane spotted a problem: over 4.2 million students in South Africa and 80 million across the entire continent lack desks. To remedy this, he designed a Lapdesk – an ergonomically-designed, portable desk made from plastic which a student could use both in the classroom and at home. Confronted by the next challenge of then distributing these desks to remote areas, Shane targeted corporations to brand the desks with their logos and socially-responsible messaging. In just five years, Shane has been able to deliver nearly 500,000 desks and has made a profit at the same time. Shane has visions of taking his model from 18 African countries over the past two years to be active in 60 countries globally within the next five years, including Africa, Latin America, South Asia and East Asia.  In doing so, he is eradicating a problem that emerging markets have not been able to tackle and giving children the opportunity for a better education and a better life.

Another example is Sameer Mehra, who runs Suminter India Organics, a company that helps farmers in Maharashtra and Gujarat convert small-scale farms to international organic standards. Once certified, Suminter India Organics buys farmers’ produce at a premium, and then exports the high-quality organic foods and textiles to European and US markets. In just five years, Sameer has created 100 jobs locally and has helped 4,000 farmers. With Endeavor’s support, by the end of next year, Sameer expects to have converted 7,500 farmers to these standards, giving these farmers an opportunity to compete in the under-supplied US$45bn+ organic-product industry.

Endeavor, Lapdesk, and Suminter India Organics are all social enterprises that came of age just before this global recession. There are three fundamental reasons that they will thrive in spite of the recession: A-team talent, strong business models, and smart risk-taking. These are exactly the reasons that investors’ interest should be piqued.

Let’s start with strong business models. Social entrepreneurs have learned important lessons from the private sector. When the movement began twenty years ago, there were no hard metrics to measure success, such as jobs created, percentage of regions newly powered with electricity, or students receiving secondary education. Each social enterprise learned to develop empirical metrics. For example, through rigorous research on our portfolio, we know that our 220 companies have created nearly 90,000 jobs and US$2.5bn in annual revenue in 2007.  We also track each company’s growth to help determine our own value-add.

Credible, results-oriented models have attracted talent to the sector. More and more professionals are sacrificing a little bit in compensation to use their expertise to help others thrive. Working at a social enterprise provides “psychic equity” to employees, which, even if they return to banking or consulting, they will carry the experience with them. Indeed, at present, Endeavor receives approximately 50 resumes each week from talented people who have fallen victim to the economic crisis. This influx of talent is exactly why now – amid this recession – is the right time to invest in social enterprises. For, as every investor and every entrepreneur knows, only companies with the right team and the best talent receive capital.

The day that Lehman Brothers collapsed marked the beginning of a new financial era.  As banks struggle to support established businesses with working capital, while stock markets continue to decline, and while consumption decreases, the private sector has become risk-adverse and is failing to restart the economy. Increased pressure has been put on the government to restart the economic engine.  Government cannot do this alone, nor – despite its best intentions -can it act with the urgency that this recession demands.

Everyday, the news features a litany of social problems: climate change, inefficient health systems, and water scarcity to name just a few.  For most people, these challenges are depressing. But for social entrepreneurs, these are the opportunities.

And that is also why social entrepreneurs – those innovators who have fought for so long with so few resources to show that their ideas are effective and scalable –should play an instrumental role in escaping this recession. Social entrepreneurs align interests: they are innovative, they can be profitable and they have the potential to have a massive, transformative impact. If I were an investor in this current climate – where there is little low-hanging fruit, let alone an IPO on the horizon – I’d take the risk on social enterprise now and help the world build a better future for tomorrow.

Endeavor is a non-profit that identifies and supports High-Impact Entrepreneurs in emerging markets. Endeavor engages the private sector in mentoring and advising these entrepreneurs and catalyzes entrepreneurial cultures in developing economies.