7.7 Social entrepreneurship

Social entrepreneurship emerged in the late 20th century as a response to societal challenges unaddressed by traditional sectors. It combines entrepreneurial principles with social missions to create innovative solutions for community problems, reflecting American values of individualism and civic responsibility.

Key principles include the double and triple bottom line, measuring success by financial performance and social impact. Notable American social entrepreneurs like Muhammad Yunus and Blake Mycoskie have significantly influenced business practices and social change, often leading to the creation of new industries or reform of existing ones.

Origins of social entrepreneurship

• Emerged in the late 20th century as a response to societal challenges unaddressed by traditional business and government sectors
• Combines entrepreneurial principles with social mission to create innovative solutions for community problems
• Reflects American values of individualism, innovation, and civic responsibility

Early examples in US history

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• Benjamin Franklin established the Library Company of Philadelphia in 1731 pioneered public lending libraries
• Clara Barton founded the American Red Cross in 1881 providing disaster relief and humanitarian aid
• Jane Addams established Hull House in 1889 offering social and educational services to immigrants
• Goodwill Industries founded by Edgar J. Helms in 1902 created job opportunities for those facing barriers to employment

Influence of social movements

• Civil Rights Movement inspired organizations addressing racial inequality and social justice
• Environmental movement of the 1960s and 1970s led to eco-friendly businesses and conservation efforts
• Women's rights movement prompted enterprises focused on gender equality and women's empowerment
• LGBTQ+ rights movement fostered businesses supporting diversity and inclusion

Key principles and concepts

• Social entrepreneurship integrates business strategies with social impact goals
• Emphasizes sustainable solutions to societal problems rather than short-term fixes
• Seeks to create value for both the enterprise and society at large

Double bottom line

• Measures success by both financial performance and social impact
• Balances profit-making activities with socially beneficial outcomes
• Requires careful management to ensure neither aspect is neglected
• Often used in microfinance institutions and fair trade organizations

Triple bottom line

• Expands on double bottom line by including environmental considerations
• Measures success based on "People, Planet, Profit" framework
• Aims to create positive impact in social, environmental, and economic spheres
• Examples include companies like Patagonia and Ben & Jerry's

Stakeholder theory

• Considers interests of all parties affected by business operations, not just shareholders
• Includes employees, customers, suppliers, communities, and the environment
• Emphasizes long-term sustainability over short-term profit maximization
• Guides decision-making to create value for all stakeholders

Notable American social entrepreneurs

• Social entrepreneurs in the US have significantly influenced business practices and social change
• Their innovations have often led to the creation of new industries or reform of existing ones

Historical figures

• Muhammad Yunus pioneered microfinance with Grameen Bank, inspiring similar models in the US
• Paul Polak developed affordable irrigation technologies for small-scale farmers in developing countries
• Bill Drayton founded Ashoka, supporting social entrepreneurs worldwide
• Wendy Kopp created Teach for America, addressing educational inequity in underserved communities

Contemporary leaders

• Blake Mycoskie founded TOMS Shoes, popularizing the "buy one, give one" business model
• Scott Harrison established charity: water, bringing clean water to developing nations
• Leila Janah founded Samasource, providing digital work to people in poverty
• Yvon Chouinard of Patagonia integrated environmental activism into business practices

Business models in social enterprise

• Social enterprises employ various business models to achieve their dual mission of financial sustainability and social impact
• The choice of model depends on factors such as the nature of the social problem, target audience, and funding sources

Non-profit vs for-profit

• Non-profit models rely on grants, donations, and earned income to fund social programs
• For-profit models generate revenue through sales of goods or services to support social mission
• Non-profits benefit from tax exemptions but may face funding constraints
• For-profits have more flexibility in operations but must balance profit with social impact

Hybrid organizations

• Combine elements of both non-profit and for-profit models
• May have a non-profit arm for charitable activities and a for-profit arm for revenue generation
• Allow for greater flexibility in funding sources and operational strategies
• Examples include Mozilla Foundation and Corporation, and Grameen Bank's various entities

Benefit corporations

• Legal structure that allows companies to pursue social and environmental goals alongside profit
• Provides legal protection for considering non-financial interests in decision-making
• Required to report on social and environmental performance using third-party standards
• Notable examples include Patagonia, Kickstarter, and Etsy

Funding and investment

• Social enterprises require innovative funding approaches to support their dual mission
• Blend of traditional investment and philanthropic funding sources often used

Impact investing

• Investments made with intention to generate positive social or environmental impact alongside financial return
• Ranges from below-market to market-rate returns depending on investor goals
• Growing sector with increasing participation from institutional investors and high-net-worth individuals
• Includes various asset classes such as private equity, debt, and real assets

Venture philanthropy

• Applies venture capital principles to philanthropic giving
• Involves high engagement from funders, providing both financial and non-financial support
• Focuses on building organizational capacity and scaling impact
• Often includes multi-year funding commitments and rigorous performance measurement

Crowdfunding for social causes

• Leverages online platforms to raise small amounts from large number of individuals
• Enables social entrepreneurs to validate ideas and build community support
• Platforms like Kiva for microloans and GoFundMe for charitable causes have gained popularity
• Challenges include building trust and maintaining donor engagement over time

Measuring social impact

• Critical for demonstrating effectiveness and attracting funding
• Involves quantifying and communicating the social value created by an enterprise

Social return on investment

• Methodology for measuring and accounting for social, environmental, and economic value creation
• Expresses social impact in monetary terms relative to investment made
• Calculation: $(Social Impact Value - Initial Investment) / Initial Investment$
• Challenges include monetizing intangible social benefits and standardizing across different sectors

Impact metrics and evaluation

• Key Performance Indicators (KPIs) specific to social and environmental goals
• May include measures like lives improved, carbon emissions reduced, or jobs created
• Frameworks such as IRIS+ and Global Impact Investing Rating System (GIIRS) provide standardized metrics
• Importance of both quantitative and qualitative data in telling the impact story

Challenges in quantifying impact

• Difficulty in attributing social changes directly to specific interventions
• Long-term nature of many social impacts complicates measurement
• Lack of universal standards for impact measurement across different sectors
• Balancing cost and complexity of impact measurement with practical utility

Legal and policy environment

• Government policies and legal structures significantly influence the growth of social entrepreneurship
• Evolving landscape as policymakers recognize the potential of social enterprises to address societal challenges

Tax incentives for social enterprises

• Various tax benefits available depending on legal structure and activities
• Non-profits enjoy tax-exempt status on income related to their mission
• For-profit social enterprises may qualify for specific tax credits or deductions
• Some states offer additional tax incentives to encourage social enterprise development

Regulatory frameworks

• Benefit corporation legislation passed in many states provides legal protection for social missions
• L3C (Low-profit Limited Liability Company) structure in some states combines LLC flexibility with charitable purpose
• SEC regulations on impact investing and crowdfunding affect funding options for social enterprises
• Ongoing debates about appropriate regulatory oversight for hybrid organizations

Public-private partnerships

• Collaborations between government agencies and social enterprises to address social issues
• Can provide access to resources, funding, and scale for social entrepreneurs
• Examples include workforce development programs and healthcare initiatives
• Challenges include navigating bureaucracy and aligning public and private sector goals

Critiques and challenges

• Social entrepreneurship faces various criticisms and obstacles as it evolves
• Addressing these challenges is crucial for the long-term success and credibility of the field

Mission drift

• Risk of prioritizing financial goals over social mission as organizations grow
• Pressure from investors or market forces may lead to compromise on social impact
• Strategies to prevent mission drift include strong governance and clear impact metrics
• Examples of organizations accused of mission drift include microfinance institutions charging high interest rates

Scalability issues

• Difficulty in replicating successful local models on a larger scale
• Challenges in maintaining quality and impact while expanding operations
• Tension between customization for local needs and standardization for efficiency
• Successful scaling often requires significant capital and strategic partnerships

Balancing profit and purpose

• Ongoing challenge of maintaining financial sustainability while maximizing social impact
• Potential conflicts between short-term financial needs and long-term social goals
• Importance of transparent communication with stakeholders about trade-offs
• Examples of successful balance include fair trade organizations and social housing developers

Social entrepreneurship in education

• Growing integration of social entrepreneurship concepts into academic curricula
• Aims to develop next generation of socially conscious business leaders

University programs and initiatives

• Dedicated social entrepreneurship majors and minors offered at many universities
• Integration of social impact courses into traditional business programs
• Research centers focused on social innovation and entrepreneurship
• Student-led initiatives like Net Impact chapters promoting social responsibility in business

Incubators and accelerators

• University-based incubators supporting student and faculty social ventures
• Accelerator programs providing mentorship, funding, and resources to early-stage social enterprises
• Partnerships between universities and external organizations to support social entrepreneurs
• Examples include Harvard Innovation Lab and Stanford's Center for Social Innovation

Future trends and innovations

• Rapid evolution of social entrepreneurship driven by technological advancements and global challenges
• Increasing integration of social impact considerations into mainstream business practices

Technology in social entrepreneurship

• Blockchain for transparency in supply chains and impact measurement
• Artificial intelligence and machine learning for more efficient resource allocation
• Mobile technologies enabling broader reach and innovative service delivery models
• Examples include M-PESA for mobile banking in developing countries and Crisis Text Line using AI for mental health support

Global expansion of US models

• Adaptation of successful US social enterprise models to international contexts
• Cross-cultural collaborations and knowledge sharing in social entrepreneurship
• Challenges in navigating different regulatory environments and cultural norms
• Examples include expansion of microfinance models and fair trade certifications globally

Emerging sectors for impact

• Climate change mitigation and adaptation technologies
• Mental health and wellness innovations
• Circular economy and sustainable consumption models
• Education technology addressing global learning gaps
• Aging population services and technologies