Module 1: Social Entrepreneurship Defined

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2 Module 1: Social Entrepreneurship Defined Introduction (Ashoka: Innovators for the Public) Social entrepreneurship is a hot topic. If you Google the words, you will find a wealth of information from articles, academic papers, and more. But what is it exactly? Not everyone agrees on the definition. There is no textbook answer. In basic terms, everyone agrees that it involves applying business principles to solve a social problem in a sustainable way. It may involve innovation a new product or a new process that solves the problem in a new and better way. It may be a non- profit that applies business principles in order to more effectively achieve its mission. Entrepreneurs, by nature, are problem solvers. They find a way to solve a customer problem in a unique and innovative way by identifying and clearly defining the problem. The social entrepreneur is simply solving a different kind of problem. Michael Bornstein, in How to Change the World says Where government and traditional organizations look at a problem from the outside, social entrepreneurs come to understand them intimately, from within. 1 Bornstein also quotes Peter Drucker, author of Disruptive Innovation, who said The social entrepreneur changes the performance capacity of society. 2 In this module, we will explore the nature and motivations of the social entrepreneur, various perspectives on how to define social entrepreneurship and related terms, and the role that social entrepreneurship plays in society. Section 1 - What makes a Social Entrepreneur? When you think of what kind of person wants to be a social entrepreneur, you might assume that they are all enthusiastic young people, ready to conquer the world and make their mark. While the number of college graduates who are seeking jobs or opportunities in some kind of social pursuit is definitely growing, there is also a growing movement toward social service in people who are retired or nearing retirement. Bornstein sites one survey in which almost 60% of responders claimed interest in reordering their priorities to put social impact front and center. 3 So, eliminating age as a factor, what makes a social entrepreneur? Who are these people? In Bornstein s view, social entrepreneurs are transformative forces: people with new ideas to address major problems who are relentless in the pursuit of their visions, people who simply will not take no for an answer, who will not give up until they have spread their ideas as far as they possibly can. 4

3 If you change a few words, you could be describing any entrepreneur, not just a social entrepreneur. Entrepreneurs have new ideas, are relentless in pursuing them, and will not give up until they have achieved their vision. So what is the difference? Bornstein s book tells the stories of several social entrepreneurs, and he describes them as people who cannot stand to watch others suffer, people who cannot stand to see others missing opportunities they should have. The difference between entrepreneurs and social entrepreneurs is in what motivates them. Entrepreneurs are not necessarily profit motivated in fact this is often not the case. Entrepreneurs want to build a product that solves a customer problem, and to build a successful company by creating value. Social entrepreneurs want to do they same thing but they want to solve a social problem, to relieve suffering, and to make the world a better place by helping a specific group of people. The Ashoka Foundation, founded by Bill Drayton, supports social entrepreneurs who the Foundation believes can be successful. They are looking for people with great ideas, entrepreneurial skills, and a passion for making a difference. Their selection panel has four main criteria that they use to evaluate potential candidates: 5 1. Creativity They must have goal- setting creativity, meaning being able to envision how to create a long- term systemic change to solve the problem. They also must have problem- solving creativity. To reach the end goal, every social entrepreneur will have to solve countless problems and overcome many obstacles along the way. 2. Entrepreneurial Quality According to Bill Drayton, this criterion, by Ashoka standards, is the hardest one to meet. Someone with entrepreneurial quality will be able to change a pattern or a system on a large scale. They will relentlessly pursue their idea until it is working in all of society, not just in one place. To have this quality Drayton says they must be 1) possessed by an idea and 2) able to answer how they will take their idea to each level of success on the path to their end goal. 3. The Social Impact of the Idea Will the idea work and can it be duplicated in other areas to have a widespread, long- term impact? The Foundation is looking for people who can have a profound effect on a large number of people. 4. Ethical Fiber This criterion focuses on the person. The person must have a high level of integrity and be completely trustworthy. As Ghandi believed, ethics should be grounded not in rules, but in empathy. The motivation of the social entrepreneur comes from that empathy, and the same empathy should be the foundation of every ethical decision that the social entrepreneur makes.

4 Entrepreneurial Skills The similarities between the processes that entrepreneurs and social entrepreneurs follow are greater than the differences. Therefore, a social entrepreneur needs to have the same skills that any entrepreneur needs to have or learn. Communication, problem solving, networking, negotiation, and strong leadership skills are all critical, no matter what the nature of the business or organization. The social entrepreneur also must be able to take risks, and manage them. The same personal risks apply in both types of entrepreneurship financial risk, career risk, and psychological risk are just part of the list. The social entrepreneur also faces the risk that their solution will not work. They have to be prepared to test their assumptions, learn, and change the solution based on what they learn. Section 2 Social Entrepreneurship Is Social entrepreneurship has been around for well probably forever, in one form or another, but the emergence of it as its own discipline is relatively new. And what it really is, or should be, is a topic of great debate. First, lets clarify some terms. Social entrepreneurship in essence is referring to the person the social entrepreneur. The company or organization is a social enterprise. Again, the definition of a social enterprise is not fully agreed on by everyone, but its typical definition and the one we will use throughout this course - is any organization that is solving a social problem in a sustainable way, applying business principles to do so, and generating revenue from some of its activities. Sustainable in this context means that the solution is sustainable it solves a problem for the long- term in a way that addresses the root of the problem. Providing temporary aid to people who have a problem is not what we consider sustainable. The financial sustainability of the social enterprise is something different. It refers to the organizations financial ability to operate effectively for the long- term. We will discuss this in greater depth later. So how should a social enterprise be structured? Funded? Is there more than one type? In a broad view, a social enterprise can take many forms. It can be a non- profit organization, a for- profit company, or a company that is financially self- sustaining but does not make a profit. A for- profit corporation can also establish a non- profit or for- profit arm with a specific social purpose. Social value creation is the unifying principle among all definitions of social enterprise or social entrepreneurship. In Social Entrepreneurship What Everyone Needs to Know by David Bornstein and Susan Davis, they define the term as a process by which citizens build or transform institutions to advance solutions

5 to social problems, such as poverty, illness, illiteracy, environmental destruction, human rights abuse, and corruption, in order to make life better for many. 6 They also summarize the most widely cited definition, formulated by Greg Dees, who is often referred to as the father of social entrepreneurship education: 7 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 heightened accountability to the constituencies served and for the outcomes created. Essentially, the definition is very similar to that of a non- social entrepreneur the differences are the purpose of the organization, and the socially impactful outcomes created. Virtue Ventures LLC, a social enterprise support organization, defined a social enterprise similarly: 8 A social enterprise is any business venture created for a social purpose- - mitigating/reducing a social problem or a market failure- - and to generate social value while operating with the financial discipline, innovation and determination of a private sector business. Bornstein and Davis discuss the recent evolution of social entrepreneurship as movement in three stages: 9 1. Social Entrepreneurship 1.0 was identifying people with innovative ideas and business models, and creating support systems to help those people build and grow their ideas. 2. Social Entrepreneurship 2.0 focused on the entrepreneurial aspect using business and entrepreneurial processes to help social organizations achieve success. 3. Social Entrepreneurship 3.0 (now) is more holistic, and seeks to include all individuals, organizations, institutions, corporations, and governments. Everyone has a role in creating and supporting positive solutions to global problems. It is an ecosystem, and through collaboration and support, the effects of social change multiply. Social Innovation

6 A related concept that is, in a sense, even broader than social entrepreneurship is social innovation. Social innovation may be (and often is) a key element of a successful social enterprise, but social innovation does not necessarily only occur within a social enterprise. Social innovation is something that solves a social problem in other words, it creates social value. Social value is the creation of benefits or reductions of costs for society. The complete definition of Social Innovation developed by Phills, Kriss, and Deiglmeir, is as follows: Social innovation is a novel solution to a social problem that is more effective, efficient, sustainable, or just than existing solutions and for which the value created accrues primarily to society as a whole rather than private individuals. 10 The solution is not necessarily a product or process it can be an idea, a principle, legislation, a social movement, an action, or a combination of more than one of those. Therefore, the innovator is not necessarily an entrepreneur, and the vehicle to put the innovation into practice is not necessarily a social enterprise or organization. Often, social innovation requires the collaboration of several groups or people, institutions, or organizations. A few examples of social innovation are: Charter schools are publicly funded schools that are not as regulated as public schools; therefore innovative teaching methods can be used. Charter schools would not be possible without collaboration between the government, school administrators, teachers, and parents. Fair Trade is a movement that establishes trade standards for products. The traders must meet certain social and environmental standards to be certified. This is a movement based on a principle, and it requires the global collaboration of many parties to set and enforce the standards. Section 3 - Breaking It Down Types of Social Entrepreneurship As we stated before, we will use the term Social Enterprise broadly to refer to a socially focused organization that applies business principles to achieve success. Generally, this involves also generating revenue from some of its activities. The social entrepreneur is the person that launches the enterprise. Note that not everyone agrees that all types of organizations that fall under the heading of social entrepreneurship must generate revenue.

7 The following are types of organizations that are or may be considered forms of social entrepreneurship Social Firms are a social enterprise founded specifically to employ a target population. Typically, the target population is one that has some barrier to employment such as a disability, homelessness, or ex- offender status. A Social Business is a specific type of social enterprise, the concept of which was developed by Muhammad Yunus, founder of the Grameen Bank, a pioneer in the field of microfinance. In his book, Building a Social Business, he defines a social business as a non- loss, non- dividend company dedicated entirely to achieving a social goal. A social business generates revenue to cover all of its costs, and is therefore self- sustaining. Yunus describes seven characteristics of a social business: The objective is to solve a social problem, not to maximize profit 2. The company will become financially sustainable 3. Investors get back only what they invested no dividends or other returns 4. All profit is re-invested for growth 5. The company must be environmentally conscious 6. Employees are paid market wage and have better-than-standard working conditions. 7. Do it with joy The Grameen Bank is a social business. It provides small loans (microcredit) to poor people, mostly women, so they can start or improve their own businesses. Grameen Bank is financially self- sustaining. All funds loaned come from deposits, and operating costs are paid with the interest earned from the loans (which have a repayment rate of 98%). The bank is owned by the borrowers, and has over 2500 branches. All profits are used for growth or to subsidize other Grameen social businesses. Microcredit has grown tremendously since the Grameen Bank was founded in There are many microcredit lenders that are not social businesses, however, by Yunus s definition. Many microcredit lenders make a profit and pay dividends to shareholders. By loaning to poor people, they are considered social ventures or enterprises if their primary objective is to help the poor people, rather than to make money. As you can see, this distinction may be hard to make when decisions must be made, who s best interests come first? The beneficiaries, or the shareholders? In a social business, the only responsibility is to the beneficiaries. Social Intrapreneurship is the process of innovating with a social purpose within an organization. Employees may be empowered to improve processes to be more environmentally responsible, or to create new products related to their current products that have a social purpose. Many large companies have specific initiatives,

8 often in the form of a separate business entity, to develop innovative solutions to social problems. That entity may be in the form of a non- profit, but it can also be set up as a for- profit. Google.org, for example, was established as a for- profit entity so that it could make grants and investments, and so that it could lobby the government. 12 Venture Philanthropy is a term applied to wealthy investors (often entrepreneurs) who invest in social entrepreneurs using the same market principles as venture capital investment. Rather than just giving to charity, they make a social investment in an organization that will create some kind of social return, and often a financial return. The social return is something that benefits everyone lower crime, lower unemployment rates, smaller prison populations, etc. Non- profits that perform income- generating activities unrelated to their mission may still fall under the umbrella of social entrepreneurship, but are not generally considered a social enterprise. To be considered a social enterprise, the revenue generating activities must be central to the mission itself. For example, an enterprise that produces an affordable product say a health care product in order to make it accessible to a poor population is generating revenue from its core activities. Its purpose is to provide access to the affordable health care product to poor people. On the other hand, a non- profit organization that provides educational services to a target population for free, and sells t- shirts or some other product to cover its costs, is not a social enterprise. Other types of organizations that may fall under the heading of social entrepreneurship are (this is not all- inclusive): Cooperatives An organization owned collectively by individuals or businesses, sharing resources and services for the benefit of all members. Traditional non- profits If they provide a sustainable social solution, but receive their funds from donations or grants, they may still fall under the heading of social entrepreneurship if they apply traditional business principles to operate. (This one is up for debate). What Social Entrepreneurship or Enterprise is Not Again, most definitions of social entrepreneurship include a unique, innovative solution to a social problem. By this definition, some types of social initiatives which are still very valuable are not considered forms of social entrepreneurship. Social Activism is trying to initiate social change by influencing decision makers, such as government or corporate leaders, or by changing social attitudes. While social activism can be of great value to society, it is generally not considered a form of social entrepreneurship. Activists are not creating or implementing specific solutions to specific problems.

9 Social Services can come from government agencies or from non- governmental agencies, and can also be very important and valuable to society. Providing food and clothing and temporary shelter to homeless people, for example, is a valuable service, but it does not solve the problem of homelessness. The impact of these services is limited and requires ongoing donated resources to continue. Is All Entrepreneurship is Social? This topic should make a great class discussion! Entrepreneurs solve a problem for some group of customers, they help create wealth, and they create jobs. Therefore entrepreneurship is good for society all entrepreneurs create positive social change. This assumes that all entrepreneurs are socially responsible (they don t discriminate, hurt the environment, etc.) and that their product or service does not create new social problems. But what if all entrepreneurs practiced conscious capitalism? We will define this further in another module, but to summarize, conscious capitalism means that business owners must manage their businesses with the well- being of all stakeholders in mind, including society as a whole. And can we not say that all progress, development, medicine, technology, and the general progress of mankind did not come from innovators and entrepreneurs those people with ideas and vision who would not stop until their vision was reality? So, if all innovators and entrepreneurs followed the principles of conscious capitalism, they are all serving a social purpose. Josh Sparks, author of If Men Were Free to Try, wrote: Private ownership, private initiative, the hope of reward, and the expectation of achievement have always been primarily responsible for the advancement of mankind. 13 Yale University economist William Nordhaus asserted in his writings that entrepreneurs typically generate a surplus benefit above and beyond the profits they earn. He calculated that entrepreneurs capture only about 2 percent of the surplus that they create for all of society - jobs, wages, and value. 14 So is all entrepreneurship social? Discuss! Section 4 The History and Emergence of Social Entrepreneurship

10 Social entrepreneurship in various forms is not a new phenomenon, but the term and discussions of what it is and what it should be have gained traction, especially in the last three decades. Lets start with some history. You know that Florence Nightingale was a nurse who tended to wounded soldiers, right? But did you know that she also built the first professional school for nurses? She also played a huge part in improving the quality of and access to healthcare, including the creation of the innovative concept of medical tourism traveling to other countries to access better quality health care at lower costs. 15 Dr. Maria Montessori developed the Montessori approach to early childhood education. Her methods spread internationally and changed the course of the evolution of educational methods. Mahatma Ghandi, who is generally characterized as an activist, actually built a powerful political movement that led India to independence. All of these people had a specific social goal that they were trying to achieve, and they built innovative solutions to achieve their goals, as well as efficient systems and processes around those solutions. (We will add many more examples) Emergence In the last three decades, the world has seen an explosion of non- governmental organizations organizations founded and managed by citizens. These organizations have come to be known as a new sector, often called the nonprofit sector, or the citizen sector. Peter Drucker, author of Disruptive Innovation has called this sector America s leading growth industry. Just one of many indicators is that during the 1990s in New York City, overall employment grew by 4% while employment in the citizen sector grew by 25%. 16 But the emergence is not just happening in the United States. Bornstein cites many examples in How to Change the World. Here are just a few: 17 Between 1987 and 2002, the number of citizen groups in Canada grew by 50% 20 years ago Indonesia had one independent environmental organization by 2007 it had over During the 1990s in France, an average of 70,000 new citizen groups were established per year. In 2004 and 2006, social entrepreneurs won the Nobel Peace prize Wangari Maathai who founded the Green Belt Movement and Muhammad Yunus, founder of the Grameen Bank. 18

11 So why is this happening now? What happened to spur such a movement? Why do so many people feel called to action? The nature of social action is also changing hence the term social entrepreneurship and the struggle to define it. First, lets look at how aside from growth - the citizen movement has changed: 19 Social organizations are more globally dispersed Systemic solutions to social problems are being sought to solve problems in a sustainable way. More organizations are independent, not subject to the rules of church or government Organizations and other institutions, including businesses, universities, and governments are working together to solve social problems. Attention is focused more on creating and measuring specific and relevant outcomes, largely because more organizations mean more competition for resources. So now, lets talk about why why now? While there is no way to directly link any particular force or phenomenon to the social movement, Bornstein discusses many things that have occurred that we can naturally assume played some role in it: 20 More democracies have emerged, allowing people more freedom to participate in social reform. Increased wealth in the later part of the last century has made more resources available. Increased health and life spans have given people more time to do things they choose to do. Increased access to higher education has increased the number of people with the knowledge to solve problems, as well as the financial means. Decreased racial and gender barriers have allowed more people the freedom to act. Another factor that almost certainly plays a major role is technology and our increased access to news and information. People can see what is happening in other parts of the world they see war, disease, poor living conditions, suffering of all kinds and they see it every day in living color. Also, the people who live in poverty or in impoverished areas are no longer isolated. They can see on television or via other technology how more fortunate people are living, and they are organizing to find solutions to their problems and to seek opportunities for a better way of life. Finally, people are losing confidence in governments abilities to effectively solve problems. Failed policies and inaction, often caused by corporate power and influence, have motivated the citizen sector to take matters into their own hands.

12 Section 5 Exponential Social Impact Social entrepreneurship has come to be considered a discipline, a field of study, and a movement one that is becoming more organized. The leaders of thought in the movement and the organizations that support it do not envision social entrepreneurs seeking small- scale changes; they want innovators who build systemic, real solutions to problems, and those solutions should also be replicable. The social entrepreneur begins with the idea for a solution and a model to implement that solution in a sustainable way. Just like any entrepreneur, he will launch that solution for a certain group of beneficiaries (customers) to test the solution. Then he will refine the solution and the business model over and over again until the solution solves the problem in a sustainable way. That model can then be repeated again and again in different locations, similar to a franchise! (In fact, some social enterprises have been franchised) New managers around the world can replicate the business model, making modifications to meet the needs of the people in that location. The Big Picture David Bornstein states that one of the most important things that can be done to improve the state of the world is to build a framework of social and economic supports to multiply the number and the effectiveness of the world s social entrepreneurs. 21 That is exactly what Bill Drayton was seeking to do when he founded Ashoka he wanted to find entrepreneurs with big ideas that could spread. It s one of the main criteria that Ashoka looks when they are evaluating applicants are the idea and the model good enough to be replicated once the model has been validated and demonstrated? In later modules, we will discuss business models, financial structures, and funding sources for social entrepreneurs. But lets ask the question now how can funding from any source, including government funding, be directed toward entrepreneurs and organizations that are building systemic, sustainable, replicable solutions? How can we build a framework to support social entrepreneurs who can change the world in drastic ways? It would be great if we had a clear answer to that question now that would be a great course for everyone to take at any age! Let s call it How to Save the World. But since no one has found the magic formula yet, lets just talk about some ideas. College Summit is an organization that brings students to college campuses for a workshop at which they receive hands on help with the college application process from writing professionals, counselors, and other mentors. It is targeted at low- income students who have more potential than their test scores might show, and who need guidance through the college application process. They typically do not

13 come from families with college experience, so they have difficulty navigating the process and the transition to the college experience. The workshops have been very successful the college enrollment rate of students who attended the workshops was 79% (as of 2002) which is roughly the same enrollment rate for students in the top 20% income earning families. 22 But is the rate of college enrollment the best outcome to measure? Is the rate of success of those students the best measurement? Instead, perhaps it s better to look at the ROI the return on investment of each student. Perhaps it s better to look at the ROI of any social organization. Dean Furbush, the board chair of College Summit, says that the failure of society to do more to help low- income students go to college is a failure of markets. 23 There are a broad range of economic benefits to society that come from sending one student to college, including the tuition that the college receives, higher taxes on the higher income the student will earn, the lack of government assistance that the student might need without a college education, and the additional benefits that may come from that student s positive effect on peers and future generations. If it costs $1000 to send that student to the workshop that helps them get into college, what is the ROI to society? There is no single mechanism to measure that. So if the market of potential donors, which could be local businesses, individuals, or the government don t know the ROI which could be enormous based on the factors above how does the market know what a great investment they would be making? The ROI in terms of real outcomes should be measured by the organizations. All organizations report outcomes after all, donors and investors want to see results. Steve Rothschild in The Non Non- Profit discusses measuring what counts. 24. You can measure inputs, outputs, and outcomes. Outcomes are the actual results the numbers that actually indicate that you are achieving social change. For the student who graduates from college, their personal benefits are certainly important outcomes and should be measured. The other outcomes to measure are the returns on investment to any stakeholders donors, the government, or any other party that participates and benefits. The outcomes of social organizations could also be measured by centralized firms or reporting agencies. Some groups exist now that monitor the performance of charities or other social organizations, but there are no standards or rules for measuring real outcomes. Most experts agree on the need for some system of global standard setting and measurement. Some have proposed a social stock market that would help donors or investors find and connect with organizations that are achieving outcomes that are desirable to the investor. With global standards for measuring and reporting outcomes (KPIs

14 - Key Performance Indicators), investors would have a way to identify successful organizations and choose which to invest in. There are some specific investment vehicles currently in place already that provide investor returns based on the social value that is created by an organization. This has been termed impact investing, meaning investing to create social return as well as to generate a profit. Social impact bonds bonds that pay a return to investors if a social goal is met - are being issued in the U.K and are aimed at developing programs to reduce recidivism rates at prisons. Developing any kind of comprehensive, long- term financial framework to support social organizations, however, will be a very complicated and arduous process that could take decades. In the short- term, social organizations can begin to measure their own real outcomes, and not only report them but market them in order to attract resources that will help them to scale their business model and to spread their impact. 1 Bornstein, David. How to Change the World- Social Entrepreneurs and the Power of New Ideas. 2007, Oxford University Press, New York, NY. p. xii 2 Bornstin, p. 2 3 Bornstein, p. xiv 4 Bornstein, p. 1 5 Bornstein, p Bornstein, David and Davis, Susan. Social Entrepreneurship What Everyone Needs to Know. 2010, Oxford University Press, New York, NY, p. 1 7 Dees, J. Gregory, The Meaning of Social Entrepreneurship, Original Draft: October 31, 1998 Reformatted and revised: May 30, 2001) Bornstein and Davis, p. xx 10 Phills Jr, James A., Deiglmeir, Kriss, & Miller, Dale T. Rediscovering Social Innovation,, Stanford Social Innovation Review, Fall Yunus, Muhammad. Building a Social Business United States by Public Affairs, New York, NY. P Bornstein, p. x

15 13 Strong, Michael. Be the Solutions How Entrepreneurs and Conscious Capitalists Can Solve All the World s Problems John Wiley & Sons, Inc. Hoboken, NJ. P Schramm, Carl All Entrepreneurship is Social, Stanford Innovation Review 15 Bornstein and Davis, p Bornstein, p Bornstein, p Bornstein, p. x 19 Bornstein, p Bornstein, p Bornstein, p Bornstein, p Bornstein, p Rothschild, Steve. The Non Non- Profit, Jossey- Bass. San Francisco, CA. p