I learned of Muhammad Yunus, the author of Building Social Business: The New Kind of Capitalism That Serves Humanity’s Most Pressing Needs while researching microfinance.
Yunus is a pioneer in the microfinance industry. During the 1970s, he founded Grameen Bank, a microfinance institution in Bangladesh.
I was fascinated by the work of Yunus and wanted to learn more so looked for additional reading material. Building Social Business looked intriguing and it was.
Building Social Business introduces a new business model called a social business which exists to solve a social problem not to generate profit and dividends for investors. Yunus believes that people are not just driven by maximizing profit, that every person, capitalists included, wants to do something for the good of other people.
The book describes two social business models as follows:
- Type I – is a non-loss, non-dividend company devoted to solving a social problem and owned by investors who reinvest profits in expanding and improving the business.
- Type II – is a profit-making company owned by poor people, either directly or through a trust that is dedicated to a predefined social cause.
Social business characteristics are outlined in chapter 1 and reinforced throughout the book. To paraphrase:
- The business objective is to solve a social problem not to maximize profit.
- The company needs to attain financial and economic sustainability.
- Investors only get back their initial investment, no dividends.
- After the investment is paid back, profits stay with the company for expansion and improvement.
- The company will be environmentally conscious.
- The workforce is paid market wages and has good working conditions.
- Do it with joy!!!
There is a lot of discussion about funding for social businesses including foundations, non-governmental organizations, joint ventures with for-profit companies, and people who want to invest in a company working for the common good.
An interesting dichotomy is what Yunus refers to as cross-subsidization, wherein, some people, those who can afford it, pay more for the same product that is sold to poor people at a lower price. This method enables a company to obtain funds to stay in business and provide a product to more affluent and poor people.
Yunus has been involved in the start up several social businesses and uses real-life examples to provide practical information and advice for people interested in starting one of their own.
The Bottom Line
Readers don’t need a business degree to understand the concepts shared in Building Social Business. It provides a viable alternative, perhaps more of a companion, to profit-driven businesses. I agree with Yunus, I believe people are both selfish and selfless. Perhaps it is time for some of us to give our selfless side more exercise.
I recommend Building Social Business to anyone interested in broadening their understanding of what business can achieve and an alternative way of measuring business success.
Yunus has previously written, Banker To The Poor, and Creating a World Without Poverty, which both look like worthwhile reads.