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Social Entrepreneurship

Rise of the Charismatic Megafauna

Is the future of social enterprise full of promise—or hot air?

I currently run a social enterprise that delivers energy services to off-grid households in Ghana, and previously ran an organization providing innovative financing for household solar products in Ghana. My experiences have shown that social enterprise is well positioned to solve many of the world’s big problems such as poverty, because of an ability to combine a social mission with a financially sustainable business model that allows for rapid growth.

At its best, social enterprise takes the shape of innovations such as microfinance, which has reached 150 million people and continues to grow at an amazing rate, and inexpensive solar powered lanterns, which are experiencing 90 percent year-on-year growth in Africa as rapid improvements in product quality and pricing drive uptake.

Unfortunately, I have also witnessed a more disturbing side of social enterprise: An increasing number are claiming success they have not achieved. Last year, for example, one CEO claimed that his enterprise sold 10,000 products, when I knew for a fact that it sold just over 1,000. The media picked up his comments as an example of the success social enterprise was having.

A few months later, on a different continent, I saw a press release triumphantly announcing that a joint venture between two social enterprises would reach millions. Yet when I asked the CEO of one of these companies if he really thought he could achieve this kind of impact, he replied: “We never thought we could hit that number. We are in the middle of raising some more money, and it was just a great time to get press.”

My business partner and good friend Nate Heller has a term for the kinds of organizations that call themselves social enterprises but rely on marketing spin, inflated numbers, and glossy presentations to hide failed (or complete lack of) business models: charismatic megafauna. In other words, sedate and slow moving, yet impressive and likable organizations akin to animals such as pandas and whales.

It’s easy to support charismatic megafauna. They are typically great storytellers. They invest in their social media presence, so people know who they are. Their founder is often embedded in the conference circuit. Their media-savvy allows them to generate awareness of the need for a different approach to any given problem. All of this is great, but unfortunately, generating awareness of a need is very different from meeting that need.

Organizations that are full of hot air exist in every industry, yet they are particularly harmful in social enterprises because the industry is still so young.

A 2010 report released by J.P Morgan suggested that social enterprise could represent an investment opportunity worth more than $1 trillion by 2020. The opportunity is huge, yet just three years later, a report from the recent World Economic Forum has hosed expectations of a social enterprise asset class:, “Less than $40 billion of capital is currently committed ... And while 80 percent of United States-based pension fund managers are familiar with the sector, only 9 percent felt that it is a viable investment approach.”

The stakes are high for social enterprise. The model is clearly still proving to investors and supporters that it can do good and make money. So every dollar invested in charismatic megafauana—every dollar intended to support the growth of a business model that can genuinely reach billions of underserved consumers, but that instead gets spent on pretty reports, conference tickets, and a bigger marketing team—is a dollar largely wasted.

At best, charismatic megafauna slow the progress of social enterprise, diverting resources from sounder and more promising organizations. At worst, they burn investors and disillusion supporters, and lead people to rightfully wonder what all the social enterprise hype is about.

And as the White House takes a bet on social enterprise, dedicating $300 million in its 2014 budget to the sector, the need for transparency and trustworthiness is greater than ever—lest the social enterprise model is discredited for good.

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COMMENTS

  • BY Nathan Rothstein

    ON December 24, 2013 02:32 PM

    I agree with you Hugh- I actually think we need to move away from the term ‘social enterprise’. It’s misleading and we can’t universally define it, and 99% of the world doesn’t even know it exists.


    http://www.lean.org/leanpost/Posting.cfm?LeanPostId=74#.UroLPWRDsfk

  • As i try to build a genuine social enterprise I have learned this very cruel reality.  I see it as another challenge for us, to differentiate between the ones that create a marketing splash and the other ones that really want to bring change. We just cant give up. Thank you for the article. It is good to know that others are aware of this issue.

  • Hugh Whalan's avatar

    BY Hugh Whalan

    ON December 25, 2013 06:38 AM

    @Nathan - Interesting perspective.  However, I would argue we occupy a unique niche between typical commercial businesses and charities.  Unless we define, label and then own that niche, then we will be in no-mans land because we often have more risk and less return than typical commercial businesses (so investors will only think of us as inferior investments) and AND we believe in the importance of business models to generate profit which makes us very different from charity (and often, in my experience, makes many charity folks uncomfortable).

    By labeling ourselves as a different type of organisation, we can help rally investors and supporters around the things that makes social enterprises different. 

    @Hector - yes, it is extremely frustrating. Glad to be building the support group!

  • BY John Kohler

    ON December 30, 2013 11:03 PM

    Hugh -
    Well done… and a topic worthy of further examination.  At the very least, the impact sector risks overset expectations that result in limited capital participation to the very good work social enterprises are engaged with.  Hype is the enemy.  Transparency on actual financial results and beneficial outcomes will help build investor confidence - as will discipline to basic tenants of company building.

    Let’s get back to business…

  • Rachel Cardone's avatar

    BY Rachel Cardone

    ON January 7, 2014 05:55 AM

    Great piece,  I couldn’t agree more. And I support Nathan - the term “social enterprise” should be retired, not least because it’s so easy for non-profits to call themselves “social enterprises”. SocEnts might offer a lower return and require more patient capital, but that just means they’re competing with, say, munis and t-bills, rather than junk bonds.

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