Back to the menu
Kalibrio has selected articles and events related to "Social Venture Forum" to inform, inspire and encourage to act in favor of harmonious development through Social Ventures.
Social entrepreneurship is attracting growing amounts of talent, money, and attention. But along with its increasing popularity has come less certainty about what exactly a social entrepreneur is and does. As a result, all sorts of activities are now being called social entrepreneurship. Some say that a more inclusive term is all for the good, but the authors argue that it's time for a more rigorous definition.
The nascent field of social entrepreneurship is growing rapidly and
attracting increased attention from many sectors. The term itself shows
up frequently in the media, is referenced by public officials, has
become common on university campuses, and informs the strategy of
several prominent social sector organizations, including and the and foundations.
The
reasons behind the popularity of social entrepreneurship are many. On
the most basic level, there's something inherently interesting and
appealing about entrepreneurs and the stories of why and how they do
what they do. People are attracted to social entrepreneurs like last
year's Nobel Peace Prize laureate Muhammad Yunus for many of the same
reasons that they find business entrepreneurs like Steve Jobs so
compelling – these extraordinary people come up with brilliant ideas
and against all the odds succeed at creating new products and services
that dramatically improve people's lives.
But
interest in social entrepreneurship transcends the phenomenon of
popularity and fascination with people. Social entrepreneurship signals
the imperative to drive social change, and it is that potential payoff,
with its lasting, transformational benefit to society, that sets the
field and its practitioners apart.
Although the potential
benefits offered by social entrepreneurship are clear to many of those
promoting and funding these activities, the actual definition of what
social entrepreneurs do to produce this order of magnitude return is
less clear. In fact, we would argue that the definition of social
entrepreneurship today is anything but clear. As a result, social
entrepreneurship has become so inclusive that it now has an immense
tent into which all manner of socially beneficial activities fit.
In
some respects this inclusiveness could be a good thing. If plenty of
resources are pouring into the social sector, and if many causes that
otherwise would not get sufficient funding now get support because they
are regarded as social entrepreneurship, then it may be fine to have a
loose definition. We are inclined to argue, however, that this is a
flawed assumption and a precarious stance.
Social
entrepreneurship is an appealing construct precisely because it holds
such high promise. If that promise is not fulfilled because too many
"nonentrepreneurial" efforts are included in the definition, then
social entrepreneurship will fall into disrepute, and the kernel of
true social entrepreneurship will be lost. Because of this danger, we
believe that we need a much sharper definition of social
entrepreneurship, one that enables us to determine the extent to which
an activity is and is not "in the tent." Our goal is not to make an
invidious comparison between the contributions made by traditional
social service organizations and the results of social
entrepreneurship, but simply to highlight what differentiates them.
If
we can achieve a rigorous definition, then those who support social
entrepreneurship can focus their resources on building and
strengthening a concrete and identifiable field. Absent that
discipline, proponents of social entrepreneurship run the risk of
giving the skeptics an ever-expanding target to shoot at, and the
cynics even more reason to discount social innovation and those who
drive it.
Starting With Entrepreneurship
Any
definition of the term "social entrepreneurship" must start with the
word "entrepreneurship." The word "social" simply modifies
entrepreneurship. If entrepreneurship doesn't have a clear meaning,
then modifying it with social won't accomplish much, either.
The
word entrepreneurship is a mixed blessing. On the positive side, it
connotes a special, innate ability to sense and act on opportunity,
combining out-of-the-box thinking with a unique brand of determination
to create or bring about something new to the world. On the negative
side, entrepreneurship is an ex post term, because entrepreneurial
activities require a passage of time before their true impact is
evident.
Interestingly, we don't call someone who exhibits all of
the personal characteristics of an entrepreneur – opportunity sensing,
out-of-the-box thinking, and determination – yet who failed miserably
in his or her venture an entrepreneur; we call him or her a business
failure. Even someone like Bob Young, of Red Hat Software fame, is
called a "serial entrepreneur" only after his first success; i.e., all
of his prior failures are dubbed the work of a serial entrepreneur only
after the occurrence of his first success. The problem with ex post
definitions is that they tend to be ill defined. It's simply harder to
get your arms around what's unproven. An entrepreneur can certainly
claim to be one, but without at least one notch on the belt, the
self-proclaimed will have a tough time persuading investors to place
bets. Those investors, in turn, must be willing to assume greater risk
as they assess the credibility of would-be entrepreneurs and the
potential impact of formative ventures.
Even with these
considerations, we believe that appropriating entrepreneurship for the
term social entrepreneurship requires wrestling with what we actually
mean by entrepreneurship. Is it simply alertness to opportunity?
Creativity? Determination? Although these and other behavioral
characteristics are part of the story and certainly provide important
clues for prospective investors, they are not the whole story. Such
descriptors are also used to describe inventors, artists, corporate
executives, and other societal actors.
Like
most students of entrepreneurship, we begin with French economist
Jean-Baptiste Say, who in the early 19th century described the
entrepreneur as one who "shifts economic resources out of an area of
lower and into an area of higher productivity and greater yield,"
thereby expanding the literal translation from the French, "one who
undertakes," to encompass the concept of value creation.1
Writing
a century later, Austrian economist Joseph Schumpeter built upon this
basic concept of value creation, contributing what is arguably the most
influential idea about entrepreneurship. Schumpeter identified in the
entrepreneur the force required to drive economic progress, absent
which economies would become static, structurally immobilized, and
subject to decay. Enter the Unternehmer, Schumpeter's
entrepreneurial spirit, who identifies a commercial opportunity –
whether a material, product, service, or business – and organizes a
venture to implement it. Successful entrepreneurship, he argues, sets
off a chain reaction, encouraging other entrepreneurs to iterate upon
and ultimately propagate the innovation to the point of "creative
destruction," a state at which the new venture and all its related
ventures effectively render existing products, services, and business
models obsolete.2
Despite casting the dramatis
personae in heroic terms, Schumpeter's analysis grounds
entrepreneurship within a system, ascribing to the entrepreneur's role
a paradoxical impact, both disruptive and generative. Schumpeter sees
the entrepreneur as an agent of change within the larger economy. Peter
Drucker, on the other hand, does not see entrepreneurs as necessarily
agents of change themselves, but rather as canny and committed
exploiters of change. According to Drucker, "the entrepreneur always
searches for change, responds to it, and exploits it as an opportunity,"3 a premise picked up by Israel Kirzner, who identifies "alertness" as the entrepreneur's most critical ability. 4
Regardless
of whether they cast the entrepreneur as a breakthrough innovator or an
early exploiter, theorists universally associate entrepreneurship with
opportunity. Entrepreneurs are believed to have an exceptional ability
to see and seize upon new opportunities, the commitment and drive
required to pursue them, and an unflinching willingness to bear the
inherent risks.
Building from this theoretical base, we believe
that entrepreneurship describes the combination of a context in which
an opportunity is situated, a set of personal characteristics required
to identify and pursue this opportunity, and the creation of a
particular outcome.
To explore and illustrate our definition of
entrepreneurship, we will take a close look at a few contemporary
American entrepreneurs (or pairs thereof ): Steve Jobs and Steve
Wozniak of Apple Computer, Pierre Omidyar and Jeff Skoll of eBay, Ann
and Mike Moore of Snugli, and Fred Smith of FedEx.
Entrepreneurial Context
The
starting point for entrepreneurship is what we call an entrepreneurial
context. For Steve Jobs and Steve Wozniak, the entrepreneurial context
was a computing system in which users were dependent on mainframe
computers controlled by a central IT staff who guarded the mainframe
like a shrine. Users got their computing tasks done, but only after
waiting in line and using the software designed by the IT staff. If
users wanted a software program to do something out of the ordinary,
they were told to wait six months for the programming to be done.
From
the users' perspective, the experience was inefficient and
unsatisfactory. But since the centralized computing model was the only
one available, users put up with it and built the delays and
inefficiencies into their workflow, resulting in an equilibrium, albeit
an unsatisfactory one.
System dynamicists describe this kind of
equilibrium as a "balanced feedback loop," because there isn't a strong
force that has the likely effect of breaking the system out of its
particular equilibrium. It is similar to a thermostat on an air
conditioner: When the temperature rises, the air conditioner comes on
and lowers the temperature, and the thermostat eventually turns the air
conditioner off.
The centralized computing
system that users had to endure was a particular kind of equilibrium:
an unsatisfactory one. It is as if the thermostat were set five degrees
too low so that everyone in the room was cold. Knowing they have a
stable and predictable temperature, people simply wear extra sweaters,
though of course they might wish that they didn't have to.
Pierre
Omidyar and Jeff Skoll identified an unsatisfactory equilibrium in the
inability of geographically based markets to optimize the interests of
both buyers and sellers. Sellers typically didn't know who the best
buyer was and buyers typically didn't know who the best (or any) seller
was. As a result, the market was not optimal for buyers or sellers.
People selling used household goods, for example, held garage sales
that attracted physically proximate buyers, but probably not the
optimal number or types of buyers. People trying to buy obscure goods
had no recourse but to search through Yellow Page directories, phoning
and phoning to try to track down what they really wanted, often
settling for something less than perfect. Because buyers and sellers
couldn't conceive of a better answer, the stable, yet suboptimal,
equilibrium prevailed.
Ann and Mike Moore took note of a subpar
equilibrium in parents' limited options for toting their infants.
Parents wishing to keep their babies close while carrying on basic
tasks had two options: They could learn to juggle offspring in one arm
while managing chores with the other, or they could plop the child in a
stroller, buggy, or other container and keep the child nearby. Either
option was less than ideal. Everyone knows that newborns benefit from
the bonding that takes place because of close physical contact with
their mothers and fathers, but even the most attentive and devoted
parents can't hold their babies continuously. With no other options,
parents limped along, learning to shift their child from one hip to the
other and becoming adept at "one-armed paper hanging," or attempting to
get their tasks accomplished during naptime.
In
the case of Fred Smith, the suboptimal equilibrium he saw was the
long-distance courier service. Before FedEx came along, sending a
package across country was anything but simple. Local courier services
picked up the package and transported it to a common carrier, who flew
the package to the remote destination city, at which point it was
handed over to a third party for final delivery (or perhaps back to the
local courier's operation in that city if it was a national company).
This system was logistically complex, it involved a number of handoffs,
and the scheduling was dictated by the needs of the common carriers.
Often something would go wrong, but no one would take responsibility
for solving the problem. Users learned to live with a slow, unreliable,
and unsatisfactory service – an unpleasant but stable situation because
no user could change it.
Entrepreneurial Characteristics
The
entrepreneur is attracted to this suboptimal equilibrium, seeing
embedded in it an opportunity to provide a new solution, product,
service, or process. The reason that the entrepreneur sees this
condition as an opportunity to create something new, while so many
others see it as an inconvenience to be tolerated, stems from the
unique set of personal characteristics he or she brings to the
situation – inspiration, creativity, direct action, courage, and
fortitude. These characteristics are fundamental to the process of
innovation.
The entrepreneur is inspired to alter the
unpleasant equilibrium. Entrepreneurs might be motivated to do this
because they are frustrated users or because they empathize with
frustrated users. Sometimes entrepreneurs are so gripped by the
opportunity to change things that they possess a burning desire to
demolish the status quo. In the case of eBay, the frustrated user was
Omidyar's girlfriend, who collected Pez dispensers.
The entrepreneur thinks creatively
and develops a new solution that dramatically breaks with the existing
one. The entrepreneur doesn't try to optimize the current system with
minor adjustments, but instead finds a wholly new way of approaching
the problem. Omidyar and Skoll didn't develop a better way to promote
garage sales. Jobs and Wozniak didn't develop algorithms to speed
custom software development. And Smith didn't invent a way to make the
handoffs between courier companies and common carriers more efficient
and error-free. Each found a completely new and utterly creative
solution to the problem at hand.
Once inspired by the opportunity and in possession of a creative solution, the entrepreneur takes direct action.
Rather than waiting for someone else to intervene or trying to convince
somebody else to solve the problem, the entrepreneur takes direct
action by creating a new product or service and the venture to advance
it. Jobs and Wozniak didn't campaign against mainframes or encourage
users to rise up and overthrow the IT department; they invented a
personal computer that allowed users to free themselves from the
mainframe. Moore didn't publish a book telling mothers how to get more
done in less time; she developed the Snugli, a frameless front- or
backpack that enables parents to carry their babies and still have both
hands free. Of course, entrepreneurs do have to influence others: first
investors, even if just friends and family; then teammates and
employees, to come work with them; and finally customers, to buy into
their ideas and their innovations. The point is to differentiate the
entrepreneur's engagement in direct action from other indirect and
supportive actions.
Entrepreneurs demonstrate courage
throughout the process of innovation, bearing the burden of risk and
staring failure squarely if not repeatedly in the face. This often
requires entrepreneurs to take big risks and do things that others
think are unwise, or even undoable. For example, Smith had to convince
himself and the world that it made sense to acquire a fleet of jets and
build a gigantic airport and sorting center in Memphis, in order to
provide next-day delivery without the package ever leaving FedEx's
possession. He did this at a time when all of his entrenched
competitors had only fleets of trucks for local pickup and delivery –
they certainly didn't run airports and maintain huge numbers of
aircraft.
Finally, entrepreneurs possess the fortitude to
drive their creative solutions through to fruition and market adoption.
No entrepreneurial venture proceeds without setbacks or unexpected
turns, and the entrepreneur needs to be able to find creative ways
around the barriers and challenges that arise. Smith had to figure out
how to keep investors confident that FedEx would eventually achieve the
requisite scale to pay for the huge fixed infrastructure of trucks,
planes, airport, and IT systems required for the new model he was
creating. FedEx had to survive hundreds of millions of dollars of
losses before it reached a cash-flow positive state, and without a
committed entrepreneur at the helm, the company would have been
liquidated well before that point.
Entrepreneurial Outcome
What
happens when an entrepreneur successfully brings his or her personal
characteristics to bear on a suboptimal equilibrium? He or she creates
a new stable equilibrium, one that provides a meaningfully higher level
of satisfaction for the participants in the system. To elaborate on
Say's original insight, the entrepreneur engineers a permanent shift
from a lower-quality equilibrium to a higher-quality one. The new
equilibrium is permanent because it first survives and then stabilizes,
even though some aspects of the original equilibrium may persist (e.g.,
expensive and less-efficient courier systems, garage sales, and the
like). Its survival and success ultimately move beyond the entrepreneur
and the original entrepreneurial venture. It is through mass-market
adoption, significant levels of imitation, and the creation of an
ecosystem around and within the new equilibrium that it first
stabilizes and then securely persists.
When Jobs and Wozniak
created the personal computer they didn't simply attenuate the users'
dependence on the mainframe – they shattered it, shifting control from
the "glass house" to the desktop. Once the users saw the new
equilibrium appearing before their eyes, they embraced not only Apple
but also the many competitors who leaped into the fray. In relatively
short order, the founders had created an entire ecosystem with numerous
hardware, software, and peripheral suppliers; distribution channels and
value-added resellers; PC magazines; trade shows; and so on.
Because
of this new ecosystem, Apple could have exited from the market within a
few years without destabilizing it. The new equilibrium, in other
words, did not depend on the creation of a single venture, in this case
Apple, but on the appropriation and replication of the model and the
spawning of a host of other related businesses. In Schumpeterian terms,
the combined effect firmly established a new computing order and
rendered the old mainframe-based system obsolete.
In
the case of Omidyar and Skoll, the creation of eBay provided a superior
way for buyers and sellers to connect, creating a higher equilibrium.
Entire new ways of doing business and new businesses sprang up to
create a powerful ecosystem that simply couldn't be disassembled.
Similarly, Smith created a new world of package delivery that raised
standards, changed business practices, spawned new competitors, and
even created a new verb: "to FedEx."
In each case, the delta
between the quality of the old equilibrium and the new one was huge.
The new equilibrium quickly became self-sustaining, and the initial
entrepreneurial venture spawned numerous imitators. Together these
outcomes ensured that everyone who benefited secured the higher ground.
Shift to Social Entrepreneurship
If
these are the key components of entrepreneurship, what distinguishes
social entrepreneurship from its for-profit cousin? First, we believe
that the most useful and informative way to define social
entrepreneurship is to establish its congruence with entrepreneurship,
seeing social entrepreneurship as grounded in these same three
elements. Anything else is confusing and unhelpful.
To understand
what differentiates the two sets of entrepreneurs from one another, it
is important to dispel the notion that the difference can be ascribed
simply to motivation – with entrepreneurs spurred on by money and
social entrepreneurs driven by altruism. The truth is that
entrepreneurs are rarely motivated by the prospect of financial gain,
because the odds of making lots of money are clearly stacked against
them. Instead, both the entrepreneur and the social entrepreneur are
strongly motivated by the opportunity they identify, pursuing that
vision relentlessly, and deriving considerable psychic reward from the
process of realizing their ideas. Regardless of whether they operate
within a market or a not-for-profit context, most entrepreneurs are
never fully compensated for the time, risk, effort, and capital that
they pour into their venture.
We believe that
the critical distinction between entrepreneurship and social
entrepreneurship lies in the value proposition itself. For the
entrepreneur, the value proposition anticipates and is organized to
serve markets that can comfortably afford the new product or service,
and is thus designed to create financial profit. From the outset, the
expectation is that the entrepreneur and his or her investors will
derive some personal financial gain. Profit is sine qua non, essential
to any venture's sustainability and the means to its ultimate end in
the form of large-scale market adoption and ultimately a new
equilibrium.
The social entrepreneur, however, neither
anticipates nor organizes to create substantial financial profit for
his or her investors – philanthropic and government organizations for
the most part – or for himself or herself. Instead, the social
entrepreneur aims for value in the form of large-scale,
transformational benefit that accrues either to a significant segment
of society or to society at large. Unlike the entrepreneurial value
proposition that assumes a market that can pay for the innovation, and
may even provide substantial upside for investors, the social
entrepreneur's value proposition targets an underserved, neglected, or
highly disadvantaged population that lacks the financial means or
political clout to achieve the transformative benefit on its own. This
does not mean that social entrepreneurs as a hard-and-fast rule shun
profitmaking value propositions. Ventures created by social
entrepreneurs can certainly generate income, and they can be organized
as either not-for- profits or for-profits. What distinguishes social
entrepreneurship is the primacy of social benefit, what Duke University
professor Greg Dees in his seminal work on the field characterizes as
the pursuit of "mission-related impact."5
We define
social entrepreneurship as having the following three components: (1)
identifying a stable but inherently unjust equilibrium that causes the
exclusion, marginalization, or suffering of a segment of humanity that
lacks the financial means or political clout to achieve any
transformative benefit on its own; (2) identifying an opportunity in
this unjust equilibrium, developing a social value proposition, and
bringing to bear inspiration, creativity, direct action, courage, and
fortitude, thereby challenging the stable state's hegemony; and (3)
forging a new, stable equilibrium that releases trapped potential or
alleviates the suffering of the targeted group, and through imitation
and the creation of a stable ecosystem around the new equilibrium
ensuring a better future for the targeted group and even society at
large.
Muhammad Yunus, founder of the
and father of microcredit, provides a classic example of social
entrepreneurship. The stable but unfortunate equilibrium he identified
consisted of poor Bangladeshis' limited options for securing even the
tiniest amounts of credit. Unable to qualify for loans through the
formal banking system, they could borrow only by accepting exorbitant
interest rates from local moneylenders. More commonly, they simply
succumbed to begging on the streets. Here was a stable equilibrium of
the most unfortunate sort, one that perpetuated and even exacerbated
Bangladesh's endemic poverty and the misery arising from it.
Yunus
confronted the system, proving that the poor were extremely good credit
risks by lending the now famous sum of $27 from his own pocket to 42
women from the village of Jobra. The women repaid all of the loan.
Yunus found that with even tiny amounts of capital, women invested in
their own capacity for generating income. With a sewing machine, for
example, women could tailor garments, earning enough to pay back the
loan, buy food, educate their children, and lift themselves up from
poverty. Grameen Bank sustained itself by charging interest on its
loans and then recycling the capital to help other women. Yunus brought
inspiration, creativity, direct action, courage, and fortitude to his
venture, proved its viability, and over two decades spawned a global
network of other organizations that replicated or adapted his model to
other countries and cultures, firmly establishing microcredit as a
worldwide industry.
The well-known actor, director, and producer
Robert Redford offers a less familiar but also illustrative case of
social entrepreneurship. In the early 1980s, Redford stepped back from
his successful career to reclaim space in the film industry for
artists. Redford was struck by a set of opposing forces in play. He
identified an inherently oppressive but stable equilibrium in the way
Hollywood worked, with its business model increasingly driven by
financial interests, its productions gravitating to flashy, frequently
violent blockbusters, and its studio-dominated system becoming more and
more centralized in controlling the way films were financed, produced,
and distributed. At the same time, he noted that new technology was
emerging – less cumbersome and less expensive video and digital editing
equipment – that gave filmmakers the tools they needed to exert more
control over their work.
