Business Partners, not Beneficiaries

Wednesday, January 27, 2010
By Mark Ruiz

r2r

Last weekend, Reese Fernandez – President of Rags2Riches, Inc and my other/better half – conducted a transition workshop with the Rags2Riches Cooperative’s Board of Directors. The main content of the workshop was – and stay with me here – finance and managerial accounting.

To appreciate the concept on why it’s a transition, one has to understand first our philosophy and business model.

I’ve often said that the easiest thing Rags2Riches could have done – in order to impact the community – was to have set-up a Rags2Riches factory and hire the Payatas Nanays as laborers. The Nanays would have ended up with a production area, they would clock-in time in/time out from 9-to-5, get decent wages, and live a slightly more financially secure life.

It would have made things absolutely simpler than our complex arrangement right now — the Nanays as part-owners/shareholders of Rags2Riches Inc., and also fully owning – independently – Rags2Riches cooperative. In fact, it would also make things simpler on the business and production side — if the Nanays were hired employees, then we could demand specific work-hours, impose targets, and let all hell break loose if production wasn’t up to speed – quite unlike the current experience wherein production and time commitments are continuing negotiations.

But mere employment, strictly speaking, wasn’t – and isn’t – the goal of Rags2Riches.

It’s about a psychological/cultural upheaval; A directed transition from dependence, patronage, and entitlement – into independence, participatory equality, and empowerment.

And this is something that will only happen if there’s a conscious movement to the community having, owning, and running their own business. And this will only take form once the community becomes their own Rags2Riches cooperative. It’s a necessary, albeit potentially difficult, step.

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This is a much harder route to take, but one that we feel is more sustainable and long-term; After all, this is what differentiates us as a social business enterprise as opposed to a traditional business.

Through time and experiences of success, the community – through running their own business – will discover self-confidence and a can-do attitude. And that paradigm shift leads to a luxury a lot of people take for granted — the belief that you can indeed control your own destiny.

When this happens – this psychological shift towards empowerment – the community’s culture fundamentally changes. And this, we believe, is the true goal and challenge. It’s not just about putting more money in marginalized communities’ pockets (although indeed, providing livelihood is an undeniably important factor), it’s really about working with the community so that they can eventually stand on their own two feet.

And so, this leads us to Rags2Riches Inc’s business model.

Other schools of thought position the social entrepreneur’s philosophy as making oneself obsolete. Find a social problem, come up with an innovative solution, disappear, and move on to the next problem. While I can imagine how this would be true for certain cases – climate change, human trafficking, spousal abuse, prostitution, to name a few – our particular context in Rags2Riches (and indeed, Hapinoy) points us towards a difference perspective. Given that we’re in livelihood, we see an ongoing business relationship with the community, even – and actually, most especially – after they have been set-up into their own cooperative.

This is the business model we’re looking at :

wearerags2riches.ppt

What we’ve essentially done is look at the entire value chain, and ask ourselves fundamental questions : Which portions of the chain would the community of Nanays be best at, that we at R2R inc wouldn’t be able to touch with a ten-inch pole? And what could R2R inc be potentially best at that could deliver value to the R2R cooperative?

Which leaves us with this equation : R2R Cooperative would focus on production, while R2R inc would focus on product design & development and marketing & sales, thus creating a configuration that would allow for a continuing business relationship. A business partnership between equals.

How do we ensure it is indeed a partnership of equals?

Well, here’s a peculiar fact – the R2R cooperative is not exclusively tied to R2R inc – meaning that the cooperative could choose to “fire” R2R inc and do business with another organization, if they choose to do so.

With this arrangement, we can then truly say that the cooperative can determine its own destiny.

Some people who’ve seen this model have asked us if we were crazy. After all, why expend so much energy and effort into organizing the community into their own cooperative, and then not lock them in to your system?

It doesn’t seem to make any sense to a lot, yes. But for us, it does.

After all, the goal of community empowerment is at the core of what we’re doing, and this is the route, the decision, that increases our chances at achieving that. But furthermore, there’s also business rationality here. Given that the R2R cooperative can choose to work with any organization it wants, this then forces R2R inc to continuously strive to give the coop the the best deal (in fact, the Nanays negotiating with us for the best deal is a welcome and good thing — it spells equality!); it also forces us to make sure that we are indeed the best business partner, keeps us on our toes, and creates a healthy tension and pressure for us to innovate.

And so this is what brings us back to the workshop that Reese and team conducted.

The whole exercise was working with the Nanays in crafting the financials of their cooperative. There was most definitely a managerial view — as they saw first-hand the relationships between wages, product-costing, and overheads – and how all this affected the selling prices of what they produced. And since this is a partnership of openness, R2R coop also saw how their decisions affected the financials of R2R inc.

Summa total, the cooperative took an important step to managing their business from a financial perspective — from simple things such as what ongoing expenses should they rationalize, to more sensitive topics such as how much they want to pay the members and in what schemes. It wasn’t a light conversation, but it was definitely something that had to be done.

And personally, I can’t help but say that it was indeed quite fulfilling to have seen this whole thing unfold.

While the Rags2Riches model is definitely a work-in-progress, it seems more and more that we’re along the right path.

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Life's Work

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