Meaning of Social Entrepreneurship
idea of "social entrepreneurship" has struck a responsive cord.
It is a phrase well suited to our times. It combines the passion of a
social mission with an image of business-like discipline, innovation, and
determination commonly associated with, for instance, the high-tech
language of social entrepreneurship may be new, but the phenomenon is not.
We have always had social entrepreneurs, even if we did not call them
that. They originally built many of the institutions we now take for
granted. However, the new name is important in that it implies a blurring
of sector boundaries. In addition to innovative not-for-profit ventures,
social entrepreneurship can include social purpose business ventures, such
as for-profit community development banks, and hybrid organizations mixing
not-for-profit and for-profit elements, such as homeless shelters that
start businesses to train and employ their residents. The new language
helps to broaden the playing field. Social entrepreneurs look for the most
effective methods of serving their social missions.
the concept of "social entrepreneurship" is gaining popularity,
it means different things to different people. This can be confusing. Many
associate social entrepreneurship exclusively with not-for-profit
organizations starting for-profit or earned-income ventures. Others use it
to describe anyone who starts a not-for-profit organization. Still others
use it to refer to business owners who integrate social responsibility
into their operations. What does "social entrepreneurship"
really mean? What does it take to be a social entrepreneur? To answer
these questions, we should start by looking into the roots of the term
of the Word "Entrepreneur"
common parlance, being an entrepreneur is associated with starting a
business, but this is a very loose application of a term that has a rich
history and a much more significant meaning. The term
"entrepreneur" originated in French economics as early as the
17th and 18th centuries. In French, it means someone who
"undertakes," not an "undertaker" in the sense of a
funeral director, but someone who undertakes a significant project or
activity. More specifically, it came to be used to identify the
venturesome individuals who stimulated economic progress by finding new
and better ways of doing things. The French economist most commonly
credited with giving the term this particular meaning is Jean Baptiste
Say. Writing around the turn of the 19th century, Say put it this way,
"The entrepreneur shifts economic resources out of an area of lower
and into an area of higher productivity and greater yield."
Entrepreneurs create value.
the 20th century, the economist most closely associated with the term was
Joseph Schumpeter. He described entrepreneurs as the innovators who drive
the "creative-destructive" process of capitalism. In his words,
"the function of entrepreneurs is to reform or revolutionize the
pattern of production." They can do this in many ways: "by
exploiting an invention or, more generally, an untried technological
possibility for producing a new commodity or producing an old one in a new
way, by opening up a new source of supply of materials or a new outlet for
products, by reorganizing an industry and so on." Schumpeter's
entrepreneurs are the change agents in the economy. By serving new markets
or creating new ways of doing things, they move the economy forward.
is true that many of the entrepreneurs that Say and Schumpeter have in
mind serve their function by starting new, profit-seeking business
ventures, but starting a business is not the essence of entrepreneurship.
Though other economists may have used the term with various nuances, the
Say-Schumpeter tradition that identifies entrepreneurs as the catalysts
and innovators behind economic progress has served as the foundation for
the contemporary use of this concept.
Theories of Entrepreneurship
writers in management and business have presented a wide range of theories
of entrepreneurship. Many of the leading thinkers remain true to the Say-Schumpeter
tradition while offering variations on the theme. For instance, in his
attempt to get at what is special about entrepreneurs, Peter Drucker
starts with Say's definition, but amplifies it to focus on opportunity.
Drucker does not require entrepreneurs to cause change, but sees them as
exploiting the opportunities that change (in technology, consumer
preferences, social norms, etc.) creates. He says, "this defines
entrepreneur and entrepreneurship-the entrepreneur always searches for
change, responds to it, and exploits it as an opportunity." The
notion of "opportunity" has come to be central to many current
definitions of entrepreneurship. It is the way today's management
theorists capture Say's notion of shifting resources to areas of higher
yield. An opportunity, presumably, means an opportunity to create value in
this way. Entrepreneurs have a mind-set that sees the possibilities rather
than the problems created by change.
Drucker, starting a business is neither necessary nor sufficient for
entrepreneurship. He explicitly comments that "not every new small
business is entrepreneurial or represents entrepreneurship." He cites
the example of a "husband and wife who open another delicatessen
store or another Mexican restaurant in the American suburb" as a case
in point. There is nothing especially innovative or change-oriented in
this. The same would be true of new not-for-profit organizations. Not
every new organization would be entrepreneurial. Drucker also makes it
clear that entrepreneurship does not require a profit motive. Early in his
book on Innovation and Entrepreneurship, Drucker asserts, "No better
text for a History of Entrepreneurship could be found than the creation of
the modern university, and especially the modern American
university." He then explains what a major innovation this was at the
time. Later in the book, he devotes a chapter to entrepreneurship in
public service institutions.
Stevenson, a leading theorist of entrepreneurship at
between Business and Social Entrepreneurs
ideas of Say, Schumpeter, Drucker, and Stevenson are attractive because
they can be as easily applied in the social sector as the business sector.
They describe a mind-set and a kind of behaviour that can be manifest
anywhere. In a world in which sector boundaries are blurring, this is an
advantage. We should build our understanding of social entrepreneurship on
this strong tradition of entrepreneurship theory and research. Social
entrepreneurs are one species in the genus entrepreneur. They are
entrepreneurs with a social mission. However, because of this mission,
they face some distinctive challenges and any definition ought to reflect
social entrepreneurs, the social mission is explicit and central. This
obviously affects how social entrepreneurs perceive and assess
opportunities. Mission-related impact becomes the central criterion, not
wealth creation. Wealth is just a means to an end for social
entrepreneurs. With business entrepreneurs, wealth creation is a way of
measuring value creation. This is because business entrepreneurs are
subject to market discipline, which determines in large part whether they
are creating value. If they do not shift resources to more economically
productive uses, they tend to be driven out of business.
are not perfect, but over the long haul, they work reasonably well as a
test of private value creation, specifically the creation of value for
customers who are willing and able to pay. An entrepreneur's ability to
attract resources (capital, labor, equipment, etc.) in a competitive
marketplace is a reasonably good indication that the venture represents a
more productive use of these resources than the alternatives it is
competing against. The logic is simple. Entrepreneurs who can pay the most
for resources are typically the ones who can put the resources to higher
valued uses, as determined in the marketplace. Value is created in
business when customers are willing to pay more than it costs to produce
the good or service being sold. The profit (revenue minus costs) that a
venture generates is a reasonably good indicator of the value it has
created. If an entrepreneur cannot convince a sufficient number of
customers to pay an adequate price to generate a profit, this is a strong
indication that insufficient value is being created to justify this use of
resources. A re-deployment of the resources happens naturally because
firms that fail to create value cannot purchase sufficient resources or
raise capital. They go out of business. Firms that create the most
economic value have the cash to attract the resources needed to grow.
do not work as well for social entrepreneurs. In particular, markets do
not do a good job of valuing social improvements, public goods and harms,
and benefits for people who cannot afford to pay. These elements are often
essential to social entrepreneurship. That is what makes it social
entrepreneurship. As a result, it is much harder to determine whether a
social entrepreneur is creating sufficient social value to justify the
resources used in creating that value. The survival or growth of a social
enterprise is not proof of its efficiency or effectiveness in improving
social conditions. It is only a weak indicator, at best.
entrepreneurs operate in markets, but these markets often do not provide
the right discipline. Many social-purpose organizations charge fees for
some of their services. They also compete for donations, volunteers, and
other kinds of support. But the discipline of these "markets" is
frequently not closely aligned with the social entrepreneur's mission. It
depends on who is paying the fees or providing the resources, what their
motivations are, and how well they can assess the social value created by
the venture. It is inherently difficult to measure social value creation.
How much social value is created by reducing pollution in a given stream,
by saving the spotted owl, or by providing companionship to the elderly?
The calculations are not only hard but also contentious. Even when
improvements can be measured, it is often difficult to attribute an them
to a specific intervention. Are the lower crime rates in an area due to
the Block Watch, new policing techniques, or just a better economy? Even
when improvements can be measured and attributed to a given intervention,
social entrepreneurs often cannot capture the value they have created in
an economic form to pay for the resources they use. Whom do they charge
for cleaning the stream or running the Block Watch? How do they get
everyone who benefits to pay? To offset this value-capture problem, social
entrepreneurs rely on subsidies, donations, and volunteers, but this
further muddies the waters of market discipline.
ability to attract these philanthropic resources may provide some
indication of value creation in the eyes of the resource providers, but it
is not a very reliable indicator. The psychic income people get from
giving or volunteering is likely to be only loosely connected with actual
social impact, if it is connected at all.
definition of social entrepreneurship should reflect the need for a
substitute for the market discipline that works for business
entrepreneurs. We cannot assume that market discipline will automatically
weed out social ventures that are not effectively and efficiently
utilizing resources. The following definition combines an emphasis on
discipline and accountability with the notions of value creation taken
from Say, innovation and change agents from Schumpeter, pursuit of
opportunity from Drucker, and resourcefulness from Stevenson. In brief,
this definition can be stated as follows:
entrepreneurs play the role of change agents in the social sector, by:
is clearly an "idealized" definition. Social sector leaders will
exemplify these characteristics in different ways and to different
degrees. The closer a person gets to satisfying all these conditions, the
more that person fits the model of a social entrepreneur. Those who are
more innovative in their work and who create more significant social
improvements will naturally be seen as more entrepreneurial. The truly
Schumpeterian social entrepreneurs will significantly reform or
revolutionize their industries. Each element in this brief definition
deserves some further elaboration. Let's consider each one in turn.
agents in the social sector:
entrepreneurs are the reformers and revolutionaries described by
Schumpeter, but with a social mission. They make fundamental changes in
the way things are done in the social sector. Their visions are bold. They
attack the underlying causes of problems, rather than simply treating
symptoms. They often reduce needs rather than just meeting them. They seek
to create systemic changes and sustainable improvements. Though they may
act locally, their actions have the potential to stimulate global
improvements in their chosen arenas, whether that is education, health
care, economic development, the environment, the arts, or any other social
a mission to create and sustain social value:
is the core of what distinguishes social entrepreneurs from business
entrepreneurs even from socially responsible businesses. For a social
entrepreneur, the social mission is fundamental. This is a mission of
social improvement that cannot be reduced to creating private benefits
(financial returns or consumption benefits) for individuals. Making a
profit, creating wealth, or serving the desires of customers may be part
of the model, but these are means to a social end, not the end in itself.
Profit is not the gauge of value creation; nor is customer satisfaction;
social impact is the gauge. Social entrepreneurs look for a long-term
social return on investment. Social entrepreneurs want more than a quick
hit; they want to create lasting improvements. They think about sustaining
and relentlessly pursuing new opportunities:
others see problems, entrepreneurs see opportunity. Social entrepreneurs
are not simply driven by the perception of a social need or by their
compassion, rather they have a vision of how to achieve improvement and
they are determined to make their vision work. They are persistent. The
models they develop and the approaches they take can, and often do,
change, as the entrepreneurs learn about what works and what does not
work. The key element is persistence combined with a willingness to make
adjustments as one goes. Rather than giving up when an obstacle is
encountered, entrepreneurs ask, "How can we surmount this obstacle?
How can we make this work?"
in a process of continuous innovation, adaptation, and learning:
are innovative. They break new ground, develop new models, and pioneer new
approaches. However, as Schumpeter notes, innovation can take many forms.
It does not require inventing something wholly new; it can simply involve
applying an existing idea in a new way or to a new situation.
Entrepreneurs need not be inventors. They simply need to be creative in
applying what others have invented. Their innovations may appear in how
they structure their core programs or in how they assemble the resources
and fund their work. On the funding side, social entrepreneurs look for
innovative ways to assure that their ventures will have access to
resources as long as they are creating social value. This willingness to
innovate is part of the modus operandi of entrepreneurs. It is not just a
one-time burst of creativity. It is a continuous process of exploring,
learning, and improving. Of course, with innovation comes uncertainty and
risk of failure. Entrepreneurs tend to have a high tolerance for ambiguity
and learn how to manage risks for themselves and others. They treat
failure of a project as a learning experience, not a personal tragedy.
boldly without being limited by resources currently in hand:
entrepreneurs do not let their own limited resources keep them from
pursuing their visions. They are skilled at doing more with less and at
attracting resources from others. They use scarce resources efficiently,
and they leverage their limited resources by drawing in partners and
collaborating with others. They
explore all resource options, from pure philanthropy to the commercial
methods of the business sector. They are not bound by sector norms or
traditions. They develop resource strategies that are likely to support
and reinforce their social missions. They take calculated risks and manage
the downside, so as to reduce the harm that will result from failure. They
understand the risk tolerances of their stakeholders and use this to
spread the risk to those who are better prepared to accept it.
a heightened sense of accountability to the constituencies served and for
the outcomes created:
market discipline does not automatically weed out inefficient or
ineffective social ventures, social entrepreneurs take steps to assure
they are creating value. This means that they seek a sound understanding
of the constituencies they are serving. They make sure they have correctly
assessed the needs and values of the people they intend to serve and the
communities in which they operate. In some cases, this requires close
connections with those communities. They understand the expectations and
values of their "investors," including anyone who invests money,
time, and/or expertise to help them. They seek to provide real social
improvements to their beneficiaries and their communities, as well as
attractive (social and/or financial) return to their investors. Creating a
fit between investor values and community needs is an important part of
the challenge. When feasible, social entrepreneurs create market-like
feedback mechanisms to reinforce this accountability. They assess their
progress in terms of social, financial, and managerial outcomes, not
simply in terms of their size, outputs, or processes. They use this
information to make course corrections as needed.
Entrepreneurs: A Rare Breed
entrepreneurship describes a set of behaviours that are exceptional. These
behaviours should be encouraged and rewarded in those who have the
capabilities and temperament for this kind of work. We could use many more
of them. Should everyone aspire to be a social entrepreneur? No. Not every
social sector leader is well suited to being entrepreneurial. The same is
true in business. Not every business leader is an entrepreneur in the
sense that Say, Schumpeter, Drucker, and Stevenson had in mind.
we might wish for more entrepreneurial behaviour in both sectors, society
has a need for different leadership types and styles. Social entrepreneurs
are one special breed of leader, and they should be recognized as such.
This definition preserves their distinctive status and assures that social
entrepreneurship is not treated lightly.
need social entrepreneurs to help us find new avenues toward social
improvement as we enter the next century.