I went to bed last night after making the following tweet on Twitter: "I plan to visit Mr. Komazaki of the nonprofit Florence tomorrow. Glancing through his lecture records, corporate outline, blog and the like, I received the impression that ‘the business model (adopted by Florence) is the kind that can produce success in full measure, depending on how it is implemented.' I believe Florence can make a greater social contribution by converting itself into a corporation and expanding the scale of its operations. Anyway, I'm going to learn many lessons from Mr. Komazaki tomorrow."
My original question was this. In what ways do "social entrepreneurs" differ from "entrepreneurs?" I swapped my thoughts with many people on Twitter and through my blog, discussed the subject with social entrepreneurs, and reached a personal hypothesis that they are "basically the same." Business models are essential for both social entrepreneurs and entrepreneurs. Both must generate profits. Both must build an organization. So, there is no difference. The willingness to make social contribution and the awareness of shareholder returns are the only areas of slight difference that exist between social entrepreneurs and entrepreneurs. Let me explain the basis of my opinion.
Picture in your mind a horizontal axis with a scale from zero to ten. Then place "People who start their businesses with a strong social-serving purpose" on the right hand and "People who start their businesses for self-serving purposes with a weak social-contribution" on the left hand of the axis.
There is a tendency in our society to call people plotted close to the right end of the axis (eight to ten on the scale) "social entrepreneurs." But there are also ordinary "entrepreneurs" who seek to solve problems in society. However, those people do not call themselves "social entrepreneurs". In many cases, society at large does not recognize them in that way, either. In practical terms, there is no significant difference between "social entrepreneurs" and "entrepreneurs" when both of them start their businesses with a strong social-contribution purpose, on eight to ten scale.
As an experienced venture capitalist who has been involved in many business ventures, I can almost definitely say that "entrepreneurs do not succeed in the long term, unless they start businesses that have a strong social nature." This means companies at the left end of the axis decline,on the other hand, the companies at the right end of the axis survive and prosper in the long run.
To explain this using the Venn diagram concept studied in junior high school mathematics, a circle of entrepreneurs contains a smaller circle of social entrepreneurs. We can arrive at the hypothesis that the circles will become closer to concentric if we compare successful entrepreneurs only.
In the meantime, fields that are hardly feasible as profitable schemes do exist. Whether to call people working in such fields "social entrepreneurs" or not remains a question. I find it better to define such individuals as social workers or volunteers than to call them "social entrepreneurs".
Hence, the very use of the word, "versus," in my previous Opinion entry titled "Social Entrepreneurs "versus" Entrepreneurs" (http://blog.globis.co.jp/hori_english/2010/03/tweeting-has-he.html) gave rise to concepts in confrontation. I think the idea based on confrontation that social entrepreneurs are "admirable" and entrepreneurs are "greedy" disappears when we bundle them up using the word "and," and view them as "being basically the same."
The confrontation emerges when a distinction is made. The confrontation formed in this way breeds criticism, produces comparative pluses and minuses, and causes arguments. We can eliminate this axis of confrontation and consider everything as one inclusive body. Reconciliation takes place, battles disappear, and useless arguments become unnecessary in this case.
Just as I finished typing this last sentence, my hands stopped moving on the keyboard. I clicked the mouse to access my Twitter blog and made the following tweet.
"I was writing my next blog entry about "social entrepreneurs", but there is something about them that does not sit right in my mind. That's because the topic is too ideological to be grounded in reality. I'd like to make an appointment with Mr. Komazaki tomorrow, and draw my own conclusion after a field observation and deepening my understanding. Mr. Komazaki, please teach me many lessons."
Two weeks later, I made the tweet introduced at the beginning of this column. I had an appointment to meet Florence representative Hiroki Komazaki at ten in the morning, but I arrived in his office five minutes early. There were a number of young women there. The atmosphere was lively. I rode a taxi with Mr. Komazaki who urged me to go out into the field the moment I arrived at his office.
I asked Mr. Komazaki many questions while we were in the cab. Through the course of our talk, I was able to clarify the relationship between entrepreneurs and social entrepreneurs in a way that confirmed my opinion. In the meantime, a new question arose in my head. "What is the difference between a nonprofit-organization(NPO) and a corporation?" Put another way, the question was that of "shell."
Piecing together what I heard from Mr. Komazaki, I gained a basic understanding that there were many drawbacks associated with an NPO at present, therefore, expanding NPO, in general, is challenging.
The reason for the challenges was that an NPO finds disadvantage in raising equity, in obtaining loans, and in entering into contract with companies. In the meantime, an NPO in Japan has no advantages, such as the deduction for charitable-contributions given to its counterparts in the United States. In other words, the NPO offers limited advantages, other than its symbolic meaning.
Let me explain this in a little more detail. Speaking from my own experience in investing into various companies as a venture capitalist, it takes 200 to 500 million yen for companies specializing in services and it takes 500 million to 2 billion yen for technology-companies to start from scratch and reach a comparatively advantageous position at any pace, although the actual amount depends on the business type and its category.
The only thing a company can do to overcome the lack of capital when it cannot take out loans.and raise equity is by cutting employees' salaries (We overcame a similar situation in the earliest days of GLOBIS by cutting salaries and working all night long). Moreover, lack of capital tends to obstruct the company from making necessary investments for fear of running short of cash. As a result, growth slows, scale remains the same, and many small companies mushroom one after the other.
Naturally, certain capable social entrepreneurs like Mr. Komazaki can achieve growth even with the corporation status. Adopting the corporation as a shell speeds up commercialization and makes expansion easier. In my personal view, the ability to make a contribution is limited when the scale is small, even if advocacy effects are generated.
I think whether the status is an NPO or a corporation doesn't matter, as long as the goal is the same. I feel that choosing the status that enables easier expansion is better for entrepreneurs who are seriously thinking about bettering the world. But this is their choice, because each person has their own way of thinking. Maybe such people would feel it was their business. Realizing that, I refrained from speaking further.
The cab driver missed a few turns on the way, but he managed to take us to the front of a high-rise condominium where the nonprofit Florence was offering a childcare service for sick children. The location was a room in a high-rise condominium located in downtown Tokyo. As we entered the building and passed through a hallway, I saw a child of about three years of age and a woman in mid-age playing together. The child was having a lot of fun in a room filled with colorful Lego blocks, in spite of having a high fever of more than 38 degrees. It was a very heartwarming sight. The big smile of the "rescue team member" woman was dazzling, too. I felt relaxed in the room, and ended up spending longer there than I had planned.
Through my conversations with Mr. Komazaki, I realized that Florence was clearly offering new value to society. With great reluctance, I left because of my next appointment.
The spring weather greeted us as we walked out of the building. The bright sun was almost blinding. I talked with Mr. Komazaki again during our taxi ride back to his office. He and I were 17 years apart in age. I was exactly his present age when I started my business. Inadvertently, I saw myself at his age. I recalled long-forgotten scenes, thinking to myself, "With no money, I did everything I could, just like him. Many people turned a cold shoulder because I was doing things they could not understand at all."
Basically, society does not readily accept what young people do, no matter what path they choose. At the same time, however, young people bring about innovation with their actions that are entirely new and different. Undoubtedly, the number of promising young entrepreneurs has been increasing recently. Mr. Yoshikazu Tanaka of GREE and Mr. Daisuke Iwase of LIFENET are both 33. Mr. Yosuke Kiminami of the environmental venture Recycle One and Mr. Kohei Takashima of the foodstuff home-delivery venture Oisix are both 36. There are many other entrepreneurs who are full of promise.
Either entrepreneurs or social entrepreneurs, these young people are steadily converting the untouched areas into markets, expanding the scale of their markets to a level at which they can impact society, and making those impacts last. I find their actions extremely encouraging. I would like to urge many young people to enter new fields. I believe their challenges will help reform Japan.
Before I knew it, I was fully engaged. I emphatically asserted how we could change Japan while we were in the cab. Shaking hands, I sent Mr. Komazaki off first as our taxi arrived in Iidabashi. I glanced back when the cab passed the intersection. He was busy talking to someone on his cell phone in front of a pedestrian crossing. Without hanging up, he gave me a bow when I raised my hand to wave goodbye. After that, the cab traveled nonstop to my office in Nibancho.