A Quick Introduction to Social Entrepreneurship, Part 2

By Christian Jensen

How does social entrepreneurship relate to various business models?

Joseph Schumpeter, an Austrian economist, was one of the first to try and define what he called the entrepreneurial spirit. He believed them to be the driving force of the market, pushing it ever forward and instigating change in their wake. If successful enough they would create “creative destruction” where old ideas when forced with the innovative powers of the entrepreneur either had to adapt or perish. Either way, entrepreneurs were literally the movers and shakers of the market.1

Peter Drucker, another economist from Austria, had a different point of view though. For him the entrepreneur was all about opportunity, a person with the foresight to spot where gaps in the market would form and the courage to take advantage of it. He would also highlight the difference between a businessman and an entrepreneur when it came to opportunity, the former repeating tried and tested business models while the latter would innovate, create new models.2

Gregory Dees takes inspiration from both in his description of what a Social Entrepreneur is, but takes it further3:

“Social entrepreneurs play the role of change agents in the social sector, by:

• Adopting a mission to create and sustain social value (not just private value),

• Recognizing and relentlessly pursuing new opportunities to serve that mission,

• Engaging in a process of continuous innovation, adaptation, and learning,

• Acting boldly without being limited by resources currently in hand, and

• Exhibiting a heightened sense of accountability to the constituencies served and for the outcomes created.”

But there is of course a difference between the person; the social entrepreneur and the business; the social enterprise. The Social Enterprise Typology by Kim Alter4 has a long list of definitions given by various institutions. To name a few:

The Non-profit Good Practice Guide: “A non-profit venture that combines the passion of a social mission with the discipline, innovation and determination commonly associated with for-profit businesses”

The UK-based Social Enterprise Coalition and the UK Government shares a definition: “A social enterprise is a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners.”

A red thread through these descriptions and many of similar definitions of Social Enterprises is the mix of the profit generating models and skillsets associated with more standard business world and the goals and values commonly attributed to the non-profit, third sector or charitable organisations. A grey zone of hybrid models and compromises between profit and purpose.

In FIG. 1 these two characteristics have been lined up moving from 0 per cent profit and 100 per cent purpose at the top to the reverse at the bottom. A line where Social Entrepreneurs often find themselves fairly solidly in the middle of.

fig 1

FIG. 1 Social value v independent revenue stream spectrum

For a better understanding of how different concepts rate on the spectrum a quick description of a handful of organizational models will be explored starting with activist movements and moving down through the ranks to the more standard business model of pure profit generation.

Social Activism:  

Activist movements, campaigns and voluntary action can have much in common with Social Entrepreneurship such as goals and values. But activism or movements does not always incorporate any business aspect or attempt to gather revenue. One difference which could be highlighted between activism and the other categories further down the spectrum is where entrepreneurs act proactively in creating new solutions; activism is often reactively done in response to social damage caused by other parties. Roger L. Martin & Sally Osberg have defined this relationship further in their article Social Entrepreneurship: The Case for Definition5:

” Instead of taking direct action, as the social entrepreneur would, the social activist attempts to create change through indirect action, by influencing others – governments, NGOs, consumers, workers, etc. – to take action. Social activists may or may not create ventures or organizations to advance the changes they seek. Successful activism can yield substantial improvements to existing systems and even result in a new equilibrium, but the strategic nature of the action is distinct in its emphasis on influence rather than on direct action.”

Charity:

A charity is commonly understood as an organization which is reliant on outside resources, be it philanthropic funders and public donations.  The legal aspects of how and what charities may spend these resources wary from legal system to legal system, but generally states all but a certain per cent used to cover expenses and salaries must be used to further a charitable agenda.

According to the UK charities act of 20066 a “charity” is defined as such:

Meaning of “charity”

For the purposes of the law of England and Wales, “charity” means an institution which is established for charitable purposes only

Meaning of “charitable purpose”

For the purposes of the law of England and Wales, a charitable purpose is a purpose which is for the public benefit

A purpose falls within this subsection if it falls within any of the following

descriptions of purposes—

(a) the prevention or relief of poverty;
(b) the advancement of education;
(c) the advancement of religion;
(d) the advancement of health or the saving of lives;
(e) the advancement of citizenship or community development;
(f) the advancement of the arts, culture, heritage or science;
(g) the advancement of amateur sport;
(h) the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity;
(i) the advancement of environmental protection or improvement;
(j) the relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage;
(k) the advancement of animal welfare;
(l) the promotion of the efficiency of the armed forces of the Crown, or of the efficiency of the police, fire and rescue services or ambulance services.

Social Venture or Business:

Nobel Prize Laureate Muhammed Yunus is widely considered a pillar of the social enterprise community. He has created a series of “non-loss” businesses across a broad range of markets, the majority of which try to improve the lives of the impoverished and is famous for creating the Grameen Bank service which allows the poor to borrow small amounts, so-called “micro banking.” He himself though makes a distinction between social entrepreneurship and his own model which he explains in his book: Building Social Business: The New Kind of Capitalism that Serves Humanity’s Most Pressing Needs.7

The difference in his definition of a social business, often called social ventures elsewhere is where some businesses make a profit by doing good; a social business is the reverse, making revenue to be able to do good. As he states: “A social business is outside the profit-seeking world. Its goal is to solve a social problem using business methods.”

Company created for revenue for survivability:

A company created in balance with the surrounding business community and resource flow, i.e. which only produces enough revenue to cover its own expenses such as employee salaries.  Often started by entrepreneurs in order to become self-sufficient, be in charge of own working hours or move to an area more aligned with the entrepreneur’s personal values and interests.

Can also be the first plateau many entrepreneurial projects aim to arrive at before planning further expansion as explained by the Global Entrepreneurship Monitor.8

Pure profit generation:

The most commonly known and well understood category of businesses, with success determined by amount of profit generated for its stakeholders and the percentagewise growth of this revenue stream on a yearly basis. No particular social agenda stated and depending on the callousness of its employees may act ruthlessly or destructively in its endeavours. The worst of these examples could be referred to the businesses which revere the “profit is god” model or P.I.G.s.

Often supporters of and supported by the free market model of capitalism covered in depth in Geoff Mulgan’s book: “The Locust and the Bee: Predators and Creators in Capitalism’s Future.”9

Companies with projects that range across categories:

The real world is though almost never as clear black, white and grey as the above spectrum proposes. Many companies have several business strands each with a different task which could wary from each other on the spectrum. Depending on the legal definitions from country to country there also exists many sub- or dual categories which the spectrum does not account for. Some companies engage in charitable acts purely for tax purposes which mean there is a difference between social intent and social impact; some companies may well have one without the other.

The next two chapters will look at these in greater depth, first an attempt to explain what a social intent and social cause may be and then what a social impact may come from a business model, whether intentional or not.

References

  1. 1.       Schumpeter, Joseph 1975 : Capitalism, Socialism, and Democracy (New York: Harper)
  2. 2.       Drucker , Peter 1995: Innovation & Entrepreneurship (New York: Harper Business)
  3. Dees , Gregory 1998:  The Meaning of  Social Entrepreneurship (Stanford Business School)
  4. Alter, Kim Social enterprise typology http://www.4lenses.org/setypology Retrieved January 11th 2014
  5. Martin,  Roger L. & Sally Osberg 2007:  Social Entrepreneurship: The Case for Definition, Stanford Social Innovation Review, Spring edition
  6. UK Government Charities act 2006 http://www.legislation.gov.uk/ukpga/2006/50/resources Retrieved January 11th 2014
  7. Yunus, Muhammed 2011: Building Social Business: The New Kind of Capitalism that Serves Humanity’s Most Pressing Needs. (New York: Public Affairs Books)
  8. Global Entrepreneurship Monitor, 2012 Global Report http://www.gemconsortium.org/docs/2645/gem-2012-global-report Retrieved January 11th 2014
  9. Mulgan, Geoff 2013: The Locust and the Bee: Predators and Creators in Capitalism’s Future. Chapter 3, (Princeton: Princeton University Press,)