If you are a successful social entrepreneur, then the question “is your company a social enterprise?” should be an easy one to answer. Sadly, on a recent trip to Kenya I discovered that was definitely not the case. Like an ugly step-child, it was a label that nobody wanted to embrace.
Mind you, the companies to whom I asked this question were the epitome of social enterprises: tackling problems ranging from energy poverty, to sanitation to food security using for-profit business models. Rather than espouse it with pride, the answer I got was typically “no” followed by a longer, convoluted explanation about how aspects of their business model do achieve social impact, etc. but that their primary purpose was to make a profit. One CEO even told me that there is no such thing as a social enterprise. If a company is making a profit, it benefits society (although he did make an exception for gambling). Clearly there is a stigma associated with the social enterprise brand in Kenya, something that I hadn’t come across before. But why?
Granted, the term “social enterprise” may sound confusing to some ears, especially to those who work outside the impact investing space, but it felt like there was something else at play in Kenya. There was a real sense of skepticism, cynicism or even mild hostility.
As I have laid out in my blog, sustainability (i.e. profitability) is a defining aspect of any social enterprise. Profitability validates your business model and is essential for long-run success. However, to my surprise, in Kenya it seems social enterprises are associated with something unsustainable.
“We’re a business, first and foremost and so we avoid the term social enterprise given the connotation it brings in this market,” says Samir Ibrahim, CEO of SunCulture, a provider of low-cost irrigation solutions to Kenyan farmers. For him, too many social enterprises prioritize achieving social goals over profits, but he doesn’t see a contradiction. For him, the two go hand-in-hand.
William Githui, Investment Associate at Alpha Mundi, an impact investor, explained it this way, “in my personal view, the expat community has been able to raise more money in the name of social entrepreneurship for businesses that are too early stage, haven’t yet understood the local business dynamics and end up spending lots of money. As a result, the local population has come to see them as entirely expat run institutions with an NGO mentality as the sustainability part of it entirely escapes them.”
Mahia-John Mahiani CFO of Twiga Foods, a company that is introducing modern distribution practices to the African fresh produce industry, had a similar take. According to him, “the man-on-the-street’s perception of a social enterprise is a grant funded, non-profit, that’s run by well-intentioned expats, trying to make a difference, but not really thinking about long-term sustainability. Essentially it’s just aid.”
I asked many Kenyans if there were any particular sectors or business models that stood out as having earned this reputation. Clean cook-stoves apparently tops the list, but others were mentioned as well.
The fact that none of these entrepreneurs wanted to call their companies social enterprises is, in my opinion, very much a good thing. If the name is associated with unsustainability, good on them for wanting to steer clear. I have no doubt many Africans have seen lots of an international aid money wasted in the name of development over the years, and have probably become quite cynical about it. Social entrepreneurship, sadly, may be perceived as just the latest iteration.
For this reason, it is really important for impact investors to keep this in perspective, and be laser-focused on changing this perception. The only thing in the long-run that will do that is the demonstration effect. “You haven’t yet seen any breakout successes from companies that are social enterprises or darlings of the impact investment world,” says Mahia-John, “that’s what will change the perception.”
This author could not agree more.
Do you live or work in Kenya and know why social enterprises have garnered a reputation for being ineffective and unsustainable? If so, please leave a comment or send me a message. I will update this post based on your feedback!