Social Entrepreneurship

Modern day social entrepreneurs seek to harness the enormous synergies and benefits when business principles are unified with social ventures. More generally, a social entrepreneur is someone who recognizes a social problem and uses entrepreneurial principles to create and manage a venture that aims to change the social problem. Social entrepreneurship is rapidly growing in popularity as a result of an increasingly global economy. The days of large multinational corporations conducting “private” activities in developing counties are long behind us. Many companies have been scrutinized when details of their unethical practices in foreign countries surface in news articles and are ridiculed on political TV shows. As a result, it is not enough for large organizations to simply donate money to charities in hopes that they will make great changes. [1]

Culture and Entrepreneurial “Success”

Instead of perpetuating the cycle of money hungry corporations who sacrifice employees and ethical standards in search of greater profits, social entrepreneurs seek to solve or help broader social issues as the main purpose of the company. Organizations founded on the principles of social entrepreneurship; and using the operations of the business to solve or help a greater social need, create a culture of trust among management and the lower level employees of the company. Success for socially minded organizations is the ability to continue their operations and work towards solving whatever social problem they desire.  As a result, employees can focus their attention towards creating ways to help the issue, rather than worry that their position may be eliminated to ensure that the company hits its numbers for the quarter[2].

 

What Motivates Social Entrepreneurs?

There has been a shift from government and big business throwing money at large problems, to systematic solutions through social investment. Money is not the final answer. It has become apparent to many that little change occurs when we simply patch the problem with millions of taxpayer’s dollars. The motivation for social entrepreneurs is to create businesses that effect sustainable change as part of its core operations. Many are simply “fed-up” with corporations inflicting environmental, physical, and emotional damage that goes unpublicized, only for a large donation check to be given in front of a large audience.

 

Advantages of Being a Socially Minded Company

Every company has a corporate social responsibility to focus on ethics, morals and environmental issues. One benefit for being a socially responsible company is that it helps create a good reputation[3]. This greatly helps the recruiting process and helps to retain employees because the longer the employees work with the company, the cost of recruiting decreases and the more motivated and productive the employees become. Another benefit of being a socially minded company is to go green. By selling products that are environmentally friendly, companies tend to enjoy a higher growth rate and are able to sell their products at a premium price. Because the idea of going green is fairly new, more customers are environmentally conscious about their purchases. This creates competition between companies, while also reducing the risk of a company’s reputation and profit. Also, since customers are attracted to socially minded companies, the company may have an increase of new customers without putting much effort into new advertising campaigns. The main focus of a socially minded company is the customers and as long as the customers perceive the company as environmentally and socially conscious, the company will be able to sustain a competitive advantage.

 

Structure of a Socially Minded Business

Businesses that are socially motivated must be structured in ways that differ from a traditional business. Whereas traditional businesses simply generate revenue, deduct expenses, and distribute the resulting profits to owners and shareholders, social ventures must incorporate their mechanism for serving a larger cause than profit. The methods of impacting humanities well-being are as diverse as the many social issues they serve. Non-profit and for-profit institutions are the two main structural categories.

Of course, structuring a non-profit can be easier because of its inherent tax advantages and ability to raise money from charitable contributions. A non-profit is not able to distribute any money to someone other than their official beneficiary. Basically, a non-profit solicits donations from a variety of sources instead of relying on a business operation to produce revenue. For example, the Boys and Girls Club obtains donations by organizing community level fundraisers all over the country and by having each local chapter write their own grant requests. The employees who perform these functions are professional fundraisers and can build entire carriers around these skills. The Club then contributes the donations to their own investment portfolios to provide a more reliable income stream because they do not have actual revenue. However, the Federal government does require that they immediately spend at least 5% of all donations[4]. So a non-profit only generates money by charitable means in order to pay expenses resulting from their operations.

A board of directors composed of volunteers performs many of the same functions a corporate board of directors would. These volunteers are usually prominent people from the community who have useful skills or experience that are willing to donate their time, energy and a considerable amount of money. One of their major tasks is to determine the salaries of all the necessary professional managers. The mean salary for an executive of a non-profit in the U.S. is $147,237 and several larger charities even pay their CEOs over $1 million. [5] The general rule of thumb is that anyone working for a non-profit will make roughly 25% less than their counterpart in the for-profit sector. So even though creating a non-profit organization is the traditional method of attempting to treat a perceived social injustice it can still provide considerable compensation to employees and founders. One advantage non-profits have when looking for support is that they generally have favorable donation allocation ratios, or the percent of donations that actually benefits the target recipient and not to overhead, administrative expenses, and employee compensation.

For-profit social ventures must find more creative ways to structure their firm because their mission is two-fold, to address a social issue and create a profit. Such a firm designs their company to essentially produce two types of revenues, a monetary return, and a quantifiable contribution to their cause. The idea is that the recognition from creating social change drives the traditional revenue because of an assumed preference of customers to support companies that do more than just support themselves. Some of the most common ways to do this are donating a percentage of profits, providing a one for one exchange, or by creatively filling a niche in an area that a typical for-profit company would not be interested in.

The simplest way of creating a for-profit social venture is to donate a percentage of profits resulting from a sale of an easily substitutable product or service. The intent is to provide a product that customers regularly purchase at a comparable cost, but with a promise of donating money to a particular cause. Firms are willing to do this because the expected publicity generated is something that conventional marketing cannot produce. For example, Product [Red] is a product label that Bono of U2 and Warren Buffet created to help fight AIDs in Africa. They created a marketing campaign that was not specific towards any one product but just for the cause and the label. They then solicited retailers of all sorts to commit to donating a fixed percentage of profits from a product sold under the [Red] label in exchange for being able to use the labeling and media buzz to draw customers. Since its creation Product [Red] has raised considerable sums for the cause as well as provided a unique way to market products to a new generation of concerned consumers.

Another way of structuring a social venture is a more explicit and visible form of donating profits known as the one for one exchange. In this situation companies make sales based on the idea that for each unit regular consumers purchase they will contribute one unit to a person who needs the same product but cannot afford it. Essentially, they double their unit costs and cut into their profit margins but hope that the popularity of the social cause will counteract this affect. This approach also gives the consumer the ability to display their support for the cause because the products are typically higher in value and meant to be unique and help with marketing for both the social aspect and the company. The most well known one for one exchange is TOMS. TOMS sells a shoe based on a traditional and rugged design from the mountains of Argentina. They have modernized it to make it more acceptable to Americans and provide them in a variety of styles. Because of their distinctive cultural design anyone can immediately recognize them or be drawn in by their curious features. The shoes themselves are produced quite cheaply in parts of the world that are in need of economic development, specifically Argentina, China, and Ethiopia. They’re produced using fair labor practices and provide stable jobs to unskilled, local workers. So for each pair that someone buys, TOMS donates a pair to children in countries where shoes are a luxury, and often required for children who want to attend school. Outside of this contribution TOMS is a regular for-profit company that utilizes a unique, constantly updated product and guerilla marketing to develop a cult following that practically obsesses over their simple shoes.

The last and most creative and decidedly most socially entrepreneurial of all the methods cannot describe all the methods that define it. It can only be described as finding a unique opportunity to create a small business that may only ever serve one specific area or expand to entire countries, but serves a cause in a way that cannot be universalized to other situations. It simply requires that a social entrepreneur be willing to look for opportunity where no one else would, and risks things that no traditional business would consider. An example is Dorothy Stoneman who founded YouthBuild. YouthBuild is an organization that encourages personal development of young people while providing economic development in low-income neighborhoods. Originally YouthBuild was strictly a for-profit venture and prided itself of its own sustainability and track record of never pursuing a government grant or private charity contributions, but when they opportunity to become a national institution arose many new chapters were allowed to become non-profit groups in order to start new programs faster. Chapters that are still for-profit operate by renovating dilapidated buildings and then sold to professional mangers under explicit conditions regarding their use as quality low-income housing to further benefit economically stressed communities. The main goal of the project is to provide on the job skills training to the youth volunteers who have few other career options. “Graduates” of the program may then pursue careers as trade workers or use the program as a stepping stone to other possibilities. In either case graduates must payback what they learned by providing the knowledge base necessary for the next generation of teenagers and projects.

Clearly the structure of a social venture may take many forms. Presently, most are structured as non-profit organizations but amazing financial and social rewards can be garnered by the innovative entrepreneur. As social entrepreneurship gains more acceptance and main stream attention, the industry is changing, and this means amazing opportunity for those who are able to generate new ways of creating organizations of any size that address a need and turn a profit. Because of this transition and growth many new methods of funding new social ventures as well as techniques for soliciting these funds are developing.

 

Funding a New Social Venture

As the field of social entrepreneurship grows more and more charitable donors and their agents are becoming involved in the financial development of the movement. Wealthy philanthropists and prominent figures such as Bill Gates and Warren Buffet have begun stressing the idea of producing more good from money invested in social ventures whether they are for-profit or non-profit. This in combination with a decrease in overall funding resulting from general economic uncertainty have called for the creation of new systems of funding. For example, many social ventures are now distributing a formal prospectus that details the plans and forecasts of the firm much like what the traditional business world has been doing for years. The intent is to draw attention from the growing pool of social investment funds, foundations, and social venture capitalists who manage large pools of donated money under certain guidelines from their contributors[6]. Each type of these major players seeks social ventures that have specific qualities and prospects just like a traditional investor would, except these institutions view the resulting social work as part of the “revenue” of a new venture.

A social investment fund functions much like a typical mutual fund by pooling money from donators and seeking out social ventures that they consider to be the best use of the money. These organizations obtain their money from any number of sources and each one targets a specific type of social venture. For example, the Acumen Fund specifically targets ventures intending to impact India and Pakistan.  As a result, when someone donates to the Acumen Fund they are supporting a diversified group of social ventures.

Foundations are often the most diversified in their social causes. Any new venture that is seeking money may apply through a foundations specific grant writing process. The difference between a foundation and most other forms of financers is that they almost never expect any sort of financial return. Typically foundations are created by a small number or even one extremely wealthy person to support their own agenda of causes. One excellent example is the Bill and Melissa Gates Foundation which supports a dazzling array of causes around the world, from climate change, to third world disease, and food production.

Social venture capitalists are the newest form of social financing. The firms usually function just like any venture capitalist would but with an emphasis on using social change as a strategic advantage for growing new companies. These firms really see their own vocation as a form of social entrepreneurship because of their close involvement with founders as they develop ideas into thriving businesses, and their lower expected compensation is made up for by their involvement with worthy causes.

 

Higher Education in Social Entrepreneurship

There are quite a few options for higher education for those pursuing a career in social entrepreneurship. The most prestigious option is attending one of The School for Social Entrepreneurs’ eleven campuses. Most of its’ campuses are located in England and include Cornwall, Devon, East Midlands, Fife, Hampshire, Ireland, Liverpool, London, Suffolk, Yorkshire, and Australia[7]. Baylor University and George Washington University also have MBA programs that focus on developing social entrepreneurs. These schools place an emphasis on recruiting highly motivated individuals with the drive to see their ideas turn into effective agents for change.

The School for Social Entrepreneurs (SSE) has a very impressive track record for success.

  • Sustainability: 85% of all organizations established whilst at the SSE are still in existence; for example, SSE Fellows’ organizations are over one-and-a-half times more likely to be in existence after eight years than conventional business.
  • For every 10 graduates, 30 jobs and 69 volunteering positions are created.
  • Over 60% reported an increase in turnover after completing the SSE program: on average, a five-fold increase in turnover; over half of those giving financial details reported that 50% or more of their income came from ‘trading’ activity.
  • 88% of individuals on the program experience a growth in confidence and skills to lead their organization; 60% agreed that their confidence continued to rise after leaving the SSE program.
  • Over 50% of graduates have made 10 or more useful contacts that they attribute directly to SSE.

While producing higher success ratings for graduates than a conventional Business School, the SSE is only a part time program that focuses a hands on approach rather than lecture based learning. The theory behind this is innovators prefer action learning to reflection learning. The action learning cycle allows innovators a free range of options to implement and later reflect on. This style of learning, along with the freedom of schedules, allows the students to pursue their innovative organization plans with the safety net of the school’s knowledge to aid them in the process. The American programs at Baylor and George Washington University follow a traditional MBA curriculum with the addition of social entrepreneurship courses and mentorship programs and contacts.

Conclusion

Social entrepreneurship is a growing field that promises to change the world of business and economics as its practitioners add legitimacy to the concept of social recognition as an important asset and even form of compensation for any company. As these companies become more prominent and their work more effective and creative, more and more customers will take notice and make their industry and even more important part of world economics. So, the world is now facing a possible social venture boom and any serious entrepreneur would certainly look into the numerous opportunities and what impact their specific skill set could have in the landscape of an immensely more idealistic world.


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