Social Business =
no loss, no dividend businesses with the purpose of solving a social
problem and following the seven principles defined by Prof. Yunus
The most known example for a Social Business is Grameen Danone’s yoghurt factory in Bogra, northern Bangladesh, as it is the very first business that was specifically planned in order to conform to the ideas of Social Business. The production was successfully started in the beginning of 2007 and thus Grameen Danone was already planning to expand throughout the whole of Bangladesh by building up to 50 more factories. But although success was conceivable, the business didn’t remain unaffected by the world’s economic crisis and needed to modify their plan. What happened? This article will let you know.
The essence of a Social Business
While the main orientation of every Social Business is solving social problems by economical and market-oriented action without being profit-oriented, there are two kinds of Social Businesses:
two types of Social Buisnesses
- The first model is economical cost-effective and belongs to investors who invest any profit into the development and improvement of their business.
- The second model belongs to the poor and thus is profit-oriented as the profits will be given to the poor shareholders which hence will improve their social living.
Muhammad Yunus concentrates of the Social Business Type I and defines this model by providing seven principles summarizing the most important characteristics:
the seven principles
- The aim of the business is overcoming poverty or solving social problems but not maximizing profits.
- The business will work financially and economically sustainable.
- Investors will get back just their invested sum but not any bonus.
- As soon as every invested sum is paid back, profits will be used for developing and improving the business.
- The business will work environmentally conscious.
- The employees get salaries and wages customary in the particular market and working conditions are higher-than-average good.
- Do your work with pleasure!!!
The birth of the first Social Business
Initial Situation: Malnutrition in Bangladesh
In Bangladesh nearly half the children (45%) suffer from malnutrition that leads to a decelerated development. This problem is particular dangerous in rural areas where simple concomitants like diarrhea often ends with death. The main deficiency symptoms are undersupply with iron, vitamin A, B₂ and C, calcium, iodine and zinc. Insufficient supply with these nutrients is the reason for numerous health problems from inadequately working immune system to bad visual perception. This leads to a vicious circle as the children won’t be able to work as productively and energetically as healthy men when being adults and therefore also won’t be able to approach the problem of malnutrition.
The first Social Business
The first Social Business called Grameen Danone has arisen from the idea of Mohammad Yunus and the chairman of Group Danone, Franck Riboud, while having lunch. Yunus was able to fascinate Riboud by explaining his plans to create a business not aiming to make any profits but to create social efficiency. After that both organizations, Grameen-Bank and Groupe Danone, have been working intensively with the further elaboration of their plan. Together with an international team they decided to set up a yoghurt factory in Bangladesh as a yoghurt product combines Danone’s global distinctive mark as well as the fact that yoghurt, being a traditional Bangladeshi snack, can provide a lot of vitamins and nutrients necessary for children’s growth and able to reduce deficiency symptoms (see box). Business designer and production experts clinched to build a small factory only as this minimized the risk of investment for Danone, facilitated staff problems and improves the hope that the factory will become part of the local society and economy. Nutritionists developed, by involving the local children, yoghurt that, eating a single cup, provides 30% of the daily demand of important nutrients for a child. Moreover, the business fixed to name the yoghurt Shokti Doi – the translation of these Bengali words would be “Power Yoghurt”. Local children determined a friendly lion as the symbol for the new product. Given that there is no aim to gain profit, the yoghurt got a price of just five Taka that is around seven US-Cents and only the fourth part of the normal price for Bangladeshi yoghurts (around 30 Cents). After the whole prearrangement the first yoghurts were produced in February 2007.
Having started their business, Grameen Danone first seemed to be quite successful: most people liked their yoghurt. But the problem was that the sales figures increased very slowly so that Danone tried to find out the reasons in spring and summer 2007.
The business had two sales strategies that were first the sale in small shops in and around Bogra and second the sale via so called “Grameen-Ladys”, borrowers from Grameen-Bank who move from door to door trying to sell the yoghurt. But both strategies didn’t fulfill the expectations: just some 300 to 400 shops were able to offer Shokti Doi as there was a significant problem of cooling system as well as electric power supply and moreover just few women – with an average of 30 salespersons – decided to work for Grameen Danone. Because of that the disposal stagnated by around 3000 cups a day and that was not enough to make the factory cost-effective and also not sufficient in order to influence the society’s nourishment.
Therefore the business discussed their problems with several native Bangladeshi experts and found out that some cultural barriers, that they simply hadn’t considered, prevented their effective cooperation with the Grameen-Ladies: it is not enough to just train the ladies as they are bound into and dependent from a social network, primarily their family. Their husbands need to allow them to move from door to door as this is not according to their traditional role of being responsible for the household, going along with the fact that Bangladeshi women normally stay at home and rarely go out. Thus it is necessary to also instruct and inform the men about what their wife’s tasks would be.
Changing the trainings was very successful what was proved in October the same year by the significant augmentation of the sales figures that continued until March 2008. Then the global economic crisis put a spoke in Grameen Danone’s wheel.
Crash and new buildup
The economic crisis was already looming as since 2006 the prices for alimentation were increasing continuously. In Bangladesh this situation has been aggravated because the monsoon time was more fatal than normally in two consecutive years and thus destroyed harvests. This together evoked a threat to Grameen Danone’s business as the price for milk, being necessary for yoghurt, has doubled and the business was losing money with every cup sold. So the executive boards of Grameen Danone, Danone and Grameen bank discussed together what to do and split into two groups. One side was arguing that it is necessary to increase the price as the business can’t exist without being able to cover the expenses. Maintaining unrealistic prices also doesn’t help the locals as the business will then inevitably be ruined some day and then the glorious idea of helping the society will perish too. The other side explained that the low price for one cup of yoghurt was necessary for stabilizing the young business as a price change could be a cataclysmal fault. Finally the decision was made in favour of price increase as the business – although being a Social Business – is not a charity organization and has to make sure to be cost-effective. Thus in April 2008 the price for one 80-gram-cup increased from five to eight Taka – with disastrous results.
Most of the costumers couldn’t afford the yoghurt anymore and therefore the sales volume declined about 80% in rural areas and about 40% in Bogra city. Moreover the sales network of the Grameen Ladies collapsed totally as they just quit their jobs after nobody bought the yoghurt any longer. The business suffered a hard setback, founded itself again in its initial position and needed to start again from the beginning. It was obvious that the price increase was too radical and Grameen Danone needed to develop a cheaper product. Experts were able to produce a yoghurt cup of only 60 gram that includes the same amount of vitamins and nutrients as the 80 gram version. Since June 2008 this new product was sold in rural areas as well as the sellers network was build up again. These efforts were successful and a new increase was foreseeable. Moreover the business discovered the necessity to expand their market place in order to make the business profitable and so they first expanded to the two cities of Rajshahi and Pabna, relatively close to Bogra, where the 80-gram-cup is sold for eight Taka, and in November 2008 to Bangladesh’s capital Dhaka. For that Grameen Danone needed to build a distribution center with cold storages as well as to provide a specific cool truck being able to make the three-hours ride from Bogra to Dhaka twice a week without any damage of the product’s quality. These arrangements have of course been quite costly but as the townspeople are able to spend more money, the 80-gram-cup can be sold for twelve Taka for covering the transport costs. The new measures taken are conducive to steadily increase the sales figures.
Grameen Danone as a formula for success?
Today Grameen Danone seems to operate effectively and is in a period of growth. By subdividing the market into a rural and an urban part the business is working with systems and products that are explicitly custom-tailored. Additionally the social business started to extend their range of products in order to attract a wider range of customers, namely children as well as adults. For also being able to develop other products than yoghurt they changed the “Doi” (Bengali word for yoghurt) into a plus so that the brand is now “Shokti +”. Moreover, the sales network of Grameen Ladies is constantly growing with some 175 saleswomen up to now who can contribute substantially to their family income with their jobs. Grameen Danone’s next important milestone is to reach the break-even point. After that the business will gain some profit that will be invested in the further expansion of this Social Business.
Let this be a lesson to you!
The experiences gotten from Grameen Danone over three years have shown that a Social Business needs to be managed in the same way like a conventional business. Although its aim is not to make any profit but to help the society, it needs to be cost-effective and to steadily adjust to market changes. Thus it is necessary that managers pay attention to numerous details and always keep track of what is going on in the economic world.
Yunus’ advices for managing a Social Business:
- Be flexible but never let your aim out of focus. That means it is necessary to change business plans if external circumstances necessitates that. Every change is good if it still supports the initial aim, but implies a worsening if you will depart further from your goal.
- Delve into the culture of the people with whom you want to work. For a business’ success it is necessary to understand the customer’s wishes and needs. This is particularly important when planning a Social Business as this will be made for the society’s benefit.
- Accept confederate’s help wherever you will find it. Grameen Danone owes its existence to Grameen-Bank and Groupe Danone who decides to work together as they share the same values but different entrepreneurial skills. So this combination improves the quality of and makes possible Grameen Danone’s social business.
- Benefit different chances from different markets. Also for a Social Business it is necessary to work cost-effective. Therefore you need to find out the best sales strategy – Grameen Danone for example found out that it is reasonable for them to open to city markets although their initial plan was to simply work with rural areas.
- Question your own assumptions. Circumstances made necessary to maybe question ideas that have been developed on the basis of long-time experiences or careful researches. Be brave to analyze your former assumptions and give consideration to new and maybe better ideas.