Understanding Social Entrepreneurship

Updated: Jan 16

Introduction

For many, we are living in a time full of opportunities to innovate and collaborate, the internet has made it possible. For many others, the world is in a chaotic state and the lack of opportunities and resources limit the potential to thrive. Some individuals live on a day to day basis in marginalized conditions dealing with poverty, violence, homelesness, lack of healthy food and more. Although this is a challenge that has existed for decades, and there are a lot of causes to it, it is undeniable that mega corporations that control most of the wealth have created insurmountable income gaps. Wealth accumulation benefit the owners and other high executives that belong to the 20 percent that hold 77 percent of total household wealth. Certainly, this group of people make donations via 501C3s (non profits) but that hasn’t solved the urgent crisis that some are dwelling in. In recent years, and especially among younger generations there has been more attention and actions taken against these inequality issues. According to Phil Lempert, an expert analyst in consumer behaviour, “Gen Z consumers said to prefer fresh home cooked meals, hate corporate greed, don’t trust brands and demand transparency”.


The term social entrepreneurship has recently gained popularity and has become a buzzword among public officials, the media, universities and in the business world. The recent popularity has created confusion as to what this term means since different people have different concepts and there is no specific answer. This research paper is intended to clarify the origins of social entrepreneurship, why has it gotten so much attention recently, what makes social entrepreneurship different from any other entrepreneurial endeavor, and some of the current academic work regarding the topic.


Defining Entrepreneurship

The term “Entrepreneurship” was first introduced by Irish Economist Richard Cantillon in his book An Essay on Economic Theory published in the form of manuscripts in the 1730s. Later, Jean Baptist Say would advance the concept entrepreneur. Cantillon was a speculator-merchant and he knew the uncertain nature of entrepreneurship. He divided people into two classes: Entrepreneurs with unfixed wages and “hired people” with fixed wages. He then explains that the uncertain environment in which these undertakers operate, result in profits or losses and therefore fluctuations in activity and employment. Later in 1893 Frederick Hawley came up with the Risk Theory of Profit where he states that every industry will attain wealth as an offset for the risk encountered. “Business repays men, not only for their labors, but for their fears”.

It is important to understand where the term entrepreneurship comes from and its intrinsic meaning: an individual that takes risks who tends to be rewarded with high profits. Although the above theories don’t give us much insight into the entrepreneurial psyche to understand the principal motivator for embarking on risky ventures. We can deduce that in one end of the risk taking motive gamut there is profit gain whereas the other has a bona-fide altruistic intention to improve an aspect of society since any business out there solves a problem whether the problem is big or small.



Defining Social Entrepreneurship

The term social entrepreneurship was first used by Howard Bowen in 1953 in his book Social Responsibilities of The Businessman a publication that lives as the first comprehensive discussion of business ethics and social responsibility, “it created a foundation by which business executives and academics could consider the subjects as part of strategic planning and managerial decision-making”. Later, the term was spread during the 1980s and 1990s by different pioneers including Bill Drayton founder of Ashoka one of the biggest organizations dedicated to fostering social entrepreneurship.


Dave Roberts and Christine Woods, authors of “Changing the World on a Shoestring: The Concept of Social Entrepreneurship” argued in 2005 that the field of social entrepreneurship was in its infancy stage and it lacked awareness and credibility. They propose that coming up with a specific definition of what social entrepreneurship is, would bring more focus and understanding to the field. They define social entrepreneurship as “a construct that bridges an important gap between business and benevolence; it is the application of entrepreneurship in the social sphere.”


Although to this date, there is no consensus on the formal definition of social entrepreneurship, some academics use specific criteria to determine if an activity is considered to be social entrepreneurship. Some of those criteria include:

1) Providing public services in new and innovative ways, under the umbrella of established social services

2) Start-up organizations with new approaches to specific social problems.

3) Social aims and social ownership are combined with trading viability

4) Surpluses are principally re-invested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners


To illustrate, certain activities in non profits, government or for profit organizations match the criterias and definitions explained above. This blurring phenomenon is referred to as sector-bending.


Social entrepreneurs vs traditional entrepreneurs

In order to better understand social entrepreneurship it is necessary to study the people that are taking on these new social ventures. Social entrepreneurs are characterized by their social mission of creating social value, they are good at dealing with extreme complexities, making decisions and achieving goals and objectives without sacrificing their social mission. They have an ability to recognize market opportunities and some of their key traits are innovativeness, being proactive and having propensity for risk-taking. A study concludes that social entrepreneurs are more like Schweitzer service professionals, but they act more like traditional entrepreneurs. Furthermore, this same research has found that social entrepreneurs experienced a deeply transformative experience at an early age, causing a paradigm shift in the way they think. Some of those experiences include combatting depression, overcoming substance abuse problems or working with troubled youth. Although traditional entrepreneurs also share life transforming experiences, they tend to be different in nature such as experience starting a company or attending college for study. Many social entrepreneurs were exposed to social issues and causes at an early age through role models or parents.


If social entrepreneurs act like traditional entrepreneurs, it can be difficult to differentiate and determine who is who. Some traditional entrepreneurs do businesses that arguably tackle social problems but is that their main goal? Or is their main goal to make profits?


Let’s take the founder of Compost Crusader, Melisa Tashjian as an example. She shared her thoughts about her social enterprise “I didn’t create the business to become rich,” she says. “I legitimately felt that I could help satisfy this need within the community. I was sick of being part of the problem and wanted to be more part of the solution.” This is a company that offers waste collection services and diverts that waste to become compost. The business is taking care of a social issue but it’s still a business that makes profits and it would be hard to judge the real intention just with a statement of the founder.


Building on the risk taking motive spectrum described above, Gregory Dees developed the Social Enterprise Spectrum in 1998, a more elaborate framework that can help us understand organization’s interests.



Why is social entrepreneurship popular today?

It’s clear that social entrepreneurship has existed for a long time and it’s not a new phenomenon. For example in 1833, William Lloyd Garrison founded the Anti Slavery Society that publishd the first anti-slavery newspaper. Also, Jane Addams, social worker and reformist, founded the social settlement Hull House in Chicago in 1889. Hull House provided a welfare center for the neighborhood poor, serving as a model that was used across the nation.

More examples of social entrepreneurship can be found throughout history but today there is more attention on this field than ever before.


There are various reasons for the rising trend of social entrepreneurship ventures, these include: government funding cutbacks for social services, government policy shifts to privatizing public services, growing needs of socially disadvantaged populations, higher levels of competition among the nonprofit and for profit sectors and the difficulty for nonprofits to depend solely on funding and donations since grantors are moving away from ongoing funding and rather encouraging nonprofits to be sustainable and create self-generating income.


Let's take the elder population as an example. For some time now, there has been an increase in the elder population, this translates in an increase of services to this demographic. Also, the services that the government must provide are being outsourced to aged care service providers. Both of these factors, particularly the increase of older people with higher discretionary incomes, has lured commercial aged care service providers to the market, creating a higher competitive environment between nonprofit and for profit enterprises. This has forced nonprofits to innovate their products and services to achieve competitive advantages.


Current academic work on the topic

There are two major academic journals, the Social Enterprise Journal, established in 2005 and the Journal of Social Entrepreneurship in 2010. The topic and academic research is hybrid because of the great similarities to nonprofit journals and business journals, however, currently the intention is to expose theory-inflected work and broader empirical studies rather than descriptive and individual ‘hero’ accounts of social entrepreneurs in order to build the academic credibility of social entrepreneurship.


One of the main efforts is coming up with an agreed definition of social entrepreneurship. Currently, everyone has a slight different version of what social entrepreneurship is, a major cause is the blurring phenomenon known as sector-bending. More specifically, sector-bending is the blurring distinction between nonprofits and for-profits as a result of their changing relationship based on four behavioral dimensions: imitation, interaction, intermingling, and industry creation.


An innovative idea in the field is the development of a Social Enterprise Model Canvas (SEMC), currently there is a Business Model Canvas (BMC) that is regularly used in traditional for profit companies. The case for the development of an SEMC is to support researchers and social entrepreneurs understand or design the structure of organizations dedicated to the pursuit of social goals. The traditional BMC, uses building blocks which allow for the identification of key elements and the analysis of their relationships. However, alternative to the BMC, the building blocks of the SEMC are designed to facilitate the framing and solution of the most important challenges faced by these hybrid organization.

A third and very important topic is improving social impact accounting. Currently, there are several methods of measuring social impact such as SROI methodology, CSR, triple bottom line, ESG or ‘shared value’. At the moment the mainstream accounting standards are based on profit maximization. Improving and standardizing social impact accounting could lower barriers to entry, due to a better understanding from entrepreneurs. It would also improve resource allocation since decisions are better informed.


Conclusion

There is much to be discovered and understood about social enterprises. Although throughout history there has been socially driven ideas and people, in the last 20 years the term ‘Social Entrepreneurship’ has risen in popularity. Many look at this discipline as a possible way to solve societal problems.


The fact of the matter is that nonprofits are changing their methods and strategies to stay relevant in the market, globalization has created more competition than ever and funders are less likely to support a nonprofit for more than three consecutive years. In an effort to survive, nonprofits have taken business strategies to generate income for themselves and be financially sustainable and independent “Self-funding is the new

mantra. Social entrepreneurship can be seen as the balance between nonprofits and for profit organizations, with a strong emphasis on the social impact. Agreeing on a definition will take time, but the more study is done around these organizations, the easier it will be to understand and define what exactly is social entrepreneurship.


Some scholars argue that the term is just a buzzword like “thought leader” or “synergy”, others like the Miller Center (the largest and most successful university-based social enterprise accelerator in the world) who have 20 years of track record delivering results don’t think it’s just a passing fad. It’s an exciting time to be deeply involved in this topic since there is a lot at stake. The world can’t continue to operate like business as usual, environmental issues are forcing companies to rethink their strategies and soon the government will enforce bills that are socially driven to better society and the environment.



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