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Entrepreneurship is a powerful tool for social change.

Question: What is a big challenge the world faces?

Saras Sarasvathy:  One of the things that came out of my research is if you truly buy the idea that this [the entrepreneurial method] is a way of thinking about the world like the scientific method, it’s a way of dealing with the world and it’s a way of thinking about solving problems in the world, then you should be able to solve not only business problems with it.  So, one of the things I started thinking about a lot more as I wrote about my research was, “How will I take this logic, this way of reasoning and apply it in a non-business setting like in a social setting if you will.”  So I walked in to class one day and I asked people, “Why can’t I buy futures contracts in Rwandan prosperity?” So why is it that when we try to solve something like poverty or women’s progress or education we seem to think that we need to use a different set of tools than business.  So that was one of the questions I had and I started thinking through how would an expert entrepreneur actually tackle any of those problems, and I gave you the example of Muhammad Yunus already who is a great example of somebody who thinks exactly like a lot of the expert entrepreneurs that I studied and ended up actually solving a social problem in some ways to a reasonable extent. Of course, there’s lot more work to be done.  At least he showed the one way to solve the problem and for me, it solves two problems in one in the sense that it also lifts people out of poverty and it helps women do it, it empowers women.  So I find that very, very close to my heart if you will. 

So, if you start looking for people who have solved social problems and in a reasonably big way and you find the same kind of thinking then it begs the question as to why we would not use business tools, why would we not use entrepreneurial thinking to solve some of those problems and that line of thought has lead me to an interesting problem. I went to this pause and that is because a lot of entrepreneurs in the social sector think like entrepreneurs in the for-profit sector but somehow the funding part of it is so different that it makes the social center problems very different and difficult.  And so one of the things I want to think about is, what would have to change in the way we fund problems in the social sector so that entrepreneurial thinking can actually do the kind of development that is being made possible in the for-profit sector in places like India and China.

So that’s one of the questions that I want to leave people with to think about what would it take to create something that is equally valid to all the different kinds of credit markets and innovative financial instruments that we see in the for-profit sector.  I know this is a really bad time to talk about innovative financial instruments but I also think it’s a great time for that very same reason that, that same innovative mindset that you have in the financial sector, if you could actually take it over to the social sector I think some interesting things can happen and so I do want to give you just one example or maybe two on that because it’s close to my heart and you can decide what to do with it.  One example I have is this company called Lumdi which has come up with a venture capital model for funding education in Latin America.  Another instrument that I am looking at is a fixed income instrument to fund education in Pakistan. As I mentioned, these are education issues close to my heart.

Question: Can entrepreneurs use their business skills to solve social problems?

Saras Sarasvathy:  What I want to talk about is the innovations and funding that are available in the for-profit sector that are not available in the social sector, and not even innovations, things that were innovations once upon a time but things that we take for granted now, they are just efficient ways of funneling resources into particular companies and matching up different investors with different companies.  For example, let’s think about some thing like more fuel efficient cars. One of the ways you think about how do you want to think about buying a fuel efficient car, you can check out all the different models that are there and you can hear people pitch, “Buy the electric car which is so much better than the hybrid,” or “Natural gas would be even better,” or you can actually turn on CNBC or CNN to the technology section and you can listen to different people pitch you different thing and then and then you can take your pick.  You can spend a little bit more time and do some more analysis or research if you want and you can say “Here is the kind of car I want to buy”.  You can also think through which car company you want to invest in.  But there is no channel that I can turn on and hear two guys from the Congo, say, talk to me about how they are going to solve the electricity problem in the Congo and I think through which one do I want to actually back and go home do a little bit of research and then a couple of clicks on the computer and I send the money to that one.  We never think about social sector problems in the same way. That’s the kind of thing I mean. And, let’s say one of those two guys in the Congo has a really cool way of solving the electricity problem in such a way that the problems stays solved and it creates a financially self-sustaining model. 

There’s no way we can just simply create a franchise of 1,200 of those kinds of schools that spread all over Africa or we can import into Brazil.  We don’t think about social sector problems that way and we don’t have any of the channels, the infrastructure that exist that allow entrepreneurs to not just build ventures but to grow them and to spread them out and to create variations through competition.  So a lot of those things and most us will recognize those as market mechanisms.  They don’t exist in the social world.  Really good smart people reinvent the wheel all the time in the social sector. 

So my question really is that the essence of entrepreneurial thinking exists on the side of entrepreneurs building ventures in the social sector but it seems to be very much lacking on the funding side and that’s where I think I would like to do some work and some of my colleagues and I are beginning to work on it and we call those markets “In human hope”. I just wanted to mention that because I want to leave everything that I have talked about here on a “what to do next” problem and I think for those of us interested in innovative ideas in business and especially the logic of entrepreneurs that is going to be for me, I think, the next frontier to think through how do we bring entrepreneurial thinking to the funding side of the social sector?  Lot’s of good stuff is happening on the ground both on the entrepreneur side that is a venture building side and the funding side but I think there’s a lot of exciting opportunities on the funding side for entrepreneurs to get in there and do it better.

Question: What has influenced you as an entrepreneur?

Saras Sarasvathy:  One is there is a play by George Bernard Shaw called Major Barbara. When I was growing up in India, I grew up kind of lower-middle class, not poor by Indian standards, not poor at all but I didn’t have too many books or too much access to things but my grandfather had left, I think, 27 books that for some reason my mother had preserved.  One of them was a Complete Plays of Bernard Shaw.  And this play I think had a large influence on me because here Shaw is actually looking at this woman who is a Major in the Salvation Army and her father is an entrepreneur who makes arms and supplies it to both sides in the war and so they have this moral debate, if you will, and he wins and that’s an interesting one and it was almost the first story of an entrepreneur that I remember and a lot of it had to do with some of these ideas.  At that time I hadn’t really thought of them as entrepreneurial ideas.  It’s just that the play influenced me a lot and in a way led to another big influence in my life so when I had to go to college, my parents didn’t have enough money to send me to college so they suggested I should get a scholarship and I competed for a scholarship in India and part of the competition was to study the biography of one of India’s most famous entrepreneurs, Jamshedji Tata, and so that again influenced me.

So in a way, I learned my love of entrepreneurship as a method of social change, if you will, through these two things.  It just turned out that that influenced the questions I asked as a researcher. I’m very fortunate that some of the beginnings of the answers that I found seem to point to details of how that method actually works.  So in a way it had strengthened my preexisting inspiration, if you will, that entrepreneurship is actually a method for social change.  It’s not only about somebody who doesn’t have a job starting a company, although there is absolutely nothing wrong with that because that is the essential seed of social change too, but I honestly think that that’s a method of social change and that idea came to me earlier on and I would like to leave my students with that idea that entrepreneurship is a method and is up to you. I cannot tell you what kind of social change is good or what kind of social change you should go for or what kind of aims you should have whether it’s “sell my company and go to the Bahamas,” and that is perfectly fine.  So I don’t give people ends but I think entrepreneurship is the ultimate tool in human affairs.  So that’s the message I’d like to leave people with.

Recorded on: May 19, 2009