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Secrets to Successful Social Enterprise – Interview With Dr Kim Tan
This is an exclusive interview with Dr Kim Tan, an expert in social entrepreneurship and community transformation. He’s the founder chairman of SpringHill Management Ltd (UK), a fund management company in biotech and social venture capital investments.
Can you share with us what social entrepreneurship is about, and how is it applied to social problems?
Social enterprise or impact investing is intentionally finding a business solution to a social problem. So rather than tackling social problems through aid and through charity, we need to find business people with the creativity to come up with business, enterprise based solutions. And when we make these kinds of investments, these businesses have to be profitable. Because if they’re not profitable, they become charities.
But we are not just looking for a pure financial return, which is small, but we are also looking for a social return and we also like to see an environmental return. So that’s what impact investing, or social enterprises, are about. It’s intentionally going in to build businesses amongst the poor, that will solve, that will tackle social problems and social needs.
What are greatest challenges for social entrepreneurs, especially when operating in third world countries?
The biggest challenge, not only in the developing world but in the developed world, when it comes to making investments, is always management. It’s about the human capital, the human talent.
The biggest challenge, not only in developing world but in the developed world, is always management of human capital and human talent.
I come from the venture capital world and we tell people that we are not investing in technology or a business plan, because those will fail. We are investing in people so even in Singapore, if you don’t have good people; you know you will not make a successful business. And that’s the same as a business in the slum, in Africa or in South East Asia.
So unless you have the right kind of people, it doesn’t matter how much money you throw into a project, you will still fail. So if you are a small business in a slum and you don’t have the education, the management experience, what do you do? The banks won’t lend you any money, there’s no venture capital available.
So you need a generation of courageous, social investors to go in and make these kinds of investment. And they don’t just bring their money, they bring their talent as well. They bring people; they bring management skills, mentoring, to help these businesses grow in scale. So that’s the biggest challenge of any business, it’s people.
So the great hope for us in the developing countries are the returnees. People who have been educated in the West, who have been refugees in the West because of regime change, and revolutions in their own countries, or genocide; and now that there’s peace in their own countries, these are coming back into their own countries; but having been educated in the West, they will provide the human talent.
And we saw that in Taiwan, in South Korea and we have seen that in India with the pharmaceutical companies, and now we’re seeing that in China. It’s the returnees who have been educated abroad, worked abroad, gained some experience, who have gone back to their countries; they are the ones with the talent who can build businesses that can transform countries. So it’s about people. So these are the biggest need and the biggest challenges.
Many young people want to start social enterprises after graduating from university, what is your advice, or road map you would give them?
I think my advice would be to go and gain some experience first. Because if you are straight out of college, even after an MBA (and we lecture in a number of MBA schools), you are not that “useful” to be very honest. Because until you have actually been in the business, you don’t know how tough it is. Especially if it is a small business and you’re just starting up.
Working for a big corporation is easy, compared to going out on your own to start up a business. And then when you’re starting up a business that has some social benefits for the poor, it is even more challenging.
So my advice would be, get your education but go and gain some experience, it doesn’t matter which sector. And then after that, go and find some like-minded people because it is very lonely building your own business, and then build it together.
And get the right kind of funding. From the venture capital experience – one, most businesses fail because of poor management; and two, because they are under-capitalised, they’re too small. So unless a business can get to a certain scale, it’s actually very difficult to survive. So you got to get the right kind of business plan, the right kind of capital; patient capital, for quite a long period of time, to build a business that can have a certain scale and size for it to survive.
My view is that there are too many small social enterprises that are too small, and will never survive. And we need to help some of them get to scale. And that’s really the key difference between being social enterprises and impact investing.
Social enterprise tends to be more social than enterprise, they tend to be started with grant capital, free money; and when you start out with free money, you tend to build a very different culture than when we have investors – even when the investors are pretty benign and are very supportive of your vision.
Nevertheless, you have a responsibility when you take investors’ money. So you build a very different kind of business. And social enterprises tend to be small, they tend to be too small, and they will fail. Many will and many do, sadly. So what I would rather see is, experienced business people who understand scale, who knows how to build a business that employs a hundred people, not just two or three.
We need to be building SMEs; that sector is what is missing in many of the developing countries. And we need experienced business people to build the missing middle. So my advice is, go get your education, do your MBA but go get some experience, then get some crazy friends to do it together but get the right kind of business plan, the right kind of patient capital that will allow you to build something that is sustainable.