Doing well by doing good? It's not easy.
A business class in California helps a US entrepreneur bring peanut paste to Haiti's hungry kids.
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"A big 'aha' moment for me was hearing Tom [Stehl] say they were at 10 percent of their production capacity. There's this needed food and 90 percent of capacity is not being distributed. And the question is why?" says Michael Looney, one of Stehl's mentors.Skip to next paragraph
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Stehl first answered that demand was slowly ratcheting up, but then dived into the challenges. The French firm Nutriset now makes a similar product called Plumpy'nut in the nearby Dominican Republic, selling it at a slightly lower price.
Hearing this, Stehl's other mentor, Brad Mattson asks point blank: "Does anyone really need your product?"
Nutriset's profits leave the Haitian economy, says Stehl. He argues that economic development is a key goal of MFK.
Social entrepreneurs run the risk of figuring out a business model only to see a larger company swoop in with superior resources. It's long been argued that social entrepreneurs make excellent beta testers for corporations, says Nora Silver, director of the Center for Nonprofit and Public Leadership at the University of California Berkeley. "Social entrepreneurs can be closer to the ground ... have more trust," Dr. Silver says, adding that an advantage "they don't have is the money to invest to scale up."
Stehl's mentors speak frankly: Don't expect buyers to pay much extra for "made in Haiti."
Nonprofits are not oblivious to generating revenue. Some data shows that 51 percent of revenue across the nonprofit sector now comes from fees for services. Government and philanthropy make up the rest.
MFK's largely nonprofit customers seem to value social impact in their purchasing decisions. "We are willing to pay a slight premium in price to support a product using local commodities and local production," says Rebecca Heidkamp, a nutritionist with GHESKIO, a nonprofit health organization.
Stehl's mentors, accepting that social mission trumps obvious business logic, brainstorm ways to bring price to parity.
Using Haitian-grown peanuts adds cost because a large portion are infected and must be thrown out. But peanuts aren't the most expensive input – it's dry powdered milk. The mentors propose asking US dairies to donate free milk in exchange for publicity of their support to a worthy cause. That could get price parity long enough to ramp up production.
"Generally social entrepreneurs are passionate about an issue, and they are good at startups," says Silver. "But it's very hard to give birth to a new business while at the same time giving thought to scaling up."