Q: Can you share with us what social entrepreneurship is about, and how is it applied to social problems?
Social enterprise or impact investing is intentionally finding a business solution to a social problem. Rather than tackling social problems through aid and through charity, we find business people with the creativity to come up with business, enterprise-based solutions. And when we make these kinds of investments, these businesses have to be profitable. Because if they’re not profitable, they become charities.
But we are not just looking for a pure financial return, which is small – we are also looking for a social return, and we also like to see an environmental return. That’s what impact investing or social entrepreneurship is about. It’s intentionally going in to build businesses amongst the poor that will solve or tackle social problems and social needs.
Q: What are the greatest challenges for social entrepreneurs, especially when operating in Third World countries?
The biggest challenge when it comes to making investments, not only in the developing world but in the developed world, is always management. It’s about the human capital, the human talent.
I come from a background in venture capital, and we tell people that we are not investing in technology or a business plan, because those will fail. We are investing in people. Even in a country like Singapore, if you don’t have good people, you will not build a successful business. And it’s the same with a business in the slums, in Africa or in South East Asia.
Unless you have the right kind of people, it doesn’t matter how much money you throw into a project, you will still fail. So if you are a small business in a slum and you don’t have the education, the management experience, what do you do? The banks won’t lend you any money, there’s no venture capital available.
Hence you need a generation of courageous, social investors to go in and make these kinds of investment. And they don’t just bring their money, they bring their talent as well. They bring people; they bring management skills, mentoring, to help these businesses grow in scale. That’s the biggest challenge of any business – people.
In developing countries, we place great hope in the returnees: People who have been educated in the West, who have been refugees in the West because of regime change, revolutions in their own countries, or genocide, who are coming back to their own countries now that there’s peace in their homelands. Having been educated in the West, they will provide the human talent.
We saw that in Taiwan, in South Korea, in India with the pharmaceutical companies, and now we’re seeing that in China. It’s the returnees who have been educated abroad, worked abroad, gained some experience, and have gone back to their countries; they are the ones with the talent who can build businesses that can transform their countries. So it’s about people – the biggest needs and the biggest challenges.
Q: Many young people want to start social enterprises after graduating from university. What advice or roadmap would you give them?
My advice would be to go and gain some experience first. If you are straight out of college, even after a Master of Business Administration (and we lecture in a number of MBA schools), you are not that “useful” yet, to be very honest. Because until you have actually been in the business, you don’t know how tough it is, especially if it is a small business and you’re just starting up.
Working for a big corporation is easy, compared to going out on your own to start up a business. And when you’re starting up a business that has some social benefits for the poor, it is even more challenging.
So my advice would be: Get your education but go and gain some experience – it doesn’t matter which sector. And after that, go and find some like-minded people because it is very lonely building your own business, and build it together.
Get the right kind of funding. From venture capital experience, most businesses fail because of poor management, and because they are under-capitalised, they’re too small. Unless a business can get to a certain scale, it’s actually very difficult to survive. So you have to get the right kind of business plan, the right kind of capital – patient capital, for quite a long period of time, to build a business that can have a certain scale and size for it to survive.
My view is that there are too many small social enterprises that are too small, and will never survive. We need to help some of them get to scale. And that’s really the key difference between social enterprises and impact investing.
Social enterprises are often more ‘social’ than enterprise. They are usually started with grant capital, free money. When you start out with free money, you tend to build a very different culture than when you have investors – even if the investors are pretty benign and are very supportive of your vision. Nevertheless, you have a responsibility when you take investors’ money. So you’d build a very different kind of business.
Social enterprises tend to be too small, and sadly many fail. What I would rather see is the participation of experienced business people who understand scale, who know how to build businesses that employ 100 people each, not just two or three.
We need to be building small and medium enterprises (SMEs) – that sector is what is missing in many of the developing countries. We need experienced business people to build the ‘missing middle’. So my advice is: Go get your education, do your MBA but go get some experience, then get some crazy friends to build it together, but get the right kind of business plan, the right kind of patient capital that will allow you to build something that is sustainable.
Republished with permission from Leadership.com.sg, accessed at www.leadership.com.sg/leaders-chat/interviews-with-ceo/dr-kim-tan-on-social-entrepreneurship/
Dato Dr Kim Tan –
is the Founder Chairman of SpringHill Management Ltd (UK), a fund management company in biotech and social venture capital investments. He is the co-founder of the Transformational Business Network (TBN) and is on the advisory boards of PovertyCure, Sustainia, Africa Health Fund and the John Templeton Foundation. Widely recognised as an expert in social entrepreneurship and community transformation, he was a special guest speaker at Trinity Annual Conference’s 40th Session in 2015. We republish with permission his interview by Leadership.com.sg, a platform for leadership resources by Eagles Leadership Institute.