Social Entrepreneurship
The discussion of entrepreneurship so far in this appendix has involved individuals or corporations that pursue entrepreneurial opportunities for the purposes of generating sales and profits, which we call commercial entrepreneurship. In recent years, researchers have begun to examine entrepreneurship in a social context. Social entrepreneurship involves the recognition, evaluation, and exploitation of opportunities that create social value as opposed to personal or shareholder wealth.48 In this context, social value refers to the basic, long-standing needs of society and has little to do with profits. Basic, long-standing needs might include providing water, food, and shelter to individuals in need. “Social value” might also refer to more specific needs such as providing playground equipment to needy school districts or Seeing Eye dogs for those who are blind. Recent reports suggest that the growth in nonprofit organizations has increased at a faster pace than the growth of new businesses.49
Muhammad Yunus, an economist turned social entrepreneur, launched one of the world’s most successful nonprofits: Grameen Bank, a microfinance organization. Yunus launched Grameen when he realized that small loans can make a huge difference in the life of an entrepreneur in an underdeveloped country. Grameen Bank advances microloans—and relatively low interest rates—because it is more interested in improving lives than in making money. The winner of the 2006 Nobel Peace Prize, Yunus has also received the Presidential Medal of Freedom, the highest civilian honor in the United States, which is awarded to those whose work has changed the world.50
Muhammad Yunus launched Grameen Bank to make loans to entrepreneurs in underdeveloped countries.
BAUMANNTOO B/Newscom
How Do Commercial and Social Entrepreneurship Differ?
Although the two concepts have some similarities, substantive differences distinguish commercial entrepreneurship from social entrepreneurship. In the remainder of this section, we detail three differences with respect to mission, resources, and performance measurement.
Perhaps the most fundamental difference between commercial and social entrepreneurship involves the entrepreneur’s mission or purpose. The purpose of commercial entrepreneurship is to create profits, whereas the purpose of social entrepreneurship is to create value for the public. Despite this difference in focus, it is important to note that social entrepreneurs cannot totally ignore issues surrounding sales and costs. If social entrepreneurs did ignore such important concepts, they likely would not have the money needed to continue their pursuit of social value. As such, even though the goal of social entrepreneurship does not involve profits, social entrepreneurs still need to monitor profit-oriented measures, including revenues and costs. In this sense, then, profits remain somewhat important, but social value dominates the goal structure of social entrepreneurs.51
A second primary distinction between commercial and social entrepreneurship involves the availability of resources such as funding and employees. Unlike commercial entrepreneurs, social entrepreneurs face many difficulties attracting capital from angel investors, venture capitalists, and banks. Instead, most social entrepreneurs rely on donations as sources of funding. Also, social entrepreneurs frequently face difficulties in hiring and compensating employees. Because social entrepreneurs often do not have the capital necessary to pay attractive salaries, they usually must focus on hiring people who share the organization’s purpose. Such people tend to be willing to work for low salaries. In fact, many social entrepreneurs rely on volunteers to help their organizations fulfill their missions.
Commercial and social entrepreneurship also differ in terms of performance measures. Commercial entrepreneurs, for example, focus on quantitative measures such as profits, shareholder wealth, revenues, and costs. In contrast, social entrepreneurs focus on performance measures that are not related to money. For example, although a soup kitchen needs to monitor costs, its primary performance measure would be the number of meals served. In addition, a free meal may improve the emotional state of someone who is homeless, an outcome that is difficult to quantify.
Success Factors in Social Entrepreneurship
Although the topic of social entrepreneurship is fairly new from a research perspective, some studies have looked at the factors that influence the performance of social entrepreneurs.53 In the remainder of this section, we discuss three factors that influence the performance of social entrepreneurs: their networks of relationships, their capital bases, and the public’s acceptance of the new venture.
Previously in this appendix, we described the importance of entrepreneurs’ social networks. These networks are also important for social entrepreneurs. Large networks provide social entrepreneurs with potential sources of capital to fund their social missions. In addition, large social networks can help social entrepreneurs identify potential employees and volunteers. In sum, large social networks improve the success of social entrepreneurs.
Similar to commercial entrepreneurship, an organization’s capital base is important for social entrepreneurs. In fact, capital is perhaps even more important for social entrepreneurs because they do not have access to the venture capital and bank financing available to commercial entrepreneurs. Consequently, the capital raised through donations and other funding sources is extremely important for the success of social entrepreneurs.
Finally, the acceptance of a particular social entrepreneur’s social values influences the success of his or her organization. When a large segment of society supports a social entrepreneur’s cause, the social entrepreneur is likely to obtain the funds and employees or volunteers needed for success. In contrast, when only a small segment of society supports the social entrepreneur’s cause, it is more difficult for the entrepreneur to obtain the necessary resources. For example, the National Association of Parents of the Visually Impaired Children in Israel faced difficulties raising the necessary resources because so few members of society found the organization worthy of support.54