Finding a Way: Entrepreneurship and Poverty

As Benedictine College helps launch a Spark Tank project in Ferguson, Mo., and elsewhere, the Thompson Center’s Dave Geenens presents this four part series on poverty and entrepreneurship.

There is a difference between the way middle class people look at entrepreneurship and the way poor people do — a big difference. And that’s a big problem.

Being an entrepreneur has a romantic attraction to it for the middle class. We marvel at people like Elon Musk or Jeff Bezos for their imagination and fortitude to start and invent world-changing businesses. But for those in the condition of poverty, which could be any of us at any moment in time, “romantic” is the wrong descriptor.

In her book, Manifesto for a Moral Revolution, Gayathri Vasudevan of Bangalore, India, one of Jaqueline Novogratz’ Acumen innovators shares this perspective on entrepreneurship held by those in the condition of poverty, “The most vulnerable people tend to be risk averse: when you live at the edge of survival, life itself can be a risky proposition. The poor value the stability and predictability of a consistent job, not the potential windfalls and painful losses associated with entrepreneurship.”

Many social justice-minded business leaders see entrepreneurship as a significant part of the answer to breaking the cycle of poverty in under-resourced communities. They aren’t wrong!

But for those in the condition of poverty to not only experience the “romantic” attraction of entrepreneurship and the excitement, exhilaration, and temporal rewards therefrom, many of the structural and imbedded beliefs and unquestioned assumptions about investing and philanthropy must change. Otherwise, the risk, lack of access, and chance of failure will choke the potential of what-could-be from indigenous entrepreneurs. This is something social justice-minded business leaders can and must change if entrepreneurship in U.S. urban centers is going to benefit those it is intended to help.

So where do we start? There exists a spectrum of use of available, excess resources for those who have them. On one extreme is investment and on the other extreme is philanthropy. I have heard people with resources refer to these as two distinct buckets, each with its own set of unquestioned assumptions and imbedded beliefs. Let’s first address the assumptions and imbedded beliefs for the investment bucket.

Like any good capitalist, investors expect to earn a return for the resources or capital they put at risk. Economic principles would support the idea that the higher the risk, the higher the return expected or deserved. This principle has several unquestioned assumptions and imbedded beliefs in it. We’ll look at two of them.

First of all, it assumes that financial return is the singular measure of an investment’s worth. Is this true? Secondly, it assumes that high-risk investments, or early-stage investments in start-up enterprises, warrant either exorbitant returns, usurious rates of interest, or no investment at all given the high risk.

It is not unusual for angel investors or private equity to expect at 25-35% or more annual return for their investment risk. Even an investment is an existing, proven company with a good track record can demand an 20-25% return, if not in interest or equity, in a warrant position to claim later at the company’s next capitalization event.

Additionally, in the United States, one cannot overlook this truth: in a free market where starting a business is exceedingly easy given the world’s standard, if a business enterprise that is necessary for the wellness and flourishing of a society (i.e., a grocery store in a food desert) does not exist, it is likely that it can’t. Risks are too high and financial returns are too low, given the unquestioned assumptions and imbedded beliefs above.

Impact investing is a fairly new paradigm and idea championed by Novogratz and led by her company, Acumen. She speaks of patient capital as that which offers below market returns, out-sized social impact, longer investment horizons, and the like.

All of this is good, but is it enough to overcome the perception of entrepreneurship by those in the condition of poverty; that it’s too risky and the hurdles of lack-of-access and potential losses don’t outweigh the need for stability and security?

I suggest to you that there is a bigger and deeper answer here that warrants consideration. But before we get there, look for Part 2 of this post series that explores the unquestioned assumptions and imbedded beliefs in the bucket of philanthropy. I leave you with this challenge in the meantime: absent the unquestioned assumptions and imbedded beliefs normalized in investing today, what do you imagine the moral perspective and worldview should be when considering investments to further humanity, flourishing, and the dignity of others.

Click for Part One in this series, “Finding a Way: Entrepreneurship and Poverty”; Part Two, “Beyond the Handout”; Part Three, “Transformational ROI — Where the Bottom Line Meets Poverty”; and Part Four, “Investment not Philanthropy.”

Tags

,

Author

Dave Geenens

Dave Geenens is an Associate Professor and is the Assistant Director of the Thompson Center for Integrity in Finance and Economics in the School of Business at Benedictine College in Atchison, Kansas. His over 30-years of executive experience in addition to his Bachelor’s Degree, MBA, and CPA license (inactive) add a realism to his research and teaching. Dave has written four books and speaks often on the integration of faith and work and the critical role Christian virtue plays in protecting free markets and liberty. Since Dave writes on multiple topics including investing and philanthropy, nothing in this article is to be construed as investment advice and any investment of any kind includes a risk of loss.