Profit is about more than money
Social enterprises provide community benefits through a sustainable business model
Most people think that the business of businesses is making money. And while profit is at the heart of entrepreneurship, in many cases a business can be about so much more.
Take the example of iDE’s wholly owned subsidiary, Hydrologic. In Cambodia, untreated water and poor sanitation cause an estimated 10 million cases of diarrhea and 10,000 deaths each year, mostly in rural areas among children under the age of five. After talking with those rural customers, iDE launched a program in 2001 to introduce affordable water treatment options. For years, the program operated on a partial cost-recovery basis, using revenue generated from water filter sales to cover production and distribution costs, and using grants to cover marketing and back-office costs. However, by 2008, it was clear that the program had potential to operate sustainably as a private enterprise. But what business would be interested in manufacturing, distributing, and selling water filters to the most rural and poorest segments of the population?
Sometimes, iDE identifies existing enterprises to work with, but in this case it was necessary to create something new. Before iDE began the water filter program, no business sold an affordable water treatment system. As iDE considered how to convert our program into a business, several options came to light, including:
- Transferring ownership to a cooperative consisting of program staff.
- Selling the business to an entrepreneur through a bidding process.
- Training and equipping a number of small-scale ceramic enterprises to produce and distribute filters.
- Transitioning operations to an autonomous social enterprise.
Multiple factors influenced the decision in favor of the social enterprise approach. One was the general low level of development of the existing ceramics industry in Cambodia. Because the water filters were a health-related product, quality control was of the utmost importance. Production and distribution functions were complex and had to be able to scale effectively. Finally, the business needed to intrinsically protect consumer interests, as there was not a strong regulatory environment.
The social enterprise approach was deemed the most practical option for achieving sustainability while maintaining positive social impact.
As of 2010, Hydrologic was formally registered in Cambodia as a wholly owned subsidiary of iDE. Hydrologic expanded its production capacity, established a rural sales force, partnered with a microfinance institution, and became certified to generate and sell carbon credits. The enterprise became profitable in 2012 and has remained so each year since.
Much more than the profit, Hydrologic delivers benefits in improved health, income, environment, and gender equity, dramatically improving the lives of over two million people in Cambodia.