Why Social Entrepreneurship is a Smarter Way of Doing Business

Mission-driven businesses can make more money than traditional profit-only companies because they deliver real value to their communities, according to Henrietta Onwuegbuzie, a Lagos Business School professor and visiting senior lecturer at Yale University’s School of Management (SOM).

As Yale Insights reports, Onwuegbuzie believes social entrepreneurship marks a return to a more traditional business model. “Business, initially, was created to meet the needs of a society, but capitalism derailed that understanding,” she said. “We now believe that you set up a business to make money while nonprofits, charities and government are meant to concern themselves with impacting lives. However, business can be a tool for social transformation while remaining profitable, and we’re losing sight of this.”

In fact, companies that address social issues can have a leg up on their competitors. “Being purpose-driven, mission-driven, impact-driven helps companies grow faster and make more money,” Onwuegbuzie said.

She points to highly successful corporate giants like Microsoft and Amazon as examples of businesses that have impacted society in positive ways while reaping huge profits.

The for-profit vs. nonprofit/charity dichotomy “has led to a world where businesses that could transform the world don’t because they think impact will lead to below-market returns,” said Onwuegbuzie. “On the other hand, those (nonprofits) who are impact-driven are not sustainable because they remain donor-dependent and do not have a business model to ensure their financial sustainability … Impact-driven businesses, on the other hand, are aimed at impacting lives beyond financial returns. They therefore make money while making a difference and … bridge the gap between economic growth and social development by creating shared prosperity and, consequently, a better, safer world.”

Onwuegbuzie related a story about one of her students who was strictly out to make money and doubted that his company could thrive by focusing on social impact.

“We kept going back and forth about it until he finally decided to try the idea of being value- or impact-driven,” she recalled. The man’s company, based in Nigeria, sold educational toys, including dolls, all of which were white with blue eyes and blonde hair “and did not resemble black girls.”

“It therefore occurred to him that he could produce black dolls that would not only make the black girl proud of her brown skin and curly hair but would also help them learn about the three main ethnic groups in Nigeria: Igbo, Hausa, and Yoruba,” Onwuegbuzie recounted.

“The dolls were dressed in traditional attire for each tribe, and each one came in a box with a little booklet about the culture of each tribe. A portion of the revenues from the dolls was also intended to be used to promote education. (The business owner) identified a dilapidated school in a low-income neighborhood, which he decided to renovate with some of the proceeds from the doll sales. He required the companies he engaged in the renovations to hire local people in the area and train them as they did the work. This arrangement helped build skills in these places.

“By the time the project was completed, he was listed for a state government award. Both the novelty of African dolls with African names and the good works the entrepreneur was carrying out in the community drew attention to him. He has since been interviewed by every single national newspaper, in addition to globally known media like CNN, Forbes, CNBC, and BBC Africa. He told me, ‘For 10 years, I was making money, but not even the most rickety local newspaper cared to hear my voice. Today, I’ve got a global voice because of these dolls. They have brought me more money and fame than all my other toys.’”

Here in the U.S., Toms is an example of a company that delivers value through social impact as well as profits, Onwuegbuzie noted. “The fact that when you buy a pair of Toms shoes, another pair is given to the poor makes people prefer to buy Toms. The model has made the brand popular. People choose Toms shoes because they want to be a part of doing something good.”

“With purpose-driven businesses, profit ensures business sustainability,” Onwuegbuzie added. “While most social enterprises tend to avoid profits, it is important to build sustainability into a business. Profit can be considered the reward for doing good. It also allows you to expand your business, which allows you to reach and impact more people while keeping your business sustainable. Impact-driven businesses help to bridge the gap between aggressive economic growth and lagging social development.”

Onwuegbuzie called for colleges and universities worldwide to rethink their approach to educating students about entrepreneurship. “I think business schools have a major role to play in transforming society by educating students and business leaders to be impact-driven,” she told Yale Insights. “They have to be imbued with the idea that business can be a tool for social transformation aimed at providing solutions to problems. This is also a competitive strategy, as the wider the impact of the solution, the more money the business makes, because the more relevant it is, the higher will be the demand for it.”