An Introduction to Social Entrepreneurship

1. An Introduction to Social Entrepreneurship

2. 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

3. What Is Entrepreneurship? Process of creating value by bringing together a unique package of resources to exploit an opportunity

4. The New Buzzword:Social Entrepreneurship So, is entrepreneurship basically entrepreneurship regardless of the context? Or is “social entrepreneurship” something truly different?

5. What Is Social Entrepreneurship? Nonprofits making money

6. What Is Social Entrepreneurship? Nonprofits making money For-profits doing things to show they are not evil

7. 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

8. The only big difference between commercial and social entrepreneurship: Denomination of the returns Social and commercial entrepreneurship have most of the same characteristics

9. 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

10. 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?

11. 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

12. 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

13. 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

14. Forces on Social Entrepreneurship

15. Social Entrepreneurs “Look” Like Any Other Kind of Entrepreneur

16. Risk + Innovation

17. Opportunities vs. Threats Opportunities for social entrepreneurs look like threats and tragedies to others

18. 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

19. Why does social entrepreneurship matter?

20. 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

21. The Result: Nonprofit Nation • 1.5m registered nonprofits • Something like 9m grassroots organizations • 30 nonprofit links per citizen

22. A primer on nonprofit organizations

23. 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

24. 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

25. International Comparisons Source: Salamon, et al. 1999

26. 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

27. 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

28. Nonprofits Are Proliferating in the U.S.

29. The Nonprofit Sector Is Larger than Government

30. Health Organizations Dominate the Sector Source: IRS 990 data, 2003

31. Revenue Sources Vary a Lot by Subsector

32. Health Organizations Tend to Be Huge Source: IRS 990 data, 2003

33. All Subsectors Are Growing (but Health is exploding) Source: Independent Sector 2002 33

34. Main Challenges at Present • Money • Competition • Demonstrating effectiveness • Technology • Trust • Human resources • Public-sector relations Ref. Salamon 2002

35. 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

36. 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

37. Main Risks at Present • Identity loss, “mission creep” • Industry concentration • Pressure on managers for results • Loss of public trust Ref. Salamon 2002