Social Entrepreneurship - Introduction

Dream >Believe >Pursue
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 its a global revolution
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?
What Is Social
Entrepreneurship?
Nonprofits making money
What Is Social
Entrepreneurship?

For-profits doing things to show
they are not evil
What Is Social
Entrepreneurship?

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
1. Find an opportunity
2. Develop a business concept
3. Figure out what success means
and how to measure it
4. Acquire the right resources
5. Launch and grow
6. 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
Environmental factors
Social climate conducive to social
entrepreneurship
Political climate that facilitates
social innovation
Availability of financial and
nonfinancial resources
Perturbation of the environment
Political change
Cultural change
Economic change
Entrepreneurial
personality traits
Preparation to exploit
opportunities
Education
Experience
Social entrepreneurship
process begins
External forces
Internal forces
Environmental factors
Social climate conducive to social
entrepreneurship
Political climate that facilitates
social innovation
Availability of financial and
nonfinancial resources
Perturbation of the environment
Political change
Cultural change
Economic change
Entrepreneurial
personality traits
Preparation to exploit
opportunities
Education
Experience
Social entrepreneurship
process begins
External forces
Internal forces
15
Social Entrepreneurs Look Like
Any Other Kind of Entrepreneur

Innovativeness
Education and experience
Achievement orientation
Independence
Sense of control over destiny
Low risk aversion
Tolerance for ambiguity
Entrepreneurial
orientation
Community awareness
And social concern
Socially-entrepreneurial
orientation
Innate characteristics
Innovativeness
Education and experience
Achievement orientation
Independence
Sense of control over destiny
Low risk aversion
Tolerance for ambiguity
Entrepreneurial
orientation
Community awareness
And social concern
Socially-entrepreneurial
orientation
Innate characteristics
16
Risk + Innovation
High risk
aversion
Low risk
aversion
Highly-
innovative
Dreamer Entrepreneur
Not
innovative
Stuck Gambler
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

3%
6%
7%
0%
1%
2%
3%
4%
5%
6%
7%
8%
All nonprofits Public charities Private foundations
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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 of all nonprofit
activity worldwide ($600b)
has 45% of all worlds 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
Country
Revenues from
government
Revenues from
philanthropy Earned revenues
Argentina 20% 8% 73%
Australia 31% 6% 63%
Austria 50% 6% 44%
Belgium 77% 5% 19%
Brazil 16% 11% 74%
Colombia 15% 15% 70%
Czech Republic 39% 14% 47%
Finland 36% 6% 58%
France 58% 8% 35%
Germany 64% 3% 32%
Hungary 28% 18% 55%
Ireland 77% 7% 16%
Israel 64% 10% 26%
Japan 45% 3% 52%
Mexico 9% 6% 85%
Netherlands 59% 3% 38%
Peru 19% 13% 68%
Romania 45% 27% 29%
Slovakia 22% 23% 55%
Spain 32% 19% 49%
U.K. 47% 9% 45%
U.S. 31% 13% 57%

Source: Salamon, et al. 1999
26
Size of the Nonprofit
Workforce
12.6
11.5
10.5
9.2
7.8
7.2
6.2
4.9 4.9
4.5 4.5
3.7
3.5
3
2.4 2.4
2.2
1.7
1.3
0.9
0.6
0.4
0
2
4
6
8
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14
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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.
Number of nonprofits
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
1975 1980 1985 1990 1995 2000
29
The Nonprofit Sector Is
Larger than Government
Share of GDP (1998)
Nonprofit, 13%
Commercial,
80%
Government,
7%
30
Health Organizations
Dominate the Sector
Percent of revenues
Health, 35.91%
Education, 14.03%
Human Services,
4.96%
Grantmaking, 4.90%
Arts, 2.15%
Member Benef it,
1.67%
Other, 7.13%
Unknown, 29.10%
Source: IRS 990 data, 2003
31
Revenue Sources Vary a
Lot by Subsector
Subsector Portion of
nonprofit sector
1

Total
revenues
1

Government
funding
2

Private
donations
2

Earned
income
2

Education 18% $119.7b 19% 16% 65%
Social welfare 12% $79.8b 52% 20% 28%
Health 49% $325.9b 42% 6% 52%
Arts 2% $13.3b 10% 44% 46%
Religion
3
12% $79.8b 0% 84% 16%
Total 100% $664.8b 33% 20% 47%
1. Source: Independent Sector (2002)
2. Source: Salamon (2002)
3. This category only counts sacramental activity
32
Health Organizations Tend
to Be Huge
Average revenues
$0
$5,000,000
$10,000,000
$15,000,000
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Source: IRS 990 data, 2003
All Subsectors Are Growing
(but Health is exploding)
33
Source: Independent Sector 2002
0
50
100
150
200
250
300
350
Health Education Religion Social
welfare
Arts and
culture
Subsector
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d
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1977
1987
1997
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

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