INTRODUCTION

Roots of Unreason, Sources of Power

BEING UNREASONABLE is not just a state of mind. It is also a process by which older, outdated forms of reasoning are jettisoned and new ones conceived and evolved. As the process unfolds, those mired in the older, obsolete paradigms can become threatened by—and aggressive toward—the innovators, particularly if those innovators move into the mainstream worlds of business, finance, and politics. But like it or not, the world is in the early stages of powerful, deep-running, and pervasive changes that, for better or worse, will transform its economies, its cultures, and people’s understanding of who they are and what they stand for.

Our intention in what follows is simple: to introduce a new generation of social and environmental entrepreneurs and to investigate the relevance of their thinking about value creation, their business models, and their leadership styles for mainstream decision makers. We include many predictions and observations from the entrepreneurs themselves, culled from hundreds of hours of interviews, personal conversations, and direct collaboration over decades of intensive work in related areas.

These social and environmental entrepreneurs lead by example. They attack intractable problems, take huge risks, and force the rest of us to look beyond the edge of what seems possible. They seek outlandish goals, such as economic and environmental sustainability and social equity, often aiming to transform the systems whose dysfunctions help create or aggravate major socioeconomic, environmental, or political problems. In so doing, they uncover new ways to disrupt established industries while creating new paths for the future.

Global corporations are now scouting for high-impact social and environmental entrepreneurs. Why? They give three main reasons. First, market intelligence (these entrepreneurs are seen as highly sensitive barometers for detecting market risks and opportunities). Second, retention and development of talent (a growing number of companies, like Accenture, say that offering the opportunity to work alongside accomplished entrepreneurs factors into staff retention, as well as professional development). And, third, as one CEO at a recent Davos summit candidly put it, “It is nice to be seen with people who are loved.”

All this should come with a clear caveat, however: as in any field of entrepreneurship, many of these people will fail, and some will fail repeatedly as they tackle tough challenges. But periods of great change are built on intense experimentation and, often, high failure rates. Our reading of the evidence suggests that the work of these innovators and entrepreneurs heralds a new phase in the evolution of business, markets, and capitalism itself. The mainstream players who heed the lessons from these innovators’ experience will find new opportunities to fulfill unmet needs in the vast underserved markets of the twenty-first century.

Think of it this way: whatever they may intend, these entrepreneurs are doing early market research on some of the biggest opportunities of the coming decades. In attempting to bridge the great divides between privileged populations and the poor, they address the critical challenges where traditional markets fail. But, as we shall see, they cannot tackle market failures on their own. Instead, their efforts need to be supported by all levels of government, by business, by the financial markets, and by civil society’s organizations and ordinary citizens—that is, by each and every one of us. We outline some necessary actions for key sectors in the conclusion.

Who Are These Social and
Environmental Entrepreneurs?

There is no standard-issue entrepreneur, but there is a consensus on what entrepreneurs do. Through the practical exploitation of new ideas, they establish new ventures to deliver goods and services not currently supplied by existing markets. Social and environmental entrepreneurs share the same characteristics as all entrepreneurs—namely, they are innovative, resourceful, practical, and opportunistic. They delight in coming up with new products or services, or new approaches to delivering products or services to existing or previously undiscovered markets. What motivates many of these people is not doing the “deal” but achieving the “ideal.” And because the ideal takes a lot longer to realize, these entrepreneurs tend to be in the game for the long haul, not just until they can sell their venture to the highest bidder.

Social and environmental entrepreneurs operate across a spectrum of enterprises, from the purely charitable to the purely commercial.¹ But because many of the markets they address are immature, they tend to skew toward the nonprofit end.

On the purely charitable side, “customers” pay little or nothing, capital comes in the form of donations and grants, the work-force is largely made up of volunteers, and suppliers make in-kind donations. At the purely commercial end of the spectrum, by contrast, most transactions are at market rates. Many of the most interesting experiments take place in the middle ground, however, where hybrid organizations pursue new forms of blended value and where better-off customers sometimes subsidize less well-off customers. Blended value is what results when businesses—whether for-profit or nonprofit—create value in multiple dimensions—economic, social and environmental. So a key challenge for twenty-first-century investors and managers will be to boost the attractiveness to all key stakeholders of the value blends they create.²

One burning question that invariably comes up, particularly when successful business entrepreneurs meet successful social entrepreneurs, is “What motivates you?” The implication behind the question is “If you have been so clever in achieving what you have accomplished, why haven’t you applied your talents to making money?” In response to that question, David Green, one of the world’s outstanding examples of entrepreneurial brilliance applied to creating financial models that deliver quality health technologies to the world’s poorest, quipped: “My reasons are purely selfish. I figure I have been put on this earth for a very short period of time. I could apply my talents to making lots of money, but where would I be at the end of my lifetime? I would much rather be remembered for having made a significant contribution to improving the world into which I came than for having made millions.”³

Against this motivational backdrop, social entrepreneurs develop and operate new ventures that prioritize social returns on investment. For example, they aim to improve the quality of life for marginalized populations in terms of poverty, health, or education and attempt to achieve higher leverage than conventional philanthropy and nongovernmental organizations. “Ten Characteristics of Social Entrepreneurs” lists other characteristics they tend to have in common.

Many consider environmental entrepreneurship to be a subset of social entrepreneurship, but the environmental entrepreneurs generally see themselves as a distinct group. For one thing, they tend to operate on the for-profit end of the enterprise spectrum. Beginning in 2002, the sector has gravitated toward a major rebranding as the clean technology, or “cleantech,” industry, driven by the eponymous Cleantech Group.⁴

But as interest grows in trying to solve the world’s great social, environmental, and governance challenges, the definitions—and the boundaries between fields—blur. In the process, the field of social entrepreneurship has become “a truly immense tent into which all manner of socially beneficial activities may fit,” as two board members of the Skoll Foundation—Roger Martin, dean of the Rotman School of Management, and Sally Osberg, the foundation’s president and CEO—put it.⁵ One result, inevitably, is confusion. So, they argue, the real measure of social entrepreneurship should be “direct action that generates a paradigm shift in the way a societal need is met.” What such people do, in effect, is to identify and attack an “unsatisfactory equilibrium.” Their endeavors are transformative, not palliative, with the power to catalyze and shape the future. And, once you know where to look, you find them at work almost everywhere, as described in the appendix.

What Makes Them Unreasonable?

A few years ago, Muhammad Yunus—the world’s leading social entrepreneur, founder of the revolutionary Grameen Bank, pioneer of microfinance, and winner of the 2006 Nobel Peace Prize— described his breed to us as “70 percent crazy.” It’s extraordinary how often his fellow entrepreneurs have told us that they have been called crazy by the media, by colleagues, by friends, and even by family members. But they are crazy like the proverbial fox. They look for—and often find—solutions to insoluble problems in the unlikeliest places. They are driven by a passion to expand business thinking to reach people in need. Thus, many are pioneering and helping map out future markets where most of us would only see nightmarish problems and risk.

From Social Activist to Disruptive Innovator: Orlando Rincón Bonilla

Consider Orlando Rincón Bonilla and his nonprofit model designed to bootstrap poor communities into the twenty-first century. Mention his native Colombia, and the drug cartels, guerillas, and paramilitary are among the first things that come to mind. A youngster growing up poor in this beautiful Andean country might seem to have only those three options before him. But Colombia is nothing if not a country of contrasts, and it was in the very barrios that feed criminal activity that Rincón was born.

One of ten siblings from a poor family in Cali, he grew up feeling the sting of both poverty and exclusion.⁶ As a teenager, he became a leftist activist and joined a youth organization run through his neighborhood church. The priest named him president of the association, but Rincón refused to even set foot in the building. He didn’t want to be constrained by organizational expectations, including those of the Catholic Church. Instead, the group met in the park— the center of community life. His political activism soon earned him a reputation. It also cost him a place at the public university but, in the process, opened up other opportunities. He won a scholarship and attended the University of Medellín, which was particularly surprising given that, as a private university, it was geared to educate the sons of the elite, most of them businessmen.

Rincón’s studies in systems engineering marked a turning point. The exposure to other ways of thinking influenced his own, convincing him that ideology alone was not the answer. With a double specialization in engineering and anthropology and a passion for mathematics, he gravitated to computer science and software. So did one of his university classmates, William Corredor. In 1984, the two decided to go into the software business. They created Open Systems, a private company that makes software products and services for fixed and mobile telephone networks as well as for the cable television, Internet, domestic gas, electricity, and drinking water sectors.

Fifteen years later, Rincón had become wealthier than he could ever have imagined, but he was not happy. He was uneasy with what seemed to be the inescapable tension between maximizing profits and prioritizing his country’s social development needs. He believed deeply in the innovative capacity of his fellow Colombians. One question in particular troubled him: what model would allow Colombia to grow economically without compromising the values of justice and equity to which Rincón was firmly committed?

He went in search of the answers. First, he visited India to see how this country had managed to transform itself into a global leader in information technology services, but he did not find entrepreneurs. Rather, he found managers and millions of workers, all contracted by large national and international companies whose executives lived in comfortable neighborhoods in Delhi, Bangalore, Los Angeles, New York, and London. Rincón interpreted what he saw as a new form of slavery justified by the rationale that these workers were earning somewhat better salaries than they would have received in the local market. Moreover, he was troubled by what he saw as the forced Americanization of the workers, who were able to advance their careers to the degree that they spoke English “like a Yank” and had adopted American-sounding names.

From India he went to Ireland. Perhaps the secret to Colombia’s economic and social development lay there? After all, Ireland had been touted as one of the hot spots for competitive industries, including IT. Despite the tremendous affinity Rincón developed for the people there, the Irish miracle he discovered was akin to a large maquiladora for multinational corporations such as IBM and Microsoft. It seemed that there was little or no indigenous IT entrepreneurial activity—it had all been imported from abroad. For Rincón, whatever model Colombia followed would have to recognize the ingenuity and capacity of Colombians and to stimulate, wherever possible, their ability to be entrepreneurial, self-employed, and independent. Upon his return, he decided to invest his fortune in boosting entrepreneurialism and, in the process, changing Colombian society.

His stake in Open Systems, a leading technology solutions provider based in Colombia with 10 million customers across six Latin American countries and 2004 revenues of $14 million, had made him independently wealthy. In 1999, he left Open Systems— although he still owns a stake in the company—and started Parque-Soft. “Once I found my way, I wanted to generate a shortcut for many intelligent, educated, poor young people so that they could generate companies of their own and create new leadership for our society,” he explains.⁷ “So instead of spending my money on luxuries or vices, I began to invest in people in the belief that my money could be useful to others like me.”

ParqueSoft is a nonprofit innovation park that draws budding software enthusiasts from poor communities. Within five years, it grew into a network of twelve technology centers in as many major Colombian cities in the Valle del Cauca, the southwest corridor of the country. The network houses two hundred software companies, comprising some twelve hundred workers, about 75 percent of whom are young entrepreneurs.

ParqueSoft is not a traditional incubator, however. Once an enterprise has reached a determined size and turnover, it does not leave ParqueSoft; the young people who create and develop their companies at ParqueSoft want to stay and keep growing. They also welcome new entrepreneurs who join the fold and benefit from the extraordinary leverage that comes from belonging to a dynamic, creative community where talent and know-how can solve the most complicated problems that are brought to bear from clients all over the world.

Each of ParqueSoft’s offices is a beehive of activity. Within a large open space, enterprises are organized into blocks, depending on the size of the team. Each team is a software company that designs, develops, and sells many different types of software, including optics, artificial intelligence, edutainment, bioinformatics, and nanotechnology tools. These companies currently sell their software in over forty countries. The open-space system allows for continuous informal exchanges within and between companies. Parque-Soft has created an ecosystem that stimulates innovation, inquiry, and the improvement of software products for sale to national and international clients.

Yet anyone who thinks that ParqueSoft is mainly about information technology businesses is mistaken. “ParqueSoft is a social initiative that happens to use science and technology as a vehicle,” Rincón explains. “Its objective is to stimulate democracy and social justice through the inclusion of previously marginalized young people living in low-income communities, transforming them into protagonists of their own enterprises, not employees.”

With a head of wild curly hair and a uniform of open shirts and jeans, Orlando Rincón Bonilla could easily be mistaken for one of the entrepreneurs at ParqueSoft. He is brilliant without being arrogant, frequently irreverent, and very funny. Most of all, he loves the young people with whom he works. On the day we spent at one of the ParqueSoft sites, we had many questions: “How can you be sure that the entrepreneurs that grow their ventures at ParqueSoft will also be committed to their communities’ development? What if all they want is to become as wealthy as possible and forget about being good corporate citizens?”

Within minutes, Rincón assembles a group of about twenty young men and women working in various ventures housed on the third floor of the building. He asks them the same questions. All of them start speaking animatedly and at once. An hour into the conversation, it is clear that these young people are not waiting to become successful before becoming involved in their communities. They are already involved almost as fully as they are in growing their own ventures.

Rincón is a tough act to follow, so any question of succession seems irrelevant. Nonetheless, he has set up ParqueSoft to function well without him, fully run by a council of entrepreneurs elected by the collectivity. His succession plan has been delineated from the outset, in part by how he chose the entrepreneurs who came to ParqueSoft initially and now form part of its council. Rincón is a firm believer that entrepreneurs are born, not made. “It’s genetic,” he frequently says. “You can walk into a room full of people and pick the entrepreneurs out in seconds. It’s something about the look in their eyes.” What, then, is it that makes these people seem so unreasonable?

They’re Unreasonable Because They Want to Change the System

Look around, and the world is full of unsatisfactory equilibriums that entrepreneurs like Rincón love to disrupt. We are very likely in the early stages of the greatest periods of creative destruction in our global economy. Social and environmental entrepreneurs are not the answer to all our prayers, but they signal some of the ways in which we can steer the processes of change.

Their power derives from the fact that they spot dysfunction in the current system, and, unlike reasonable people who accommodate themselves to the status quo, they try to work out how to transition the system equilibrium to a different—and more functional—state.

Coming decades will require unprecedented levels of system change, so we had better listen to the unreasonable entrepreneurs who are exploring when, where, and how to effect change. In this spirit, some leading funders are already trying to identify and support social and environmental entrepreneurs. For example, the Schwab Foundation for Social Entrepreneurship has joined forces with the Lemelson Foundation to establish the Leapfrog Fund, designed to spur the transfer of successful innovations between entrepreneurs in different parts of the world. Such replication is one key part of system change, but another is altering the system conditions, the strategy adopted by would-be game changers like those behind the transparency, accountability, and emission-trading movements we will discuss in later chapters. The risks of relative failure with such wildly ambitious goals are much greater, but the payoffs are also likely to be proportionately greater.

They’re Unreasonable Because They Are Insanely Ambitious

It’s true, many of them are insanely ambitious. That is what makes them so interesting—and potentially transformative. They are cando thinkers, frustrated by the don’t-do, can’t-do, and won’t-do people they often find themselves confronting. But ambition often gets a bad rap. The difference is that these entrepreneurs’ ambition is not about them; it is about achieving for the benefit of a far greater goal. Think of 2004 Nobel Peace Laureate Wangari Maathai of East Africa’s Green Belt Movement and her insanely ambitious plan to plant 15 million trees. Her supplier never believed that she was serious; he wasn’t even close to being able to deliver the number of trees he had promised as she got started. Now, with 30 million trees planted, Maathai and her colleagues talk about ultimately planting 1 billion trees, moving far beyond their initial efforts in Kenya. As the then president (and despot) Daniel Arap Moi must have sometimes wondered, is there no stopping the woman?

They’re Unreasonable Because They Are Propelled by Emotion

Whether or not we admit it, we are all fueled by emotion to some degree. That said, you find, time and again, that these entrepreneurs have had a life-transforming experience, some sort of an epiphany, that launched them on their current mission. They may be deeply concerned—even angry—about the loss of biodiversity, about the treatment of ethnic minorities, or about the fact that 750 million people worldwide are illiterate and that 100 million children have no chance of going to school. But their passion and the experiences that originally turned them on to the cause do not make them crazy—at least, not in the clinical sense. Among those who have reported some form of conversion experience are people as diverse as Bob Geldof, Bono, Fazle Abed of BRAC, Bunker Roy of Barefoot College, Roy Prosterman of the Rural Development Institute, and, in the corporate mainstream, Wal-Mart CEO Lee Scott (whose transformative experience came in the wake of Hurricane Katrina).

Yes, some of these people get angry—as we all should when faced with the challenges they are trying to spotlight and get decision makers to tackle. What is different is that their anger, their passion, isn’t simply blown away as steam. Instead, they work out how to turn it into useful locomotion. In the process, they have to strike a balance between passion and effective change. People Tree, for example, is a social enterprise that directs 10 percent of the profits from its ethical fashion collection to promoting awareness of the fair trade agenda. Founder Safia Minney notes that sophisticated consumers may recoil from in-your-face campaigns, so most of People Tree’s designs do not include messaging or slogans; they instead provide information with the use instructions and packaging, what Minney dubs “subtle education.” As such pioneers evolve effective new marketing and communication strategies, the potential for others to move into the resulting opportunity spaces could grow exponentially.

They’re Unreasonable Because They Think They Know the Future

At a time when most of us are confused and uncertain about what the future might hold, leading social entrepreneurs brim over with confidence. They know that the best way to predict the future is to create it and the best way to build momentum—and attract funding and other resources—is to develop and communicate a clear vision of how things might be different. These entrepreneurs see a bigger picture, sometimes mulling it over for decades. For them, Winston Churchill’s adage that the further you can see back, the further you can see forward holds true.

Anyone looking for clues on how to spur innovation and creativity in the real world should listen to David Galenson, the economist whose work in this area started pretty much by accident. He was spurred to wonder—while bidding for a painting at auction— about links between the age of artists at the time they create a piece of artwork and its subsequent fame and price at auction.⁸ This led him to what some have described as the “unified field theory of creativity,” distinguishing between two broad types of innovators.

Conceptual innovators are revolutionaries, break with the past, are blessed with certainty, know what they want, and tend to bloom early, like Picasso in painting, Mozart in music, and Orson Welles in film. Experimental innovators, by contrast, include people like Cézanne in art, Beethoven in music, and Alfred Hitchcock in film. They tend to proceed in fits and starts, work endlessly to perfect their technique, move slowly toward goals they don’t totally understand, and as a result, never know when a work is finished. Interestingly, many experimental innovators—including great entrepreneurs like Edison and Ford—didn’t die early.⁹ Instead, they tinkered on into ripe old age.

As Galenson explored the patterns of creativity in others areas, such as architecture and economics, he began to realize that these two fundamental types of genius could be found across all forms of human creativity and endeavor. Over time, too, he came to understand that innovators aren’t either conceptual or experimental, but that they can be located along a continuum, with conceptual innovators at one end and experimental innovators at the other. As he dug deeper, he concluded that since economic activity is all about value creation, then investors, companies, governments, and business schools need to wake up to these differences and support both types of innovators.

The entrepreneurs we profile are all very much experimental in how they operate, but most are also conceptual thinkers. They are also optimists, confident that it is possible to change the world for the better. And, again, they are ambitious. “I think the ultimate challenge of sustainable business,” HydroGen president Joshua Tosteson explained during an Investors’ Circle survey, “is how to undercut the compelling advantages of economies of scale with quality-focused business models. In 10 years’ time, there will be no distinction between a‘social venture’ and most major businesses— it will be a sine qua non of business going forward.”¹⁰

At their best, such people see things others do not. They draw conclusions that others cannot. They instinctively reframe challenges as opportunities, looking well beyond today’s horizons. In the process, they offer those in the mainstream a way of getting a glimpse of the social and environmental drivers that will shape the future. Take China. The country’s population may stabilize at around 1.5 billion people sometime in the 2030s, but those with the eyes to see suspect that China will grow old before it grows rich. Worse, because of the way its one-child policy has favored the birth of boys, the country will be short of 30 million brides within fifteen years. The social, economic, and environmental implications are likely to be profound, and the efforts of people like social entrepreneur Wu Qing (discussed further in chapter 3), who founded the Beijing Cultural Development Center for Rural Women to help raise the status and expectations of rural Chinese women, will be central.

Many social entrepreneurs are focusing their efforts where the bulk of the world’s population will be by the 2030s: the swarming megacities. Every year, some 70 million people leave their rural homes and migrate to cities. It is estimated that, by 2030, there will be some 2 billion squatters in the world—most living in what Robert Neuwirth has called “shadow cities,” or megaslums.¹¹ These people are busily building a huge hidden economy. “Squatters are the largest builders of housing in the world,” says Neuwirth, “and they are creating the cities of tomorrow.” Anyone looking for clues about how a world of 7 billion to 10 billion people might be made survivable, let alone sustainable, ought to focus on—and support— social entrepreneurs, including such people as Tasneem Siddiqui in Pakistan, Sheela Patel and Jockin Arputham in India, and Taffy Adler in South Africa.¹²

They’re Unreasonable Because They Seek Profit in Unprofitable Pursuits

Many of these entrepreneurs work in areas where there is partial or total market failure, which typically means that it is impossible to make the sort of money people expect to make in other areas of the economy. That doesn’t mean, however, that social entrepreneurs are not interested in money. They, too, have families to support and bills to pay. What distinguishes them is that they are prepared to strike a very different balance when it comes to creating value for those who would not normally be able to afford it. It’s interesting to note that a number of the better-known social entrepreneurs originally came from top consulting firms, so they chose to forfeit their high salaries to pursue other paths.

Social entrepreneurs frequently say that they have more than one bottom line—often two and, in some cases, three or four. As a result, their calculus is very different from that practiced in the mainstream, but the results are very clear in the progress they report. Think of Ashok Khosla and Development Alternatives in India, which has been estimated to have created no less than half a million sustainable livelihoods. Think, too, of the Grameen Bank, which has helped some 7 million people (97 percent of them women), or of Grameenphone, with more than 10 million subscribers (three hundred thousand of them the so-called “telephone ladies,” who rent out phones to other women). Or think of Riders for Health, which conservatively estimates that it is now helping provide some 11 million people with regular, reliable health care in otherwise inaccessible parts of Africa. That’s world-class performance, however it may be measured.

Taking these people as a community, it is clear that a spectrum of innovation and enterprise is at work. At one end are those who struggle with absolute market failure, as in the poorest of the world’s megaslums. Then, further along, there are those who are in the process of nurturing early-stage markets, like Waste Concern in Bangladesh, a prototype of a hybrid enterprise, as explained in chapter 1. Waste Concern has a nonprofit arm that focuses on pilot projects in areas like clean energy and recycling, while its for-profit arms focus on such areas as sustainable energy, waste projects, and consulting. And then, further along still, as in the burgeoning clean-tech sector in the United States and the European Union, there are start-ups targeting new market needs. Here, the world of finance— of capital—is often impatient to get involved, because there are plenty of people willing and able to pay for new products and services. In fact, one reason that hybrid enterprises like Waste Concern are so interesting is that they can morph back and forth across that spectrum of opportunity and funding as the need dictates. Therein lies much of their power to tackle problems that others see as insoluble.

Those who back these organizations financially focus on investment, not charity. They are results oriented and bring business thinking to social value creation. Stephan Schmidheiny, the Swiss entrepreneur who made millions and set up a number of social investment initiatives, including Avina, makes it very clear that he is not in the charity game. “Probably the term invest best reflects our changed paradigm,” he says. “Traditional foundations make donations. They grant money to finance a given project and expect reports on how that money has been spent. As a rule, little is done to evaluate the results achieved. Has anything changed? Has anything improved? If so, what and how? ‘To invest’ implies that we expect some sort of return, essentially high dividends for society and the environment. It also implies that we expect to be able to help determine the nature of that return.”¹³

Two other groups with a growing interest in such entrepreneurs are corporate and private equity companies. For example, twenty-nine of the world’s biggest private equity firms came together to create the pan-European Private Equity Foundation to focus on the underprivileged. Well-known organizations such as leveraged buyout firm Kohlberg Kravis Roberts & Co. (model for the novel Barbarians at the Gate), Blackstone, and Bain Capital were founding members.

Dig deep, and it is clear that social and environmental entrepreneurs are a good deal more reasonable than a cursory glance might suggest. For one thing, they are significantly more interested in working with mainstream business partners than most nongovernmental organizations.¹⁴ Muhammad Yunus, for example, has evolved into a serial entrepreneur, although many of his enterprises have been built within the Grameen Group. His microcredit model has mutated to drive a range of new businesses, including Grameenphone (in partnership with Norway’s Telenor) and Grameen Shakti, which offers solar energy solutions.¹⁵ “The future of the world lies in the hands of market-based social entrepreneurs,” he says. “The more we can move in the direction of business, the better off we are—in the sense that we are free. We have unlimited opportunities to expand and do more, and replication becomes so much easier. We can create a powerful alternative to the orthodoxy of capitalism—a social-consciousness-driven private sector, created by social entrepreneurs.”¹⁶

While Yunus can picture mainstream business approaches being applied to social enterprise, in what he calls “social business entrepreneurship,” he envisions that investors in such enterprises “will invest for a return much broader than . . . immediate gain in dollars and cents.”¹⁷ Often, such investors are not interested in making private gains. For example, Grameen has linked up with the French food group Danone to form Grameen Danone Foods, where the bottom line “will be to deliver benefits to people and the planet, rather than to earn money for investors.”¹⁸

However, the venture is turning out to have a significant impact on Danone’s bottom line as well, according to CEO Frank Riboud, who sealed the deal with Yunus. Riboud describes how Danone’s engineers have had to come up with different packaging strategies, to take account of Grameen’s insistence on biodegradable containers—a modification that turns out to be attractive to the traditional environmentally conscious Danone consumer. In addition, Danone has had to rethink some aspects of its production, including the requirements of a completely new consumer who is much less likely to refrigerate the yogurt, eating it on the spot or shortly after purchase.

They’re Unreasonable Because They Ignore the Evidence

Given that today’s market research can so often be blind to tomorrow’s looming risks and opportunities, it’s not surprising that entrepreneurs ignore the evidence. Recall what the Body Shop International’s Anita Roddick once said: market research is like looking in a rearview mirror. Or, as Bill Gates is supposed to have said: by the time there is a business case for action, it’s likely too late. That’s the way many social and environmental entrepreneurs feel, not because the markets are moving so rapidly, as they are for Microsoft, but because the relevant needs are so urgent. Such people typically act with urgency because it feels like the right thing to do, rather than because the research says that they stand to gain market share and make a great deal of money.

Clearly, if capital is to be well invested, market research and intelligence are critical. Indeed, most social entrepreneurs are very happy to take intelligence wherever they can find it, even if they cannot pay for it. Their success to date suggests that there are potentially huge new markets for the taking. Already, major companies, like Mexican cement maker Cemex, are finding that new business models can significantly extend the reach of products and services into communities that should be unable to pay for them and, in the process, create totally new markets.

Even if these entrepreneurs don’t commission much in the way of research, intelligence on future needs flows in continuously. Take China, where Pan Yue, deputy director of the State Environmental Protection Agency, and his colleagues have been experimenting with new green gross domestic product (GDP) techniques. When they released the country’s first green GDP report, after much number crunching, they noted with dismay that environment-related economic losses from absenteeism, illness, and death had already reached some $200 billion a year—or a tenth of the annual GDP.¹⁹ By some measures, Pan told us, environmental losses are wiping out all the value of the giant country’s annual economic growth. Although that information was not the result of market research, it signals powerful drivers of tomorrow’s markets and huge growth opportunities for future innovators and entrepreneurs.

They’re Unreasonable Because They Try to Measure the Unmeasurable

These entrepreneurs aim to provide forms of value that mainstream markets currently fail to recognize and reward. They know enough about business and markets to acknowledge that what gets measured is more likely to get funded, managed, and done. This takes them into a blizzard of acronyms: among them, DBL (“We have two bottom lines,” declares social enterprise Rubicon, which embraces a double bottom line); TBL (add another—often, the environment—to get the triple bottom line); SROI (social return on investment); and BVP (the blended value proposition). “Communication is built on an understanding of a common language,” as a leading guide on SROI put it, and “SROI is a particular language for communicating social, economic and environmental value.”²⁰ This emerging discipline, which focuses on the measurement and valuation of nonfinancial or extrafinancial returns on investment, is complex, jargon riddled, and yet one of the most critical areas of research today.

Heavyweight actors are getting involved. Blended value pioneer Jed Emerson, for example, took a lead role in producing a survey of the related investment landscape for the World Economic Forum.²¹ This survey explored some of the ways in which SROI and blended value thinking can inform debt finance, credit guarantees and enhancements, and private equity financing. One of the most interesting aspects of the project was its commentary on how “push” is giving way to “pull” in blended value investing.

Several decades ago, when hundreds of millions of dollars found their way into the emerging area of microfinance, funding was provided with little or no expectation of financial return. Over time, however, this push strategy has given way to more of a pull world, where risk capital is drawn into deals—in part, at least— by a desire for various types of return. For this to work and scale effectively, social entrepreneurs need to get much better at identifying, measuring, and pricing the social and environmental value they create.

Greg Dees of Duke University has argued that “markets do not do a good job of valuing social improvements, public goods and harms, and benefits for people who cannot afford to pay. These elements are often essential for social entrepreneurship.”²² By bringing natural, social, human, intellectual, and cultural forms of capital into the equation, social entrepreneurs aim to deliver real wealth to billions of people around the world who have so far been excluded from the benefits of the market economy. At the same time, however, these entrepreneurs are more interested in the long-term sustainability of their solutions than are most of their mainstream counterparts, and some plan to use the power of the business models they have developed on the fringes of today’s economic system to invade and transform that system.

They’re Unreasonable Because They Are Unqualified

It all depends on how you define qualified. Many of them are highly educated as engineers, medical doctors, lawyers, educators, public health specialists, journalists, and agricultural scientists, to name a few of the more heavily represented professions. But such credentials are altogether different from being qualified to advance massive social change. In fact, being locked into a discipline may be the wrong way to spark social innovation, which frequently entails combining multiple approaches and disciplines. Most social entrepreneurs stumble across the opportunity to serve others. Many of these people entered fields that they were not particularly well qualified for and worked out how to do things along the way. Rarely, if ever, did the answers to the problems come in a single blinding flash; by nature, the new areas of entrepreneurship are ill defined, explored, and understood.

This cuts countercurrent with much of contemporary education, particularly in the business world. “Young people should focus on building their career and making money,” insisted one well-known panelist at an event organized by the World Economic Forum. “Once they have made their money, then they can think about becoming social entrepreneurs,” he asserted. The social entrepreneurs sitting in the audience exchanged uncomfortable glances. Their unease with the panelist’s comment was summed up by Linda Rottenberg, a visionary social entrepreneur and the cofounder and CEO of Endeavor, who was on the same panel. “The idea that a social entrepreneur should wait until the time and the finances are right to launch their venture is nonsense,” she retorted. “Being a social entrepreneur is not really a career choice. We can’t help being the way we are. We are born this way.”²³

If social entrepreneurs are born, not made, why are the world’s leading graduate schools of business—home of the MBA and birthplace of the business plan—rushing to set up courses and programs on social entrepreneurship for their students? Because many of the key skills have wider applications in the private, public, and citizen sectors. (The term citizen sector, coined by Ashoka, aims to avoid the negative associations of the non- in nonprofit and nongovernmental, for example.²⁴)

Listen to Bo Peabody, a highly successful serial entrepreneur who sold his first venture at age twenty-one for $60 million and has gone on to spin off multiple other successful ventures. “When I was growing up, ‘entrepreneur’ carried roughly the same connotation as ‘inventor,’ ” he recalls. “The word conjured up images of your wacky uncle doing science experiments in his basement in search of a new species of peanut butter. But by the late nineties, ‘entrepreneur’ meant millionaire and celebrity. And that meant everyone wanted to be an entrepreneur. The problem is this: Very few people are entrepreneurs.” Peabody goes on to say, “People often ask me, ‘When did you decide to become an entrepreneur?’ I never decided to be an entrepreneur. It just happened. I started mowing lawns when I was ten. I moved to snow-blowing the driveways next to those lawns when I was thirteen. And finally on to seal-coating those same driveways when I was sixteen. My logic: I had customers, and the more distasteful, dirty and degrading a task it was to maintain a square foot of their property, the more they were willing to pay me to do it. Pretty simple.”²⁵

The central point Peabody makes is this: “Entrepreneurs are born, not made. One does not decide to be an entrepreneur. One is an entrepreneur. Those who decide to become entrepreneurs are making the first in a long line of bad business decisions.”²⁶ Born entrepreneurs, Peabody notes, tend to have short attention spans. Managers, by contrast, can stay focused on one thing for longer. Entrepreneurs think laterally, but managers are more prone to think in a linear manner. Ultimately, it is a question of where you are in the business life cycle. The start-up phase of any enterprise necessitates flexibility and quick responses, which the entrepreneur does best. As the venture matures and grows, linear thought is fundamental—and that is what the MBA prepares students to do. So, although most MBA programs are unlikely to be key spawning grounds for entrepreneurs, the current increase of graduate courses in social innovation and entrepreneurship is still an encouraging trend, given the need for a wide array of managers and financial and marketing experts to strengthen this growing sector.

They’re Unreasonable Because They Refuse to Be Made into Superheroes

Any group of entrepreneurs, business or otherwise, will have its share of egomaniacs, but the social entrepreneurs we have met and worked with to date seem strongly skewed to the good-fun-to-be-around end of the spectrum. They do not seem to be burdened with Napoleon or Superman complexes, or anything like that. Indeed, one of their most striking characteristics is their ready admission that the challenges they relish are way beyond any single entrepreneur or enterprise.

While these entrepreneurs will not be able to secure the future alone, their thinking, strategies, business models, and ways of measuring multiple dimensions of value have a great deal to offer and teach the rest of us. Their life stories also have much to teach us all about the nature of tomorrow’s challenges—and about the market strategies and business models that are likely to help tackle those challenges.

“We have no super-hero,” said Sir Richard Branson when launching his $25 million Virgin Earth Challenge in 2007. “We have only our own ingenuity to fall back on.”²⁷ He was inspired to launch that contest by past examples like the Ansari X Prize, which resulted in the first private manned space flight in 2004, and the eighteenth-century challenge that spurred the pursuit for a device that would measure longitude. Branson is looking for a commercially viable technology that will result in “the net removal of anthropogenic, atmospheric greenhouse gases each year for at least 10 years without countervailing harmful effects.” And, a condition that could keep Branson’s money in the bank for a while, the technology has to remove at least 1 billion metric tons of carbon dioxide from the atmosphere each year. There’s ambition for you.

The X Prize Foundation has already announced its second major challenge—the Archon X Prize for Genomics—and has been working on others in the social domain, including contests designed to spur innovative thinking about cars, health care, and poverty.²⁸ But even if it achieves its aim of awarding $200 million or more in ten to fifteen new prize categories over the next five years, there is a bigger challenge still. Funding gaps remain central to the question of whether anything like global sustainability will be achieved during this century, an issue to which we will return later.

They’re Unreasonable Because They Are, Well, Unreasonable

It almost goes without saying that the sort of people who want to shake things up, to change things, can get under other people’s skins. It goes with the territory, the breed, the trade. And it is one of the factors that can lead to the ejection of the founding entrepreneur—or entrepreneurs—from an enterprise. Anyone charged with ensuring good governance in fast-evolving social and environmental enterprises needs to remember that highly charged entrepreneurs can break a lot of eggs while making their omelets. Their impatience can make them tough to work with, even when there are not more fundamental problems, like the sexual harassment allegations that led to the resignation of the founder of Habitat for Humanity, to tackle.

Some of these entrepreneurs certainly live life on the edge, in multiple dimensions. Take Dov Charney, the wildly unconventional and controversial chief executive of American Apparel—and a self-confessed sex addict.²⁹ That is something you can find in many sectors of the economy and of wider society, of course, though in these media-driven times the related behaviors can introduce additional risks to already risky ventures.

Charney, nonetheless, has presided over one of the fastest-growing companies in the clothing sector, and American Apparel has made ethical treatment of its employees a major feature of its company policies at a time when most of its competitors have been involved in a race to the bottom with cheap Chinese imports. At least 20 percent of the fabric used at Charney’s American Apparel is organic, with plans to push that proportion toward 80 percent; the company recycles its fabric scraps; and the factory has a solar roof. To fund the scaling of the business, Charney sold American Apparel to a publicly listed shell company, Endeavor Acquisition, for $384.5 million.³⁰ But there are potential problems in this seemingly unstoppable formula. One journalist who experienced the sexual mayhem that surrounds Charney describes him as “a madman” but added, “I like that.”³¹ On the other hand, it is at least conceivable that others will eventually decide otherwise, concluding that such behavior betrays the ethical code people like Ashoka’s Bill Drayton lay such store by.

The Structure of This Book

We’ve divided the chapters that follow into three sections, each one full of issues and examples from the world of social and environmental entrepreneurs.

Part I focuses on how unreasonable entrepreneurs build their enterprises—and on some of the challenges they face along the way. Part II investigates the implications of their work for future market risks and opportunities. Part III lays out some of the lessons that leaders and decision makers in the private, public, and citizen sectors can learn from the progress these people have made to date and highlights some actions they will need to take if the current momentum is to be maintained or even accelerated.

Our conclusion draws out some lessons for mainstream businesses and leaders from other key institutions and offers a series of recommendations—from the entrepreneurs themselves—about the many ways we can all support their work.

Throughout this book you will meet scores of entrepreneurs whose experiences will inform the most important choices for the future. We hope you will find their stories as compelling, provocative, ingenious, and inspiring as we do.