What Makes the Social Entrepreneur Different?

 

 “One of the newest figures to emerge on the world stage in recent years is the social entrepreneur. This is usually someone who burns with desire to make a positive social impact on the world, but believes that the best way of doing it is, as the saying goes, not by giving poor people a fish and feeding them for a day, but by teaching them to fish, in hopes of feeding them for a lifetime. I have come to know several social entrepreneurs in recent years, and most combine a business school brain with a social worker’s heart. The triple convergence and the flattening of the world have been a godsend for them. Those who get it and are adapting to it have begun launching some very innovative projects.”

― Thomas L. Friedman, The World Is Flat: A Brief History of the Twenty-first Century

 

 

As Thomas Friedman mentions the figure of the social entrepreneur and the concept of social entrepreneurship has been gaining momentum from the early 2000s. In 2003, the World Economic Forum has put Social Entrepreneurship on its agenda for the first time by organizing a session with NGOs. “Improving the world and the bottom line simultaneously has never been more on-trend.” And this may very well be one of the major reasons behind the rise in popularity of the social entrepreneur. More and more companies are now embracing the idea of assessing their performance not only based on profits but also based on social and environmental impact within the more general –triple bottom line – framework. Social entrepreneurs are going one step ahead: they generate innovative business models to drive social change as the primary end goal, raising questions about what a responsible and successful business should be like.

Starting with Entrepreneurship… and Adding Up the Social Dimension

There is no clear consensus on what makes a good definition for a social entrepreneur. What makes the social entrepreneur different from a “traditional” entrepreneur? The most straightforward answer would be to differentiate the two by their motivation. Both are individuals who want to go to places where we haven’t been before and initiate change, yet their primary measures of success differ. The “traditional” entrepreneur seeks to optimize the financial performance, while social entrepreneurs are driven by altruism and seek to deliver value first to the society and then to themselves.

Yet, such a distinction is too simplistic. Indeed, the odds of success even for “traditional” entrepreneurs are so thin that no entrepreneur could make it without a stronger motivation than financial gains. R. Martin & S. Osberg in their review “Social Entrepreneurship: The Case for Definition” suggest that the true difference between the two lies in the value proposition. The entrepreneur designs his value proposition that assumes a market that can pay for the new product or service and thus generate profit. The social entrepreneur, on the other hand, does not organize its value proposition to create financial gains. He aims to carry a transformational benefit to the society with an emphasis on those who are marginalised, neglected and/or poor. Yet, this does not mean that his pursuit of a “mission-related impact” cannot generate income.

The social entrepreneurs have created organisations that are nor businesses nor charities with innovative hybrid business models. 3 possible organisational models exist.

  • Leveraged non-profit ventures

Technically not different from non-profits or NGOs, leveraged non-profits depend on outside philanthropic funding or private partnerships. They promote the adoption of an innovation to communities at the bottom of the wealth pyramid and therefore improve the wealth of the communities they serve. This in turn is attractive to their partners as they may have a vested interest in the continuation of the venture.

  • Hybrid non-profit ventures

Such a venture operates as a non-profit, yet this model usually involves some cost-recovery through the sales of a good or a service to different categories of the populations. Therefore, several entities may exist to accommodate the non-profit and for-profit operations. Funding may come from philanthropic or public sectors in the form of grants or quasi-equity.

  • Social business ventures

This type of venture is organized as a for-profit entity, whose primary aim is to make an impact and reach more people in need rather than maximize profit.  Social business ventures may seek funding from investors that are interested in both financial and social returns on their investments.

Tales of 2 “Heropreneurs”

To illustrate social entrepreneurship in action, here are some examples.

Listen to Deep Parekh talking about his business venture. “PLEASE” focuses on life enablement for aging population by connecting them with carers and volunteers. This way, elders can live in their homes for much longer and have a sense of sociability and enlightenment in their lives.

 

 

  • Peterborough Prison and the Social Impact Bond

This case is worth mentioning as it was the first pilot of a new financial instrument – the Social Impact Bond (SIB). SIBs are contracts between a public authority and private investors, in which the investors are paid only if the public project succeeds. In the case of the Peterborough prison, a series of interventions were launched to decrease the rate of recidivism amongst short-term prisoners. The money from the investors was used to pay for the service providers and the investors were repaid only if reoffending was reduced by more than 7.5% versus a control group. If you are interested to learn about how it turned out, you can read an interesting article here. More and more governments are now piloting projects based on SIBs, which by shifting the risk from taxpayers and service providers to investors have the possibility to become a mechanism to expand social services and social enterprises growth possibilities.

Making It Happen: the Challenge of Raising Capital as a Social Entrepreneur

Going after venture capital is already a challenge for a bottom line oriented start-up, so what is there to say about social enterprises, whose objective to generate profit for owners and shareholders is secondary? As we mentioned previously, some new financial instruments such as SIBs are starting to emerge to broaden social enterprises access to capital. (More about these mechanisms can be read here.)

What would potential investors focus on when looking at investment cases? A recent study by PwC on the topic pinpoints 4 principles of what social investors want:

  1. A social enterprise integrates both the social mission and the financial drive to maximise its impact. Any suggestion that there might be a trade-off between the social and financial goals will weaken the business case. Both aspects should be integrated and strengthen each other.
  2. Having a group of people willing to invest time and effort into the social enterprise. A management team gathered behind a leader shows the persuasiveness and the potential of the idea that consumers may follow. It is not impossible to get funding on your own, but it is advisable to bring together people with complementary skills from early on.
  3. A measurable and quantifiable impact. This makes a stronger business case. It is not evident how to measure the impact or outcome of a social enterprise. The advice here is to start with something small, easy to measure, preferably already available in your daily business. An example would be to measure the number of people you employ or the amount of positive feedback you receive. Looking for some metrics or KPIs ideas? In an effort to facilitate social enterprises access to capital markets, a Global Impact Investing Network (https://thegiin.org/) initiative focused on establishing a set of metrics by sector (IRIS metrics https://iris.thegiin.org/metrics ) to be used for measuring the social, environmental and financial performance of an investment.
  4. No mission drift. A mission drift occurs when an enterprise moves away from its initial aim, for example when it shifts towards maximizing financial gains at the expense of the social impact. As mission drift is something that occurs often, investors are looking at safeguards that exist within the venture to prevent this shift.

Ecosystem for Social Entrepreneurship

Aspiring social entrepreneur or simply want to know more about the social entrepreneurship ecosystem?  Check out some of the resources below:

Social Entrepreneurship Network

 

The social entrepreneur and enterprises are likely to continue receiving significant attention. Today, even established companies are pushed to innovate their models to benefit the society and the social entrepreneur mindset may become a prerequisite for any business leader. Putting the performance measures of the impact on the society on an equal footing to financial indicators does not need to be contradictory, but rather a strategical alternative to differentiate yourself and show the lead.

 

 

References:

http://www.schwabfound.org/content/what-social-entrepreneur

https://www.missionbox.com/article/397/mission-and-market-the-leveraged-nonprofit-in-the-us

http://graduateinstitute.ch/files/live/sites/iheid/files/shared/news/2013/2013_november/Social%20Entrepreneurship_Graduate%20Institute_Nov%202013.pdf

https://execed.economist.com/career-advice/industry-trends/why-social-entrepreneurs-are-taking-lead

http://www.economist.com/node/5517666

https://www.forbes.com/sites/skollworldforum/2013/05/02/the-rise-of-social-entrepreneurship-suggests-a-possible-future-for-global-capitalism/#23b520d9348c