Tony Muljadi, Exclusive Justmeans Q&A, Part 2

Don't think a business can make a profit while solving a social problem? Tony Muljadi, co-chair of Harvard's 13th annual Social Enterprise Conference, wants to make you a believer

It's hot. (Just like Jane Chen's Thermopod, a lifesaving, low-cost sleeping bag designed for the developing world that keeps low-birth-weight babies warm even when hospitals lose power.)

It's trendy. (Just like Lauren Bush's natural burlap FEED bag, which has helped provide more than 60 million school meals to children around the globe.)

It's growing. (Just like the mushrooms that are used to produce Eben Bayer and Gavin McIntyre's EcoCradle, an environmentally friendly, fungus-based replacement for foam packaging.)

It's social enterprise. And while it has its roots in the socially-minded work of such historical figures as Susan B. Anthony, Florence Nightingale, Margaret Sanger and John Muir, in today's capital markets it is still a nascent field. But it is thriving, thanks in part to a compelling message that is hard not to cheer for: Making money and making a difference can be two sides of the same coin -- a fair-trade coin made with 100 percent biodegradeable recycled materials, of course.

And #socent isn't just a trending topic in the Twitterverse. It's also gaining steam in the mainstream press. In December, Forbes published its first-ever "Impact 30," a list of the world's leading social entrepreneurs.

But as with any developing sector, excitement is tempered by fear, clamor can turn into chaos. And that's why so many of the practitioners, academics and students of social enterprise will be coming to Harvard University later this month for the 13th annual Social Enterprise Conference: To get a handle on this rapidly expanding area of profit-minded do-gooders. Co-produced by the Harvard Business School and the Harvard Kennedy School of Government, the entirely student-run conference brings together practitioners, academics and students to discuss the current state of social enterprise and where it's going.

In the second part of my two-part interview, I asked conference co-chair Tony Muljadi about the biggest challenges facing social entrepreneurship, the state of microfinance and what kind of social enterprise he would fund if he had a billion dollars.

Click here for Part 1 of the interview.

Reynard Loki: What are the biggest challenges that social enterprises face?

Tony Muljadi: Scaling and being sustainable. A lot of social enterprises are doing great things, but can only work on a small scale or need donations to do their work. I think the biggest challenge is to come up with a business model that allows you to grow without the need for donations.

RL: So social enterprises are different from non-profits in that they don't rely on donations?

TM: Right. Social enterprises aspire to eventually be sustainable, where they don't need donor funding and are profitable so that they can continue into the future. I define a social enterprise is an entity that uses market mechanisms in order to be sustainable and make a social impact.

RL: Could a non-profit become a social enterprise?

TM: Yes, I think a lot of non-profits use market mechanisms to supplement their income. Last summer, I worked at the Lincoln Center for the Performing Arts. They are a non-profit and they're now expanding their business by providing consulting services for municipalities and performing arts organizations around the world. And they're charging fees. And this new element of their business is in line with their mission to bring the performing arts to the widest possible audience. This is an example of social enterprise within a non-profit model because they are using market mechanisms.

RL: You spent some time working in microfinance with BRAC in Bangladesh. What were the biggest lessons you learned there?

TM: I learned that microfinance isn't the end-all solution to poverty. It has really opened doors for people to access capital and pull themselves out of poverty. But it's important that microfinance is a part of a larger scheme that involves other poverty-reduction programs, such as health services, child education, and job and enterprise training. The great thing about BRAC is that they have this philosophy. They don't just give out loans. They seek out the needs of the people they serve. Sometimes microfinance isn't the answer. Sometimes it's livestock grants or health or education services. Or all of the above.

RL: The world of microfinance has also been beset by some of the unethical practices that are common in regular finance, such as unfair lending and astronomical interest rates.

TM: Many of these problems begin when a microfinance institution goes public, becomes a big corporation and is driven by investors like financial institutions and pension funds that seek major returns. There's a profit pressure which leads to increasing interest rates and severe lending practices. A better model for microfinance is either in the non-profit space or a setup where the borrowers are the shareholders. In the Grameen Bank model, 95 percent of the borrowers own the bank. Some MFIs, on the other hand, went public and then had profit targets to hit, in addition to governance problems. Lenders shouldn't be coming to your home or place of business to threaten you. That's clearly not within the boundaries of social enterprise. Governments can do a lot more to regulate microfinance interest rates and lending practices in general. Also, somet borrowers will take out loans from several different places and won't tell those institutions that they have other loans. Instituting some kind of credit bureau mechanism to ensure that people can repay their loans can help in this regard.

RL: What makes you most excited about the state of social enterprise at the moment?

TM: I'm most excited about the fact that it's becoming trendy. People are catching on and believing in the power of social enterprise. And it's been getting a lot more coverage by the media. There's a social entrepreneurship section in the Huffington Post. The Unreasonable Institute, a social enterprise incubator whose founder Daniel Epstein will be moderating our Young Entrepreneur keynote, was recently covered by The New York Times. Some people may say there's a dichotomy: either you're social or you're an enterprise. But we're beginning to see these elements merge. In the future, people will expect for-profit companies to be socially driven and non-profits to be more entrepreneurial.

RL: What worries you the most about the state of social enterprise?

TM: That you don't see that many scalable and sustainable social enterprises. And without good role models, it's hard for other companies to follow. Capital markets rely on profits and aren't yet ready for purely social business. Those MFIs that IPO'ed had such a pressure to make a profit and when they didn't do that, their stock price tanked.

RL: Who are your primary inspirations?

TM: In 2007, I took an undergraduate class at the University of Colorado at Boulder called Sustainable Business and my professor Janet Graaf really exposed me to this idea of triple bottom line. I had never thought about social enterprise before this class.

RL: If you had a billion dollars to fund a social enterprise, what social problem would you like to solve and why?

TM: I would fund something having to do with education, because I think education is fundamental to development around the world. I think it's a human right to have a free or low-cost education through high-school. I don't know where exactly I would deploy those funds, but I would deploy them in the direction of education.

RL: If you could enact a law by which all countries had to abide, what would it be?

TM: Free education for all.

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About the Harvard Social Enterprise Conference

Jointly produced by the Harvard Business School and the Harvard Kennedy School of Government, the Social Enterprise Conference is an annual student-run conference that is one of the world’s leading forums to engage in dialogue, debate, and expression around the field of Social Enterprise. In 2009, the conference was named by Forbes.com as one of the "Top 12 most influential and exclusive executive gatherings," the only student-run event to make the list.

About Tony Muljadi

Tony Muljadi is a second year student at Harvard Business School. Last summer he interned in the Strategy and Business Development group of Lincoln Center for the Performing Arts in New York. Prior to HBS, Tony spent a summer in Bangladesh working in the microfinance division of BRAC, the largest non-profit development organization in the world. He also spent time as a management consultant with PwC in New York. Tony received a BS in Business Administration with Highest Honors from the University of Colorado at Boulder.