Social Entrepreneurship and the Blurring of Sector Boundaries

1. Social Entrepreneurship and the Blurring of Sector Boundaries J. Gregory Dees Duke University Fuqua Alumni Weekend April 20, 2002

2. Late eighteenth century, Jean Baptiste Say: • Entrepreneurs shift economic resources out of areas of lower and into areas of higher productivity and yield. Twentieth century, Joseph Schumpeter: • The function of entrepreneurs is to reform or revolutionize the pattern of production. Origins of the Term "Entrepreneur"

3. Recent Theories of Entrepreneurship Peter Drucker, management guru: • The entrepreneur always searches for change, responds to it, and exploits it as an opportunity. Howard Stevenson, Harvard Business School: • Entrepreneurship is the pursuit of opportunity without regard to resources currently controlled.

4. Drawing on these definitions, we can say that successful entrepreneurs are: • Opportunity-oriented • Innovative • Resourceful and • Value creating. Key Elements of Entrepreneurship

5. Their primary mission is to create social value. • Success is defined by social impact, not (simply) • Profitability or • Customer satisfaction. • Social value creation is both • Hard to measure and • Open to dispute. How Are Social Entrepreneurs Different?

6. Market Discipline Is Weakened Neither “customer” nor “capital”market forces assure social value creation. • “Customers” frequently do not pay full cost. • Third-party payers cannot easily assess the social value creation or efficiency. • Comparisons across different organizations are inherently problematic for both. • Rewards to resource providers are not reliably correlated with efficient social value creation.

7. Social entrepreneurs are individuals who • Adopt a social mission, • Relentlessly pursue opportunities to serve that mission, • Continuously innovate, adapt, and learn, • Act boldly, without being limited by resources in hand, and • Hold themselves accountable for the outcomes they create. An Idealized Definition of Social Entrepreneurship

8. Social entrepreneurs are increasingly blurring the boundaries between the nonprofit and for-profit sectors, as they • Search for more systemic and sustainable solutions, and • Explore business tools and commercial methods of operation. Recent Trends Are Blurring Sector Boundaries

9. Charitable relief is essential, but it • Does not address underlying problems, • Can create unhealthy dependencies, and • Can be demeaning. The emphasis is shifting to approaches that • Reduce the need for charitable assistance, • Engage people in improving their lives, and • Create better alignment between social and economic value. Searching for Sustainable Improvements

10. Philanthropy is also essential, but it • Is time-consuming, • Can be unreliable and faddish, and • Can buffer entrepreneurs from accountability to the people they serve. The emphasis is shifting to more business-inspired approaches, in order to • Provide more diverse and sustainable revenue streams, and • Promote efficient use of scarce resources. Exploring Commercial Methods

11. Purely Philanthropic Purely Commercial Appeal to goodwill Mission-driven Social value creation Mixed motives Balance of mission and market Social and economic value General Motives, Methods, and Goals Appeal to self-interest Market-driven Economic value creation The Social Enterprise Spectrum Key Stakeholders: Beneficiaries Pay nothing Subsidized rates, and/or mix of full payers and those who pay nothing Pay full market rates Capital Donations and grants Below-market capital and/or, mix of donations and market rates capital Market rate capital Work force Volunteers Below-market wages, and/or mix of volunteers and fully paid staff Market rate compensation Suppliers Make in-kind donations Special discounts, and/or mix of in-kind and full price Charge full market prices

12. Started in 1987 sending philanthropiceye-care missions to developing countries that • Provide free exams and glasses, • Rely on volunteer doctors and technicians, • Recycle eyeglasses donated by the public, • Use grants and in-kind donations to support the work. A Case in Point: Help The World See

13. In 1992, HTWS began creating "self-sustaining" clinics in developing countries that • Provide free exams and medical referrals, • Charge a modest fee for glasses, • Train and employ local residents to conduct exams, prescribe and produce glasses, • Rely on limited in-kind donations and some discounts on eyeglass materials, and • Use startup grants, but have operating self-sufficiency as the goal. Help The World See (cont’d)

14. Both approaches are entrepreneurial, but the clinics are a prime example of recent trends. Each approach has strengths and weaknesses: • Missions serve the most needy and provide a powerful experience for volunteers, but are only temporary and grant-dependent. • Clinics build local capacity and are less dependent on the kindness of strangers, but do not reach the poorest 20%. Help The World See: Lessons and Observations

15. Blurring sector boundaries can raise new issues • Local ophthalmologists were concerned about quality and competition, and • Clinics had difficulty collecting fees from poor clients, making break-even elusive. Clinics and missions were split into two different organizations to • Differentiate them for funders and other resource providers, and • Recognize the different skill requirements. Help The World See: Lessons and Observations (cont’d)

16. More Boundary-Blurring Examples For-Profit Social Ventures • Grameen Bank • America Works Nonprofits Running Businesses • TROSA, Pioneer Human Services • Minnesota Public Radio's catalogues

17. Boundary-Blurring Examples (cont’d) Nonprofits Charging for Services in New Ways • GuateSalud • Family Services of America • Habitat for Humanity Cross-Sector Partnerships • Nature Conservancy and Georgia Pacific • Novartis and UC Berkeley • SOS and American Express

18. Implications for You As Drucker pointed out, change creates opportunity. Boundary-blurring creates new opportunities for people with business skills. • Engage in volunteer consulting • Join a board • Change your career. It will be a powerful and rewarding life-long learning experience!