Paul Graham published an essay this week on why he thinks successful startups are ones that “be good,” and act more like non-profits than a profit-seeking organization. It’s a great piece, and one you should read if you haven’t already, but there is one subsection was particularly intriguing. Graham writes:
How wide is this territory? Would all good nonprofits be good companies? Possibly not. What makes Google so valuable is that their users have money. If you make people with money love you, you can probably get some of it. But could you also base a successful startup on behaving like a nonprofit to people who don’t have money? Could you, for example, grow a successful startup out of curing an unfashionable but deadly disease like malaria?
I’m not sure, but I suspect that if you pushed this idea, you’d be surprised how far it would go. For example, people who apply to Y Combinator don’t generally have much money, and yet we can profit by helping them, because with our help they could make money. Maybe the situation is similar with malaria. Maybe an organization that helped lift its weight off a country could benefit from the resulting growth.
I’m not proposing this is a serious idea. I don’t know anything about malaria. But I’ve been kicking ideas around long enough to know when I come across a powerful one.
Interesting question. Can a company survive, even profit, by helping people with little resources?
Let’s shift the focus a bit to poverty, and set some parameters for the question. First, let’s limit it to the U.S. (tackling malaria, AIDS, or even lack of education in developing nations is clearly paramount in a globalizing world, but it also creates complications that are outside the scope of this admittedly-brief article); second, the company’s goal is to help pull people out of poverty; and third, the company must generate enough revenue to sustain themselves. That’s it.
There are two questions that immediately come to mind: What would this company look like, and how would they generate revenue.
Graham’s dictum, if you want to call it that (and I do), is this:
Do whatever’s best for your users. You can hold onto this like a rope in a hurricane, and it will save you if anything can. Follow it and it will take you through everything you need to do.
To do that, this company (let’s call them Solidstart) would have to recognize what is causing poverty in each case. Odds are, though, that a good portion of them will be a result from a lack of opportunity. It’s difficult to go to a university when, after high school, you barely read at a sixth grade level, or when economic opportunities are few in your area. Put those two together and you have a hell of a mixture, and it isn’t good.
Solidstart’s mission, then, would be something like this: To give the opportunity-less the chance to succeed. You can make it sound a bit more idealistic, but that’s what their basic mission should be.
Solidstart would need capital to begin their operations until they are self-sustaining, and it would need to be a large amount. Perhaps, then, Solidstart can combine old school-style philanthropy with a “crowdsourcing”-type model to raise funds.
The crowdsourced, social portion of the business would be like Prosper’s microloans, but what these loans could be used for would be strictly defined by Solidstart. Not necessarily because Solidstart shouldn’t “trust the wisdom of the crowds,” but rather because it will focus on, at least initially, a small group of individuals. The advantage of this would be that they can focus their resources and truly help someone, rather than provide meager resources to a lot of people.
Let’s also develop what this social part of the business would be. It should not just be individuals providing donations to Solidstart. Instead, it should connect people giving loans to the people receiving them, and create a personal relationship between them. The individuals providing capital would not just receive some interest on their loan (except for education loans — little more on that later), but would have a vested personal interest in seeing them succeed. The people receiving the loan would be encouraged to have periodic discussions with their loan-er, both to promote this relationship and to encourage progress on their project.
Those selected would be expected to give a detailed plan of precisely what they will use their capital for. They could take classes, start a small business; the plan is theirs to define — it is their dream.
Perhaps could also Solidstart partner with companies to utilize an untapped resource: those in poverty. Using both Solidstart and company funds, selected individuals would enter into an internship and education program that would ultimately lead to employment at that company.
Solidstart could also help fund community developments, such as expanding schools. Most intriguingly, Solidstart could create a program to provide Internet access in communities without it, whether through public computer labs or subsidized Internet-access to homeowners. This could even take the form of a mesh wireless network where users wirelessly share their Internet connection with their neighbors, creating a neighborhood-wide wireless network. (This could even conceivably be turned into a revenue stream for residents, if ISPs are willing to allow it. Meraki’s mesh access points allow their owners to provide a wireless network for a price, much like a hotspot at Starbucks. There is a lot of potential with this concept — imagine creating a wireless community with a mesh network, and affordable offices to rent; web businesses and freelance workers could flock to an otherwise economically-deprived area, generating business for residents.)
Graham contends that if a startup is doing great things, they shouldn’t worry too much about monetizing it — they’ll figure it out. Well, it sounds like Solidstart is doing some great things, but to insure its continued existence, let’s try to figure out how they can profit from this.
There’s a simple way to do this, and this is where the profit-motive can act as an altruistic motivator. If we take Solidstart’s profit-motive, and tie it to its core business — giving opportunities to people without many — suddenly what is usually considered a force of greed becomes one of social-benefits.
If Solidstart profits from their “customers’” success, then they are intrinsically motivated, both from moral and profit standpoints, to help their customers succeed as best as they can.
This could be abused, however. Solidstart could demand unrealistically high, and unfairly immediate, interest from their loans. This would make Solidstart non-interesting to people who need their help, because the costs are simply too high. And, more importantly, it would be violating their guiding principles: it would not be putting its customers first.
So, the question is: how can we tie Solidstart’s profit-motive to their customers’ success?
There’s two easy ways to do it. Let’s just get this out of the way first, however: individual loans for education would be interest-free. Completely and one-hundred percent interest-free. Education is not the area to fund the company.
Solidstart is doing two interesting things, however: first, they are partnering with companies to find new workers to intern and enter their education program. Solidstart is providing a service here for the companies, finding good, dedicated workers, and they deserve to be compensated. Solidstart could earn a referral fee for their service.
Second, Solidstart is providing what amounts to capital for business creations in local communities, on an individual and group basis. They could take a stake in some of those companies, and generate some value there. The community mesh network concept is the most intriguing here — Solidstart could take a small portion of the revenues. With enough of these projects, Solidstart could conceivably be earning enough to sustain their operations, if not turn a profit.
This is just a light sketch of what a company dedicated to providing opportunities to people below the poverty-line could look like. It is more a thought-exercise than anything else to see if it is possible for a company like this to exist, and if it did, what it would do.
Most of Solidstart’s actions sound more like a non-profit’s than a for-profit company, and that is what is most intriguing. It is certainly not a given that this company would succeed — but I have a feeling it is possible. And this is what excites me the most about our present times. “For-profit” does not have to mean “at the expense of others.” It can mean, for others, and for me, too.