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Abstract
Becoming sustainable or profitable is often the top concern for social entrepreneurs. Management teams of start-ups spend an exorbitant amount of time focused on furthering their business models. However, the social capital markets lack the efficiency of the traditional capital markets, making the process of capital raising a challenge for both non-profit and for profit social ventures. Concurrently, scarce philanthropic, government and investment dollars have caused nonprofits to innovate new revenue generating businesses to augment their budgets. Nonprofits, struggling to survive in an increasingly competitive landscape, are working to become more efficient by adapting business models to their organizational needs. Trends in philanthropy have also forced the social sector to adapt the business models. Some in the philanthropic sector has adopted venture capital principles to become more highly engaged with their grantees, and they now expect a higher level of performance. This rise of venture philanthropy has forced nonprofits to develop performance measurement tools and improve accountability within their organizations. As many nonprofits work to become more self-sustaining by diversifying their revenue streams beyond traditional foundation and government support, organizations are creating business ventures and corporate partnerships.
INTRODUCTION
The test of social entrepreneurship, in contrast, may be a change in the social dynamics and systems that created and maintained the problem; the organization created to solve the problem may get smaller or less viable as it succeeds. While the concept of social entrepreneurship is relatively new, initiatives that employ entrepreneurial capacities to solve social problems are not. We have found a variety of initiatives—particularly focused on the problems of poor and marginalized populations—that have transformed the lives of thousands of people around the world. As in other areas of social action, the practice of social entrepreneurship may be well ahead of the theory.
This paper seeks to identify factors associated with successful social entrepreneurship. We focus on social entrepreneurship that leads to significant changes in the social, political, and economic contexts for poor and marginalized groups—in other words, social entrepreneurship that leads to social transformation. We begin with a brief description of different perspectives on social entrepreneurship and the working definition that guides our analysis of an informal sampling of seven cases. We then describe our methods of inquiry and the issues we use to focus attention across the seven cases. The next section reports the results of comparisons across the cases and formulates hypotheses about core innovations, leadership, organization, and scaling up in successful social entrepreneurship. The final section discusses implications for the practice of social entrepreneurship, further research, the continued development of support technologies, and institutions for future social entrepreneurship.
THE SELF-EMPLOYED WOMEN’S ASSOCIATION (SEWA):
It is founded in 1972 by Ela Bhatt, is a trade union of women who earn their livelihoods in three broad occupational categories that, historically, have been very difficult to organize: Hawkers and vendors, home-based producers, and manual laborers and service providers. Their initial programs focused on improving members’ working conditions through influencing the actions of local police and policy makers. Later, SEWA provided a variety of services that were otherwise unavailable to their members. With approximately 315,000 members, SEWA is the first and largest trade union of informal sector workers. In addition to its unionizing activities, SEWA has several “sister” institutions, including a bank that provides financial resources, an academy that provides teaching, training and research, and a housing trust that coordinates housing activities for its members. SEWA has become an international force working with women’s and labor movements worldwide.
• Essential Innovation:
Organizers groups of women that are atomized and have little reason to cooperate for political change, or otherwise address economic, social, and health issues. Builds local leadership capacity to scale up organization and movement.
• Scope:
Organized 315,000 self-employed women as union members. Improved working conditions, access to health care, credit, and savings for the more than 90% of India’s self-employed/unorganized, female laborers. Influenced the creation of self-employment labor division in the Indian government. Influenced the International Labor Organization to pass standards for home workers (including minimum wage and working conditions). Co-founded international network to support the work of women in the informal sector (Women in Informal Employment Globalizing and Organizing.
Example for social entrepreneurship:
VICTORIA HALE
• She established her expertise in all stages of biopharmaceutical drug development at the USFDA, Center for Drug Evaluation and Research; and
• At Genentech, Inc., the world's first biotechnology company.
• An Adjunct Associate Professorship in Biopharmaceutical Sciences at the University of California, San Francisco (UCSF),
• An Advisor to the World Health Organization (WHO) for building ethical review capacity in the developing world, And has served as an expert reviewer to the National Institutes of Health (NIH) on the topic of biodiversity.
• A pharmaceutical scientist who became increasingly frustrated by the market forces dominating her industry.
• Although big pharmaceutical companies held patents for drugs capable of curing any number of infectious diseases, the drugs went undeveloped for a simple reason: The populations most in need of the drugs were unable to afford them.
• Driven by the exigency of generating financial profits for its shareholders, the pharmaceutical industry was focusing on creating and marketing drugs for diseases afflicting the well-off, living mostly in developed world markets, who could pay for them.
• Hale became determined to challenge this stable equilibrium, which she saw as unjust and intolerable.
• OneWorld Health, the first nonprofit pharmaceutical company whose mission is to ensure that drugs targeting infectious diseases in the developing world get to the people who need them, regardless of their ability to pay for the drugs.
• Hale’s venture has now moved beyond the proof-of-concept stage.
• It successfully developed, tested, and secured Indian government regulatory approval for its first drug, paromomycin, which provides a cost-effective cure for visceral leishmaniasis, a disease that kills more than 200,000 people each year.
Four ingredients for social enterprise policy
I. Expand the Giving Economy
The first strand is cultural change, to promote a more widespread and deeply rooted culture of giving and volunteering to sustain the social enterprise sector. Social enterprise solutions generally depend, especially at the outset, on voluntary contributions to get them going through donations of money, time, skills, contacts or buildings.
One of the best known examples, the Bromley by Bow Centre in London’s East End started with a church giving over its hall to be used by a social entrepreneur. The Furniture Resource Centre in Liverpool and Green Works in London are businesses built on discarded furniture which they recycle. Increasing the overall scale of the ‘giving economy’ runs with the grain of social and economic change. Volunteering has been one of the success stories of the UK social sector in the past ten years. It would also bring some marked social benefits on top of supporting social enterprise development. Giving can involve people right across society, from young to old, very rich to those on modest means, city-based venture philanthropists to school children saving their pocket money. It embraces a lot of people rather than relying on elite of specially talented social entrepreneurs. Giving cuts across cultures, religions and nations.
Gifts can create and convey emotional bonds and relationships than transactions do not. Increasingly public services will rely on mobilizing people to change their behavior in tandem with a service they receive. Recycling only works if people put more effort into sorting their waste. Social care, for young and old, rests on a vast informal care economy, in which mainly women donate vast amounts of time to the care of others.
II. Strengthen social enterprise
Over the past ten years the social enterprise field has become increasingly well-populated. In some areas social enterprises will continue to grow in scale and number – for example in social care. In other areas the main role of social enterprise will be to act as a catalyst for further change in other sectors of the economy.
One avenue would be to build some impressively large social enterprises that can shelter, inspire and guide others. To come of age social enterprise needs to create some household names. The Grameen Bank has achieved this, first in Bangladesh and then around the world. Grameen is impressive because it operates at scale: it has made seven million small loans, 97% of them to women, most of them without a formal loan agreement or contract. Yet 98% of those loans have been repaid and even 60% of loans made to homeless beggars. Grameen is profit-making and 57% of its borrowers have lifted themselves out of poverty.
However, building a social enterprise to large scale may be only one option. Others might include ways of clustering social enterprises together, helping them to form alliances, federations and networks that give them scale. One could imagine social enterprise hubs, business parks and networks. Scale of organization is no measure of potential impact; small disruptive and innovative organizations can have a huge impact on entire industries. The business model of the pop music industry was arguably holed beneath the water line by an organization, the file sharing site Napster, that no longer exists and was never really a corporate entity.
So as well as seeking to scale social enterprise organisations, we need more intelligent strategies to scale their impact, even if the social enterprise itself remains small. The key to that will be to develop the links between innovative social enterprises, the public sector and mainstream business. Universities have become more closely linked to business innovation in the past decade through a variety of policies for transferring knowledge and people. We need something analogous to allow the rapid transfer of innovation from social enterprise into other sectors.
In short, policy should increasingly distinguish between the different roles that social enterprise might play in different sectors. In some the goal might be to develop a few larger social enterprises which can operate at a scale to match business and the public sector. In many sectors there may be scope for more, but smaller social enterprises. Perhaps the critical areas to identify will be those where innovative social enterprises can act as a catalyst for innovation in public and private sector organizations.
III. The social enterprise state
The third strand of policy should be to enhance the impact of social enterprise within the public sector. Social enterprises already play a significant role within the public sector as the providers of contracted-out services. The goal for the next ten years should be to:
■ Sustain the social sector’s position as a supplier. Provide a clearer account of the benefits that social enterprise brings and use social enterprise more strategically to promote innovation in public services, especially for key challenges .the state will face to meet the needs of an ageing population, climate change, community safety, social disorder and the engagement of young people Demands on the state to provide solutions to complex problems as well as personalized services are not going to diminish. The public sector needs more sustained innovation; social enterprise could play a critical role in providing it. Social enterprises working within and for the public sector clients have a track record of producing innovative services. Healing Community Transport grew from a public sector base as a supplier. MacMillan Cancer Support uses charitable donations to fund nurses providing cancer support that the NHS then takes up. There are many more opportunities for social enterprises to stimulate innovation in key areas of public policy. What should be done to exploit these opportunities?
■ The government should create public innovation platforms, which bring together the public sector, private companies and social enterprises to address shared problems and opportunities, such as provision of homebased services for the elderly, to combat social isolation. These public innovation platforms would focus on key issues and opportunities, to galvanizes innovation from several sources.
■ A shift towards greater local discretion in commissioning, especially for leading cities to devise their own approaches to tackling local social problems, with local players. Centralized, top-down targets are not good for local innovation. Services run in this way tend to regard social enterprises as service providers rather than tap their potential to act as innovators. A shift towards more local governance – local carbon trusts to drive down CO2 emissions, community ownership of assets – would create the conditions for much more local social innovation.
■ A shift towards more direct consumer commissioning of services should, in the long run, be good for social enterprises.
IV. Socially responsible business
Arguably the biggest impact social enterprise will have will be to change the way that businesses and markets operate. This policy goal would be to make Britain the leading centre of innovation in socially responsible business practices, showing how social responsibility can be a new source of competitive advantage and innovation. Markets will often not address the needs of the hardest to reach, poorest consumers, especially those with special needs because there is no profit to be made from serving these consumers. Profit-maximizing mainstream businesses often find it more difficult to invest in disruptive innovations with uncertain payoffs than smaller, nimbler, low-cost companies. Large mainstream businesses need to make reliable returns from mass markets. Disruptive innovations, however, often emerge from smaller markets serving consumers with needs that are in advance of the mainstream market.
In many industries – extreme sports such as windsurfing and kite surfing are examples – radical innovation often starts with smaller companies and passionate pro-am users. The large incumbent companies then follow in the footsteps of the early innovators. As well as working with social enterprisers to set standards for business behavior government can also set a floor of what is unacceptable. This particularly applies for products and technologies that have environmental impacts, such as lead in petrol and CFCs. Smoking has also been dramatically reduced by taxation putting up prices, information and education and regulations, most recently with the banning of smoking in public places, pubs and restaurants. Often it is easier for government to say what business practices and technologies have become socially unacceptable than specifying what is socially acceptable.
Conclusion:
Government can help to swell the rising tide of voluntarism and giving that in turns supports social enterprise by focusing on four main areas of activity:
■ Support social entrepreneurs to operate at greater scale, through organizational growth where appropriate, clustering, networks and licensing.
■ Encourage a wider giving culture and sense of social responsibility that will feed into consumer behavior in ethical markets, charitable giving to support social enterprises and voluntary contributions to support public services, for example in the care economy.
■ Commissioning public services to promote social innovation and more effective social outcomes, including encouraging user-led innovative public services
■ Encourage and where necessary require a more urgent sense of social responsibility from business. All of this will be underpinned by a growing body of techniques and tools for assessing and reporting on social value, alongside more traditional measures of financial performance.
The four-pronged approach set out above connects social value creation in the five areas of the economy identified in the grid at the outset by linking the voluntary economy of giving, to social enterprise, public services, socially responsible and mainstream business and the rise of ethical markets. These connections make up the skeleton of a social innovation system shown in the diagram on the following page in which social enterprise sits as a junction box between a wider culture of giving and volunteering and innovation in business and public services.