Social organizations increasingly look to business for ways to make the world a better place, but it has not been easy for the growing social entrepreneurship movement to bridge the divide between doing good and doing well, according to J. Gregory Dees, an authority on this type of enterprise.
In a lecture at Wharton last month, Dees, adjunct professor of social entrepreneurship and nonprofit management at Duke University’s Fuqua School of Business, said social entrepreneurship is often viewed as business with a social purpose that earns income for the non-profit sector. He pointed to the Nature Conservancy tie he was wearing as an example.
But Dees said he leans toward another definition of social entrepreneurship, one that emphasizes innovation and impact, not income, in dealing with social problems. At times, according to Dees, these two ways of thinking intersect, when people with business-like methods come together with innovative solutions to social problems.
Social entrepreneurship, Dees adds, is rooted in the definition of entrepreneurship itself, which has evolved over time. Initially, entrepreneurs were viewed as people who were able to shift resources from areas of low productivity to areas of higher productivity. Today that would be called “creating value.” Building on that definition, entrepreneurship was later seen as the ability to create new opportunities – new products or better quality ones, new methods of production or markets for existing goods, new sources of supply or organizational and industry structures, said Dees. Entrepreneurs find inspiration in, for example, shifting demographics, updated technologies or new social attitudes. “The entrepreneur always searches for change, responds to it, and exploits it,” Dee states.
Finally, entrepreneurs do not limit themselves to the resources available but focus first on the opportunity and then worry about its implementation. That contrasts with an administrative mindset, which revolves around a fixed budget. An administrator, according to Dees, develops the business only to the extent possible within the constraints of the budget. An entrepreneur focuses chiefly on developing the business, then worries about getting the money necessary to finance the enterprise. “The entrepreneur begins with the opportunity and asks, ‘What resources do we need? How do we get them?’ That’s a different mindset,” said Dees.
Drivers in Wheelchairs
As an example of the entrepreneurial mindset, Dees pointed to research in which school children were shown a slide of a person in a wheelchair and asked, “Can this person drive a car?” The answer was a straight “no.” When another group of children was shown the same slide and asked, “How can this person drive a car”’ there was some hesitancy, but eventually hands went up with suggestions, said Dees. “It was a whole different conversation. It’s that kind of thinking that characterizes the opportunity-oriented mindset of an entrepreneur.”
The primary difference between social entrepreneurship and business entrepreneurship is that the goal of a social entrepreneur is to improve society, not generate economic value for investors or customers. Dees said that while it is hard enough for business entrepreneurs to create economic value, at least they have a clear motive – profit – so it is easier for them to structure an enterprise than it is for social entrepreneurs. “The nice thing about a business is that you have got great feedback loops. If markets are working right, you will only stay in business if you are creating value. Social impact is hard to measure in timely and reliable ways.”
He pointed to the example of a smoking prevention program that intervened with third graders. It was not until more than a dozen years later the program discovered there was no difference in smoking rates between the children who had been in the program and a control group. As a result, social entrepreneurs need to pay close attention to the impact of their work and look for their own indicators. “Accountability is important because you can’t count on markets to do this for you,” Dees said.
Social entrepreneurs are struggling to find ways to build accountability into their organizations, he noted, adding that the common practice of measuring funding against administrative expense or fundraising costs is not always reliable. Sometimes a program should spend more on overhead if it wants to reach a meaningful scale.
The current interest in combining business methods with social impact stems from concerns that charity or government aid can be demeaning and merely addresses symptoms, not underlying social problems, said Dees. “People are looking for sustainable, systematic approaches.”
Social impact organizations’ embrace of business ideas in the past decade represents a cultural shift, he suggested. “There was a time when business was largely the enemy. People were happy to take money from business but there was still a strong resistance to that sector.”
To create a successful venture, social entrepreneurs must begin with a strong social-impact theory that is credible, and combine that with a business model that is efficient, durable and scaleable. “We see a lot of clever innovative programs that have just a small impact.” The ability to scale up a program often is tied to changes in government regulation, Dees pointed out, noting that the hospice movement did not gain widespread recognition until Medicare began to pay for hospice services.
A wide spectrum of business models can be applied to social ventures ranging from purely philanthropic to purely commercial. Characteristics of a philanthropic venture might be that beneficiaries pay nothing for goods or services. Capital is a gift, volunteers provide labor and supplies are an in-kind donation. At the other end of the spectrum, beneficiaries are charged market prices for products or services that generate market-rate returns to those providing capital.
There are also mixed models. For example, rather than paying market interest rates for capital, a social venture may pay below-market rates subsidized by government or another source. Beneficiaries might pay a below-market price.
Free Eye Exams
As an example, Dees told the story of Help the World See, which in 1987 was providing free eye exams and glasses in Latin America using volunteer doctors who came for short trips and brought with them used glasses. In 1992 the organization had moved to a more business-based model because it wanted the program to build long-term local capacity to provide eye care. The new program financed clinics where people received free exams but paid a modest fee for glasses. Local residents were trained to do the exams and make glasses.
Both approaches had trade-offs, said Dees. The philanthropic trips served the neediest villagers, but the commercial clinics were beyond the financial reach of about 20% of the population. Local optometrists complained they were losing business to a subsidized program and charged the clinics with violating health regulations. Eventually the organization split in two, providing both missions and commercial clinics.
Often a mixed model comes through a partnership between a philanthropic organization and a commercial enterprise, but that can be tricky. Dees gave the example of a partnership between environmental groups and an oil company hoping to drill in a Costa Rican park in return for environmental safeguards and protections for native people. When other environmental groups learned of the deal they attacked it as a sell-out. Eventually the partnership dissolved. “It was not politically sustainable,” said Dees. “Partnerships between non-profit and for-profits is a huge, complicated topic. Some of them work very well and some don’t work very well at all.”
The potential benefits of moving toward a more business-oriented model include the possibility of having a sustainable impact that shifts resources to where they are needed more, according to Dees. It can leverage resources with earned income, and improve the overall financial situation of a social-impact organization.
On the downside, it can create “mission drift” and drive down donations from people who see less reliance on philanthropy as a signal their money is needed more elsewhere. Shifting to a business approach can also reduce the social sector’s ability to generate social capital and build networks.
The social entrepreneurship movement is, in part, a reaction to disappointment with government programs, but Dees said it is not clear whether private ventures do a better job than governments. “People have found that government programs rigid and bureaucratic. The feeling is that a private non-profit or for-profit may stimulate additional innovation … The jury is still out. We know the downside of public bureaucracy. What we don’t know is whether private parties can pick this up. More data is needed”
According to Dees, government remains an important financier for social projects and has more built-in accountability – through, for example, Congress or the IRS – than private programs.
Dees had some advice for business people considering a move into social entrepreneurship. They need to understand the limits of a market approach to social problems, and learn enough about their chosen field to be credible in advancing the underlying social impact theory.
MBAs who hope to work in the social sector should brace for resistance and skepticism if the organization they join is not ready to truly embrace business principles, he added. “I can’t tell you the number of MBAs who have gone off with high hopes who then call me and say, ‘This is a disaster. They don’t know what to do with an MBA.’ The fact that you care about the mission and they like you is not enough.”