Social Entrepreneurship

Social entrepreneurship is an evolving concept that involves utilizing business practices to address pressing social issues and create social value. Unlike traditional entrepreneurs who primarily focus on profit generation, social entrepreneurs are driven by a mission to enact transformative changes in society. This approach can manifest across various sectors, including nonprofits, for-profit businesses, and governmental organizations, indicating that social entrepreneurship is not confined to a single legal structure. Commonly, social entrepreneurs identify opportunities to tackle problems such as poverty, unemployment, and homelessness, often employing innovative strategies that differ from conventional methods.

The rise in social entrepreneurial activity has been influenced by factors like reduced government funding for social services and a growing emphasis on sustainability and self-reliance within communities. Social entrepreneurs typically exhibit a blend of visionary thinking, innovative problem-solving, and a commitment to their social mission, distinguishing them from their commercially-driven counterparts. However, a notable challenge within the field is the blurring of lines between nonprofit and for-profit organizations, raising questions about the potential for mission-drift and the need for balance between social goals and business practices. Overall, social entrepreneurship represents a promising avenue for addressing societal challenges through entrepreneurial innovation.

Published in: 2021

By: Davison, Edwin D.

Subject Terms

Social Entrepreneurship

This article provides a definition for the term social entrepreneurship as well as some of the defining characteristics of social entrepreneurs versus traditional for-profit entrepreneurs. We'll examine the real-life application of social entrepreneurship, with examples of such ventures across several economic sectors—nonprofits, for-profits firms, and governmental entities—though most of our discussion centers on nonprofits engaged in social entrepreneurship. Furthermore, key factors influencing the surge in social entrepreneurial activity will be analyzed. In line with this increase, we'll investigate the crossing of philosophical lines of demarcation between nonprofits and for-profit firms in pursuit of social entrepreneurship, concluding with the practical challenges associated with this apparent convergence.

Keywords Entrepreneur; Nonprofit; Social Entrepreneurship; Social Entrepreneur; Social Value

Overview

Social entrepreneurship is a rather ambiguous notion for most people due to the scant attention paid to the topic in the past. Contributing to this ambiguity was the lack of a universal term for entrepreneurship with a social focus. While the practice of social entrepreneurship has been around for some time, the term "social entrepreneurship" is a somewhat recent creation. Likewise, social entrepreneurship is a fairly new construct as a field of academic study, formally recognized and subjected to scholarly research. In fact, according to Austin, Stevenson, and Wei-Skillern (2006, p.1), "Social entrepreneurship is still emerging as an area for academic inquiry."

Given the rather esoteric nature of the subject, a logical starting point is to define the term social entrepreneurship. Roberts and Woods (2005, p.49) define it in this manner: "Social Entrepreneurship is the construction, evaluation and pursuit of opportunities for transformative social change carried out by visionary, passionately dedicated individuals."

Harding (2007, p.74) more broadly defines social entrepreneurship as “any attempt at new social enterprise activity or new enterprise creation, such as self-employment, a new enterprise, or the expansion of an existing social enterprise by an individual, team of individuals or established social enterprise, with social or community goals as its base and where the profit is invested in the activity or venture itself rather than returned to investors."

In line with these two definitions, social entrepreneurial activity falls into either of two categories: 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. "The term 'caring capitalism' has been coined to describe this type of activity because the achievement of relevant social goals relies on competitiveness in the marketplace" (Hibber, Hogg, and Quinn, 2005, pp.159-160).

It is also important to realize that social entrepreneurial activity may occur within and between various economic sectors, such as non-profit organizations, for-profit businesses, or the governmental sector. "Thus, social entrepreneurship is not defined by legal form, as it can be pursued through various vehicles. Indeed, examples of social entrepreneurship can be found within or can span the nonprofit, business, or governmental sectors" (Austin et al, 2006, p.2). Examples within each sector will be provided later in this article. What is common to each sector is that each organization is involved in a socially focused entrepreneurial innovation to a social problem, which creates social value, as opposed to the primary purpose of creating personal or shareholder value(Austin et al, 2006).

Thus, while there is no single universal definition, social entrepreneurship is essentially the application of business practices and procedures to organizations with a mission of solving some pressing societal problem. These social entrepreneurial initiatives may address social issues such as reducing homelessness, increasing home ownership among underserved populations, reducing unemployment in disadvantaged groups, or alleviating hunger in impoverished nations.

Having touched on the various definitions of social entrepreneurship, the next logical question focuses on defining what a social entrepreneur is. We can infer an intuitive definition based on the defining characteristics of social entrepreneurship mentioned earlier. However, for the sake of precision, the discussion below offers several defining comparisons between social entrepreneurs and commercial entrepreneurs (entrepreneurs driven primarily by the profit motive).

The word entrepreneur originates from the French word, entreprendre, which means "to undertake." The actual term entrepreneur was first coined by Irish economist Richard Cantillon. "He described entrepreneurs as 'undertakers' engaged in market exchanges at their own risk for the purpose of making a profit" (Roberts and Woods, 2005, p.46). An entrepreneur is commonly defined as a person who starts or owns their own for-profit business enterprise. Yet, entrepreneurship also entails a certain amount of innovative thinking in regards to seizing opportunities for creating value in an enterprise. Drawing upon the many definitions of the term, we'll generally define an entrepreneur as someone who seeks out opportunity so as to generate value through innovative means, by either starting a new venture or improving upon an existing enterprise.

William Drayton, a MacArthur Fellow and founder of a non-profit organization known as Ashoka, is often credited with introducing the term "social entrepreneur." In 1980, Drayton founded Ashoka, one of the very first organizations dedicated to funding the activities of social entrepreneurs, with the idea of empowering these social entrepreneurs to solve social problems (Barendsen and Gardner, 2004). However, it is important to note that the social entrepreneur is not a new phenomenon. Barendsen and Gardner (2004, p.43) identify two early social entrepreneurs in the United States:

William Lloyd Garrison founded the Anti-Slavery Society in 1833. Publisher of the first anti-slavery newspaper, the Liberator, Garrison campaigned tirelessly for abolition throughout his lifetime. 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 and offered a new model that was later replicated throughout the nation.

Bornstein (2004, p.1), views social entrepreneurs as being "transformative forces: people with new ideas to address major problems, who are relentless in the pursuit of their vision, people who simply will not take no for an answer and who will not give up until they spread their ideas as far as they possibly can." Similarly, Olsen (2004, p.21) defines a social entrepreneur as “a person who takes the same skills one usually sees put to use in the private sector and applies them to solve a social problem. These people have drive, visions, administrative ability, and financial acumen — and yet desire not to get rich, but to make others rich in spirit or accomplishment." Also, Barendson and Gardner (2004, p.43) define the social entrepreneur more succinctly in stating, "Social entrepreneurs are individuals who approach a social problem with entrepreneurial spirit and business acumen. Whereas business entrepreneurs create businesses, social entrepreneurs create change."

Going a bit further, Mort, Weerawardena, and Carnegie (2003) conceptualize social entrepreneurs versus commercial entrepreneurs (those who are primarily profit-driven) using a multidimensional construct. Using their framework, social entrepreneurs compare with commercial entrepreneurs in the following ways:

Typical social entrepreneurs are primarily driven by the social mission of creating social value, manifested in entrepreneurial-based virtuous behavior. This virtuous behavioral dimension is that which singularly differentiates the social entrepreneur from the commercial entrepreneur.

Secondly, social entrepreneurs exhibit balanced judgment and unity of purpose in dealing with the extreme complexity of weighing and deciding between conflicting goals and objectives, without sacrificing or compromising their social mission.

Also, social entrepreneurs explore and recognize market opportunities to create better social value for their clients. This social value concept is in contrast to commercial entrepreneurs, who are driven by the primary aim of creating commercial value to their customers.

Finally, when it comes to key decision-making, social entrepreneurs, like commercial entrepreneurs, display the key dimensional traits of innovativeness, being proactive, and having a propensity for risk-taking.

From the preceding discussion, a few common elements emerge about social entrepreneurs:

A social entrepreneur identifies opportunities to solve social problems on a large scale.
Unlike their traditional for-profit entrepreneurial brethren, they seek to create social change and social value in the process — rather than a mission built primarily on the generation of profits.
They seek to implement innovative long-term institutional change to social problems — not simply the provision of goods and services with traditional methods.

In light of the aforementioned distinguishing characteristics of social entrepreneurs, the next section discusses the impetus behind social entrepreneurship and provides some real-life examples in the nonprofit, for-profit, and governmental sectors that embody the characteristics of social entrepreneurship.

Applications

As noted, social entrepreneurship is a somewhat recently recognized phenomenon, largely growing in influence due to a confluence of factors such as government funding cutbacks for social services, government policy shifts to privatize public services, growing needs of socially disadvantaged populations, and increased competition for funding (Mort et al, 2003).

Likewise, Dees (1998) describes five influences nudging nonprofit organizations toward a more commercialized mode of operation.

A global "pro-business zeitgeist" has taken hold, in which market forces are being embraced worldwide. As a result, this pro-business zeitgeist has filtered into the non-profit sector, with an emphasis on using business management principles and tools as a means of ensuring viability.
Nonprofits are striving to service their constituencies (i.e. the people they provide services to) in ways that do not create dependency. An example is the charging of partial fees for services provided or the encouragement of self-reliance through job-creation initiatives, which in turn employ constituents.
Nonprofits are pursuing self-generating income activities to develop a more sustainable inflow of funds, while gaining independence from traditional funding sources such as donations and grants.
Grantors of funds are moving away from ongoing funding to grantees, instead emphasizing and encouraging grantee self-sufficiency.
The competitive forces of the commercialization of traditional social services ( e.g. charter schools, health care, foster care agencies, etc.) are forcing nonprofits to consider commercial funding sources in lieu of, or in addition to, traditional means of funding.

Concomitantly, for-profit organizations are engaging in social entrepreneurship as well — ironically for many of the same reasons listed above — and this has created an opportunity for these for-profit firms in the traditional social-service sectors. The example of charter schools is a good illustration. One of the more well-known charter school companies is Edison Schools Inc. — a for-profit provider of K-12 charter schools throughout the nation. Edison recognized an opportunity brought about by low-performing public schools in urban school districts and a governmental shift toward funding charter school enterprises.

Correspondingly, Barendsen and Gardner (2004) identify a number of precipitating factors that shed light on what prompts social entrepreneurs to engage in social entrepreneurship. In a study of social entrepreneurs, they found a number of common experiences leading many on their path to social entrepreneurship. For example, many social entrepreneurs experienced some sort of extreme trauma such as the suicide of a family member or the divorce of their parents. The theory is that these traumatic events cause priorities to become much clearer, leading to a discovery of one's social calling.

Furthermore, about half of the social entrepreneurs identified a deeply transformative experience at an early age, causing a paradigm shift in their way of thinking. These transformative experiences include living abroad, combating depression, overcoming substance abuse problems, or working with troubled youth. On the other hand, although business entrepreneurs identify transformative experiences, their experiences tend to be different in nature — e.g. the experience of starting a company or attending a university for study. In addition, at an early age, many of the social entrepreneurs were exposed to social-related issues and causes. Likewise, several identified role models or parents who were politically or socially active.

In the next section, we'll identify real-life examples of social entrepreneurial ventures in the nonprofit, for-profit, and governmental sectors. In conclusion, we'll discuss some of the potential issues and concerns regarding the blurring of lines between nonprofits and for-profits engaged in social entrepreneurship.

Grameen Bank

Grameen Bank (Grameen means "rural" or "village" in the Bangla language) is a nonprofit organization, was established in Bangladesh in 1976 by economics professor Muhammad Yunus. It is a nonprofit organization that provides credit to the poorest of the poor citizens of Bangladesh. Unlike traditional banks, it does not require collateral when a borrower takes out a loan. The entire banking system is based on mutual trust and accountability — not on collateral, legally enforceable contracts, or legal procedures. At its core, this is what is known as Grameencredit. The idea behind Grameencredit is to provide a cost effective means of fighting poverty, while serving as a catalyst for socioeconomic development for low-income people who have been tossed aside by the traditional banking system (http://www.grameen-info.org/bank/index.html).

NeighborWorks America

NeighborWorks America is a United States government–created example of social entrepreneurship on a massive scale. The organization began in 1973 as the Urban Reinvestment Task Force, a joint project of the Department of Housing and Urban Development and the Federal Home Loan Bank (FHLB). In 1978, the U.S. Congress (Public Law 95-557) established the Neighborhood Reinvestment Corporation to carry on the work of the Urban Reinvestment Task Force. Congress charged the Neighborhood Reinvestment Corporation with revitalizing older neighborhoods through the cooperation of local financial institutions, communities, residents, and governments — mobilizing public, private and community resources. In short, the organization provides financial support, technical assistance, and training for community-based revitalization efforts. The stated mission of NeighborWorks America is to "create opportunities for people to live in affordable homes, improve their lives and strengthen their communities." In April 2005, Neighborhood Reinvestment Corporation began doing business as NeighborWorks America (http://www.nw.org/network/aboutUs/history/default.asp).

Mad Imports

Mad Imports, a for-profit entity launched in 2003 by Laurel Brandstetter, sells handmade art products from Madagascar and Kenya. Mad Imports sells these products to enable poor families (who create these products) to gain economic independence and earn fair compensation for their work. In line with its stated mission, Mad Imports engages in several socially-conscious initiatives:

Funds the education of the employees' children and works closely with a local orphanage to provide materials, funding, and support for various projects.
Partners with a community of women in Kenya to support their small businesses and funds community development projects to promote sustainable economic development, artistic expression, and cross-cultural exchange (http://madimports.org/about.html).

Issues

Sector-bending

One of the more controversial issues in social entrepreneurship is the blurring of lines between non-profit and for-profit firms and how it affects the pursuit of socially focused objectives. Dees (2006) refers to this blurring phenomenon 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. A brief overview of these sector-bending behavioral dimensions follow, concluding with some of the accompanying concerns with these behaviors.

Imitation and Conversion: Nonprofit organizations are increasingly adopting the strategies, concepts, and practices of the business world. The use of formalized strategic planning systems is an example.

Interaction: Nonprofits and for-profits increasingly interact with each other as competitors, contractors, or in collaboration. Good examples are Welfare-to-Work Agencies competing with private job placement firms, or public universities contracting with corporations to conduct research. The Nature Conservancy collaborates with Georgia Pacific to manage forestlands in environmentally sensitive ways.

Intermingling: This refers to organizations that have both for-profit and nonprofit components — i.e. hybrid organizations. For example, a for-profit organization may create nonprofit affiliates, or a nonprofit may establish for-profit affiliates.

Industry Creation: In some instances new sector-blurring ventures have emerged or at least have taken on a distinctive identity. As discussed earlier, the charter school phenomenon is an apt example.

While acknowledging the dangers of sector-bending, Dees (2006) is not fully convinced that sector-bending activities significantly increase the risks of poor performance, declining societal benefits, or further class division. However, one of the greatest concerns about sector-bending is that these activities may result in a decline in social value creation, based on the reasons below.

There is the real fear that mission-drift might result, with business principles and practices overwhelming the social-purpose of organizations, consequently distracting them from their social missions. Moreover, there is the fear that this emphasis on business practices (cost cutting, efficiency, etc.) might lower the quality of services.

Similarly, there is the worry that if nonprofits are contracting and collaborating with for-profits, it may compromise their advocacy role and their role as critics of the status quo. Yet Dees argues this is unlikely to occur given that many non-profits have historically relied on for-profits for a significant amount of funding — a case in point being the historically beneficial relationship between PBS and one of its major grantors, ExxonMobil.

Also, some critics of sector-bending activities fear a potential loss of personal interaction, followed by a subsequent lessening of goodwill. The real concern being that mutual concern will be replaced by more arms-length business relationships based on hard currency, which in turn may lead to a decline in the level of volunteerism — especially affecting those non-profits that rely heavily on volunteer support.

Conclusion

A basic framework has been provided for understanding the concept of social entrepreneurship, along with real-life examples, followed by some of the emergent concerns associated with this movement. One thing is clear — the concept of social entrepreneurship is clearly gaining traction as a force attempting to solve some of the world's most vexing problems. Whether this manner of "doing business" is a more effective method of solving social problems (while adding value to society), is an open question.

Obviously, there is a great deal more investigation and reflection needed in the area of social entrepreneurship. The challenge lies in identifying the best practices for social entrepreneurship and understanding the advantages and disadvantages of the various sector-bending linkages between non-profit and for-profit firms — the full ramifications of these issues have yet to be fully explored. Questions such as how sector-bending affects funding sources, funding amounts, levels of volunteerism, and public perceptions and acceptance are just a few of the many questions looming on the horizon. At this point, given the nascent stage of social entrepreneurial scrutiny and debate, it is impossible to definitively predict the impact of sector-bending. With time and additional research on social entrepreneurship, more definitive answers will be gained.

Terms & Concepts

Caring Capitalism: Another name for social entrepreneurship.
Commercial Entrepreneur: Entrepreneurs who are driven by the primary aim of creating commercial value for their organizations.
Commercial Value: Adding value to owners or shareholders of a business, based on the generation of profit.
Entrepreneur: Anyone who seeks out opportunity so as to generate value through innovative means, by either starting a new venture or improving upon an existing enterprise.
Grameencredit: A type of loan to the very poor, developed by the Grameen Bank in Bangladesh, that is based not on any collateral or legally enforceable contracts but on trust and mutual responsibility; primarily used for creating self-employment opportunities to eliminate poverty
Mission-drift: A phenomenon that occurs when a firm departs from its core values and original purpose.
Sector Bending: The blurring organizational distinction between nonprofit and for-profit organizations.
Social Entrepreneurship: The application of business practices to organizations to provide long-term solutions and social value to critical societal problems.
Social Entrepreneur: Entrepreneurs who recognize and exploit market opportunities to generate social value while solving a pressing social problem.
Social Value: Adding value to society on the basis of solving a social problem(s).

Bibliography

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Barendsen, L. & Gardner, H. (2004). Is the social entrepreneur a new type of leader? Leader to Leader, 2004, 43–50. Retrieved March 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=17070267&site=ehost-live

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Grameen Bank (2007). Retrieved April 2, 2007, from http://www.grameen-info.org/bank/index.html

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Mad Imports (2007) About Us. Retrieved April 2, 2007, from http://madimports.org/about.html

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NeighborWorks America (2007). The History of NeighborWorks America and the NeighborWorks Network. Retrieved April 2, 2007, from http://www.nw.org/network/aboutUs/history/default.asp

Olsen, H. (2004). The resurgence of social entrepreneurship. Fraser Forum, May 2004, 21–22.

Retrieved April 3, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=13324594&site=ehost-live

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Roberts, D. & Woods, C. (2005). Changing the world on a shoestring: The concept of social entrepreneurship.University of Auckland Business Review, 7, 45–51. Retrieved March 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=16575226&site=ehost-live

Social Entrepreneurship

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Subject Terms

Social Entrepreneurship

Overview

Applications

Grameen Bank

NeighborWorks America

Mad Imports

Issues

Sector-bending

Conclusion

Terms & Concepts

Bibliography

Suggested Reading

Social Entrepreneurship

On this Page

Subject Terms

Social Entrepreneurship

Entrepreneurship > Social Entrepreneurship

Overview