I have oil on the brain this summer. Gallon after gallon of the stuff continues to wash up on the shores of my home state, Louisiana. I’m reading Daniel Yergin’s The Prize, a sweeping account of the history of oil from the 1850s all the way to the Gulf War. And at work, one of Gray Ghost Ventures’ own investments, d.Light Design, hopes that its solar-powered lamps can do what the first oil-powered lamps did in the 1850s: provide cheap light to poor people. In doing so, d.Light aims to put the final nail in the coffin of kerosene lighting, the innovation that gave birth to the oil industry over 160 years ago.
As I learn this summer about the early days of the oil industry and those of social entrepreneurship, I can’t help but note where they parallel. Today, social entrepreneurship shares some of the same obstacles as did oil in its early days as well as its opportunities; it also attracts a similar kind of mind. One difference, however, will send social entrepreneurship in a different direction as it grows.
Big hurdles, bigger opportunity
As John D. Rockefeller considered the expansion of Standard Oil, he faced a daunting task: the US, reeling from a Civil War and expanding at breakneck speed, was hardly a predictable place to do business. Necessary institutions which today we take for granted had yet to be invented; regulation for the emerging oil industry hadn’t been considered, much less codified. And distribution? There were hardly BP stations on every street corner.
A similar lack of institutions, missing information, and inefficient markets define the opportunities and threats to social entrepreneurs working in emerging countries. According to a new book by two Harvard professors, those voids and inefficiencies provide precisely the opportunities that make social entrepreneurs jump: “The more institutional voids there are, the more niches there are for entrepreneurs to fill.” The government can’t provide access to clean water in rural India? That’s exactly the niche that Paul Polak’s nascent company Windhorse International seeks to fill, unpredictable as the market environment may be.
Nuts? Yes, please
These market characteristics attract a particular type of businessperson; then to oil, and now to emerging markets. When New England banker James Townsend first dreamt up drilling for oil in the 1850s, he was widely scoffed: “…pumping oil out of the earth as you pump water? Nonsense! You’re crazy.” Thirty years later, as rumors of oil in Oklahoma began to surface, even the boss of Standard Oil laughed off the prospect. “Are you crazy? Why, I’ll drink every gallon produced west of the Mississippi.” The history of oil, and particularly its exploration, is dominated by men judged by their peers as nutjobs and by history as geniuses of industry. From Townsend to the Texas wildcatters, they were ambitious, energetic and—yes—a little bit nuts.
Today, social entrepreneurship attracts people of the same stripe. As Khanna and Palepu note, “There’s sheer energy in emerging markets… excitement and enthusiasm… their ambition level is reminiscent of ambition in late 19th- and early 20th-century United States.” Consider the efforts (by multiple groups) to fight global malnutrition by spreading the gospel of peanut butter, for example. Sound silly? Sure, a little bit. But what if works? I’m certainly not going to offer to eat every peanut sold east of the Nile.
A small difference with big implications
I spoke last week with an older banker who worked for an US oil company in Mexico before it was nationalized. I told him about my work at GGV, and he asked “Do you not run into trouble with the natives’ feeling exploited and all that business?” His question brought to the surface the primary difference, in my mind, between the global oil industry and the work of social entrepreneurs. From its humble beginnings providing cheap light to the poor, the oil industry quickly grew into an extractive one, piping the resources of poor countries into the automobiles of rich ones, with the nation-state as its primary partner. As such, the industry was and is vulnerable to sometimes genuine, always political accusations of exploitation.
Social entrepreneurs, in contrast, most often view citizens of developing countries at once as producers, employees, and—vitally—consumers. When one of Windhorse International’s microfranchisees sells a liter of filtered water to a customer in India, it is “positioning itself as a partner in progress” (to borrow a phrase from Khanna and Palepu). Rather than extracting resources in exchange for cash to local governments tasked with keeping the “natives” from getting restless, groups like Windhorse and d.Light, propose an optional exchange of value at an individual level. “Natives,” once they become customers, become equals. And thatis a crazy idea worth getting behind.