Lessons from Muhammad Yunus: how one successful pioneer spent years exploring the unfamiliar terrain of social business.
By Katharine Esty
In 2006, Muhammad Yunus, founder of the global microcredit movement, shifted his focus to social business. Even before this he was known as the most famous social entrepreneur in the world, having founded over 40 companies in Bangladesh and provided invaluable guidance about the largely uncharted territory of social business.
Since 2006, he has been relentlessly promoting social business – which he defines as profit-seeking companies devoted to solving a social problem, owned by investors who reinvest all profits toward expanding and improving the business. In 2011, he created Yunus Social Business (YSB) that helps create social businesses and runs as a business by setting up incubator funds and providing advisory services to companies, governments, foundations and NGOs. As YSB’s head, Yunus is continuing to build on what he learned from his years as an entrepreneur and to follow many of the strategies that were key to his stunning successes in the past.
Four of these, in my view, are particularly relevant for those venturing into social business and striving to establish its long-term, positive track record:
1. Focus on Women
Yunus learned in Bangladesh back in the 1980s that women, even poor women, have enormous potential as entrepreneurs. He observed that when women received small loans, they did not squander their money on snacks or luxuries as many men did. Instead, they used their funds to buy some chickens, a cow or some seeds and were able over time to improve their families’ diet or pay for school for their kids, contributing to the cycle of poverty alleviation.
He also observed the remarkable economic and societal transformations that could occur when poor women were empowered to run small businesses. The mere act of leaving the isolation of family compounds and joining the weekly peer group discussions Grameen Bank required of its loan recipients increased women’s confidence and motivation; during these discussions, women became part of a new social network, forging supportive friendships and sharing information and tips that proved key to the success of their business ventures. Moreover, they developed and endorsed a list of lifestyle decisions designed to further contribute to the cycle of poverty alleviation. These included keeping their family size small, looking after their personal and their children’s health, educating their children, keeping their environment clean, using pit-latrines and drinking clean water.
In his social business ventures, too, Yunus continued to focus on women as an under-recognized talent pool and potential source of momentum. When he launched Grameen Danone in 2005 to make fortified yogurt, he turned to village women to sell the yogurt. Mothers went door-to-door explaining to other mothers how this yogurt could provide needed supplements that their children needed in order to grow. Yunus believes that training and employing women just makes good business sense.
He also believes—and has seen first-hand—that many women need just minimal assistance and a bit of encouragement to become thriving entrepreneurs. And he’s putting this into action through YSB, which has partnered with AVSI Foundation and the Italian Development Company to form the Rozafa Foundation in Albania. Rozafa works with existing artisans to build handicraft workshops employing 100 local women and to help them get their products to market. In Haiti, YSB made its first investment in a training center to raise awareness about social businesses. More than half of the 950 original attendees were women. In Tunisia, Togo and Uganda, YSB has embarked with the African Development Bank on a pilot program with an underlying goal of empowering women.
2. Start Small and Go Slowly
According to Yunus, many new ventures fail because they try to expand too quickly. Having started 40 companies and taken some of them, including the Grameen Bank and GrameenPhone, to scale, Yunus understands the importance of starting small and expanding companies carefully and slowly. Today Grameen Bank has over eight million borrowers while GrameenPhone is the largest telecommunications provider in Bangladesh. As I related in my recent book, Twenty-Seven Dollars and a Dream, Yunus took decades to grow the Grameen Bank, modifying his model along the way as times changed and learning by trial and error as he went along.
This same philosophy also informs Yunus’ social business initiatives. Take for example the Grameen Veolia Water Company. In large sections of Bangladesh, the water is naturally laced with arsenic which over time creates health problems for those who drink it. Yunus had to keep improving the companies’ technology in order to keep lowering the price of the water so enough people would buy it. And he had to keep tinkering with the distribution system to get people to buy the safe water. It has taken more than four years to approach profitability.
3. Create Partnerships
To start any kind of new business including a social business, resources are required. The best way to get the necessary resources is through forming partnerships, as Yunus did consistently at the Grameen Bank. Both his yogurt company and the Veolia Water Company were partnerships with French corporations.
Today YSB is leveraging its modest resources by forming all kinds of partnerships. The pilot social business program in Tunisia, Togo and Uganda mentioned earlier exists through a partnership with the African Development Bank and with a grant from the Japanese Trust Fund. Together these organizations have created a fund to support long-term projects with the potential to move these African countries toward greater economic independence.
4. Use Competition to Identify the Best Ideas
There are always more people with ideas for new businesses looking for funding than there are available funds. Yunus discovered that a competitive process was the best way to identify the most promising ideas for social businesses. In Albania, YSB launched a national Social Business Plan Competition (in partnership, this time, with the Albanian Investment Development Agency, UNDP, and UNWomen). A panel of judges selected the winners with two banks – Deutsche Bank and International Commerce Bank – provided coaching as they moved from concept to implementation.
Now, Yunus is using the same concept to boost social businesses in the U.S. On September 30th, he was at the University of New Hampshire for the final round of presentations by both student entrepreneurs from the University and regional entrepreneurs. The top three ideas in both categories received initial funding for their projects. Yunus now plans to go to a university in each of the 50 states and hold a similar competition to identify the most promising social business ideas.
These lessons from Muhammad Yunus are not a step-by-step recipe for surefire success but they do provide a map drawn by a successful pioneer who has spent years exploring the unfamiliar terrain of social business.
About the Author:
Katharine Esty, Ph.D., is a social psychologist and founder of Ibis Consulting Group, a leading international diversity and organizational development firm. A former consultant to the United Nations Development Program and UNICEF, Katharine has spent time in a number of developing nations, including Bangladesh, where she conducted a series of one-on-one interviews with Muhammad Yunus while writing her new book, Twenty-Seven Dollars and a Dream: How Muhammad Yunus Changed the World and What it Cost Him.
Related: What Socially Responsible Business Leaders Can Learn from Muhammad Yunus' Resilience