One of the most interesting trends in entrepreneurship in recent years – and one that promises to become even more prominent in the future – is the idea of making money by doing good.
It’s called social entrepreneurship, and its practitioners are as much interested in leaving the world better than they found it as they are in finding themselves richer than they started. While others look at the world’s ills and become overwhelmed, social entrepreneurs see them and become energized to find solutions that make sound business sense.
From the outside, social entrepreneurship ventures may look suspiciously like well-meaning non-profits that, for generations, have been the solution to problems that plague our neighborhoods, communities, regions and nations. But on the inside, these organizations exhibit the same attributes as any other business, creating jobs, innovation and economic growth.
And, like traditional businesses, social enterprises are born from a need in the market – a so-called market failure – in which the lack of opportunity to generate profit leaves opportunities unaddressed. Traditionally, government has responded by using public dollars to address these market failures.
But social entrepreneurs see another way. Committed to creating social value as well as economic values, these individuals realize that their target audience may not have the ability to pay for products or services and structure their enterprises a variety of ways to ensure their sustainability.
The concept of social entrepreneurship is about 40 years old but has grown in popularity in more recent decades as many entrepreneurs, seeking to distance themselves from perceptions of corporate greed and questionable ethics have started upwards of 20,000 socially conscious firms worldwide.
None of them looks like the others. For instance, in one case the goal may be to employ workers from a disadvantaged area. Another may be to actually produce a product that addresses a health or environmental concern at a reasonable cost. Another might be a business model that requires a percentage of revenue to be devoted to a social challenge right off the top. But while their structures and financial models are as varied as the causes they support, the one characteristic of true social enterprises is that their mission to do good is not an add-on or an afterthought; it is their reason for being.
The trend shows no evidence of slowing down. A growing number of colleges and universities are establishing programs dedicated to educating social entrepreneurs. In addition, with members of Generation Y (those born since the mid-1980s) entering the workforce with an overwhelming drive to find meaning in their careers, we will likely see many more such firms appear.
The most successful social entrepreneurs employ all of the principles of true free enterprise. They recruit and reward the best talent they can find. They innovate both in product development and process implementation. They are agile, willing to change their business model if necessary and can be competitive. Maintaining a solid financial base is as important to them as it is to any other company, for without consistent revenue and profit, their ability to truly change the world is limited.
A companion trend to the growth of social entrepreneurship is growth in the investors who will take a stake in the cause. Equity investment groups interested in supporting socially conscious concerns are beginning to appear on the financing landscape, and these investors are willing to wait to see the return, realizing that the first return on their investment will be not in the bank but on the face of a child or the gratitude of a neighborhood.
Social entrepreneurs are often hesitant to seek financing from conventional sources. For one thing, their ideas are often met with skepticism. If not that, the lenders often seek to control a part of the company’s agenda as well as its interest rate, something that is uncomfortable to this new breed of business person.
Another challenge is often smaller profit margins. Doing the right thing is not cheap. Buying organic or socially responsible products for production is more expensive than buying from traditional sources. Running vehicles on biodiesel can cost up to 10 percent more than conventional fuel. So proprietors need to construct models that can absorb those costs and still bring enough to the bottom line for them to accomplish their mission.
One area of potential opportunity is in partnering with governmental agencies to help achieve the entrepreneurial mission. For instance, following the devastation hurricanes caused on the Gulf Coast, the state of Louisiana formed the Office of Social Entrepreneurship that is encouraging the social service agencies of the state to adopt a more profit-oriented approach to their work. To attract the right groups to the area, the state has created “Social Entrepreneurship Empowerment Zones” to encourage the establishment of economically viable support services.
In North Carolina, legislation is pending that would allow the creation of low-profit, limited- liability partnerships, a hybrid of private-sector enterprise, governmental support and non-profit mission and outreach. These L3Cs operate as private companies but must have charitable or educational purposes. They have access to charitable funds through a program called Program Related Investments.
These and other innovative approaches are promising. In the future, we should encourage the dialogue around mechanisms to support and sustain social entrepreneurship and find ways for business, government and charitable foundations to form partnerships to address the innumerable unmet needs.
Or, stated more simply, we need to find ways to feel comfortable with making a dollar by making a difference.
Mary Paulsell is the director of the University Center for Innovation and Entrepreneurship at the University of Missouri. The center houses the Missouri Small Business and Technology Development Centers and the Missouri Procurement Technical Assistance Centers. Reach Mary at [email protected].