According to the Kauffman Center for Entrepreneurial Leadership social entrepreneurs are “Driven by a social mission and a desire to find innovative ways to solve social problems that have been neglected by either the market or the public sector.” Social entrepreneurship by definition means companies of people that develop, fund and implement solutions to environmental, cultural, or social issues.
First used in 1953 by H. Bowen in his book "Social Responsibilities of the Businessman", social entrepreneurship first came into prominence in the 1980’s. Business leaders Bill Drayton, Charles Leadbeater and politician Michael Dunlop Young brought the term to the attention of millions of people and inspired future social businesses. By the early 2000’s the meaning of social entrepreneurship as well as its implementation became popular in the social sector as well as in academia.
In their 2008 book “The Power of Unreasonable People”, John Elkington and Pamela Hartigan define three different business models under which social enterprises can be categorized based on their business practices:
Leveraged non-profit: This business model leverages financial and other resources in an innovative way to respond to social needs.
Hybrid non-profit: This organizational structure can take a variety of forms, but is distinctive because the hybrid non-profit is willing to use profit from some activities to sustain its other operations which have a social or community purpose. Hybrid non-profits are often created to deal with government failures or market failures, as they generate revenue to sustain the operation without requiring loans, grants, and other forms of traditional funding.
Social business venture: These models are set up as businesses that are designed to create change through social means. Social business ventures evolved through a lack of funding. Social entrepreneurs in this situation were forced to become for-profit ventures, because loans and equity financing are hard to get for social businesses.
The number of successful social entrepreneurs continues to grow every year. Scott Harrison and his NPO charity: water has been actively involved in over 20,000 projects since 2006. Xavier Helgesen founded ZOLA Electric in 2012 with the mission of providing energy to the world’s 1.6 billion unelectrified homes through the leasing of solar panels. Jeff Kurtzman, Co-Founder and Managing Partner of Mavin Ventures, has founded multiple enterprises including Operation Incubation and Aid Through Trade.
The most famous social entrepreneurship example would be Muhammad Yunus, the Bangladeshi social entrepreneur, who founded Grameen Bank in 1983. In 2006, Yunus was awarded the Nobel Peace Prize for the work his bank does in providing microcredit loans without requiring collateral. The success of Grameen Bank has inspired similar projects in over sixty countries.
Despite the great potential for success, there are a number of challenges in social entrepreneurship. The most obvious of these is that social entrepreneurs are trying to assist people that are the least likely to be able to pay for it. This is forcing entrepreneurs to find business models that don’t rely on the standard exchange of capital in order to remain sustainable.
A second problem is that social entrepreneurs are trying to predict and creatively respond to problems that don’t exist at the moment. This unpredictability means that finding outside investors can be very difficult. In spite of the good that these businesses could do in solving the problems of overpopulation, the energy crisis and food shortages, the Return on Investment may be slow in coming to entice large-scale investment.
The lack of investor interest leads to the “Pay Gap”, probably the biggest in a social enterprise achieving long-term success and viability. The founders and employees of social enterprises often work for little or no money when starting out. When compared with the commercial sector, the lack of starting salary can cause many potentially life-changing projects to fail before they get started.
Creating a profitable organization that has a positive impact socially or environmentally is the goal of every social entrepreneur. As we’ve seen, it doesn’t come easy and there are a number of pitfalls that can cause an idea with amazing potential to fail before it has a chance to get started. However, by focusing on the United Nations Sustainable Development Goals, social entrepreneurs have already solved at minimum the problem of predicting the future. Additionally, given that over 190 countries have agreed on the importance of the SDGs and that they are willing to work towards them, finding investors for projects based around helping to meet the goals has become increasingly easier.
Combining purpose and profit is possible on all sizes, and scales of businesses. If you want to know more about how that's possible reach out to us.