Crutches cast off by those healed at Santurio de Chimayo, Mexico

The idea of “below market returns” has always made me a bit squeamish. For whatever reason, the utterance of the phrase sets off alarms in my brain. Truly, my reaction is quite visceral and 90% negative.

For some time, I felt incredibly guilty – like less of a “do-gooder” – for not embracing the philanthropic sentiment that the expressions entails. I felt too hard-nosed, too pragmatic, too business- and market-oriented in my mindset.

Recently, I decided to tell the guilt complex in my brain to quiet down so I could think this through a bit more rationally. What I’ve determined is that I have very good reasons for being suspicious of the idea of “below market returns.” Here they are…

Flawed Assumptions Underlying “Below Market Returns”:

  • That a company can’t do good by doing good. Or, perhaps, that a company can do OK but should be careful to not do too good, for that would suggest that it’s placing financial returns ahead of its social mission.  Also, we seem to assume that making products and services at price points that are affordable to BOP consumers will necessarily lead to smaller profits.  This belies the notion that the BOP is huge and, provided they can reach sufficient scale, BOP businesses are presented with an enormous and very profitable business opportunity.

And, conversely…

  • That a company can only do good by doing evil. It seems that the suspicion toward the private sector that has long characterized many non-profits has seeped its way into the social enterprise sector.  For some reason we automatically seem to associate financial gain with greed and unethical business practices.

And also…

  • That it’s okay to aspire to mediocrity in some aspects of how we manage a business.  This is what really drives me nuts.  Why should any company not strive for excellence in everything that it does?  And, if not in everything, at least those areas that are most critical?  Having a “double bottom line” suggests that both social impact and financial success are crucial to building a strong social business.  So why settle for “below market returns”?!

Assumptions that we must be embracing:

  • Financial returns and social good work in tandem. When we believe in and accept this principle, we embrace the idea that employing ethical and sustainable business practices pays off in the long run.  Green practices save money.  Competitive pay and employee benefits attract talent and promote productivity. And being obsessive about customers and their needs – in this case, the needs of BOP consumers – encourages customer loyalty, facilitates customer acquisition, and spurs growth.
  • “Profit maximization” will allow us to do more good for more people. Once again, in defense of profit, I want to emphasize that profit maximization plays a massively important role in driving operational efficiencies and overall better business practices, which in turn support scaling and growth. Also, profit as a metric serves as a strong indicator of whether companies are successfully innovating and finding better, more cost-effective ways to  meet customer needs.

Ulitmately, I don’t want to suggest that below market returns aren’t or won’t be the reality for some social businesses. What I’m questioning is the notion that it’s OK to have “below market returns” be your point of departure.

Social entrepreneurs must aspire to be as, if not more, financially successful as our private sector brethren if we are to thrive. What should be done with the profits that are gained is a discussion we can continue to have.

However, we need to put our foot down when it comes not letting the idea of “below market returns” continue to be a crutch that only social entrepreneurs have the privilege of sporting.