This is a business model focused on creating and implementing solutions to social needs and problems (meaning the long-standing needs of society in the basic areas of human necessity such as food, water, shelter, education, and medical services) without regard to profits or personal and shareholder wealth or gain.
Prodded by socially conscious customers and idealistic employees, as well as a skeptical public, businesses are searching for new ways to prove capitalism’s power to rectify social ills. Whether it is John Mackey’s “conscious capitalism,[i]“ the “just capital” of Paul Tudor Jones,[ii] Michael Porter’s “shared value capitalism,”[iii] Lynn Forester de Rothschild’s “inclusive capitalism,”[iv] or Marc Benioff’s “compassionate capitalism,”[v] the collective message is unambiguous: your father’s capitalism needs some modification. On this website, we group together the similar notions of social entrepreneurship, social enterprise, social venture, and social capitalism into a single category called social entrepreneurship because all these concepts are dynamically equivalent.
History of Social Entrepreneurship
The words “entrepreneur” or “entrepreneurship” can generate different meanings to a variety of people depending on their individual experiences, circumstances, education, culture, or perspective. These words have roots in the French word entreprende, which means to undertake. The Oxford English Dictionary define an entrepreneur as “a person who sets up a business or businesses, taking on financial risks in the hope of profit.”[vi] While convenient for use in common language, this dictionary definition does not capture the impact and depth of operationalized definitions offered in professional and scholarly literature on the topic.
While commerce has been discussed in economic writings dating back to the eighteenth century[vii] the definition and role of the entrepreneur in an economy was first highlighted and popularized by Joseph Schumpeter in 1934. Schumpeter went beyond the standard definition to define the entrepreneur as one who brings innovation into the economy with new products, services, organizational techniques or markets that result in enough value to generate demand among customers.[viii]
Peter F. Drucker refined Schumpeter’s perspective by emphasizing that innovation is the specific tool of the entrepreneur that enables them to change resources in such a way that value is created, and that true entrepreneurs engage “in the purposeful and organized search for changes, and in the systematic analysis of the opportunities such changes might offer.”[ix]
The concept and term “social entrepreneurship” has been tossed around since the 1950s.[x] It was even popular in the 1980s and ‘90s when some of the greatest social entrepreneurs of all time were working on their social ventures to address timely issues such as a lack of financial self-sufficiency in Bangladesh and reducing environmental impact of cleaning products in the United States.[xi]
The twenty-first century also saw the rise of great social entrepreneurs aiming to encourage literacy, put shoes on the feet of millions of children, and give sight to those in need.[xii]
Catapulting the concept of social entrepreneurship into the spotlight was the 2006 Nobel Peace Prize winner Muhammad Yunus, Founder of Grameen Bank, an institution that provides microcredit loans to encourage economic growth at the grassroots level in Bangladesh in order to help the disadvantaged develop financial self-sufficiency. Yunus’ Nobel Prize brought social ventures into contemporary consciousness. Since its founding in 1983, the bank has brought in a net income of more than $10 million. [xiii]
Social Entrepreneurship Today
Social entrepreneurship is a relatively new concept that seeks to embrace the increasingly close relationships between the public, private, and non-profit sectors. Increasingly recognizing that stakeholder concerns are diverse and need care, companies have started to consider the non-profit sector. In this way, companies are realizing that there is a growing trend of social awareness, especially among (potential) customers, in addition to the traditional shareholder concern of profit maximization.[xiv]
Therefore, businesses increasingly tap into the social sphere. As opposed to this trend, humanitarian and other non-profit organizations, which previously deterred money making, have seen a need to move into business-related activities to ensure their funding. Moreover, these organizations have started to realize the political power of businesses and seek these activities to market and “sell” their causes. Thus, the public, private, and non-profit sectors have become blurred.[xv]
The social entrepreneurship literature shows how businesses today are increasingly engaging in social tasks.[xvi] By making the values inherent in social entrepreneurship and social entrepreneurs explicit, value-based social entrepreneurship continues further along this development path. However, the actual values in question as well as their significant influence on performance have not yet been subject to much research. In particular, so far there has been very limited research on how the faith of managers and entrepreneurs influence their business behavior and, consequently, their business performance.
The concept of entrepreneurship, long hallowed in the concept of business and economic ventures, has been increasingly applied to the context of social problem solving. The challenges of finding effective and sustainable solutions to many social problems are substantial and solutions may require many of the ingredients associated with successful business innovations in business creation.[xvii]
In the twenty-first century, entrepreneurs are now described as innovators.[xviii] The function of entrepreneurs is to reform or revolutionize the pattern of production. By serving new markets or creating new ways of doing things, they move the economy forward. Social entrepreneurs are one species in the genus entrepreneur. They are entrepreneurs with a social mission. For social entrepreneurs, the social mission is explicit and central. This obviously affects how social entrepreneurs perceive and assess opportunities. Mission-related impact becomes the central criterion, not wealth creation.[xix]
The phrase social entrepreneurship combines the passion of social mission with businesslike discipline, innovation, and determination. Social entrepreneurs look for the most effective methods of serving their social missions. The critical distinction between entrepreneurship and social entrepreneurship lies in the value proposition itself.[xx]
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 to any venture’s sustainability and the means to its ultimate end in the form of largescale market adaptation and ultimately a new equilibrium.[xxi]
Social entrepreneurs, however, neither anticipate nor organize to create substantial financial profit for their investors or for themselves. Instead, the social entrepreneur aims for value in the form of largescale, transformational benefit that accrues either to a significant segment of society or to society at large. The social entrepreneur’s value propositions target an underserved, neglected or highly disadvantaged population that lacks the financial means or political clout to achieve the transformative benefits on its own.[xxii]
Once again, there is no objective way to measure companies engaged in social entrepreneurship because there are no precise definitions or ways to manage this term, nor is it possible to know the intent or motives of anybody engaging in social entrepreneurship.
That being said, we offer three representative companies here that most would say are engaged in social entrepreneurship. These three companies are hip, popular, and are leaders in the secular mission movement.
Founded by Jeer Hollander in 1998, the mission is to produce cleaning and personal products with a reduced environmental impact. Their business model is to give 10% of pre-tax profits to fund non-profits and businesses focused on the community, the environment, and responsible practices. In 2010, Seventh Generation made over $150 million in revenue.[xxiii]
Better World Books
Founded by Xavier Helge Sen, Chris “Reece” Fuchs, and Je Kurtzman in 2002, Better World Books’ mission is to maximize the value of every book and to help promote literacy around the world. Their business model is to reuse or recycle books through sales on their website and donations to schools while maintaining a “triple bottom line,” caring not only about profits but also the social and environmental impact of their business. Through 2014, they have raised $12.1 million for literacy funding.[xxiv]
Founded by Blake Mycoskie in 2006, TOMS provides shoes to needy people through a one-for-one business model: the company donates one pair of shoes for every pair it sells. More than a million pairs of shoes have been donated since the company was founded.[xxv]
Criticism of Social Entrepreneurship
There is no doubt that social entrepreneurship is popular now. The bigger question, however, is whether social entrepreneurship is effective?
There are three problems with social entrepreneurship. The first problem a lack of a clear definition as to what it means to be a social entrepreneur.[xxvi]
Second, because of the hipness associated with social entrepreneurship and humanity’s intrinsic desire to help others, people often assume that social entrepreneurs are good people who share the values and norms of those who find this type of business to be attractive in the first place. This belief may or may not be true. There are without a doubt, good, honest, and effective people engaging in social entrepreneurship who are making a positive difference in the world. Unfortunately, the opposite it true as well. We know several people who define themselves as social entrepreneurs and who are, for lack of a better definition, sleazy, dishonest, and uncaring. They are simply using the idea of social entrepreneurships to bilk unsuspecting and good-hearted consumers into buying their good or product at often time inflated prices and using the profits for personal gain. As cynical as it may sound, social entrepreneurship can be a big (and profitable) business model.[xxvii]
And thirdly, social entrepreneurship can inadvertently disrupt the free market process and do more long-term harm than good. For example, we know of a company who sold fresh organic chickens in Europe. They wanted to alleviate hunger and malnutrition in Africa. To this end, they engaged in social entrepreneurship and offered a promotion: For every chicken sold in Europe they would give a dozen eggs to people in a poor village in Africa. On the surface this seems like a great idea to help humanity. In reality, by engaging in this type of social business, a fledgling local egg producer was forced out of business. Who would pay for eggs if you could get them for free? As a result, when the company ended their program, the local villagers in Africa couldn’t get a reliable or affordable source of eggs anymore because the market had been artificially tampered with. We are certain the European poultry producer never thought of this consequence when they decided to engage in social entrepreneurship.
[i]John Mackey and Rajendra Sisodia, Conscious Capitalism: Liberating the Heroic Spirit of Business (Boston, MA: Harvard Business Review Press, 2014).
[iii]Mark R. Kramer and Michael Porter, “Creating Shared Value” in Harvard Business Review 89.1/2 (2011): 62-77.
[iv]Mark Carney, “Inclusive Capitalism,” in a speech given at the conference on “Inclusive Capitalism,” London (2014).
[v]Marc Benioff and Karen Southwick, The One Percent Solution: How Corporations Can Make Doing Good an Integral Part of Doing Business, Locally and Globally (Franklin Lakes, NJ: Career, 2004).
[vii]See for example Adam Smith’s An Inquiry into the Nature & Causes of The Wealth of Nations (Edinburgh, UK: Oliphant, Waugh & Innes, 1817).
[viii]Joseph A. Schumpeter and Richard V. Clemence, Essays: On Entrepreneurs, Innovations, Business Cycles, and the Evolution of Capitalism (New Brunswick, NJ: Transaction Publishers, 1989).
[ix]Peter F. Drucker and Joseph A. Maciariello, Innovation and Entrepreneurship (Abingdon, UK: Routledge Classics, 2015), 58.
[x]Howard R. Bowen and Frederick Ernest Johnson, Social Responsibilities of the Businessman (New York, NY: Federal Council of the Churches of Christ in America, 1953).
[xi]David Bornstein and Susan Davis, Social Entrepreneurship: What Everyone Needs to Know (New York, NY: Oxford University Press, 2010).
[xiii]Muhammad Yunus, and Alan Jolis, Banker to the Poor Micro-Lending and the Battle Against World Poverty (New York, NY: Public Affairs, 2009).
[xiv]Jed Emerson, “The Blended Value Proposition: Integrating Social and Financial Returns” in California Management Review 45.4 (2013): 35-51.
[xvi]Andreas M. Kaplan and Michael Haenlein, “Users of the World, Unite! The Challenges and Opportunities of Social Media” in Business Horizons 53.1 (2010): 59-68.
[xvii]Bob Willard, The New Sustainability Advantage: Seven Business Case Benefits of a Triple Bottom Line (Gabriola Island, CN: New Society Publishers 2012).
[xviii]Henry W. Chesbrough, “The Era of Open Innovation” in Managing Innovation and Change 127.3 (2006): 34-41.
[xix]J. Gregory Dees, “The Meaning of Social Entrepreneurship,” Duke University (Kauffman Center for Entrepreneurial Leadership) Whitepaper (1998).
[xxii]Bornstein, Social Entrepreneurship: What Everyone Needs to Know.
[xxiii]Carol Sanford, The Responsible Entrepreneur: Four Game-Changing Archetypes for Founders, Leaders, and Impact Investors (Hoboken, NJ: John Wiley & Sons, 2014).
[xxiv]Marna Hostetler, “Purchase-on-demand: An Overview of the Literature” in Against the Grain 22.2 (2014): 16.
[xxv]Blake Mycoskie, Start Something That Matters (New York, NY: Spiegel & Grau, 2012).
[xxvi]M. Tina Dacin, Peter A. Dacin, and Paul Tracey, “Social Entrepreneurship: A Critique and Future Directions” in Organization Science 22.5 (2011): 1203-1213.
[xxvii]Carlo Borzaga and Jacques Defourny, The Emergence of Social Enterprise (Milton Park, UK: Psychology Press, 2004).