December 6, 2019

Why is Red Gold a Social Enterprise?

Our business Red Gold of Afghanistan aims to empower women by purchasing, marketing, and selling Afghan saffron.

Early on in the business, we decided that Red Gold of Afghanistan would be a social enterprise instead of a charity. We wanted to use this post to talk about the benefits of the social enterprise model over a charity based model, in hopes that others going through the same decision-making process will have a reference point.

What is the difference between a charity and a social enterprise?

"Give a man a fish and you feed him for a day, teach a man to fish and you feed him for lifetime"

The differences in the models can be best summarized in this cliche. Coming from a rich developed country, the wealthy businesswoman has the power and choice to help this hungry fisherman however she wants.

A charity would use this position of power to be generous. She would generously give the fisherman fish! One fish, ten fish, a truckload of fish, regardless the man would have a good meal for the next little bit.

A social enterprise would use this power to teach the fisherman to fish, then buy his surplus fish to sell elsewhere. The woman might take the time to teach the whole village to fish too. The man may not get instant gratification for his hunger, but over a long period of time, he will be able to support himself, support his family, and support his village. In time, he may choose to take his expertise and teach other villages how to fish also.

We can see that both a charity and a social enterprise have a social objective related to them. Feed the fisherman.

However, their approaches are very different, and these little differences have long term consequences.

Looking at this story, with a charitable approach, there are a few problems.

The donated fish will eventually run out
What if you gave too much fish? So much, that a lot of them end up rotting
The fisherman will not have to fish for a long time, he will be rusty. If it was his business and source of income, then he will not be making any money. Who wants to pay for fish when there is so much free fish for everyone?
The fisherman is not helping anyone else. The source of fish he can share is limited.
Eventually, the business woman will have to come back with another load of fish.

With the social enterprise approach, we can address some of these problems:

The fisherman will be able to catch more fish
The fisherman will likely catch as much fish as he needs, not significantly more
The fisherman will always be fishing, making sure his skills are up to date and that he will be maintaining or growing his business
Knowledge compounds and can be shared, the fisherman can take his skills and teach other people how to fish also!
The businesswoman does not need to constantly provide fish, freeing her resources to help others. If she wants, she can buy a nice mackerel from the fisherman for her family.

A social enterprise is almost exactly like a normal business, with a focus on gaining profits. The only nuance is that the success of the venture is not solely measured on profits. The owners of the business also track the social impact that is being created.

Some example of these social goals may be to:

Pounds of food saved from the landfill
Number of children educated
Number of water wells created

Instead of asking always, “what is going to make us the most money”, the question becomes “what is going to let us make the highest long term impact”. Often times, those two objectives line up very well in the long term.

For us, the key difference between a charity and a social enterprise boils down to sustainability. Social enterprises are built to stand alone and grow without significant external help.

Profits fund your ability to continue making a difference, it is a sustainable business
Working with local stakeholders lets you build solutions that work for them
There can be a compounding effect, over time you can continue growing and making an impact
Profits attract investors, who are much more willing to give you money to continue growing your project.

Charities are notoriously dependent on external funding. Unfortunately, governments change, donors pull out, and there are so many charities asking for attention. For those in Ontario, the election of the Ford government resulted in funding cuts for many NGO’s across the province.

The story of TOMS - Good Intentions, Poor Results

Toms shoes were a poor business model

Many of you may know the story of TOMS shoes. They built their success off a unique model - for every pair of TOMS shoes that were bought in the US, the company would donate a pair of shoes to a child in a poor country like Haiti.

When I first heard about this many years ago, I (and many others) had the impression that this was a fantastic business model. By choosing to purchase, I would be directly benefiting a child! So what’s the problem?

In a simple system, where a problem can be easily identified and solved, TOMS would have succeeded. What they were proposing was simple. If you give shoes to children in Africa, you will improve their quality of life.

Unfortunately, the world is a complex system. There are a lot of moving parts, and when you have an initiative like TOMS shoes, actions with good intentions may have unintended consequences.

First did they have the impact that they were looking to have? The answer is a resounding no. One article from Harvard Political Review put it simply: “Is donating shoes an effective way of aiding impoverished communities when an estimated 800 million people worldwide lack access to basic nutrition?”

The problem gets worse.

Giving shoes put local shoemakers out of business. Their products were a replacement to previous pairs of locally made shoes, making it so that people purchased fewer shoes from local business owners. This meant that local manufacturers and the workers they employ were out of jobs.

Here we cannot make the argument of “doing something is better than nothing” when the donation of shoes actually led to a net negative overall impact. They have since revamped their charitable donation model to focus on higher impact activities such as helping communities with vision care.

Sustainably Solving Complex Systems

social enterprise and complex systems

The world is full of complex systems, an environment with many different components which may interact with each other - sometimes unpredictably. Pull-on one thread, who knows what will happen to the rest?

For us, TOMS illustrates how well-intentioned actions in a complex system can have negative unintended consequences. Problems in this world are rarely as simple as they may seem from a classroom, which is why it is critical to work with local stakeholders and gain a deep understanding of the problem before prescribing over-simplified fixes.

Charities who truly engage with stakeholders are good at working with complex problems, and they have their place in the world. We especially admire the work of organizations such as the Bill-Melinda Gates Foundation, Canadian Red Cross, and countless others.

Here’s the thing. We are not Bill and Melinda Gates, who have a net worth of 107.1 billion USD. Funding and sustainability of their charitable organization is not a problem.

As much as we want to have 107.1 billion under our couch, the unfortunate reality is that we don’t have that amount of funding.

Our mission is to empower Afghan women to be financially independent. If we went the charity route, that means that we would have to spend a lot of our time looking for donors and raising money. That’s time that we could be better spent on value-creating activities.

For us, there’s also a bit of pride involved. We want to build something without having to constantly asking for money. By building a business model that can stand on its own, we can start and grow a project that has a lasting impact without having to rely on external donors.

Profits are not evil

Something that I’ve personally encountered is that “profit” is associated with “evil”. It brings to mind unethical corporations and greed. Totally fair. Many companies have taken some very questionable and morally dubious actions in the name of profits.

For Red Gold of Afghanistan, we see profits as a path to independence and sustainability. They allow us to continue improving the lives of Afghan women.

Profits allow us to hire trainers to teach more Afghan women about how to grow and harvest saffron.

They let us market the saffron, allowing us to buy more from these Afghan women.

They allow us to attract talented designers and entrepreneurs, who help us grow the business.

Profits = Social good :)

Interested in Making a Difference?

We’re excited about the road ahead, and we’ve just launched our preorders for our premium afghan saffron. Our founder Nazaneen travelled to Herat, Afghanistan this past November, where she met directly with 7 female saffron farmers.

Red Gold partnered with the Ministry of Agriculture, sponsoring training for these women that taught them how to increase the quality of the saffron that they were harvesting. We can’t buy all their saffron, but we know that they will be able to get more for their saffron with this new training.

The premium handpicked Afghan saffron we bought from these women is now ready for preorder! If you’re looking for an amazing gift for someone who loves to cook, or want to spice up a dish with saffron, you can’t go wrong with some of the highest quality saffron in the world.

Not sure how to use saffron? We’ll include some amazing recipes that we’ve found to make sure that you get the most out of your saffron.

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