Nothing Ventured, Nothing Gained:Capitalizing on the Public Good

Given the dolorous state of the world economy, it doesn't seem likely that the Taiwanese stock market is going to soar to 10,000 points anytime soon. But what kind of strange chemistry might arise out of the combination of an entrepreneurial mind with a philanthropic spirit? Are the two completely incompatible?

In recent years, social enterprises have become a hot topic of discussion, and have even been touted as an antidote to the greed inherent in global capitalism. But what exactly is a social enterprise? Is it a new means of doing good deeds to promote the public's welfare? Does it offer a new model for entrepreneurship? Does Taiwan even have any social enterprises?

In October 2007 Steve Chang, CEO of internationally respected Trend Micro, and Tom Wang, a business consultant and author who manages to be both rich and a romantic, joined hands to promote the public good via Flow, Inc., a company they founded expressly to nurture and invest in Taiwanese social enterprises. They gave the company three years and NT$100 million to achieve their objectives, and talk of social enterprises was soon reverberating across Taiwan. In three short months, 212 proposals poured into Flow's Social Enterprise Start-up Challenge.

But most proposals fell far short of the criteria Flow had set: they either proposed impractical business models or provided no benefit to society. After completing its evaluation, Flow chose the "Aurora Project" to distribute organic produce from Aboriginal growers as its first investment target. One year later, Flow admitted at a public information meeting that the two parties' differing philosophies had led to the investment plan's collapse.

"We didn't have a clear idea how to go about achieving the 'public good' part of our program," admits Wang. "Running a social enterprise turned out to be more difficult than we had anticipated." He says that six months of market research made it clear to Flow that it was very difficult to run an organic produce business in Taiwan. You have to have a distinctive business model to succeed. Unable to reach a consensus on their model, objectives, or even the scale and timeframe of operations, Flow became concerned that the partners would not be able to work together effectively, and pulled the plug. Instead, they donated funds in Chang's name to the Aurora Project's predecessor-Fu Jen Catholic University's Office for Indigenous Peoples.

By promoting reasonable compensation for producers and protecting the environment, the fairtrade movement provides consumers with an opportunity to manifest their concern for the environment and the disadvantaged people of the world. The photo is of Earth Tree, a fairtrade shop just off Taipei's Hsinsheng South Road.

A different approach

Flow embarked on the project with great fanfare, worked on it for a year, and achieved nothing. Where does that leave social enterprises? How do you run them? Unfortunately, few people seem to know.

What exactly is a "social enterprise"? Are there any differences between the good deeds of social enterprises and those of ordinary businesses?

"Social enterprises aren't just sellers of goods," argues Lin Wan-i, a professor in the Department of Social Work at National Taiwan University (NTU). "The key point for them is using the selling process to benefit people. This makes them inseparable from their time and place." Lin explains that social enterprises take many different forms because every nation and every era has different needs and priorities.

At last June's Open University discussion forum on the development of social enterprises, Simon Cheng, head of China Television Corporation (CTV), stated, "Just making money is boring. Once businesses earn enough money, they always begin looking for ways to give back to society." In the past, profitable businesses would establish educational and charitable foundations and undertake community development work. Social enterprises advocate turning this "first profit, then give back" model on its head by attempting to make money and give back to society simultaneously or by making money with the express purpose of using it for the public good. Simply put, the objective of such ventures is to do good; making money is only the means.

The Grameen Bank is a case in point. Created by Bangladeshi economist Muhammad Yunus, the bank exemplifies the social enterprise model.

"The fact that a particular job is highly skilled doesn't mean that the disabled are incapable of doing it," says Roy Chang, director of the Taipei Victory Potential Developing Center for Disability, who argues that you have to dare to dream. The process of innovation is like the orchid in a terrarium he holds in his hand-it has to be nurtured and protected if it is to reach maturity.

Microfinance

Established in 1976, the Grameen Bank is a "microfinance" institution. That is, it provides loans in the US$50-100 range to impoverished persons, women in particular, not served by traditional banking institutions. Borrowers can use these small loans to start businesses or buy tools with which to earn a living, such as bamboo that can be used for weaving, a sewing machine, or ten sheep. These tiny bits of help stir the entrepreneurial spirit of the poor, and have helped millions pull themselves from poverty.

Because the poor have no collateral to offer, Yunus keeps borrowers on the straight and narrow with a system of "solidarity lending." The system creates solidarity groups of five people. Should any one of them default on a loan, the remaining four become ineligible to borrow for several years. In tightly knit rural communities where honor is prized, this is a very effective means of applying peer pressure and oversight.

Surprisingly, the Grameen Bank does not offer low, preferential interest rates to the poor. In fact, its 20% rate is even higher than that which traditional banks charge (bank rates run about 16% in Bangladesh). But it cuts the rate in half for those who repay their loans within a year, providing the poor with an incentive to maintain their "credit rating."

In 30 years of operations in poverty-ridden Bangladesh, the Grameen Bank has achieved a repayment rate of nearly 99% and booked substantial profits. In 2005, for example, the bank earned about US$1.5 million. But profits aren't Yunus' objective. They are simply a means of ensuring the venture's survival and providing for its growth. So far, it's doing well. The bank has expanded to 86% of Bangladesh's rural districts, made loans to more than 7 million people, and spread its model to more than 100 countries. Its success even earned Yunus the Nobel Peace Prize in 2006.

What is a social enterprise?

Flow emulating Ashoka

Ashoka: Innovators for the Public, created 26 years ago by American Bill Drayton, provides another example of a successful social enterprise.

Drayton, who has been called the godfather of social entrepreneurship, founded the organization after leaving a high-ranking position in the US's Environmental Protection Agency. Ashoka now channels US$30 million per year to social entrepreneurs who want to address social issues, providing them with loans, strategic analyses, and platforms for the exchange of information. When Flow's founders established their organization last year, they had the same objectives in mind.

Operating on the premise that their money should go where it is needed most, Ashoka has put together incredibly stringent selection criteria to target the projects it believes will yield the greatest returns. To date, it has nurtured some 1,800 entrepreneurs in 64 nations, and has achieved its objectives on 93% of its projects.

In Brazil, for example, it worked with Rodrigo Baggio to set up more than 900 training centers to teach young people in poor neighborhoods and prisons to use computers. In India, it worked with a local partner to create a "children's hotline" that provides more than 1 million homeless children with an emergency support network.

NPOs competing to survive

Though these kinds of for-profit social enterprises used not to exist in Taiwan, we have had non-profit organizations (NPOs) moving towards a more businesslike footing for some time.

If socially oriented NPOs are an antidote to the failure of government to resolve certain issues, then social enterprises are perhaps the product of NPOs' failure to live up to their own goals.

The sluggish Taiwanese economy over the last decade has led to a decline in donations to charity and more intense competition for government contracts for tasks such as rescuing child prostitutes and operating halfway houses for victims of domestic violence. Making matters worse, NPO salaries are simply too low to attract large numbers of highly qualified people. (NT$30,000 per month for mid-ranking professionals, and just NT$20,000 per month for service personnel.) As a result, NPOs facing both financial and staffing crises have been moving towards the social-enterprise model in an effort to survive.

"Social enterprises build on the NPO foundation," says Lin. He explains that, like NPOs, they aren't meant to generate private profits. But they differ from NPOs in their proactiveness, in the professionalism of their management, and in their emphasis on results. At the same time, many large, highly organized NPOs are coming more and more to resemble social enterprises. "It's an evolutionary process," he says.

When the Sunshine Foundation established the Sunshine Car Wash Center in 1992, it became the first workplace in Taiwan to provide disabled people with socially integrated employment opportunities and to encourage them to be self-supporting. Sunshine was also the first Taiwanese NPO to operate on a more businesslike basis.

The foundation has since gone on to open a shop at a rapid-transit station, and, in 2003, a gas station.

Following in the footsteps of Sunshine, NPOs are creating "sidelines" right and left that provide job opportunities or raise funds. Examples include the Syin-Lu Social Welfare Foundation's laundries, the Eden Social Welfare Foundation's massage centers (staffed by blind masseurs/masseuses), and the Children Are Us Foundation's bakeries. But the majority have yet to become self-supporting, and continue to rely primarily on outside resources. The Taipei Victory Potential Developing Center for Disability is a notable exception.

In addition to providing disadvantaged families with the means to make a living, the New Life Foundation's farm in Sanchih puts plots of land up for "adoption." Those who adopt a plot can farm it themselves or have disadvantaged persons farm it for them.

The power of collective action

The Victory Center is one of the few Taiwanese NPOs that gets by mostly on its own. Government help accounts for only one-third of its funding, with most of the remainder generated by its businesses. It receives very few donations.

Roy Chang, the center's director, explains that it differs from other enterprises in that it focuses on hiring the handicapped and uses its profits to develop new businesses and pay performance bonuses to its employees.

Established in 2000, Victory's mission is to provide job opportunities to disabled people by developing and managing new businesses. In 2001, the center established its first sheltered workplace-the Victory Data Entry Centre-which provides documentation services to banking and financial institutions. The center currently employs 20 individuals who are mentally, physically, or hearing-impaired.

Though it gathers together many handicapped people, Victory doesn't operate out of a sense of pity and it pays its employees market rates.

"Victory is run as a business," says Chang, who is himself physically handicapped. "It's only after we meet market standards for quality and professionalism that our customers begin to see the social-welfare angle as a bit of a bonus." Recognizing the paramount importance of data security to documentation services, in 2005 Victory became the first Taiwanese firm to receive certification under BS7799, an international information security standard.

Accuracy is another area of crucial importance. To raise its standards in this area, Victory has two of its staff key in each piece of data, then uses a computer to compare the results. This kind of diligence has enabled it to achieve an accuracy level of 99.99997%.

Breaking with the stereotype of the disabled as masseurs and carvers of seals, the Victory Center has established a center that arranges and cultivates terrariums in Taipei's Neihu District that employs 14 physically, mentally, and hearing-impaired individuals in a cleanroom.

Using your own money

"You need quality to achieve income, and you need income to provide benefits," says Chang. He explains that because most social welfare organizations get their money from the government or donations, they worry about criticism of how they spend their funds and about going into the red. They therefore really scrimp and put a tremendous amount of energy into internal cost controls. Victory, on the other hand, seeks to provide the maximum possible benefit to its employees. It has therefore been an active innovator and has a strong market orientation. Victory has also exploded the notion that the handicapped can only carve seals or give massages, and has continued to create new opportunities for them.

Six years ago, Victory started an e-learning program for individuals too severely handicapped to leave their homes. Taking advantage of distance learning technology, the program taught students the techniques of image synthesis, layout, and webpage design. It also established a design center that currently handles nearly NT$10 million in projects every year. To date, this center has enabled nearly 30 handicapped individuals to work from home.

Two years ago, Victory expanded into the restaurant business, working with ecoffee to open the Enjoy Taipei restaurant at Taipei City Hall.

Chang says that each of the partners plays to its strengths: ecoffee provides market know-how, as well as purchasing and supply-management skills, while Victory handles the service side of restaurant operations. After more than two years in business, the restaurant is breaking even.

Victory established yet another venture early this year: a glass factory in Kuantu. Recognizing its limitations, Victory's factory has avoided employing glass-making methods with high technological barriers to entry, such as blowing and lost-wax, and instead utilizes the simpler fusion technique to make its glass knick-knacks.

"We want to make the handicapped valuable," says Chang. "And they have to provide value that meets market needs." Chang believes that if you dare to dream, you may be able to make your dream come true. Victory has had failures, such as its computer animation and silkscreen printing ventures, but its continuing quest for quality and professionalism has led to even greater numbers of successes.

One of Victory's "niches" is employing people with a variety of different handicaps at the same venture.

Chang explains that individuals with different types of handicaps are able to support and take care of one another, that their different abilities complement one another. For example, when a person with a disabled limb is at the counter in the restaurant taking orders, there's a hearing-impaired person by his or her side helping out. Similarly, when an emotionally unstable person at the documentation center begins moaning or cursing, the hearing-impaired person working by his or her side remains undisturbed. This provides Victory's ventures with an advantage over social welfare organizations employing persons who share the same disability.

Okogreen

Flow sees Victory as a model social enterprise, but another type is also attracting attention-one comprised of the many small ventures aiming to rebuild communities.

In 2006, long-time environmental and social activist Hsu Wen-yen established Okogreen, which fosters community redevelopment through sales of fairtrade coffee.

With so many "fairtrade" products on the market, why did Hsu choose coffee?

"Coffee is the world's second-most-traded commodity after oil," says Hsu. He finds it ridiculous that the price of coffee is set not where it is produced, but by Wall Street, which maximizes its own profits without the least concern for the welfare of the growers.

Hsu hopes that an "ethical consumption movement" will serve to rectify production ethics: "Only long-term training to cultivate knowledge and vision among farmers can help these farmers address their own local issues."

Hsu argues that fair trade is about endowed rights and training, not subsidies. To achieve these objectives, the Fairtrade Labeling Organization (FLO) International has created a unified community development fund from members' payments of a predetermined percentage of revenues, certification fees, registration fees, and annual dues. The FLO fund helps organizations of farmers and workers in poor nations rebuild their communities and create the kind of moneymaking infrastructure that will help them get out of debt.

In addition to paying certification fees and annual dues to the FLO, Okogreen donates NT$5 to the Taiwan Environmental Information Center and NT$5 to the Green Party for every half pound of coffee it sells. That's NT$10 for every roughly NT$300 bag that goes to combat the effects of global warming and to promote political efforts.

Customers entering Okogreen's homey, 330-square-foot space smell only the rich scent of coffee. There is no price list-they pay what their conscience dictates for their coffee. Some hand over as little as NT$20-30 for their cup, while others shell out as much as NT$1,000-2,000. "But people who pay extreme prices rarely come back," laughs Hsu. The former don't understand or identify with the shop's ideals. The latter might be sympathetic to the fairtrade concept, but can't afford to fork over that kind of money on a daily basis. People who pay what they think is a fair and reasonable amount are the ones who become repeat customers.

After something more than a year in business, Hsu's Okogreen has begun to wield a little influence. In September, Hsu was invited to open a coffee shop inside the NTU Law School on Taipei's Hsuchou Road, giving him the opportunity to promote fairtrade coffee while interesting law students in issues of social justice and social welfare.

From NPO to social enterprise

Many activists who've been working at NPOs for years are also now preparing to move into the social-enterprise arena.

Hung You-lun proposed consumer cooperatives 20 years ago and went on to become one of the founders of the Homemakers' Union and Foundation. More recently he has been preparing for a move into social-welfare venture capitalism by serving as a director of the New Life Foundation and as the convener of the Social Enterprise Alliance.

New Life is currently operating a "sheltered farm" in Sanchih, Taipei County, where vulnerable families-including those that are poor, are headed by a single parent, or include disabled members-live and work together, sustaining themselves by growing organic fruits and vegetables, and by receiving visitors on weekends and holidays.

The farm uses an "adoption" system. "City farmers" pay NT$1,000 per month for each 330-square-foot plot they "adopt." They can then farm it themselves, work it together with the disadvantaged residents, or let the residents farm it for them. Depending on which of these options they choose, they get to keep 100%, 50% or 25% of the produce.

Hung says that they expected to get 200 people to "adopt" land in the farm's first two years of operation, but with only 58 so far, it is still far from achieving its objectives. Social Venture Partners (SVP), which Hung formed in June of this year, plans to make the farm its first project. He hopes that by investing capital and know-how, SVP will be able to foster the farm's development.

Hung is coming to social enterprise venture capital from the NPO world and lacks the resources available to Flow, so he has had to rely on raising capital from individual investors. But he has a more solid foundation in the work itself and sees "profit" opportunities everywhere.

Take the Sunshine Foundation's carwash, for example. Hung thinks it was an excellent idea, but argues that they weren't ambitious enough, and should have opened more locations. "They should have partnered with gas stations everywhere to 'sunshine' all of Taiwan's gas stations," he says. "They should have made Sunshine's values ubiquitous and turned it into another 'Taiwan miracle.'"

Okogreen's Hsu feels the same way. "The market space for social-welfare businesses has emerged out of everyone supporting one another, working together, and even criticizing one another."

Hsu says that in 2004 Hong Kong's NPOs lobbied for the government to contract public-sector personnel services out to NPOs. They argued that this would allow NPOs to earn service fees from the contracts while also creating job opportunities for the disadvantaged individuals that the NPOs would train. Hsu believes that public contracts in Taiwan, such as those for janitorial services or recycling old computers, could also be opened up to NPOs and social enterprises. By cutting their teeth in the public sector, NPOs would have higher survival rates when they later faced the challenges of the market.

Invigorating the market

Thanks to the long history, organizational diversity and great vitality of Taiwanese NPOs, their "evolution" into social enterprises looks like it may provide Taiwan with a quick means of promoting social enterprises. But it remains uncertain where NPOs will find innovative business models and whether they can operate on a market basis.

At the October public information meeting, Tom Wang said Flow would go back to square one and learn from the NPOs. He admitted their first effort had failed, but promised they would make adjustments and broaden their selection criteria when reevaluating the 212 applications they have on file. Moving forward, Flow plans to help anyone with an interest in establishing a social enterprise provided that the applicant has some insight into society's needs, proposes a new operational model, and can create new social-welfare value. In spite of the difficulties Flow has faced, Wang remains positive about the outlook for the emerging venture-capital "market."

But he also offers a reminder: social enterprises cannot resolve all society's woes. Some fundamental problems require government solutions, while others require the assistance of NPOs. Wang believes social enterprises can likely only address 10-20% of society's ills, but also argues that they shouldn't be forced to focus on just a few issues. As long as those behind social enterprises stick to their strengths when seeking to create welfare value, they can tackle almost anything.

"Social enterprises can be 'small and beautiful,'" says Wang. "They can also be highly individualized." He believes social enterprises can function as well-lit highways through a chaotic world, or as innumerable little lanterns lighting smaller paths. In either case, they are making social justice a real, tangible thing, and fostering a powerful social movement.

When Taiwan's first social-enterprise venture-capital firm, Flow, Inc., celebrated its first anniversary in October, founder Steve Chang strove to explain to stakeholders why the firm had yet to have a success. The enthusiasm of the crowds inside and outside the event suggest the public is intensely curious about the social-enterprise phenomenon.

In some respects, coffee shops like Okogreen are more like centers for the promotion of ethical consumption than businesses. At Okogreen, Hsu Wen-yen gently advocates caring for the Earth and the disadvantaged among us. The photo below is a humorous self-portrait by Hsu.

Flow co-founder Tom Wang encourages everyone to use their strengths for the public good. He hopes that in so doing, the quest for social justice will become a broad-based social movement, rather than just the dream of a few individuals.