Key BusinessLessons for Social Entrepreneurs
Bret Waters is a business advisor who has spent his whole life in Silicon Valley, immersed in the world of entrepreneurship, innovation and venture capital. He has been Founder and CEO of three software companies and for the past ten years he has taught entrepreneurship at Stanford University and coached startup CEO’s at Miller Center for Social Entrepreneurship.
Sho Links:
Imperfect Show Notes
While these notes are not perfect (AI translation is still improving), they give you the gist of the conversation. Enjoy!
My conversation with Bret Waters:
Morgan Bailey 0:02
Hello, and welcome to the profit meets impact Podcast where we explore the intersection of doing well and doing good in the world. I'm your host, Morgan Bailey. And I'm excited to bring you the wisdom of entrepreneurs and thought leaders that are using business to create sustainable and meaningful change across the globe.
Today, we are talking with Bret waters. He has spent his whole life in Silicon Valley immersed in the world of entrepreneurship, innovation and venture capital. He has been the founder and CEO of three software companies. And for the past 10 years, he has taught entrepreneurship at Stanford University, and Coach startup CEOs of the Miller Center for Social Entrepreneurship. Bret, it's a pleasure to be having this conversation with you. Hey, Morgan, thanks for inviting me. You know, Brad, it's funny, I stumbled a little on your, your, your piece, when I said entrepreneurship because I immediately want to add social entrepreneurship directly in front of it, which is how I associate you. We're gonna we're gonna get to that. Okay, so I'm kind of curious what what brought you to today in terms of what you what you do and how you help businesses?
Bret Waters 1:12
Well, as you said, in the intro, I've been a startup guy pretty much my whole career.
And
so I'm passionate about, you know, kind of the process of creating a startup.
And today, kind of in my role today at Stanford,
I study the the factors that tend to drive the success or failure of startups. And the to question about your today and social entrepreneurship, I guess I need to tell the story, the first time I ever heard the term social entrepreneurship, which is, after having after having run some software companies in Silicon Valley, then I ran a couple of nonprofit organizations, a couple of 501 C three organizations, both of which were focused on on K 12 education, and become very much aware of how different the nonprofit world was from the commercial world. And in honestly, I found the nonprofit world a little frustrating in many ways, having come from, from traditional startup world. And in one day, about 15 years ago, I met a guy named Jim Cook, who was at Santa Clara University, he had been the He was a retired Dean of the Business School. He also spent some time as the Dean of the School of Engineering. And he was retiring as Dean of the Business School and creating a new startup accelerator program on campus at Santa Clara University. And he told me that it was going to be a startup accelerator program for social ventures. And I said, Jim, that's really cool, what the hell is a social venture. And he explained to me, there's kind of this notion of a hybrid organization that is focused on impact, but is kind of harnessing market forces. And it has an earned income model associated with their operations. So kind of a hybrid between a traditional startup and, and a nonprofit. And Jim was one of those guys who just spoke with tremendous gravitas. And within a few minutes, I was just totally, totally all in on the concept. And so I, I've been a volunteer with this new center that he created for 15 years now.
Morgan Bailey 3:41
Amazing. And so, you know, I'm imagining, you know, again, you've lived these different worlds, both in the entrepreneurship space, also in the, in the, in the space of working with nonprofits and purely impact focus. Right. So what you know, as you when you think back to those early early days, like what what kind of caught your interest in terms of the merging of the two.
Bret Waters 4:06
So here's the way I think about it is that the the traditional charity model has always been, there's a, there's a famine somewhere in the world. The charity goes out and raises a bunch of money from donations, and then ships in some food in order to feed the people who are suffering from famine. And then they move on to the next humanitarian crisis somewhere in the world and raise some money from donors for that. And there's no sustainability to that on either side of the equation. There's no sustainability on the income side in that you just raising money from donors. Every time there's a humanitarian crisis. And then you got to start over again. And the fundraising for the next Unitarian crisis is also no sustainability and the impact side right, so we thought we fed some people for a few weeks in order to leave We ate the famine, but we never addressed the underlying causes of the famine. And so, you know, to me, that kind of traditional charity models kind of has very little sustainability associated with it on either side. And so what really caught my attention with the social entrepreneurship concept was that we're focused on we're focused more on the impact side, we're focused more on addressing the sustainable issues, I'm sorry, the systemic issues in order to create sustainability to the impact. And on the money side. In the perfect world, we have an earned income model that gives sustainability to the income side as well. So that's, that's what caught my eye.
Morgan Bailey 5:40
Yeah. And that makes it you, you reminded me of a story of some of the work I did in East Africa. I remember one of my first trips out there, there was a mission that we're partnering with there when we were doing some sanitation work at a primary school. And we heard that recently, a donor had come in with a goal that he wanted to feed 1000 people in a day. They put all these resources out there to feed 1000 people in a day. And I remember it struck me both is odd. And actually, actually, it made me angry, right? Because I'm like, Well, who is this really about? It's not about Yeah, sure, people are going to get a meal for a day. And this person is going to feel like take some photos and feel that they've made this big impact, but really like what is the long term sustainability of that? That doesn't, that doesn't truly serve anyone
Bret Waters 6:36
to perfect, perfect example. Perfect example.
Morgan Bailey 6:38
So So talk to me a little bit, right. So what what is what is inherently different about running a social venture than running a nonprofit?
Bret Waters 6:54
So as it turns out, I'm writing a book right now about about creating a startup venture. And I have a chapter on social ventures in which I say, I think it's about 85%, the same. And then I addressed the 15%, that is different. And so here's what the 15% is different look like. First of all, distinguishing between contributed income and earned income. So contributed income is donations. Earned Income is income that we earn from operations. So in the old fashioned charity world, most of the revenue is from contributed income donations. But every once in a while we have a bake sale, or we sell T shirts. And that's earned income, right. And so that's kind of the first thing is making that distinction in your head between contributed income and during the income. And that, for many social ventures, you know, the goal is to get off the ground with contributed income, but then to have a sustainable operation that can exist in the long term off of earned income. So that's first thing is distinguishing between those two. The second thing is that in your little story about the donor, and he's Africa, illustrates the fact that with social ventures, they're often kind of multiple stakeholders. And so your customers may be different than your beneficiaries. And so a little story that you told the donor really is the donor is really the customer, right in the sense that the donor is giving you the money, and telling you what benefit they want to receive for the money in this case, the the benefit he wanted, was he wanted to feel good about the fact that he fed 1000 people. But then you also have the beneficiaries are the people who you fit, right. So with many social ventures, you have this kind of multiple personas to think about within within the ecosystem. And you need to be providing benefits in some way to all of those personas. Right.
Morgan Bailey 8:53
Go ahead. Yeah. And so much in some ways, so that that makes the that makes the model quite complex. Yes, for sure. Because when it comes down to I mean, ultimately, you know, nonprofit, for profit, social venture, you're looking to drive value. Yep. And value can get really complicated when you have so many different stakeholders, right? You have to articulate it differently. You have to measure it differently. And I think from some of my experience of you know, when I when I worked in the in the nonprofit sector, and when I was kind of helping shape the business model for nonprofit that I was working with at the time, the question of how do you how do you actually define value? How do you define revenue? Right? Is is it what is the quote unquote, bottom line? Right? Yeah, there is no universal bottom line when it comes to when it comes to a nonprofit, or as a social venture. If they're a for profit organization, they you know, they have the impact side, but really, they also have a bottom line. And I'm curious what having a you know, what we call the bottom line or the triple bottom, but having some bottom line How does that change the business model that they dynamics or how you think about running a business?
Bret Waters 10:07
Yeah, well, this is me, this brings me to my next point about differences between a traditional for profit. And a social venture is with a social venture, you usually have both a business model that is producing earned income. But then you also have an impact model, right, you have a theory of change, and an impact model around your theory of change. And as you just alluded to the, with regard to financial performance, we have a bunch of well accepted, standardized, excuse me standardized ways of measuring the financial performance of an organization, right, we have generally accepted accounting principles, we have certain financial ratios that we look for, right? So we have a, we have a established toolkit for measuring the financial performance of an organization. But as you said, there is not a standardized toolkit for measuring impact. There is this notion of impact metrics, there are a variety of organizations out there that have tried to create some standardization around it back metrics, but it's a very squishy thing, right? You know, how do we measure the effectiveness of our impact at the end of each, each quarter the end of each year at the end of each five years? And so you are trying to manage the business against two sets of metrics. One is the standard financial metrics, we still got to somehow another, we got to have enough income to cover our operations. And also the impact metrics. And so your question about how do you think about that? How do you prioritize that, I think is one of the reasons why running a social venture is hard. It's harder in many cases than a traditional venture, because you kind of have to Northstars now, I realized astronomers will tell me that there's a way to have to Northstars but but you'd have to run the organization in a way that is financially responsible. But you also the whole reason you're there is for the mission. I was it was it was talking the other day to social entrepreneur who runs an organization in in in West Africa and Ghana and Sierra Leone. And the impact that they are focused on is helping smallholder farmers to generate better livelihoods for themselves through agricultural methods and inputs that increase the yield of their smallholder farms. And the earned income model is that they, his organization, Chris's organization, sells inputs to farmers inputs being seeds, and fertilizer and all the stuff that goes into creating this year's crops. So they sell those to them at a profit. And then they also buy the the harvest from them in order to give them the best possible price. And so I said, I posed to Chris, this exact question he was posed to me, which is that how do you balance the the financial objectives, the business objectives, the organization with the impact objectives, your organization, and he said, you know, that he felt lucky, because in his case, they were the same thing, which is that, which is that all he cares about is is making farmers better, more efficient, improving their their livelihoods. And if he does that, it creates the social impact. And also, if he does that, then farmers will come back and continue to buy more stuff. And so he's in a fortunate position in that he's only got one Northstar, which is helping smallholder farmers create better yields for themselves and better livelihoods for themselves and their families in both the business model in the impact model rely on that exact same thing. Yeah, absolutely.
Morgan Bailey 13:58
It brings to mind. That, you know, I often think there's, you know, there's, there's a few different business models when it comes to making an impact, right? Yep. And I would say one of the most traditional ways for a for profit organization is to externalize the impact, which generally means you donate you give somebody else's in charge of the impact, that's very common corporations donate money, they support foundations, that impact is externalize to how they're actually operating the business itself. Now, there's, and then there's, there's the model of like TOMS Shoes, right, where there's impact built into the business model. Right? And so, you know, buy one, you know, give one sort of thing. And, you know, and that and that has its place. Now, there's the other part, which is kind of integrated impact in which you can't actually do bit like the way you've set up your business is actually driving impact in the very nature of how you due business itself, you know very much to the situation that you, you just you just mentioned around the farmers, right. And that's generally it, it can be the more you have to, you have to be a lot more intentional about saying business model. But if you think about every everyone from your supply chain, you know how you're supporting people, your employees, just like the very nature that you know, this business exists, like how they're doing business is geared towards making a positive impact. Yeah. And so, you know, just you kind of remind me of those those those different models. And I'm curious, I'm curious for you, right, when you when you all your experience of businesses, like how, in the like, how are you seeing this evolve? Like, how are you like, what, what sort of business models are people using to help drive impact.
Bret Waters 15:51
But first what you mentioned TOMS Shoes, but first want to briefly tell the story about how, when I give a lecture on on social ventures, the young white eyed students typically love the idea of social ventures, right? Because they're all about helping to save the world. And somebody always brings up TOMS Shoes. And they say, Toms Shoes, no shoes is a great social venture. And in order to be provocative and kind of get a good classroom discussion going, I always say, Yeah, Toms Shoes, that's a marketing gimmick. That's not That's not social. That's not just entrepreneurship, it's they discovered a marketing gimmick, which is if you if you say every pair of shoes you buy, we will donate a pair of shoes to the developing world, it sells wear shoes, right? But you know, if you look up TOMS Shoes, they are a for profit organization, you know, they're you know, so I would not call them a social venture, I would call them a smart company that has discovered a really, really terrific successful marketing gimmick in their brand is now forever associated with that marketing gimmick. Right. And so as I said, partly I say that are to be provocative and get a good classroom discussion going. But it also illustrates what we may get to later in this conversation, which is, you know, greenwashing and to what extent are organizations who position themselves as being impacted? Focus? To what extent are they actually creating impact? But let's say your original question had to do with different business models that Right, exactly. So, um, so I'm working with right now working with a startup in, in East Africa, through Miller center, that I think is a really great example of, of a kind of a multi dimensional social venture. And here's how it works is founded by this woman, Charlotte, who grew up in, in the poorer parts of Nairobi. And everybody tends to cook on charcoal in the poorer parts of Kenya because it's a cheap and available way of cooking your food. But there's all kinds of negative externalities associated with charcoal, right? You got the carbon in the air, you got kids getting kids getting burned, you get families breathing, noxious fumes.
Morgan Bailey 18:17
And so massive deforestation as well as massive deforestation,
Bret Waters 18:20
right. And so Charlotte is developed a more efficient cookstove that can be made from from recycled metal, and in sold to families at at a profit. She sells a stove for about 10 bucks, costs around five bucks to make the stoves and it gets people off of using charcoal gets them on to using these little briquettes that they've developed that are much more efficient and don't have all the negative externalities. And, and to sell these stoves throughout East Africa, she recruits women to be to be resellers, the women kind of create their own little business reselling these, these stoves in villages throughout East Africa. And so this is a social venture that has first of all has an earned income model because we're making stoves for five bucks, we're selling them for 10 bucks. Secondly, it's got it's got social impact in terms of kids not getting burned by charcoal, not breathing, the crap, etc. It's got environmental impact, because we're reducing deforestation and reducing carbon emissions into the atmosphere. And it's an economic development play in the sense that we're, we're using women, we're helping women to create their own businesses reselling these stoves, right? So that's kind of the Grand Slam win in the in the in the social entrepreneurship world, is that we have something with an earned income model is developing positive social impact. It's developing positive environmental impact and it's providing economic development.
Morgan Bailey 19:56
Absolutely. And that kind of goes to that that model Talking about like the fully integrated, like, just by the very nature of how business mean done, you know, on on multiple different fronts, it's making that impact, right. And you could see I mean, you know, when you look at the business model, you can dive into a lot of things to figure out well, how can this continue to make a broader impact such as How was the metal sourced? Right, how was that done? What does that supply chain look like? Who is that replying? Right, so that that that could have a bunch of positive impacts as well to the charcoal briquettes? Yeah, how are they? Are those being used? Are they are they being used by material that would would have gone into a landfill? You know, and so there's all these different ways you can really just be intentional about how you're how you're making that impact. Your how you're setting up your business to really create that integrated business model. So, question for you. Because what I'm hearing is, you know, this is this is clear, you know, it's a, it's a, it's a, you know, the stove business is clearly has a social environmental impact. Now, are, is it possible? Yeah. What is your thought on businesses that don't necessarily have a very clear impact focus? Like, is it you know, what does it look like? Can Can they also be social ventures or, in your mind, do social ventures purely have to have a, you know, a clear beneficiary kind of at the other end?
Bret Waters 21:27
I don't know. I think that, I mean, provably proving livelihood livelihoods kind of is the most powerful thing of all right? If you think about to be thinking about how, you know, what do we care about, we care about education, we care about economic opportunities for women, we care about people being able to make decisions, make purchase decisions that are aligned with environmentally sound decisions, and I say, recite, bring this up is that, you know, I would say environmentalism is the luxury of the rich, right, in the sense that, you know, poor people can't really make decisions about buying products that are eco friendly, because they just have to buy products to get their family alive. So you need a certain level of family income to even be able to start making these kinds of decisions. So my point is that kind of at the base of all of these different things that we care about, is simply improving livelihoods include improving income, because then all of a sudden, you can send your kids to school, we can build schools who do all these other things. And so there are plenty of examples around the world of entrepreneurs who are, who are helping livelihoods. They're providing jobs, they're providing access to knowledge, access to technology tools. And so the social impact may be indirect, right, in the sense that what they're really doing is they're improving livelihoods of people in their community. And that has all kinds of indirect impact on these other things that we care about education and health and women's economic opportunity, etc. So do we say that they aren't really social ventures? I don't know. So the short answer to your question is, I'm not sure how to define it. Because I think there are plenty of organizations out there that are having tremendously positive social impact, even though, you know, they're not directly focused on impact, per se.
Morgan Bailey 23:28
Yeah, and I think that I think it's a really important point, you mentioned there. And, you know, and I think any business has the potential to create that impact. Sure. And I think one of the things that businesses have to weigh is that, you know, it's kind of, you know, at the cost of what, like we're creating, we're creating economic impact at the cost of what, right, and then how do you how do you determine what that balance looks like? So, you know, you take all the oil and gas industry, no doubt is creating jobs. But we also think at the cost of what, yeah, and so I think when we think about that, we do have to, to really look at the negative impacts of the business well, and I think as a society, I think we're now starting to kind of look at, you know, you know, we're starting to draw a little bit more of a line in the sand by saying, yes, yes, this is contributing in some ways, but it's having such negative long term impacts that outweighs the negative impacts.
Bret Waters 24:28
Yep. Yep. So you a few years ago, is ck Prahalad was a was a professor of work. It came up this book called The Fortune at the Bottom of the Pyramid. And he wants to talk to him about the book is that we need to stop treating people the bottom pyramid as being charity cases and start treating them as being partners. And so in many of the examples today that you and I would think of as being successful social ventures Ah, that's exactly what they're doing. They're, they're, they're kind of partnering with people at the bottom of the pyramid in order to help their lives better, as opposed to simply treating them as, as charity cases. Do you agree with that?
Morgan Bailey 25:14
Yeah, you know, I mean, when you look at, you look at, like, let's say, the case of China, right now, China has spent a lot of money on economic development, you know, over the past several decades, and it's done a lot to, to, to move people out of out of poverty. And a lot of the way it's done that is by by improving not only the, you know, the economic income, but but also the economic power to buy into purchase, and to kind of bring people into the, into the larger economy as a whole, which is, which is, which has done a lot. And so I think, you know, when you look at like, what is economic power, you know, we say of like at the bottom of the pyramid, it's quite significant. And I think for a long time, people have looked at this as charity cases. But there have been a lot of social ventures across the world who said, actually, this is a very, this is a very strong economic base, that that show, despite what people said, it has both earned earning potential, but also spending potential that I think people that people don't always think about. And so I think I do absolutely agree with that. And I think what's been born out of this is, is a lot of the social entrepreneurs we're talking about are coming from lower income communities, because they see that, you know, I think we're the word and western model may be kind of stuck in this charity mindset. There, you know, there's so many social entrepreneurs that I've worked with who are coming from low resource settings, who say, Hey, look at all this opportunity here. Like, let's let's capitalize on this, because there's, there's a massive potential for revenue, as well as social impact.
Bret Waters 26:57
Right? Right. And this is kind of you look at.
So if you look at kind of the history of business over the last, let's say, 100 years, there was a time when in order to be a successful business, you really had to focus on the populations where the money was right. So there was no sense trying to sell goods and services to the developing world. And so you need to focus all your energy on selling goods and services to people who had money to buy them. And now there's this realization, as you just articulated, that there's all kinds of opportunity and other parts of the of the world in terms of the population base, it's larger. And what does that shift had to do with I guess, part of that shift has to do with technology. And that actually leads me to another point I'd like to make, which is, so FinTech financial services, technology has been a big sector for the last 10 years or so. And one of the things one of the positive social impacts of FinTech, even though Fintech is not, you know, it's not a social, it's not an impact focused sector. But one of the positive impacts that FinTech has had is that there's a very large unbanked population in the world, right all over the world is unbanked people. And they have not had access to financial services at all, because banks have never cared about trying to serve those people. Because the critical banks can't make any money off of poor people. Right. In Brazil, for example, Brazil had up until maybe 10 years ago, two thirds of the country was unbanked. Because the big banks, they're only focused on providing services to the people who have money, because they wish other people they could make money from. And now with new bank and some of the other digital banks that have launched in Brazil. Suddenly, because of the efficiencies of technology, they can provide financial services to low income people. And for low income people to suddenly have access to Financials basic financial services, is a huge driver for improving their livelihoods. And so I think this is an interesting example of how FinTech companies, even though they're not impact focused, per se, have had a tremendous positive social impact around the world because they brought the power of financial services to people who banks have traditionally simply ignored.
Morgan Bailey 29:35
Yeah, and that's a really interesting point. Because one of the things that I remember when I was when I was working in East Africa for a decade ago, that the they had this technology called M PESA. Yeah. Which in essence first first mobile payments. Yes, first mobile payment. It was a digital wallet, and anyone with a cell phone and almost everyone And no matter what your socio economic status, you have no Payza account. And it was very easy. And I remember coming back to the US, and we didn't have that there was no Venmo. There was, there was no cash app. It was. And I was like, why? Yeah. Why is it and you could see how much it was changing the economy. Yeah. In, in East Africa, which is really, really significant. So I think you're absolutely right. And at least two of these, the social ventures that I've worked with recently, are focused on financial services. You know, in addition over using a digital platform for people in low low resource settings, and specifically because you know, not only two people lack access to banking services, but they also don't have a credit history a credit score, right? Now, there's a big push to say, Okay, how do we how do we pull these these individuals into, into the banking system in a way that actually helps them get access to capital? Because access to capital is one of the greatest things to be able to move your socioeconomic status? Absolutely,
Bret Waters 31:05
absolutely. It let's make sure in this conversation, but let's make sure we're giving credit to Muhammad Yunus and the Grameen Bank, who really pioneered this whole thing 30 years ago?
Morgan Bailey 31:15
Absolutely. Absolutely. And I'll put a link to that in the show notes. So you said something early on, that captured me that I was like, who I want to know, I want to hear his thoughts on this. And you talked about, you know, some of your work with entrepreneurs is trying to figure out what are the what are the things that prevent them from being successful? Right, what are the biggest roadblocks that entrepreneurs hit? And I'm curious for you, particularly with the lens of looking at social entrepreneurs, right? What are what are the sort of what are the areas that you typically work with social entrepreneurs on most are the kind of roadblocks they hit are the skills that people need to know in order to be able to create a successful social venture?
Bret Waters 32:00
Well, I was I always joke about, in my work, Miller center, when I've, one of the patterns I found on social entrepreneurs as they tend to be, they didn't be long on passion and short on Sprint on Sprint spreadsheet skills. In other words, they don't, you know, they they're very, you know, they're, they're very deep on the passion side. And many of them haven't run businesses before. And kind of short on the on the financial analysis side of things. And so a lot of my work has been kind of helping, helping them to improve their financial modeling skills and such. And I think that it's certainly true that a lot of social ventures have had failed just for that reason, because the numbers, the numbers have just really never worked out. So that's one thing. Another thing is, you know, so with entrepreneurship in general, one of the leading causes of startup and death is, is an entrepreneur who builds a product that that he or she thinks is absolutely awesome, and that customers need, and spend a whole lot of time building this product that they thought up and think it's awesome. And then you get out there in the field, and you find out that customers don't actually like it very much, right, it's a, it's a leading cause of startup deaths still today is startups that develop a product or a service that they are sure will be a hit. And it turns out, it doesn't serve any actual customer needs. And so I think that certainly in the impact world, we see this over and over again, as well, that you know, that it. For us as a as a social entrepreneur who grew up in the West, we bring a western point of view, to developing products and services that we think people in the developing world need. And that may or may not align with what the people in the developing world think they need. So I think this is still a pretty common common failure pattern. And I think the way you you know, the way you get around that is the same way you do with any startup, which is, you know, before you start developing the product, spend a lot of time out in the field talking to customers. And so in the social impact world that may be spent a lot of time talking to your desired beneficiaries, in order to really understand their world. You know, the D school at Stanford developed this framework called the design thinking framework, which is kind of a framework for developing products that succeed. And the first step on the design thinking framework is empathy. Meaning that you can't develop a successful product until you first fully empathize with the product that that the person that that product is going to serve. You have to stand in that person's shoes and really, really immerse yourself in their world before you can start develop a product that will successfully address their needs. And so as I said, I think that if I was giving one piece of it advice to any social entrepreneur, that's the piece of advice I would give them is be sought before you start developing your product or service, make sure you spend some time really empathizing with the people you're going to serve.
Morgan Bailey 35:11
Yeah, absolutely. And yet, what comes to my mind is something I always I always tell people is be obsessed with the impact, not the product.
Bret Waters 35:20
be obsessed with the impact of the product. Right? Exactly. Yeah. Yeah. And yeah, and because, yeah, yeah. And the other way, so no sure that framed is you, you marry the problem, not the solution. Right. So you know, so the problem is they focused on but you want to be flexible with regard to what the best solution to that problem might be? You don't marry you don't you don't marry the solution? And you marry the problem?
Morgan Bailey 35:44
Yeah, absolutely. I mean, there's, there's countless and countless examples of businesses that start out with one product, you know, when and you're beta tested that with, with their, their third target group, and find out that actually, there's this one part of the product that we actually didn't really think about, that people really like, and it's a completely different business model. Right. And, and the this ability to, to pivot, right. And I think it's one thing definitely with, with entrepreneurs, and in the work that I do with entrepreneurs, and businesses, really just, I mean, having a bit of an agile mindset, I should test iterate to MVP to kind of to fail fast, to be able to get that information. Because one of the areas that I see that businesses struggle most often, particularly in the business is like they have an idea. And they get so stuck on the idea and developing the idea and everything around the idea that they don't spend that time that you're talking about talking with their customer segment.
Bret Waters 36:51
It's a very, very, very common pattern.
Morgan Bailey 36:53
Yeah, absolutely. And, you know, so to get that to get all that data, and that information is really just critical to be able to really understand the larger context that you're working in. So So I mean, in the kind of work thinking about this, this business model, you know, one of the other areas that, that I know, that I've come across with social entrepreneurs I've worked with, right, if sometimes there's this bifurcation of, of, you know, having a successful, you know, you know, profit, profitable business, and then the, and then the impact side, and sometimes there are trade offs to be made. Sure. And I remember I was working with one social entrepreneur who was based in West Africa, and, you know, their, their business model was, was to provide food in bulk. So people could pool their money to buy food in bulk at a lower price was actually delivered to their door. And in doing so they contracted directly with farmers to be able to provide farmers with consistent income, because there's usually a middle person who is kind of controlling the prices on either side, right. And so that was bad for consumers, span for farmers, right farmers, you know, they said, Hey, we could have a crop that is driving this revenue one year, and then something could shift, and then all of a sudden, that crop is worth nothing. And that was an issue, right? So they're contracting with both the farmers, as well as with the, with the consumers. And they came across this, this challenge of say, Okay, we actually we want to pay our farmers even more, right, we see the need for that. But we're currently, we're currently a little strapped on cash flow, right? Like if we, if we, you know, give that impact that we want to have right now it's going to hit our profitability. So I'm curious for you, how do you help? How do you help entrepreneurs walk that line?
Bret Waters 38:54
So I think that the first thing you know, so you use the word bifurcate, which is, I think the way naturally, we tend to think of it, there's the impact side, and then there's the profit side, and, you know, never shoulda to, to meet. But there's plenty of examples in the social entrepreneurship world of companies that successfully operate in order to optimize both of those things. And, and companies of every kind have to balance have to balance certain things. For example, even if you're running a regular old company, there basically is kind of one lever where you're either managing for growth or you're managing for profitability. And growth usually comes at the expense of profitability. And then you can pull the lever the other way and manage for growth for a while. And so every quarter, you're just deciding where you want that lever to be for that quarter. And there's a million million other ways in which there are decisions that you make in running a company where you need to choose this quarter to be optimizing either A or B, but getting a in better shape is going to help get be in better shape. And so I just think that in the social entrepreneurship world, you know, we do have, you know, multiple dimensions to the model, we got the business model, and then we've got the impact model. But, you know, instead of thinking them as thinking of it as being a zero sum game, that by focusing on this, I'm going to be abandoning the other, I think you just have to look at it holistically. So, yeah, I don't think I can give them more a magic answer other than the fact that you have to be able to hold two thoughts in your head at the same time, which is we're running an organization for impact, and we're running an organization for financial sustainability.
Morgan Bailey 40:47
And it is it. And I think it's a you know, it's a practice to be able to, to not separate those right to not look at is this binary, this binary thing this either or? I think that's right. And I think that's hard. And I think that's probably one of the that's probably for a social entrepreneur, it's probably one of skills, that most important skills that they have to learn early on. Yeah. And, and to, you know, because you can, you can over index on either side, you can over index on the side by saying, hey, you know, we don't have time to support, you know, in the way we want to support, so we're not going to do that, on the other side, who say, you know, what, like, let's just let's just donate let's give them money, you know, kind of, they're leaning towards nonprofit model, which is going to lead to, to cashflow and financial instability. Right. So it's kind of saying, hey, like, you know, it's almost like looking at like, the maximum profit or impact, right? Like, hey, to have the biggest impact, like, we're going to need to scale, right? In order to scale to have that impact, we're going to have to make these decisions. Some some of these decisions may not be the most popular decisions in the short term. But because we're focused on making the impact on this broader scale, we realize that we have to make some hard choices, right. And I think social entrepreneurs, like any other business owners, they have to make hard choices. And sometimes even harder, because people it's not just about profit, right? Right. Yep.
Bret Waters 42:09
So one of my favorite expressions is that, to win, you have to think in the future. But to survive, you have to think of the present. Again, and as you know, as the CEO of any organization, Executive Director of any organization, you have to be able to zoom back and forth between those two, you have to always be thinking about where do I want the organization to be two years from now, three years from now, five years from now, while at the same time you're thinking about how do I be payroll next week? Right, right. And so to win, you have to think in the future to survive, you have to think of the present. And you know, and if you're running an organization, whether it's a for profit and nonprofit or social venture, you'd have to have that ability to zoom back and forth between the long term goal and the short term reality of survival.
Morgan Bailey 42:52
I love that I'm gonna I'm gonna that's gonna that's gonna stick with me. That's a gem right there.
Bret Waters 42:58
You got to pay me a nickel every time you use it, Morgan. That's all about license all about licensing the IP
Morgan Bailey 43:03
it? Yeah, absolutely. is the CEO and you come in all right. So so you know, kind of, as we started looking forward, I'm curious. We've seen I mean, obviously, this idea of social venture has been around for a long time. You mentioned Muhammad Yunus and Grameen Bank, this idea has been around for a long time. And it's continuing to grow. And I would say over the past five years, we've actually we've seen it start to explode a bit. And, and I'm curious, like, when you look forward to the future, like, what role is our social ventures playing? Like, what what, you know, you know, how much of the economy is going to be driven by social ventures? Like, could it be 100%? Could that just be the default of how we run business? Is there a limit to that? I'd love to hear your thoughts.
Bret Waters 44:00
Yeah, so I think that it's not 100% Because, you know, there's always going to be petroleum companies and others that are simply driven by the profit motive. And that's probably okay for the economy as a whole, I don't know. And there's always going to be charities that are just simply, you know, raising money from, from donors and, and providing beneficiaries with some sort of short term relief. But I do think that we're kind of opening up this middle space of social ventures that are that are part of solving the really big hairy problems that the world is facing today. And having an earned income model that gives sustainability to the effort, you know, I think this is a this is a concept that was almost unheard of, you know, generation ago. And as you said, it's now become a semi mainstream concept. And, and the other thing that's changed changed dramatically. I think in the last, let's say 10 years, is sources of capital for social ventures. It used to be that there basically were no sources of capital for social ventures, because you weren't for profit enough to go pitch venture capitalists, and you weren't nonprofit enough to go pitch foundations for grants. And so social venture was kind of neither fish nor fowl. And, and today, there's all kinds of sources of impact capital, right, there are foundations that that, that make impact investments in social ventures. There are impact funds that have been set up by, you know, by venture capitalists who, so one of my favorite examples is John Doerr, who's one of the famous partners at Kleiner Perkins, very famous venture capital firm. He and his wife have a certain passion for K 12 education and the way in which technology can have an impact at kickoff education. So he set up a separate venture fund called NewSchools Venture with money just for him and his wife to invest in educational technology startups. And there are many other examples out there like this today. And so my point is that, as you said earlier, capital drives everything. And the fact that today, there are sources and structures of capital that makes sense for Social Ventures is a I think it's a it's a, it's a profound change in the landscape.
Morgan Bailey 46:27
Yeah, absolutely. And, you know, there's, it's growing, and the field is growing. And, and I think, you know, a lot of a lot of venture capital is, is shifting into that. And I mean, it's still in some ways, it's still a little bit the Wild West, because we, you know, that the thing with impact is, though, is it? It's not as tangible to measure. And so when it comes to sort of like what we you, we used to think, an ROI, right, because as you know, if you're, if you're a social impact investor, your ROI is not simply is not returning out, just return on $1. It's also the impact piece, right. And that adds an extra level of complexity, which I think we just have to learn how to manage that. Right, I think we've been doing business in a very crude way, you know, for the field. Right, forever, pretty much, which is, it's a very transactional piece, but I think we're saying is like, you know, I think even before business was business, we've always we've always been engaged in and trading and, and whatnot. And, and in for a long time, it was very much more relational based. Right now as as the world economy grew, it became more transactional based. And I think we're seeing the negative impacts of that. So it's gonna be kind of curious to see how that evolves.
Bret Waters 47:49
And to your point earlier about, what is the definition of a social measure? So today, one of the hottest sectors for venture capital investment is is climate tech. Right? That there's, you know, all kinds of climate tech startups that are attracting a lot of venture capital right now. Now, are VCs investing in that sector because they want to save the world. And that's not their main driver, right? Their main driver is ROI on the investment. And so, you know, the fact that there's tremendous opportunity, capital opportunity around climate tech, hopefully, will provide us with all kinds of planetary benefits. But those are not social ventures per se. Right, right.
Morgan Bailey 48:34
Absolutely. Absolutely. And I see another, another accelerator. I work with the cleantech open now focuses specifically on that. And so it is, it is it is a it is a different variety of business working with those entrepreneurs. So, Bret, we got to start winding down here and a part of me just wished we had another hour to talk. We didn't even hit the greenwashing there's so much. We're gonna we're gonna have to, we're gonna have to have another conversation. Absolutely. But you know, just any last words of wisdom for any of those social entrepreneurs out there, that, you know, to really help them continue to drive impact as we come here wrap.
Bret Waters 49:16
So I think one of the couple of interesting things all around the world today. One is that there are informal markets all over the world today, meaning a great, you know, great markets that often provide tremendous, tremendous entrepreneurial opportunity to kind of turn those informal markets into a formalized market. And certainly, in the in the Social Ventures World, we've seen that happen a lot with lending that, you know, in their informal markets all over the world where there are loan loan sharks, loaning money at usurious rates to people who don't have access to any other form of credit. And now through the work of originally Grameen Bank and now other kinds of micro finance organizations around the world, they've taken those informal markets and and formalize them in a way that provides benefits to people and also provides a sustainable business model. So that's one thing is, I think there's all kinds of stuff. And so kind of look for the, you know, if I was a social entrepreneur, today, I'd look for those gray markets look for those informal markets as being indicators where there's market demand for something, but there isn't a formalized way of providing it yet, come in and provide it. But zooming all the way back. humanity faces two giant crises right now. One is that we recently passed the 8 billion mark in terms of population of the planet, that 8 billion is going to turn into 10 billion by 2055 or so. And we don't currently have the ability to feed all those people, right. So we need to find a way to improve our agricultural output all over the world, which agricultural, cultural technology is a part of. But then also, we're facing this climate crisis, right? That. And we look at all the contributors to climate, it turns out that commercial agriculture is one of the contributors to climate. And so we have these two existential crises that are going on that are coming together. One is we need to find a way to grow more food to feed the world's people. The second is that growing food is contributing to to our climate crisis. And so I think the intersection of those two things is something that we have to solve. And in there is tremendous opportunity for social entrepreneurs, to both help in the climate side and also help on the agricultural production side in a way that that saves the planet. So, look, look right there. Look at that intersection. There's an opportunity to be a successful social entrepreneur and to be part of saving the world.
Morgan Bailey 52:00
Right. I appreciate so many of the words of wisdom that you've given us today, and I do look forward to having another conversation with you. It's a real pleasure.
Bret Waters 52:10
It's been a lot of fun Morgan let's do it again.
Morgan Bailey 52:13
Thanks for listening to another episode of the Prophet meets impact podcast. If you enjoy this experience, please subscribe wherever you find your podcasts and leave a positive review. You can also find out more about the podcast at www.profitmeetsimpact.com