Profitability or Social Impact? A constant dilemma plaguing Social Businesses

The dilemma facing social enterprises - profitability or social impact?

Professor Elisa Rodrigues Alves Larroudé of FGV-EAESP, together with colleagues Prof. Edson Sadao Iizuka and Prof. Carmen Augusta Varela of Centro Universitário da FEI in São Paulo, investigate the dilemmas facing Rede Asta – a social business in Brazil.

Profitability or Social Impact? A constant dilemma plaguing Social Businesses by CoBS Editor Afifeh Fakori, based on the paper Social Business Dilemmas in Brazil: Rede Asta Case, Elisa Rodrigues Alves Larroudé, Carmen Augusta Varela, Edson Sadao Lizuka.

Spotlight on Rede Asta

Rede Asta is a social business in Brazil that transforms artisans into entrepreneurs, and waste into beautiful, new products. The artisanal products, produced using 70% of recycled and reused raw materials, are marketed through its salespeople, website, brick-and-mortar stores and also as corporate gifts.  In 2017, Rede Asta generated more than US$ 950,000 in revenues from the combined efforts of 1,100 artisans in its network. With offices in Rio de Janeiro and São Paulo, Asta operates under two legal entities: a for-profit corporation called Asta Corp and a non-profit association called Asta Institute. Asta’s activities are aimed towards achieving multiple sustainable development goals such as poverty alleviation, reduction of inequalities and responsible consumption and production.

In pursuit of the elusive “Triple Bottom Line”

As a social business, Asta seeks to improve the lives of Brazilians from low income groups in an eco-friendly and profitable manner. However, chasing the triple bottom line of Profit, People and Planet is no mean feat. Efforts to attain social goals often compromise short-term financial results and can potentially lead to internal discord between the various stakeholders. The challenges facing Rede Asta are multi-faceted.

  • The Performance Dilemma: Getting the priorities straight

For Rede Asta, Internet sales have been growing rapidly in recent years, and it is also less expensive to maintain compared to Asta’s salesforce. One would imagine that it would make perfect sense to prune a costly salesforce. However, Asta is reluctant to de-prioritise the sales force since each salesperson serves as an activist and plays a critical role in disseminating the network’s social and environmental cause. So, clearly, the numbers alone have not been sufficient to prioritise one sales channel over another.

Rede Asta’s operations are faced with dilemma too. For one, it aims to practice fair trade but has no means to ensure that the funds obtained via the network reach each artisan with equity and transparency. There is also significant mismatch when it comes to Rede Asta’s beneficiary. According to its founders, Rede Asta is a staunch proponent of gender diversity. Yet, the managers and over 90% of the production group members are female.

  • The Organisation Dilemma: Co-ordinating for efficiency

Another challenge for Rede Asta stems from dealing with multiple cultures, processes and practices. Its operations span across different production groups that do not share the same history, values or culture. Groups that have been established by middle-class women are often more structured than those formed by women from low-income communities. When there is a large order, for example, each group has its own unique way of managing it and Rede Asta’s difficulty in harmonising these diverse groups means that delays in delivery may frequently occur. There is a clear imperative for scaling up to improve financial results, but the concept of artisanal production is not quite in tandem with large-scale operation

  • The Learning Dilemma: The art of agility & adaptability

Managers in a social business undergo continuous learning because the challenges experienced are often distinct from the ones experienced by a typical for-profit enterprise. For instance, Rede Asta had initially started off as an NGO focusing on capacity-building and the training of artisans. However, the pursuit of profits eventually led them to consider selling their products as corporate gifts. This required an invoice, which could only be provided by a corporation since the legislation in Brazil does not acknowledge social businesses. So, Rede Asta had to adapt and start a micro-corporation called Asta Corp. For the managers, this meant being well-versed in operating under the purview of both the for-profit micro-corporation and the non-profit association, depending on the task at hand.

There have been numerous other obstacles challenging Rede Asta from reaching solid financial stability. In efforts to reach the triple bottom line, since 2011 it has started to invest in strengthening its brand value. And despite the complexities involved in economically enfranchising artisans, managers have realised that they will have to find a way to scale up production in order to be sustainable.

Social Business: The light at the end of the tunnel

Prof. Elisa Larroudé, FGV-EAESP, investigates the dilemmas facing Rede Asta – a social enterprise in Brazil.

Despite all the predicaments facing Rede Asta, not everything is gloom and doom. In fact, Rede Asta fares better than many other social businesses when it comes to employee morale. In social businesses, it is quite likely to have employees who are divided in terms of how they identify with the organisation – some identifying more with the social mission while others identify more with the business aspects. This, however, does not apply to Rede Asta. All employees believe in the greater causes fostered by their organisation and feel that the network provides them with a sense of belongingness.

It is true that the path to attaining the triple bottom line is fraught with pitfalls. Nevertheless, Rede Asta is well on its way to reaching financial sustainability and hopes to continue to serve as the long-awaited wind of change that Brazil needs.

Prof. Elisa Rodrigues Alves Larroudé of FGV-EAESP, together with colleagues Prof. Edson Sadao Iizuka and Prof. Carmen Augusta Varela of Centro Universitário da FEI in São Paulo, investigate the dilemmas facing Rede Asta – a social business in Brazil.
Elisa Larroudé

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The Council on Business & Society (The CoBS), visionary in its conception and purpose, was created in 2011, and is dedicated to promoting responsible leadership and tackling issues at the crossroads of business and society including sustainability, diversity, ethical leadership and the place responsible business has to play in contributing to the common good.  

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- Africa: Stellenbosch Business School, South Africa; ESSEC Africa, Morocco. 
- South America: FGV-EAESP, Brazil.

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