Senior Management

Fueling Profit and Progress

Many people have created charitable organizations to address health, education, and other societal problems in emerging economies. But can you address such challenges while earning a profit? Participants in the most recent Wharton Advanced Management Program, which ended in July, were given the following assignment: Create a profitable business model to do something good for the world.

"Why can't we build businesses that help people and make a profit?" asks Professor Ian MacMillan who led the session. "It is great to do good, but can we make money doing good? That way we can build these self-fulfilling prophecies where the more money you make, the more people you can help."

The resulting for-profit solutions to societal problems included a network to support immigrants working in foreign countries, an educational project to improve rural distribution in India, a waste plant to deal with China's growing garbage crisis, alleviating poverty through wireless payphones in Sudan, improving village health care in Nigeria through raising cows to produce milk and generate electricity, enhancing rural life in Ethiopia by helping small farmers improve coffee productivity, and creating mobile eye-care clinics in rural India.

Global Perspectives Yield Multiple Solutions

The teams that created these business models drew upon diverse perspectives from different industries and parts of the world to develop seven unique business models:

• The World Immigration Network (WIN) would offer help to people working abroad, from finding positions to transferring remittances. WIN would help with the immigration process, offer travel assistance, and provide a social network with other migrants. It would also offer services to employers looking for qualified workers. WIN would start small, initially focusing on placements in Demark for workers from the Philippines. The venture would require a $400,000 investment and would reach break-even by the third year, when the company would be valued at $4.2 million. The societal benefit would be that the company will put money back into the pockets of immigrants and their families, prevent employers from exploiting immigrants, and reinvest in the local communities.
  
  
• A second company was designed to provide rural distribution in India by setting up training academies in rural villages to build the human resources for the network. The company would use microfinancing and government grants to provide tuition assistance to students. The project would start with a pilot in Uttar Pradesh, helping to prepare students to work in distribution for telecom, consumer electronics, staffing, insurance, and other areas. Revenue would come from tuition fees, placement fees from companies, and administrative contract services for companies that didn't want to hire employees directly. The team projected earnings of $1 million after two years, addressing the needs of companies while building the knowledge and earnings of local workers.
  
  
• Clean the World would address the rising problems of pollution in China (where the leading cause of death is related to air pollution) through an autoclave incineration plant. The cost of pollution is 7 to 10 percent of China's GDP, and the country will collect 108 million tons of garbage annually by 2010. The project would begin with a plant in Guangzhou province. Autoclave plants, already in operation in the U.S. and U.K., can recycle about 80 percent of garbage, turning it into useful sterilized fibrous foam which can be used to make low-cost housing and textiles, or to enhance fertilizers. The proposed plant could handle 100,000 to 300,000 tons of garbage per year. It would take about five years to prove the concept and a $9 million investment, which would be paid off through disposal fees (currently at $5 per ton, while the operating costs of the plant are $3.70 per ton). The plant could be turned back to the community in five years.
  
  
• Noggara (the Sudanese word for a wooden drum) would help alleviate poverty through wireless payphones in Sudan. The current mobile penetration in Sudan is 22 percent. The project, in partnership with wireless company Zain and banks, would offer Sudanese villagers financing for equipment and free solar chargers so they could resell airtime to customers. It would offer both single-line handsets for small entrepreneurs, providing branded umbrellas and chairs, and five-line sets for cafés. A 2006 UN Telecom report established that a 15 percent increase in mobile penetration resulted in a 1 percent increase in GDP growth rate. Solar chargers would benefit the environment, so there would be a "triple bottom line" result: social, financial, and environmental.
  
  
• Elina, Inc.'s "Golden Cow Project" would help local villages in Nigeria produce food and power by raising cows. The project would provide cows to villagers, as well as equipment for generating much-needed power from cow manure. The proposed herd of 83 cows for a 100-person village would generate enough power to keep houses lit all day. The milk could be sold to the local dairy company at a wholesale rate of 55 cents per liter, and profits from the sale would be split between the community and the company. The project would start in one village and ramp up to 100 in five years. It would be projected to produce $1.5 million in profit in five years.
  
  
• Another company, created by the Global Learning Team, was designed to work with small coffee producers in Ethiopia to improve their coffee production and use the profits to provide health care. Coffee is the country's largest export, involving 700,000 small farms. On the other hand, health care is underdeveloped, with only 2.6 doctors for every 100,000 people and only 119 hospitals. By improving irrigation and farming practices on small coffee farms, the farmers can generate more income. The project would hire expert advisors and pay for fertilizer to improve quality and productivity. With the improvements, the farmers could earn more for their crops, working through local cooperatives in partnership with global firms. By the third year, the project would finance health care for the farmers.
  
  
• The final team addressed blindness among children in rural India through offering simple cataract operations. There are 4 million cases of blindness in India due to cataracts. A simple eye surgery can restore sight, costing $45 with NGO support, or $150 without support. The project would work on a prepaid model, and patients would receive rebates for bringing in new patients. It would require an investment of $100,000. The company could perform 2,500 operations by the third year, when there would be positive cash flow. The team also noted that the rural networks created could be used for other social ventures.

Lessons of Societal Wealth Creation

At the close of the presentations, MacMillan and the executives summarized some of the lessons from these societal wealth creation projects, which might apply to any startup:

• Start small: "If you start small and it doesn't work, it costs you very little," MacMillan says. "These projects are uncertain, so we don't know what the outcome is going to be." These small experiments can be guided by a framework such as "Discovery-Driven Planning," a tool created by MacMillan and Rita Gunther McGrath for tracking and testing assumptions of a venture before making new investments. "Keep costs low. You don't want a lot of assets or fixed costs until you've earned the right to those assets. It takes a lot of imagination and creativity."
  
  
• Borrow from past successes: There is no need to invent new models. Many of the ideas presented were borrowed from the private sector or other parts of the world. "If you modify it from somewhere else, that increases your probability of success and reduces the cost of failure," MacMillan says.
  
  
• Fold in the failure rate and competition: Don't forget that there will be failures. Recognize this, or you will end up with overly optimistic projections for the future. Also recognize that there will be competitors. For societal wealth creation, competition can be a very good thing since the more organizations are focused on a challenge "the more the problem gets solved." But planning should recognize competition and create strategies to stay ahead.

Participants noted that the exercise not only allowed them to see opportunities for societal wealth creation, and profits at the "bottom of the pyramid," but also made them appreciate the power of teamwork. As one senior manager says, "We appreciated our diversity. The contribution of each individual was important in making the teams successful."

A Profit Discipline

While not every social venture will earn a profit, the discipline of trying to design a profitable solution to a societal challenge can lead to better solutions. "It doesn't matter if you make a profit, but get as close to profitability as you can by imposing that profit discipline," MacMillan says.

"We can't solve all the world's problems," he says. "We can't solve a given problem for all people. The key is to start somewhere and make a difference somewhere. As you go back to your companies, bear in mind what you have been through with this exercise. There are so many things you could do to make a difference in the world."

• Advanced Management Program
• Wharton Societal Wealth Program