UNIT 16 ENTREPRENEURSHIP AND SOCIAL ENTERPRISE

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1 UNIT 16 ENTREPRENEURSHIP AND SOCIAL ENTERPRISE Unit Structure 16.0 Overview 16.1 Learning Outcomes 16.2 Introduction 16.3 The Difference between Entrepreneurship and Social Entrepreneurship 16.4 Definition Issues 16.5 The Rationale for Social Entrepreneurship 16.6 Social Entrepreneurs 16.7 Social Enterprise and the Social Economy 16.8 Other Examples of Social Entrepreneurship One World Health CAMFED Campaign for Female Education 16.9 Summary 16.0 OVERVIEW Social Entrepreneurship can conveniently be described by comparing it with economic entrepreneurship. A proper definition for the term can then be developed to distinguish it from other concepts such as corporate social responsibility. The rationale for social entrepreneurship will be explained as well as the role for social entrepreneurs in building a more equitable and sustainable society. The notion of the social enterprise will be discussed in the context of the social economy. Unit 16 1

2 16.1 LEARNING OUTCOMES By the end of this Unit, you should be able to do the following: 1. Compare economic entrepreneurship with social entrepreneurship. 2. Define social entrepreneurship in terms of the social mission and social value creation. 3. Explain the rationale for social entrepreneurship. 4. Appreciate the role of social entrepreneurship in building a sustainable society. 5. Discuss the notion of the social enterprise in the context of the social economy INTRODUCTION Following pressure from customers and changing interests in the community (for example, concern for fair trade, ecology and poverty alleviation), social responsibility is becoming a major issue for the sustainability of companies, governments and organisations in general. As a result, the success of a business is not only measured in terms of profits and market share, but also by its relationship with the wider community. To be successful in a sustainable manner, firms need to develop ideas and skills so as to play an effective role in shaping socially responsible businesses. At the same time, notfor-profits will need to be infused with a spirit of social entrepreneurship, keeping their independence while becoming autonomous financially. In the 19 th century, Jean Baptiste Say is quoted to have written: The entrepreneur shifts economic resources out of an area of lower into an area of higher productivity and greater yield. The concept of social entrepreneurship is closely related to the above quote in that social entrepreneurship identifies, promotes and activates value present in the vulnerable sectors of society. It includes social purpose business ventures such as homeless shelters starting businesses to train and employ their residents towards self reliance. Unit 16 2

3 Often viewed as inefficient, ineffective and unresponsive, social sector organisations need social entrepreneurs to develop new models by adopting more innovative methods of serving their social missions. While not necessarily being a recent phenomenon, the concept of social entrepreneurship is currently gaining popularity. However, academics and practitioners may have different views on the concept. Some associate it with not-for-profits getting involved in for-profit ventures. Others associate the phenomenon with traditional businesses engaging in their corporate social responsibility. All this leads to confusion in the minds of stakeholders. It is therefore essential to arrive to a consistent definition THE DIFFERENCE BETWEEN ENTREPRENEURSHIP AND SOCIAL ENTREPRENEURSHIP According to the Webster dictionary, an entrepreneur is a person who organises, manages and assumes the risk of a business enterprise. Starting from an idea, entrepreneurs have the ability to transform it into a business opportunity which ultimately sustains itself on internally generated cashflow. A social entrepreneur, on the other hand, is any person who uses earned income strategies to pursue a social objective. They differ in a number of ways. While traditional economic entrepreneurs may frequently act in a social manner, donate money to non profits, refuse to engage in unethical business and use environmentally safe practices, their efforts are however only indirectly directed to social causes. Unit 16 3

4 Social entrepreneurs are different in the sense that their earned income strategies are directly tied to a social mission. They do so by employing people who are developmentally disabled to different extents, physically challenged, mentally disabled, poverty stricken or otherwise vulnerable. They may be involved in selling mission driven services that have a direct impact on social problems. Examples are: - Providing potential dropouts with specialised pedagogical assistance to keep them in school. - Manufacturing assistive devices (wheelchairs, auditive devices, etc). - Providing home care services for elderly/bedridden people (an alternative to nursing homes). Furthermore, economic entrepreneurs are measured by financial results and their success or failure is determined by their ability to generate profits. Social entrepreneurs, on the other hand, are driven by a triple bottom line, that is, return on social investment, environmental return on investment and in third rank financial return on investment. Profits are reinvested in the mission rather than being distributed to shareholders. Activity 1 Discuss how far such initiatives are feasible in the local context and what the implications are. Unit 16 4

5 Dees (2001) refers to social entrepreneurs as one of the species of the genus entrepreneur. Because of the social mission, social entrepreneurs perceive and assess opportunities differently from economic entrepreneurs. The distinctive challenges of the social mission warrants a separate definition. There is a gap in the market, and that gap has developed because no matter how much money we have as an economy, public services are never going to be able to fulfil all of society s needs and expectations in terms of health, education and social welfare (Adele Balkebrough quoted from Burns, 2007) DEFINITION ISSUES Social Entrepreneurs are not content just to give a fish or teach how to fish. They will not rest until they have revolutionised the fishing industry, Bill Drayton, CEO, Chair and Founder of Ashoka. Definitions of social entrepreneurship abound in the literature and can lead to some confusion. However, some leading authors have tried to give academic rigour to the definition. Jerr Boschee & Jim Mc Clurg explained that a major distinction has to be made between innovation and entrepreneurship concerning NGO s. They stated that unless a non-profit organisation is generating earned revenue from its activities, it is not acting in a social entrepreneurial manner. It may be doing good and wonderful things, creating new and vibrant programs; But it is innovative, not entrepreneurial. It is one matter to design and develop a new programme or idea into an opportunity, but it is a different challenge to sustain it without having to depend on donations and sponsorship or subsidies. Unit 16 5

6 Stanford University s Gregory Dees definition outlines five factors that define social entrepreneurship: - Adopting a mission to create and sustain social value, that is, making profits as a means to a social end. - Recognise and relentlessly pursue new opportunities to serve that mission. This may refer to flair for recognising problems as opportunities. - Engaging in a process of continuous innovation, adaptation and learning, for example finding innovative ways of funding new ventures. - Acting boldly without being limited by resources currently in hand. They can combine their own resources with resources from others. - Exhibiting a heightened sense of accountability directed to the constituencies served and for the outcomes. Social entrepreneurs recognise the expectations of their investors. Activity 2 Describe how social ventures can develop feedback mechanisms to provide accountability. The above definition has been criticised by J. Boschee as being not only conceptually flawed, but also psychologically crippling in the sense that it allows NGO s to congratulate themselves for being entrepreneurial without ever seriously pursuing sustainability or self sufficiency. They will still return to benefactors for funds at the end of the day. Unit 16 6

7 Without self-generated revenue, non-profits would remain always dependent on the generosity of others, and this is a major risk for social entrepreneurs. The latter strive to become self sufficient in order to do more mission. Kathleen Buescher, CEO of Provident Counselling in St Louis, U.S.A magnificiently describes the power of social entrepreneurship: The beauty of making profit is that you can do a lot with the money, you can do what you want to do. You do it how you want to do it for as long as you want to do it and you don t have to make anybody happy except you own Board and Staff. That s a very freeing idea Beyond the good words and academic definitions, NGO s need to convert visions into operational missions. To do so, they need to be led by people with the right type of skills and to understand the difference between these types of skills. Boschee & Mc Clurg (2003) argue that rarely can a single leader possess all the skills of innovators, entrepreneurs and managers. Innovators - create the prototypes and test them while not necessarily caring for financial viability Entrepreneurs - build going concerns from the prototypes while taking constantly care of financial viability Managers - install and oversee the systems and infrastructure required to ensure the ongoing concern In many no profits, however, due to scarce resources, people are made to fit positions for which they do not have appropriate skills. Furthermore, traditional non profits unfortunately distrust capital markets, are risk aversive, prefer not to compete (or even not to collaborate) and badly underestimate the Unit 16 7

8 potential productive capabilities and talents of their beneficiaries. Activity 3 From the above definition issues, identify the capacity building initiatives that are required for social entrepreneurship in NGO s THE RATIONALE FOR SOCIAL ENTREPRENEURSHIP During the past years, the rules of the game for non-profits have changed dramatically: - Operating costs have soared considerably. - Resources available from traditional sources have kept fluctuating depending on economic conditions. - The number of non profits on the market keeps increasing (competition). - The number and type of beneficiaries keeps rising following the inequities of economic systems and natural disasters. - Benefactors more and more come from the world of business and apply business rules to social investment. - The role of government is changing form distribution to redistribution (CSR Fund). - There is a pressing need to change from benevolent management to professional management and spiritual leadership. - There is a pressure on NGO s to become sustainable by generating revenues. Unit 16 8

9 - Corporate social responsibility is becoming a worldwide trend for sustainable businesses. Activity 4 Discuss how far legislation can be used to force or enable social entrepreneurship. In this context, the job of a social entrepreneur is to recognise the parts of society that are stuck and to provide new ways of solving social problems. They identify resources (human or otherwise) where other people see problems refer to the Big Issue Case where it was demonstrated that the homeless were not problems but resources. They view the villagers as the solution, not the passive beneficiary. They begin with the assumption of competence and unleash resources in the communities they are serving. (Source: The New Heroes, Oregon Public Broadcasting, 2005) SOCIAL ENTREPRENEURS Entrepreneurs are considered to be essential drivers of innovation and progress, harnessing opportunity and acting as engines of growth for economic advancement. Distinct from the typical entrepreneur who sees value in the creation of new markets, the social entrepreneur aims at creating value in the form of transformational change for the benefit of vulnerable groups and eventually for society at large (refer to the link between entrepreneurship, alleviation of poverty and social peace earlier in Part I). Unit 16 9

10 Burns (2007), referring to the Global Entrepreneurship Monitor (GEM), describes social entrepreneurs as predominantly better qualified, older people, employed and on higher incomes. The Report further asserts that women and ethnic minorities are much more likely to become social entrepreneurs than mainstream business persons. Throughout history and across continents, such remarkable individuals have solved seemingly difficult problems while dramatically improving the lives of countless people. One recent example mentioned earlier is Mohammad Yunus who empowered impoverished people by offering them microloans in 1976 in Bangladesh. Those people, mainly rural women, became economically self sufficient through the Grameen Microcredit Model which was later replicated in different parts of the world. Social entrepreneurship is, however, not a new concept. It has simply been popularised recently. Another example is Bunker Roy. He created the Barefoot College in rural India to train illiterate to barely literate men and women, whose illiteracy kept them trapped in the cycle of poverty, maybe for generations. Barefoot College now graduates people to become teachers, engineers, health workers and architects. A group of 450 Barefoot College engineers are known to have installed and maintained solar electrification systems in 547 Indian villages, reaching nearly 100,000 people. (Source: Skoll foundation home page - A less known example is Vinoba Bhave (India) who founded and led the Land Gift Movement. He caused redistribution of more than 7,000,000 acres of land to aid India s untouchables and landless. Food from the Hood, founded in South Central Los Angeles, employs inner city kids in urban agriculture and sells salad dressing, apple sauce and other products with profits going in a scholarship fund for the youth participating in the program (Carla Tishler, 2001). Unit 16 10

11 Social entrepreneurs recognise the extraordinary potential in the billions of poor people and are committed to helping them use their talents and abilities to achieve their potential. social entrepreneurs use inspiration, creativity, courage, fortitude and, most importantly, direct action, to create a new reality a new equilibrium - that results in enduring social benefit and a better future for everyone. (Skoll Foundation, 2009). Harvard Business School Research Fellow, Jed Emmerson (2001) asserts that the social entrepreneur carries more risk than the traditional entrepreneur. The former has a dual mission of being both market based and having a commitment to hiring people from the ranks of, for example, homeless individuals trying to run a business with an employee base that has already been fired by all your competitors. Furthermore, social entrepreneurs rarely have any metrics for measuring success like traditional entrepreneurs. It is almost impossible to measure long term social value generated. It is far more entrepreneurial to combat poverty than anything else while doing business. Mort et al. (2003), argue that four central elements are required for social entrepreneurs to create social value: (i) Creating better social value than their competitors which results in their exhibiting entrepreneurially virtuous behaviour. (ii) Exhibiting balanced judgement and an ability to see through complex situations. (iii) Being able to recognise opportunities to create better value than others. (iv) Displaying innovativeness, proactiveness and risk taking in their decision-making process. The authors argue that the social entrepreneurs balanced judgement is based on positively good values such as love, integrity, honesty and empathy. Unit 16 11

12 A social entrepreneur is therefore a person who first recognises a pressing social problem and then uses entrepreneurial principles to organise, create and manage a venture to effect social transformation SOCIAL ENTERPRISE AND THE SOCIAL ECONOMY The term social enterprise is defined differently in different countries and in different contexts. In some instances, it is simply an NGO raising funds and occasionally selling products for a cause. In other contexts, it is not exactly a not for profit because one of its secondary bottom lines is to make profits. Wikipedia defines the social enterprise as a profit-making businesses set up to tackle a social or environmental issue (triple bottom line). They are social mission driven organisations that use a blended value business model that combines a revenue generating business with a social value generating structure or component. While many traditional commercial businesses can claim to have social objectives, social enterprises are distinctive because their social or environmental purpose is central to what they do. Some authors use the term more than profit to describe them (instead of not for profit ). Rather than profit, the term surplus is used to describe the money generated and used solely for social aims. In North America, it is not even essential to make a surplus. Many social enterprises are considered successful if they break even, or even if they operate at a slight loss. The loss is considered to be much less than the amount of social support that would have been provided in lieu of a productive employment. An academic research definition of Social Enterprises in Europe has proposed that their objectives fall in three categories: Unit 16 12

13 - Integration of disadvantaged people through work. - Provision of social, community and environmental services. - Ethical trading such as fair trade. The legal form of a social enterprise is not important although they must be a subject of private law. They can function, for instance, in cooperatives, civic associations, credit unions, charities, religious legal entities or sole traders (e.g. engaging in fair trade). The building of a social enterprise begins with the mission that describes the opportunity, envisions the future, and shapes its development; proceeds the mission and model in a business plan for others to see. (Brooks, 2009, Social Entrepreneurship, Pearson International). Activity 5 Comment on the following statement by Freer Spreckley in his publication: Social Audit, Traditionally, capital hires labour. in the social enterprise, labour hires capital. The term social economy remains an imprecise term and does not have a universally accepted definition. Bridge et al. (2003) refers to the social economy as being composed of those organisations who are independent of the State and provide services, goods and trade for a social purpose and are non profit distributing. Unit 16 13

14 The social enterprise may be construed to lie in the vacuum between an inadequate public service provision and a private sector that will supply goods/services only when there is a reasonable return on investment OTHER EXAMPLES OF SOCIAL ENTREPRENEURSHIP There exist many examples of social entrepreneurship and social entrepreneurs around the world. However, their modes of action and business models may differ to some extent One World Health Victoria Hale is a pharmaceutical scientist who became increasingly frustrated by the particular nature market forces dominating the pharmaceutical industry. Although reputed large pharmaceutical companies held patents for drugs capable of curing a number of infectious diseases, they would not develop and commercialise the drugs because the populations needing them could simply not currently afford to pay for them. Drugs were therefore developed only for those fortunate patients who could pay for Research and Development costs, that is, well off people from developed countries. Hale was determined to challenge this stable equilibrium, which to her judgement was unjust and intolerable. She created One World Health, a non profit pharmaceutical company. Her mission was to ensure that drugs targeting infectious diseases get to the people who needed them, despite their inability to pay fully for them. Hale successfully developed and tested a drug and secured Indian government s regulatory approval. The drug, paromomycin provides a cost effective cure for visceral leishmaniasis. The disease kills more than 200,000 each year in India. Unit 16 14

15 CAMFED Campaign for Female Education Ann Cotton started CAMFED in 1993 to achieve the simple goal of ensuring an education for African young girls whose families could not afford to pay school fees. CAMFED has been able to break the cycle of poverty for thousands of young African women through providing community support for girls to attend school, start businesses and come back to their communities as leaders. Through CAMFED, children could benefit from education initiatives across a network of 2798 schools. Young women were given business training and start up grants to set up their own rural enterprises. Children and young people on their part received vital health information. Social entrepreneurs can be described as solution minded pragmatists. They recognise the extraordinary potential in the billions of poor people who inhabit the planet, and they are absolutely committed to helping them use their talents and abilities to achieve their potential. Social entrepreneurs use inspiration, creativity, courage fortitude and, most importantly, direct action, to create a new reality a new equilibrium that results in enduring social benefit and a better future for everyone. Skoll Foundation (2009) SUMMARY This Unit has further described the concept of social entrepreneurship, defining the term and describing social entrepreneurs as people pursuing a social mission. The role of the social enterprise was discussed in the context of the social economy. Unit 17 will analyse the role of government in enterprise support systems. Unit 16 15