Matthew T. A. Nash
* I am indebted for the definition of social entrepreneurship and for the formulation of much of the material on social entrepreneurship theory to my colleague, the late J. Gregory Dees, who was professor of the practice of social entrepreneurship and founding faculty director of the Center for the Advancement of Social Entrepreneurship (CASE) at Duke University's Fuqua School of Business, and who was widely recognized as the pioneer of social entrepreneurship research and education. This chapter draws heavily on his work and that of our current and former colleagues at CASE, especially Paul N. Bloom, Beth Battle Anderson, and Catherine Clark.
What business entrepreneurs are to the economy, social entrepreneurs are to social change. They are the driven, creative individuals who question the status quo, exploit new opportunities, refuse to give up, and remake the world for the better.
David Bornstein, How to Change the World: Social Entrepreneurs and the Power of New Ideas
Few concepts in the social sector have caught on as quickly and have captured the imagination of so many, or have been the subject of such intense debate, as has social entrepreneurship. For the first time in human history, within just a few keystrokes on a computer and from the embarrassing comfort of our homes, we have the ability to witness the horrors of widespread hunger, intractable and epidemic disease, gripping poverty, entrenched conflicts, global climate change, unimaginable natural disasters, and inevitable economic turbulence and dislocation. Against this sobering backdrop have emerged a new generation of “social entrepreneurs”—those some have called “new heroes” (Byker, Stuart, Cohen, et al., 2005) or “unreasonable people,” possessed of a relentless drive to pioneer breakthrough approaches to some of the world's most pressing problems (Elkington and Hartigan, 2008). Many of these social entrepreneurs draw upon and adapt principles, practices, and models from the business world, blurring the traditional boundaries between the public, private, and social sectors.
Although the concept of social entrepreneurship started to gain serious attention in the mid-1990s, the field has gained the momentum of a social movement over the past ten years. Social entrepreneurs have garnered public attention as recipients of prestigious prizes such as the MacArthur “genius awards,” the Presidential Medal of Freedom, and even the Nobel Peace Prize; and stories about social entrepreneurs now appear regularly in newspapers and magazines such as The New York Times, The Economist, and the Financial Times. By many accounts, David Bornstein's 2004 book, How to Change the World: Social Entrepreneurs and the Power of New Ideas, and his subsequent focus on “solutions journalism” may deserve the greatest credit for inspiring the public's admiration of these social innovators.
Since the first known course on social entrepreneurship was offered by J. Gregory Dees at Harvard Business School in the early 1990s, scores of other universities have offered courses or started research initiatives on social entrepreneurship. Networks such as Ashoka's Changemaker Campus Consortium bring together faculty, administrators, and faculty to share promising practices in education and research. New academic journals such as the Stanford Social Innovation Review, Innovations (MIT) and the Journal of Social Entrepreneurship (Oxford) have emerged to provide a much needed forum for academic discourse. Numerous innovation competitions have emerged to challenge college students to pursue innovative solutions to social problems, such as the Hult Prize, Berkeley Big Ideas, VentureWell, and the Clinton Global Initiative University program, and new kinds of student organizations such as Net Impact, Compass Fellows, StartingBloc, and Design for America inspire their young members to pursue careers that achieve a social and environmental impact in addition to financial returns.
As some social entrepreneurs experiment with business models that aim to achieve a “blended value” of social, environmental, and economic impact, entirely new forms of corporate structure are being advanced, such as the “community interest company” in the United Kingdom, the “social business” proposed by Muhammad Yunus, and the low-profit limited liability company (L3C) and for-benefit “B corporation” in the United States.
The embrace of social entrepreneurship has crossed boundaries into the business sector, where a growing number of companies engage in partnerships with social entrepreneurs—some as a more fundamental approach to philanthropy and “corporate citizenship” that is strategically aligned with their corporate missions and values, some as a strategy to develop new business models and access new markets at the base of the economic pyramid (Chesbrough, Ahern, Finn, and Guerraz, 2006), and some to pursue other opportunities that may generate social and economic value (Austin, Leonard, Reficco, and Wei-Skillern, 2006).1 Rising social entrepreneurs regularly rub elbows with top corporate executives and government leaders at the World Economic Forum at Davos.
Perhaps the most influential vote of confidence in the promise of social entrepreneurship came from President Barack Obama, who established in 2009 the White House Office of Social Innovation in fulfillment of a campaign pledge to identify the most promising, innovative, results-oriented social innovations and support their replication across the country. Committed to investing in “what works,” the Office, in partnership with the Corporation for National and Community Service, launched in 2010 the Social Innovation Fund to deliver growth capital needed to enable programs with demonstrated results to scale their impact. Under the Obama Administration, agencies across the federal government embraced social entrepreneurship, innovation, and human centered design, with exemplars such as the Investing in Innovation Fund at the Department of Education and the Global Development Lab at the U.S. Agency for International Development.
For those who believe that social entrepreneurship represents an important new lens through which to view social change, these developments are encouraging, perhaps even exhilarating. However, the concept of social entrepreneurship did not arise in a vacuum.
One important historical shift that may be contributing to the ascent of social entrepreneurship, at least within the United States, is a widespread recognition of the limits of top-down government solutions to social problems. In the social sector, philanthropy and development aid continue to move away from simple charity and toward more pragmatic, results-oriented strategies, perhaps driven in turn by an engaged citizenry that increasingly demands lasting solutions.
Over the past two decades, as nonprofits competed for limited dollars from government and philanthropic funders, a growing number of organizations began to adopt market-driven approaches and experiment with practices drawn from the business sector, including the launch of earned-revenue ventures, (both mission-related social enterprises and unrelated businesses).2
As societies seek to harness private initiative, ingenuity, and investment to find new and better ways to solve social problems, the concept of social entrepreneurship captures the spirit of that search. It reflects broader and deeper social trends that are driving change in how we approach social problems. The rapid growth in popularity of social entrepreneurship can be seen, at least in part, as one response to these trends. Whether it will grow into a significant expression of a new mindset remains to be seen. It depends, in part, on the ability of proponents of social entrepreneurship to capitalize on these propitious circumstances (CASE at Duke, 2008).
The concept of “social entrepreneurship” is relatively new, even if the practice arguably has been around for a very long time. As with many new concepts, its definition is open to debate. Different people and organizations use the term differently, and the number of academic definitions escalates each year as scholars endeavor to refine and clarify the concept. This discourse is healthy, as definitional disputes are common in many fields. Indeed, the term entrepreneurship has been around for more than two hundred years, but dozens of definitions circulate in scholarly literature, contributing to the debate within the field of social entrepreneurship.
Reviewing the development of the field of social entrepreneurship, Dees and Anderson trace the evolution of two major schools of thought and practice—social enterprise, which tends to focus on the application of business practices in the social sector, including the generation of earned revenue to serve a social mission, and social innovation, which is focused on establishing novel and more effective ways to address social problems or meet social needs. “While these schools are often conflated in popular discourse, they reflect different perspectives, priorities, and, to some extent, values. At times, their proponents have been at odds. But both schools have been critical to the growth of the field of social entrepreneurship” (Dees and Anderson, 2006, p. 41).
Typifying the “social enterprise school” of thought are those who subscribe to the conventional definition of entrepreneurship as the act of starting a business. Indeed, the Merriam-Webster dictionary online defines “entrepreneur” as “one who organizes, manages, and assumes the risks of a business or enterprise” (www.merriam-webster.com). Columbia Business School Professor Amar Bhide concurs: “Following common usage, I call individuals who start their own businesses entrepreneurs. Theorists attribute a variety of functions to entrepreneurs, such as coordination, risk-taking, innovation, and arbitrage.…I refrain from debating which of these roles are truly ‘entrepreneurial’” (2000, pp. 25–26).
The rise of social enterprise in the 1980s and 1990s came about as a result of an increasing interest among nonprofit organizations in finding new sources of revenue to supplement donor and government funding, as well as by a desire among some business executives to promote the provision of human social services by for-profit companies (Dees and Anderson, 2006). An important emphasis among adherents of the social enterprise school is the blurring of the lines between the business and social sectors, often through experimentation with market-based solutions to social problems that seek to align economic and social value creation. One example is the launch of earned revenue ventures, both mission-related enterprises that aim to create social and economic value and enterprises unrelated to the mission and with the main purpose of making money to subsidize more direct social purpose activities.
Although it may be commonplace to think of an entrepreneur as someone who starts and runs a business, many scholars contend that the definition of social entrepreneurship should be grounded in a more robust interpretation drawing upon the rich tradition of scholarly research and writing on the concept of entrepreneurship.
The term entrepreneur was first introduced in the 18th Century by French economists, who drew upon the word entreprendre from Old French, meaning “to undertake.” According to Jean-Baptiste Say (1803), “entrepreneurs” are value creators who shift resources from areas of lower into areas of higher productivity and yield. Although the precise definitions of the terms entrepreneur and entrepreneurship have been debated ever since, these terms have almost always been reserved for the business context. Writing in the first half of the 20th Century, Austrian economist Joseph Schumpeter (1934) suggested that entrepreneurs perform their value-creating function through innovations, the carrying out of “new combinations” (pp. 65–66), including the creation of a new good or service as well as producing and delivering an existing good or service in a new way or to a new market. Schumpeter declared: “the function of entrepreneurs is to reform or revolutionize the pattern of production” (p. 132).
More recently, leading management scholar Peter Drucker pointed out that entrepreneurs constantly search for and exploit the opportunities created by change (in technology, consumer preferences, social norms, etc.) (Drucker, 1985). Put another way, entrepreneurs have a mindset that sees the possibilities rather than the problems created by change. Howard Stevenson carried this idea further, observing that entrepreneurs pursue these opportunities without being limited by the resources they have in hand; instead, entrepreneurs mobilize resources from others to achieve their objectives (Stevenson and Gumpert, 1985).
Although these scholars were writing about business entrepreneurs, their theories—and the skills, practices, and mindset of an entrepreneur—apply equally as well in the social sector. In this way, a social entrepreneur can be thought of as one type of entrepreneur. Simply put, social entrepreneurs are entrepreneurs whose “business” (or mission) is to achieve social impact. A business entrepreneur may seek to create economic value for private benefit, whereas social entrepreneurs seek above all to create social value for the benefit of society; they measure their productivity in terms of social impact and seek a social return on investment.
Proponents of the “social innovation school” assert that social entrepreneurs combine the opportunity orientation identified by Drucker, the innovation as revolutionary change agents as described by Shumpeter, and create value through new and better ways of doing things, as described by Say, although the value that the social entrepreneur seeks to create and sustain is social value. According to this view, social entrepreneurs are individuals who reform or revolutionize the patterns of producing social value, shifting resources into areas of higher yield for the benefit of society. Adherents to the social innovation school do not restrict their definition of social entrepreneurship to the nonprofit sector. Instead, the selection of legal form of incorporation—nonprofit, for profit, cooperative, or hybrid—is seen as an important tactical decision that the social entrepreneur must make when crafting the strategy for attracting resources and when considering various restrictions associated with each form of incorporation.
In a similar spirit, and building on the scholarly literature on entrepreneurship, in the widely cited “The Meaning of Social Entrepreneurship” (1998b, rev. 2001), Dees elaborates on the proposition that social entrepreneurs play the role of change agents in the social sector, seeking to create systemic changes and sustainable improvements, by:
One important tenet of the social innovation school is that social entrepreneurship aims to effect large scale, sustainable, and systemic change. Writing in the Stanford Social Innovation Review in 2007, Martin and Osberg argued that social entrepreneurship is characterized by three fundamental components:
Martin and Osberg draw a strong distinction between social entrepreneurship and two other forms of social engagement—social activism and social service provision—noting that the former is an indirect form of social engagement and arguing that the latter does not set out to achieve and sustain a new equilibrium (see Figure 11.1). Acknowledging the distinctive value that each form of social engagement brings to society, Martin and Osberg note that social activists, social service providers, and social entrepreneurs may borrow and adapt one another's strategies and develop hybrid models.
The emphasis on transformational systems change, at the core of this definition of social entrepreneurship, has long been championed by Bill Drayton, who is arguably the primary driving force advancing the social innovation school of thought. In 1980, Drayton founded Ashoka, the global network of leading social entrepreneurs, and he framed its mission to find and support “outstanding individuals with pattern setting ideas for social change” (Drayton & MacDonald, 1993, p. i). Setting a high standard for those who would consider themselves social entrepreneurs, Drayton asserts: “The job of a social entrepreneur is to recognize when a part of society is stuck and to provide new ways to get it unstuck. He or she finds what is not working and solves the problem by changing the system, spreading the solution and persuading entire societies to take new leaps. Social entrepreneurs are not content just to give a fish or teach how to fish. They will not rest until they have revolutionized the fishing industry” (Leviner, Crutchfield, and Wells, 2006).
It is easy to see how these points of difference can lead to significant confusion over what “counts” as social entrepreneurship and what does not. Shared definitions will likely emerge from a give-and-take process among thought leaders in the field and the media outlets that popularize the term. In order to propel this field forward, we must find definitional solutions that increase precision and clarity while allowing healthy disagreements, respecting different perspectives. Too broad a definition will dilute the focus of the community, but too narrow a definition could exclude too many and result in a field that is “too special” for mainstream attention.
A vibrant and diverse community of practice is emerging, including those who embrace all the different definitions mentioned above. In order to maintain the interest, commitment, and participation of key players, while also allowing for academic discourse to advance the state of knowledge within the field, we should pursue a path forward that balances increased clarity with openness and respect for differences and that frames this emerging field of inquiry in a way that builds upon the rich work of reflective practitioners and scholars who have led the way thus far.
For those in the field with a vested interest in resolving the confusions about definitions, CASE has suggested the following guidelines (CASE at Duke, 2008):
These guidelines should allow for the development of a diverse and vibrant community with some critical mass but without all the confusion that currently exists in the field. Participants need to respect honest differences while working together to help find new and better solutions to social problems.
As in many fields, consensus on a basic definition of the field may not emerge for some time. However, the critical need for rigorous research and high-quality teaching requires the field to make advances in the absence of full consensus. Observing encouraging signs of convergence between the two main schools of thought, CASE proposes a way of framing this new field of inquiry that raises a distinctive set of intellectual questions that cut across disciplinary boundaries. Dees and Anderson contend that the most promising arena for academic inquiry lies at the intersection of social enterprise and social innovation, which they identify as “enterprising social innovation, “defined as “carrying out innovations that blend methods from the worlds of business and philanthropy to create social value that is sustainable and has the potential for large-scale impact” (Dees and Anderson, 2006, p. 50). This framing forces scholars and practitioners to acknowledge the intimate connection between social and economic realities and the role of markets in the social sector. “In order to be considered ‘enterprising,’ the innovation must involve some business-inspired elements, whether through the adaptation of business methods to create or enhance social value, the operation of a social-purpose business, or the formation of cross-sector partnerships” (p. 51).
This framing on ventures that blend business and philanthropic methods has the potential to raise theoretically interesting questions and engage a broad range of scholars working in diverse disciplines and domains. Selected areas of academic inquiry could include:
Observing the accelerating trend of blurring of the boundaries between the public, private, and social sectors, Dees and Anderson call upon academics and thoughtful practitioners to seek to understand better what may lie ahead for the field of social entrepreneurship. “If we do not deepen our knowledge of these kinds of approaches, we are likely to fumble around in the dark, making more mistakes than necessary. Success will depend on a better understanding of how to effectively combine elements from the business world and the social sector, and how to recognize the limits and risks. This arena is where we should focus most of our limited time and resources. Doing so will not only serve both schools of thought and academia well; more importantly, it will be of great value to society.” (p. 61)
All acts of entrepreneurship start with the recognition of an attractive opportunity (Stevenson and Gumpert, 1985). All entrepreneurs, whether business or social entrepreneurs, must uncover or create new opportunities through a dynamic design process of exploration, innovation, experimentation, and resource mobilization (Dees, 2007). The difference for the social entrepreneur is an opportunity worthy of serious pursuit must have sufficient potential for positive social impact in order to justify the investment of time, money, and energy required to pursue it seriously. Social entrepreneurs must have the same commitment and determination as a business entrepreneur, plus a deep passion for the social cause, minus an expectation of significant financial gains.
Drawing extensively upon the work of Guclu, Dees, and Anderson (2002), in the following pages we will discuss a useful process framework that social entrepreneurs may use to guide the discovery or creation of such an opportunity. This process is illustrated in Figure 11.2.
For entrepreneurs, whether business entrepreneurs or social entrepreneurs, the entrepreneurial journey begins with a promising idea. Although ideas commonly have their roots in personal experience, in identifying, exploring, and developing promising ideas, the social entrepreneur may also draw upon his or her understanding of social needs, social assets, and relevant changes in society.
Personal experience often motivates, inspires, or informs the idea generation process. Not surprising, many successful new venture ideas arise from the entrepreneur's education, work experience, and hobbies (Vesper, 1979). It is important to note that relevant experience does not have to be in the same field in which the new venture would operate. Sometimes experience and knowledge of practices in other fields can help the social entrepreneur see new ways of doing things.
Dissatisfaction with the status quo often spurs entrepreneurial creativity, prompting social entrepreneurs to look for new approaches to problems and frustrations they have encountered personally, witnessed among family or friends, or seen on the job. Some social entrepreneurs point to a “moment of obligation” a time when they were confronted by a problem or issue and realized that they had to take action, whereas other social entrepreneurs undertake an intentional, systematic search for a problem to address.
Sound entrepreneurial ideas respond to genuine needs. For business ventures, these are unmet or poorly met consumer needs. Likewise, social entrepreneurs would be wise to look beyond their personal preferences in the search for promising ideas, basing them on an understanding of social needs, gaps between socially desirable conditions and the existing reality. They rest on some vision of a better world and are grounded in personal values. These values can provide a sense of moral imperative that may serve as a powerful motivator for social entrepreneurs and their ideas. Calling to mind the famous quote from Robert Kennedy, social entrepreneurs are unwilling to settle for the status quo; instead, they “dream of things that never were, and ask why not?”
Although the impetus for some ventures can be traced back to an accidental discovery or serendipitous occurrence, an exciting development in the field of social entrepreneurship has been the increasing incorporation of the principles and practices of human-centered design to identify needs and wants experienced by stakeholders and to co-create appropriate solutions that are desirable, feasible, and viable given the local context. These interactive methods of needs-finding emphasize contact, observation, and empathy with end-users to develop insights that will lead to more effective solutions. In particular, the design firm IDEO and the Hasso Plattner Institute of Design at Stanford University (also known as the “d.school”) have been leading proponents of this approach that has been embraced by organizations as large as UNICEF and as small as local, grassroots initiatives.
Understanding the tangible and intangible assets in a community—local knowledge, social networks, cultural norms, and other resources—can lead to the development of promising ideas. Although it is important to ground ideas for new ventures in a plausible diagnosis of social needs, there is a danger of over-emphasizing the negative. Some argue that the social sector concentrates too much on needs and that better ideas emerge out of an appreciative focus on assets. The latter presents the community in a new light and may inspire creative new ideas that would not be visible if social entrepreneurs looked only at needs or “problems.”
It is common to think of entrepreneurs as creating change, but entrepreneurs are often inspired by the changes all around them. Peter Drucker has argued entrepreneurs “always search for change, respond to it and exploit it as an opportunity” (Drucker, 1985). In framing their ideas, social entrepreneurs may be stimulated by changing demographics, values, cultures, technologies, industry structures, economies, knowledge, public policies, and preferences. These changes can create new needs, new assets, or both, opening up new possibilities and prompting social entrepreneurs to generate promising new ideas.
Personal experience, social needs, social assets, and change can stimulate promising ideas, but only if the social entrepreneur also adopts an opportunity-oriented mindset, actively looking for new possibilities to have significant positive social impact. Successful social entrepreneurs embody this “how can” attitude, particularly in the idea generation phase, as they ask themselves and the communities in which they seek to engage:
Effective social entrepreneurs carry this orientation into the opportunity development process, engaging in continuous innovation, adaptation, analysis, and learning along the way.
The second step for the aspiring social entrepreneur is to convert an initially appealing idea into a worthwhile opportunity, combining rigorous analysis with creative adjustment as the social entrepreneur tests and refines the ideas through a mixture of research, innovation, and action. The chances of success are significantly increased if the envisioned social venture idea is grounded in a set of plausible, testable hypotheses about the underlying theory of change and a plausible business model, consisting of an effective operating model describing the activities, structures and systems required by the theory of change, and a viable strategy for attracting the necessary human and financial resources required by the operating model. The most attractive opportunities have strong theories of change and business models that fit with the ecosystem, or operating environment, and the personal characteristics of the social entrepreneur.
As we have seen, social entrepreneurs are driven by a desire to achieve results—to create social value for their primary constituents or beneficiaries, society, and the world. Underlying any promising new social venture is a carefully conceived and testable hypothesis about how the venture will achieve its intended social impact. Expressing the cause-and-effect logic by which the venture's operating model connects inputs, activities, and outputs to generate desired outcomes, this “theory of change”—also known as a “development hypothesis” in the field of international development, and variously referred to as a “social impact theory” or “theory of action”—is central to the venture's strategy and generally embodies the organization's mission and values (Guclu, Dees, and Anderson, 2002). The articulation of this theory linking action to results should include a “convincing statement of how program inputs will produce a sequence first of intermediate and then ultimate outcomes,…and some indication of the bases, in experience, for expecting a cascade of results” (Szanton quoted by Grossman and Curran, 1990). By clearly defining the venture's intended outcomes and means for achieving them, the theory also provides a precise description of the ultimate social impacts for which the organization will hold itself accountable (Campbell and Haley, 2006).
A well-articulated theory of change should also identify the critical assumptions underlying the hypothesis. We can think of these assumptions as the necessary preconditions that should hold in order for the theory of change to lead to achieving the intended impact. Considered alongside the intermediate outcomes that will jointly cause the intended impact, these assumptions complete the “if/then” logic inherent in the theory of change. Whenever possible, critical assumptions should be identified and tested prior to launching a venture by comparing the theory of change to existing relevant knowledge in the field or by doing new research and analysis. Despite their need and bias for action, social entrepreneurs should structure their actions carefully in such a way that they can test as many critical assumptions as feasible before making major, irreversible investments (McGrath and MacMillan, 1995).
To aid in developing and refining his or her theory of change, the social entrepreneur may wish to create a simple logic model that clearly identifies the specific resources or “inputs” required, the major activities of the venture, the “outputs” produced by those activities, and the “outcomes” resulting from the activities. Another useful tool is the “outcomes framework”—an inductive logic tree that illustrates the hypothesis implicit in the theory of change, the causal logic among the intermediate outcomes and ultimate intended impact, and any critical assumptions that should hold in order for the theory of change to lead to achieving the intended impact. When paired with carefully defined and objective performance measures for each intended output and outcome, logic models and outcome frameworks can become valuable tools for planning, communications, and management and should be reviewed and updated regularly.
Defining and refining a theory of change is a dynamic process that blends creativity and out-of-the-box thinking with concrete analysis and assessment of results. Social entrepreneurs should regularly test and, if necessary, revise their theory of change to assure they are pursuing a worthwhile opportunity and are on track to achieving their ultimate intended impact. Since social impact is so hard to measure and many social entrepreneurs aim for long-term, sustainable lasting impact, the testing process can take significant amounts of time. Having a clearly articulated theory of change and performance measures helps make the testing process more systematic and timely.
In addition to a compelling theory of change, every worthwhile opportunity needs to be supported by a plausible business model. Every venture—whether commercial or social—has an implicit business model that indicates how the venture creates, distributes, and captures value. In many cases, social entrepreneurs are most creative and add the greatest value in the design of their business model—they employ a wide range of options for structuring their ventures, acquiring capital, pricing their services, paying their workers, and coming to terms with suppliers—all in the pursuit of creating and maximizing social value.
For the social entrepreneurial venture, the business model includes two key elements:
These two elements of the business model work closely together to bring the theory of change to life. In this sense, the business model is essentially the conduit through which a social entrepreneur converts inputs into outcomes. It determines the organization's financial and talent needs, the extent and nature of dependence on different resource providers, and the efficiency with which resources are converted into impact, which factors into the social return on investment.
Regardless of how effective an innovation is at achieving impact, the business model must be “sustainable” over the period of time required to achieve widespread, lasting impact. If the business model is not capable of being scaled or replicated, widespread impact will be impossible to achieve. If the business model is not aligned with the mission and intended impact of an organization, the organization may be sustained and it may scale, but its ultimate impact will be undermined. This can even be a problem for for-profit social ventures that discover their mission impact would be better served through activities and costs that cannot be adequately covered by their revenues.
A fundamental component of the business model, the operating model describes how the theory of change will be implemented in practice. It is a combination of specific activities, structures, and support systems that are designed to work together to bring about the intended impact.
In developing an operating model, the first step is to trace a chain of activity from inputs to outcomes, identifying every step that is necessary in between. These direct productive activities will usually need to be supported by administrative functions, such as accounting, human resources, fundraising, and so on. When all of these elements are put together, the result looks similar to the “value chain” in a business (see Figure 11.3), a concept introduced by strategist Michael Porter (1985) as a tool for analyzing potential sources of competitive advantage for a firm.
This framework can be used to identify the major activities through which a social entrepreneurial venture can create or enhance social value. Social entrepreneurs may create social value at any of the steps in this process. For example, microfinance institutions such Grameen Bank create social value by making loans to people who otherwise would not have access to the capital they need. Perhaps Muhammad Yunus's most important innovation was to eliminate the requirement of assets as collateral for loans, an insurmountable barrier to the poor; instead Yunus created peer-lending groups, small groups of women borrowers from the same village who meet regularly, support each other, and share responsibility for repayment of loans made to anyone in the group, thus pooling risk and increasing return.
Fair trade organizations such as Ten Thousand Villages create social value in how and from whom they purchase the goods they sell. Other social ventures, such as Greyston Bakery and Homeboy Industries, create value through employing disadvantaged populations. Some, such as Triangle Residential Opportunities for Substance Abusers (TROSA) engage their beneficiaries in earned revenue ventures as a form of rehabilitative therapy and to foster job skills needed for reintegration in the community, thus increasing likely social impact. With hospice care, the social value is inherent in the design of the value or service. Through their distribution chains, both KickStart and VisionSpring harness the powerful incentives of small business ownership to sell foot-operated water pumps and deliver eye care services and products in rural villages in developing countries.
Once the social entrepreneur has identified all key activities in the value chain, she must make structural decisions, such as choosing a form of incorporation and defining the division of labor and coordination of activities. Social entrepreneurs may choose to incorporate their venture as a nonprofit organization, a for-profit social venture, or a hybrid that may combine two or more corporate entities; this decision may be based on a number of factors, including the desired sources of capital. A for-profit form of incorporation (proprietorships, partnerships, corporations, limited liability companies, and cooperatives) will be necessary if the social entrepreneur seeks to tap into private capital markets for investment funds, whether at or below market rate of return (Dees and Anderson, 2003).
The major labor division question concerns what the new venture should do and control versus what could be left to affiliates, partners, suppliers, contractors, or providers of complementary services. This decision should be driven largely by the importance of the activity, the presence or lack of competencies and efficiencies within the organization, and the value of maintaining control over it.
Finally, social entrepreneurs should consider the support systems that may need to be in place to assure effective and efficient social value creation, including systems for monitoring organizational performance and assessing outcomes, as well as intangible support systems such as the organization's culture.
With these pieces in place, the operating model should allow social entrepreneurs to trace a plausible and specific causal path through a chain of activities, structures, and support systems to the intended social impact. As with the theory of change, any proposed operating model will rest on assumptions that may be tested before anyone can say that the operating model is likely to be effective.
Whether in business or in the social sector, an operating model cannot begin to create value unless it is aligned with and supported by a viable resource strategy. At the most fundamental resource level, the social entrepreneur needs people (including their skills, knowledge, contacts, credentials, passions, and reputations) and things (including everything from office space to patents). Unlike business entrepreneurs, in the social sector, entrepreneurs may acquire both people and things with or without using money.
In developing a resource strategy, social entrepreneurs must first identify resource requirements; these may be deduced from the proposed operating model, along with performance and growth objectives. Resource needs cannot be determined without a specific operating model in mind that converts the resources into the capabilities necessary to create the intended social impact efficiently and effectively. Of course, as the idea is refined and tested, the original operating model may need to be adjusted to fit the realities of resource mobilization.
Next, social entrepreneurs must determine how best to mobilize the resources required through one or more of the following options: building partnerships or alliances, attracting donations, and paying for the resources.
Although some partnerships may be desirable as part of the operating model, others are driven more by resource considerations. When resources are scarce or hard to mobilize, as is often the case during the start-up stage, it may be wise to build resource-based partnerships with others that have (perhaps underutilized) resources of the kind required. However, social entrepreneurs should carefully consider benefits, costs, and risks of any partnership, particularly if it is not ideal from the operations point of view.
Social entrepreneurs may also attempt to acquire resources through volunteers and in-kind donations, which can reduce the cash needed to achieve social impact. Some organizations, such as Habitat for Humanity, rely heavily on volunteers and in-kind donations for core activities. Other social entrepreneurs have decided that operational effectiveness requires paying for key resources. For example, whereas most youth mentoring organizations typically rely on volunteers, Friends of the Children, winner of the Purpose Prize for 2009, has challenged that model, arguing that the use of paid mentors for at-risk kids leads to better social outcomes.
Even for those things that are purchased, social entrepreneurs can sometimes offer below-market compensation or seek discounts. For example, many organizations have been able to attract and retain high-quality workers with below-business-market wages, perhaps due to the personal satisfaction that people get from working for a cause that is deeply meaningful to them. Also, social ventures may qualify for discounted prices on equipment, supplies, services, professional fees, and so on, although the pool of available resources may be limited and the quality of services provided at reduced cost may be lower than desirable.
Finally, when considering the acquisition of costly equipment and facilities, social entrepreneurs must also decide whether they will purchase outright or whether they will simply rent or lease. When risk is high, renting or leasing is typically the optimal option.
Based on these decisions, social entrepreneurs should estimate the cash needs for their ventures and begin to identify plausible sources of funding. Although many social entrepreneurs would love for their ventures to be “self-sufficient,” charging customers enough to cover all the operating costs (as occurs in the private sector) is often not optimal from the point of view of creating social impact. Although third-party payers (such as government agencies or corporations) may be found to cover costs, in many domains in which social entrepreneurs operate, revenues gained from service fees and contracts will fall short of what is needed to have the desired impact. In these cases, the resource strategy must include a plausible fundraising plan. However, social entrepreneurs must be vigilant about selecting cash income streams that do not pull the venture away from its core mission.
In summary, the social entrepreneur should craft the resource strategy based on assumptions about resource requirements and methods of meeting them, asking questions such as:
Although some of the assumptions embedded in the model may be highly plausible based on past experience, social entrepreneurs should carefully identify those uncertain assumptions to which the resource strategy is most sensitive and make sure they are tested and adjusted as the venture rolls out. The various dimensions of nonprofit finance and resource development are addressed by the chapters in Part Four of this volume, and the chapters in Part Five address the challenges of recruiting, retaining, and motivating both staff and volunteers.
As with the rest of the process of social entrepreneurship, developing an attractive resource strategy requires creativity, especially given the intense competition for funding in the social sector. In some instances, an innovative resource strategy might even drive, or significantly impact, the social venture's operating model. However, a resourceful approach does not undermine the effectiveness of the business model and ultimate social impact of the venture. In fact, the most attractive resource strategies actually enhance social impact.
There are numerous ways by which a social entrepreneur may create social value. In designing a social venture, the social entrepreneur has a wide range of options for structuring their ventures, acquiring capital, pricing their services, paying their workers, and coming to terms with suppliers. In exploring these various options, it may be helpful to consider the Social Enterprise Spectrum illustrated in Figure 11.4 (Dees 1996, 2001).
This spectrum describes the full range of options available to social entrepreneurs, from purely philanthropic to purely commercial, with many variations in between. Philanthropic methods are involved anytime an organization falls short of the far right side on at least one dimension of the spectrum, indicating some form of subsidy or sacrifice. Excluding purely philanthropic or purely commercial ventures is not a major sacrifice in scope because very few social-purpose organizations exist at either extreme (Dees and Anderson, 2006).
Ultimately, the selection of a business model should be made upon careful reflection on the following questions:
It is important to note that no single business model is best for all social entrepreneurs in all settings. Potential trade-offs and risks have to be assessed on a case-by-case basis, and the operating model may need to be adjusted accordingly. However, designing an effective business model is an essential part of the creative learning process of crafting, testing, and refining the hypotheses and assumptions inherent in the social entrepreneur's theory of change. This process of learning and refinement should continue well after the launch of the venture as the social entrepreneur gains experience and as the venture is affected by changes in the ecosystem in which it operates.
Drawing on the science of biology, scholars of strategy and management have begun to study and apply ecosystems theory to reveal lessons for business and entrepreneurship. So, too, social entrepreneurs hoping to create significant and sustainable social impact should also develop an understanding of, and may endeavor to alter, the broad environment in which they operate. This is true especially if they seek to leverage complex systems of interacting players in rapidly evolving political, economic, physical, and cultural environments. Indeed, changes in these conditions may determine whether and when a window of opportunity is open or closed to the social entrepreneur.
Just as biological ecosystems are made up of complex webs of interrelated organisms, social ecosystems operate in much the same way. Social entrepreneurs get help from some individuals and organizations, give help to others, fend off threats from others, and compete with still others. To assist social entrepreneurs in identifying and mapping all of the relevant ecosystem players and the roles that they play, Bloom and Dees (2008) recommend dividing the players into six roles:
Bloom and Dees note that these categories of ecosystem players are dynamic and not mutually exclusive (2008). Organizations may play more than one role or may switch over time; paradoxically, the same organization can be both an ally (for example, when it comes to advocating for legislation to serve the same cause) yet also a competitor (for example, when vying for limited funding). As in for-profit industries, new players may enter the ecosystem at any time, posing new threats or presenting opportunities for the social entrepreneur and her venture to benefit.
Biological ecosystems are made up not only of other organisms, but also of environmental conditions (such as soil, weather, sunlight, and water) that have a significant impact on the type of organisms that can exist, as well as on their relationships with one another. So, too, with social ecosystems, although organizations and people can, in turn, influence the environmental conditions and bring about change within the social ecosystems of which they are a part. To aid social entrepreneurs in identifying relevant changes or trends that can influence their ability to create and sustain the intended social impact, Bloom and Dees (2008) identify four sets of environmental conditions that should be considered by the social entrepreneur:
Although the relevant features of the ecosystem will vary from venture to venture and will depend on the specifics of the venture idea, including the theory of change and the business model, most social entrepreneurs will make crucial assumptions about their markets, the industry structure, the political environment, and the culture. In studying and making assumptions about the ecosystem in which they operate, social entrepreneurs may choose to construct a simplified ecosystem map illustrating the key ecosystem players and environmental conditions, noting key relationships and trends, and anticipating potential changes that may positively or negatively affect their ability to achieve the desired social impact. Mapping the ecosystem in this way is a dynamic process that may yield significant strategic insights (Bloom and Dees, 2008).
In summary, an ecosystems framework can help social entrepreneurs in many ways, including:
As social entrepreneurs flesh out the three core elements of their opportunities, they will inevitably make assumptions about their ecosystem or operating environment. The potential success of the venture depends largely on whether the assumptions accurately represent the context. Thus, a promising opportunity must fit with the characteristics of its environment. However, in the social sector as in the business world, windows of opportunity may close as quickly as they open.
Since ecosystems are dynamic, it is also helpful for social entrepreneurs to be sensitive to the window of opportunity, the time frame in which conditions are expected to be favorable for pursuing a given opportunity. In studying the conditions necessary for social entrepreneurship, respected nonprofit scholar Paul Light has asserted that such windows of opportunity are rare, cannot be predicted, tend to occur in great punctuations when the demand for change reaches a tipping point, emerge when entry costs are low, open and close quickly, favor competition over collaboration, and appear to the special few (Light, 2008, p. 203).
Social entrepreneurs may have better chances of success if they can take advantage of windows that are opening and that will stay open long enough for the venture to have its intended impact. Changes in the ecosystem or other external conditions may increase or decrease receptivity to new ideas, or may affect the viability of a proposed business model, thus opening or closing the window of opportunity. Such changes include the growth or decline of the social need being addressed, the number of people affected by the need, the visibility of the need and expected media coverage, perceptions of urgency or relative importance by key resource providers, levels of satisfaction with existing approaches, technological changes, changes in public policy, and popular trends or fashions in relevant fields (Guclu, Dees, and Anderson, 2002).
As social entrepreneurs develop their ideas into worthwhile opportunities, they also have to be sensitive to personal fit. Even if they have identified an attractive opportunity, it may not be a good opportunity for them when assessed in relation to other options. Before seeking to launch a social venture, aspiring social entrepreneurs should conduct an honest self-assessment, asking themselves:
New ventures of any sort are tremendously demanding. Social ventures are even more so. Ultimately, aspiring social entrepreneurs would be wise to pursue only opportunities that fit their personal commitment, qualifications, income requirements, and stage in life, embarking on their entrepreneurial journey with full awareness of the risks involved.
In order to determine whether a promising idea can be transformed into an opportunity worthy of serious pursuit, it is essential for the social entrepreneur to articulate a compelling theory of change and a plausible business model. Developing a plausible business model requires designing an effective operating model and crafting a viable resource strategy. These pieces must fit together, and the assumptions embedded in them must be credible given the environment in which the social entrepreneur intends to operate. Finally, the requirements of the venture must fit the commitment, qualifications, and life stage of the entrepreneur considering it. When all these elements are feasible and aligned, the chances for success are relatively high and those involved can make a more informed estimate of the potential for social impact.
With the support of the Skoll Foundation, the Center for the Advancement of Social Entrepreneurship (CASE) at Duke University launched a groundbreaking project to identify opportunities for further building the field of social entrepreneurship, both as a field of practice and as a field of inquiry, knowledge, and learning related to that practice. The CASE team conducted in-depth interviews with eighty-five social entrepreneurs, funders, academics, consultants, journalists and authors, and others knowledgeable about the field. As a result of this study, CASE recommended a set of critical initiatives for strengthening the ecosystem in which the practice of social entrepreneurship takes place (CASE at Duke, 2008). By the term ecosystem at the field-wide level, we refer to the key resource providers and environmental factors that affect the ability of social entrepreneurs to achieve their intended social impacts.
To inform its research, CASE developed a simplified framework to describe the key elements of this ecosystem. Figure 11.5 presents this framework, illustrating the richness and complexity of the environment in which social entrepreneurs operate and the various determinants of their effectiveness.
The elements of the ecosystem are presented in two broad categories. The first category consists of the resources, or types of “capital,” social entrepreneurs depend on to do their work, including financial capital, human capital, intellectual capital, and social/political capital. Although social entrepreneurs can, to some extent, develop these forms of capital through their operations, most social entrepreneurs rely on outside organizations to help them get or build the capital they need. Note that these subcategories are broadly defined, including capital creators, providers, and related intermediaries. The second broad category includes the context-setting factors, or external conditions, that could support or undermine the practice of social entrepreneurship. These conditions are divided into four subcategories: policy and politics, media, economic and social conditions, and related fields. These factors tend to have their influence indirectly, and they are highly diverse. Each of these factors has the potential to affect social entrepreneurs, various players in the capital infrastructure, and the other context-setting factors.
During the CASE field-building study, nearly all interviewees identified inefficiencies and obstacles in the ecosystem and discussed how these might be remedied so that the potential of social entrepreneurship may be more fully realized. While all agreed that serious challenges exist for those who want to improve the ecosystem, most interviewees felt optimistic that these challenges could be met with creative solutions, dedicated attention, and increased collaboration. Based largely on suggestions made by participants in the field research, the CASE team identified five potential leverage points that are particularly crucial to address in order for the field to advance, and offered suggestions for moving forward on each of them.
In almost every interview for the CASE field-building study, participants identified the financial markets as a critical challenge for the field, agreeing that social sector capital markets are deficient in many ways. Funding is insufficient, especially to achieve scale, and the funding that is available often does not flow to its best uses (that is, the highest social return relative to the risk). Funders often do not know which use will produce the greatest benefits, and they seem to make their decisions based on factors that are not clearly related to performance. The financial markets for social ventures are full of inefficiencies. The search costs—the time and energy it takes to make the right match between social entrepreneurs and financiers—are high. The financial products, services, and terms of engagement often do not fit the needs of social entrepreneurs at different stages of development, or they impose burdensome conditions on the social entrepreneurs. Overall, social financial markets tend to be fragmented (often around different causes or interests), disjointed (different funders with different standards and requirements), and relatively small (compared to mainstream capital markets).
Those who want to strengthen the ecosystem for social entrepreneurs should consider doing or supporting the following:
Reliable, timely, and cost-effective measures of social value are crucial for demonstrating success, providing better information to the financial markets, and informing the strategic decisions of social entrepreneurs. Yet, social value is notoriously difficult to measure and to attribute to a specific intervention and many of the most important ways in which social entrepreneurs can make the world a better place are long-term, intangible, qualitative, not easily reduced to any single common metric. Funders, who have a crucial role in developing suitable systems and standards, and others seeking to drive progress in this area, may consider the following suggestions:
In the CASE field research, nearly all interviewees seemed to agree that success for this field requires that social entrepreneurs ultimately achieve significant “scale” relative to the magnitude of the problems they are tackling. The successful spread of innovations and the growth of social ventures in the past indicates that it is possible to achieve considerable impact, even in this flawed ecosystem. Proponents need to help social entrepreneurs find viable paths to scale and widespread impact.
Those who wish to improve the ability of social entrepreneurs to scale may want to:
In the business world, it is widely recognized that talent is the key to success. Venture capitalists know the importance of investing in high performing management teams. Business leaders see themselves in a “battle for talent.” Human capital is no less important for the success of social entrepreneurs. The ecosystem needs new talent pipelines and development programs to prepare social entrepreneurs and their teams for the challenges of sustainability, scale, and the creation of new equilibria. Those who want to strengthen this part of the ecosystem should consider the following:
Social entrepreneurs will be successful only if their innovations are supported by sufficiently sustainable, scalable, and aligned business models. Greater attention to business model design could also force social entrepreneurs to think about how to mobilize the talent and knowledge they need on favorable and sustainable terms, perhaps through partnerships. Proponents of social entrepreneurship who want to strengthen the field should consider taking the following steps to strengthen social entrepreneurs' ability to develop robust and effective business models:
These five issues—financial markets, performance measurement, scaling strategies, talent development, and business models—emerged as priorities as the CASE team analyzed the data from interviews and conversations. Addressing these issues could go a long way toward strengthening the ecosystem, assuring greater success of social entrepreneurs, and building the field.
It is essential to create a supportive ecosystem for social entrepreneurs if the field is to thrive. By contrast, business entrepreneurs benefit from a very supportive ecosystem, particularly in the United States. Yet there is an important difference between business entrepreneurship and social entrepreneurship that should not be neglected—business entrepreneurs face significant market discipline from both customer markets and financial markets. Customers determine whether the good or service provided creates more value for them than it costs to produce. Investors determine whether the venture is likely to provide sufficient returns to justify their investments. For social entrepreneurs, the ultimate test is social impact, and that value is not guaranteed by market discipline. We need other mechanisms.
If the ecosystem is to do its job of enhancing chances of success for the field as a whole, we must mimic this kind of market discipline, using the best measures and judgments available at the time. We need to create a healthy, vibrant ecosystem that supports innovative social entrepreneurs, but with appropriate discipline to assure that capital is directed to its best uses. Without some devices to filter out the underperformers, scarce forms of capital and other support will be spread among those who put it to good use and those who do not. Fortunately, a number of innovative and exciting efforts are under way to address these issues. Many in this field cautiously hope that the coming years will bring about significant advances in the development of the field of social entrepreneurship. These advances could have a beneficial impact on the social sector as a whole.
“New concepts are introduced all the time. Some never catch on. Others experience great popularity for a period, but then decline and are viewed as passing fads. A few concepts have staying power and sustained impact. In rare cases, a new concept serves as a foundation for a whole new field of practice and knowledge. Social entrepreneurship has the potential to be one of those rare field-creating concepts” (CASE at Duke, 2008, p. v).
As elaborated in this chapter, social entrepreneurship is about crafting innovative and sustainable solutions to social problems. Fundamentally, effective social entrepreneurship is a learning process that combines a valid theory of change with a supportive business model. Social entrepreneurs are innovative, resourceful, and results-oriented. They draw upon the best thinking in both the business and nonprofit worlds to develop strategies that maximize their social impact. These entrepreneurial leaders operate across a broad spectrum of organizations: large and small; new and old; nonprofit, for-profit, and hybrid.
We are at an undeniably exciting time for the field of social entrepreneurship. Having experienced dramatic growth in recent years, social entrepreneurship has attracted strong interest from policymakers, philanthropists, aid agencies, and academics, despite the fact that it is still being developed and researched. However, many thoughtful observers, including advocates, are concerned that the recent momentum could fade or be undermined before a solid foundation is laid for the future of this emerging field. As described earlier, success for the field will require a healthy institutional and social environment to support the practice. We refer to this as the “ecosystem of social entrepreneurship.” Indeed, a vibrant ecosystem that supports innovative social entrepreneurs, but with appropriate discipline to assure that capital is directed to its best uses, could have a beneficial impact on the social sector as a whole.