Social Purpose Business, an international perspective
To start off 2012, I am continuing to look at the emerging model of social purpose business. In November, we delved into the business model of Evergreen Lodge, a social enterprise in California, this time we are looking at social purpose business from an international perspective. At the close of the interview with Lee and Brian on Evergreen Lodge, three lessons emerged: Praise the tortoise, not the hare, grow mission investing, and remember that scale comes in many forms. As you read the following interview with managing director Justin Finnegan, MBA ’09, about what it takes to get a socially conscious company up and running in the developing world, similar themes emerge. The model is about decades, not quarters. We need impact investors willing to commit to social, environmental and financial returns. As for scaling this model, the commitment to cross-sector collaboration was foundational. How one would translate this model in Bhutan to other countries — that necessitates another interview.
For now, Mountain Hazlenut is busy planting 10 million hazelnut trees, which have been carefully selected from some of the world’s most productive, blight-resistant, and nutritious varieties. Local partners in this endeavor are Bhutanese farmers, who will raise the trees, harvest the nuts, and process them in modern facilities. Mountain Hazelnut Venture, a triple bottom-line business is doing something at scale and having an impact in Bhutan — an innovative model worth watching and learning from.
Q: Tell us about Mountain Hazelnut Venture.
A: In Bhutan people can grow crops, but have no market for them. They have to go to places like India, and that poses its own challenges. We see a market opportunity in the rest of the world for hazelnuts, which is a very attractive commodity with increasing demand year after year. So we’re building a business and committed to doing it in a socially and environmentally responsible way. We’ll invest around $30 million over the next 8 years to plant 10 million hazelnut trees in the economically challenged areas of eastern and central Bhutan. We’re working with up to 15,000 households, each with an average size of 5 or 6 people a total of 90,000 people growing trees and hopefully doubling and tripling their income over the next decade. It’s a multi-generational project. Once we make money, our company will be a profitable business and investors will make very good return on investment, but this is taking “patient capital” from people who are committed to our goals.
Q: What’s the environmental side of the equation?
A: Hazelnut trees grow well on slopes and they stabilize soil on mountainsides, which prevents siltification in the rivers. Water is the most important resource in Bhutan, so this issue is critical. Good soil stabilization also increases forest cover. Also, hazelnut trees provide sustainable firewood as farmers prune the branches. This reduces the pressure on forests and will sequester a significant amount of carbon. Growing these trees is perfect for farmers who don’t have access to other cash crops.
Q: Why Bhutan? How did the seeds of this idea come about?
A: I’m working with Daniel Spitzer, a successful social entrepreneur who has built similar businesses in China and other places. While I was studying with Professor Hau Lee at Stanford, Dan asked me to move to Bhutan and help build the company. I showed up after graduation in 2009 and now we have 150 employees and will be up to 200 soon. Hazelnut trees are difficult to grow in the early stages, so Dan invested in creating a lab in China to multiply hazelnut seedlings at a high speed and in a natural way — no genetic modification. This will allow us get up to scale quickly which is important because we need serious volume to be a sustainable business. At full capacity our trees will produce 40,000 tons A YEAR??, which is 3 to 4% of the world market.
Q: Where are you now with the company?
A: We’ve planted with more than 1000 farmers and have 65 partner contact grower representatives whom we also pay to help us within the communities. So we’re making a big impact. Bhutan is a small country and we are one of the largest private employers now. We’ve brought in modern technology and have a five-acre nursery site that uses local materials and boasts innovations like automatic heating and misting. The government has been asking us to share our knowledge with other ministries.
Q: What kind of ecosystem is necessary for a successful venture of this kind in terms of business, government, NGOs and communities?
A: Because this business is so large and ambitious, all of those pieces are extremely important. We extraordinarily lucky to have a partner like the Bhutanese government, which has no corruption and is one of the strictest countries on environmental protection. They really care about their farmers, and we have had to demonstrate that you can do a profitable business that respects local traditions. With the Bhutanese government it was extremely important to be transparent. We had more than 200 meetings with people from the Prime Minister on down to farmers, and they have been very supportive. We voluntarily send reports to them at least once a month just giving them all sorts of updates on the company. That alone cultivates a sense of trust. We’re the first 100 percent foreign direct investment business in Bhutan’s history. At full production we expect hazelnuts to be the 2nd largest export after hydropower. Employment is an issue in Bhutan, and people are moving from the countryside to the cities in search of jobs. So if we succeed it will be a real boon for the country because culture really in the countryside, and keeping villages intact is critical to that.
Q: What advice would you give to a new social entrepreneur that might want to replicate what you’re doing?
A: You’ve got to have tremendous commitment. Be realistic and realize that you can’t do a venture abroad “part time.” You have to live there. And keep in mind, particularly if you’re working in developing countries, that you may have to put up with hardship in building a business. I had no running water in my apartment and a snake in my bedroom for months, for example. Then you have to understand the culture and work with the government, and run your business like a business. It’s hard but it’s rewarding.
Q: What do you have to say to impact investors to enable businesses like this?
A: First of all, I’m extremely encouraged by this movement toward impact investing. But it’s not totally clear how impact investors are evaluating potential projects. Are they looking at them from a deal side or are they looking at it from the execution standpoint? Are they looking at performance metrics? This needs to get sorted out.
Q: You mentioned “patient capital.” Are people really willing to wait the 8 to 10 years to get the return?
A: I think so. Smart investors know that creating something of real value takes time. Even venture capitalists recognize that most deals go 8 to 10 years before they see any return. So I hope impact investing will free entrepreneurs from the pressure to see a return on investment quickly.
Q: You have an MBA from Stanford and speak multiple languages. You could have picked many career paths. Why this?
A: After college I moved to China and did research with farmers in remote villages, and that had a significant impact on me. I love entrepreneurship, getting my hands dirty, and this part of the world. When I met Daniel and we started talking about Bhutan, I realized I couldn’t refuse this opportunity. I wanted to apply what I’d learned at business school. Stanford helped me and convinced me that I should go forward.
Q: What advice would you give to MBAs who haven’t had the prior experience you did in developing countries and are interested in a career with impact?
A: If you don’t have experience in poor areas, first go to the developing world for a time, and don’t stay at the Four Seasons as a consultant. Get into a project and really live it and ask yourself: Can I do this? It can be challenging and it’s not for everybody. Make sure you’ve tried it out first because it could be a rude awakening otherwise.
Q: Any closing thoughts?
A: There’s so much to be done. Particularly exciting are the applications of mobile technology in the developing world. We developed our own traceability system and now all the government ministries are asking us to train them on it. I see very clearly the impact and the scale of these types of ideas. So I suggest people look at technology opportunities in the developing world.