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An Introduction to Social Entrepreneurship. An Entrepreneurial Revolution. 1 million new ventures a year in U.S. 85% of the new jobs in small and start-up firms Product/service introduction rate higher than ever before Rate of wealth creation exploding And it’s a global revolution.
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An Entrepreneurial Revolution • 1 million new ventures a year in U.S. • 85% of the new jobs in small and start-up firms • Product/service introduction rate higher than ever before • Rate of wealth creation exploding • And it’s a global revolution
What Is Entrepreneurship? Process of creating value by bringing together a unique package of resources to exploit an opportunity
The New Buzzword:Social Entrepreneurship So, is entrepreneurship basically entrepreneurship regardless of the context? Or is “social entrepreneurship” something truly different?
What Is Social Entrepreneurship? Nonprofits making money
What Is Social Entrepreneurship? Nonprofits making money For-profits doing things to show they are not evil
What Is Social Entrepreneurship? Nonprofits making money For-profits doing things to show they are not evil Process of creating value by bringing together a unique package of resources to exploit an opportunity, in pursuit of high social returns
The only big difference between commercial and social entrepreneurship: Denomination of the returns Social and commercial entrepreneurship have most of the same characteristics
The Process of Social Entrepreneurship • Find an opportunity • Develop a business concept • Figure out what success means and how to measure it • Acquire the right resources • Launch and grow • Attain goals
The Main Difficulty: Measurement • What is profit? • How do we count it? • What is “social return o n investment” for venture philanthropists? • Can we compare investments?
Three characteristics • Social entrepreneurship meets needs unmet by commercial markets and (usually) the government • Social entrepreneurship is motivated by social benefit • Successful social entrepreneurship usually works with, not against, markets
Case 1: Housing Opportunities Made Equal (H.O.M.E.) • Services • Core services in housing disputes and fair housing advocacy in Virginia • Special projects and lawsuits • Opportunity: Educate people on fair housing before-the-fact, instead of fixing situations after-the-fact • Enterprise: Start fair housing training Institute • Returns: More housing for the disadvantaged, fewer complaints
Case 2: Boaz & Ruth • Opportunity: Underused human capital • Endeavor: New businesses using former inmates in an aggressively faith-based setting • Social returns: Young people not returning to jail, peaceful neighborhood
Social Entrepreneurs “Look” Like Any Other Kind of Entrepreneur
Opportunities vs. Threats Opportunities for social entrepreneurs look like threats and tragedies to others
Myths about Social Entrepreneurship • Social entrepreneurs are anti-business • The difference between commercial and social entrepreneurship is greed • Social entrepreneurs are nonprofit managers • Social entrepreneurs are born, not made • Social entrepreneurs are misfits • Social enterprises usually fail • Social entrepreneurs love risk
A Nation of Social Entrepreneurs Immigrant stock with a high entrepreneurial orientation + Faith in own abilities + Vast ungovernable frontier = Citizens willing to meet their own social needs, without an excessive reliance on the state
The Result: Nonprofit Nation • 1.5m registered nonprofits • Something like 9m grassroots organizations • 30 nonprofit links per citizen
What Is a Nonprofit? • Tax & regulatory definition: an organization that • Enjoys special tax status • Faces a nondistribution constraint (profit=0) • Functional definition: an organization that forms to • perform “public tasks” • environmental protection, social service provision • perform tasks for which there is demand but no supply from for-profits or governments • religious activity, art museum • influence the direction of public policy • political party, issue organization 23
International Facts • U.S. is very large • represents more than ½ of all nonprofit activity worldwide ($600b) • has 45% of all world’s nonprofit employees • Rich nations tend to have more developed nonprofit sectors than poor nations • Government social spending is positively correlated with nonprofit sector size
International Comparisons Source: Salamon, et al. 1999
14 12.6 12 11.5 10.5 10 9.2 7.8 8 7.2 6.2 Percent of employees 6 4.9 4.9 4.5 4.5 3.7 4 3.5 3 2.4 2.4 2.2 1.7 2 1.3 0.9 0.6 0.4 0 UK Holland USA Brazil Peru Israel Spain Ireland Mexico Austria Japan Finland Belgium Hungary Australia France Slovakia Colombia Romania Germany Argentina Czech Republic Size of the Nonprofit Workforce
NPO Types in the U.S. • 34 types: 501(c)(1)-(27), 501(d)-(f),(k),(n), 521(a), 527 • 501(c)(3): public benefit organizations • Religious, charitable, educational, scientific, literary, amateur sports promotion, prevention of cruelty to animals or children • Private schools, houses of worship, social welfare charities, hospitals, libraries, etc. • 501(c)(4): mutual benefit organizations • Local civic leagues, social welfare organizations, employee associations • Volunteer fire departments, homeowners’ associations, social clubs, festivals, etc. • 501(c)(6): Trade organizations • Business leagues, chambers of commerce Ref.: Section 501, IR Code
Health Organizations Dominate the Sector Source: IRS 990 data, 2003
Health Organizations Tend to Be Huge Source: IRS 990 data, 2003
All Subsectors Are Growing (but Health is exploding) Source: Independent Sector 2002 33
Main Challenges at Present • Money • Competition • Demonstrating effectiveness • Technology • Trust • Human resources • Public-sector relations Ref. Salamon 2002
Main Opportunities at Present • Demographic shifts • New philanthropy • Heightened awareness of sector • Increased social welfare spending through sector • Entitlement expansion • Welfare reform Ref. Salamon 2002
Main Trends at Present • Explosive growth • Attention to marketing and management movements • Commercial ventures • Development of umbrella organizations and formal education • Effectiveness in competing economically and politically Ref. Salamon 2002
Main Risks at Present • Identity loss, “mission creep” • Industry concentration • Pressure on managers for results • Loss of public trust Ref. Salamon 2002