Enterprise and Small Business Principles

Social enterprise

The organisational landscape of social entrepreneurship can best be conceptualised as a dynamic continuum ordered by the range of available funding structures (see Figure 12.3). The boundaries of this continuum are set, at one extreme, by voluntary activism (fully reliant on donations and volunteers) and, at the other, by corporate social

Figure 12.3 Funding dimensions of social entrepreneurship

innovation (dedicated social ventures within the context of a private sector organisa­tion; see Kanter, 1999). Lying along the continuum are alternative social organisational types ordered according to the proportion of their operations that are self-funded. These range from fully grant funded via those that are partially self-sufficient, having developed some internal sources of income, to social ventures that are fully self-sufficient.

Globally, the pace of growth of social ventures has not been matched by a similar advance in available resources. The result has been heightened competition for what funding is available (Emerson, 1999b). One of the products of this mismatch between resource supply and demand has been for social entrepreneurs to consider strategic moves into new markets to subsidise their social activities either through exploiting profitable opportunities in the core activities of their not-for-profit venture or via for - profit subsidiary ventures and cross-sector partnerships with commercial corporations. This new organisational model has attracted considerable public policy attention in developed countries. It is widely known as ‘social enterprise’.

Whilst social enterprise and social entrepreneurship are sometimes used as syn­onyms (particularly in the US), the former is, in fact, a subset of the latter. Many social ventures can be highly entrepreneurial without generating independent profit streams (this could include innovation in the public sector, for example). Therefore, the prim­ary distinction here lies in which funding model is adopted with respect to achieving a social objective, namely social enterprises look to move away from grant dependency towards self-sufficiency via the creation of income streams. Ultimately, the aim is to be more sustainable (Boschee et al., 2000). Furthermore, they are unlike many traditional not-for-profits, typically being more results driven and striving for accountability via improved social impact metrics and audit mechanisms (Dees, 1998b; Pharoah et al., 2004).

Alter (2002: 5) defined social enterprise as: ‘a generic term for a non-profit business venture or revenue-generating activity founded to create positive social impact while operating with reference to a financial bottom line’. In 2003 Alter provided a more holistic interpretation of the meaning of such ventures: ‘the defining characteristic of the social enterprise is that it uses market-based approaches to earn commercial income and accomplish its mission’ (2003: 4).

The social enterprise model has other key advantages aside from giving a social venture greater independence, flexibility and sustainability (Dees and Battle Anderson, 2002). Most valuable, perhaps, is increased access to conventional financial markets that allow the venture to leverage both public and private resources to respond to social ‘demand’ more quickly. This also frees up philanthropic funds and grants for non-profit social ventures. The social enterprise model may also give access to a broader pool of skilled personnel through supporting more competitive remuneration packages.

However, the social enterprise model is not suitable for all social ventures, nor is it the only route to sustainability and maximum impact. The differences in funding struc­tures evident across the social sector are often a product of the nature of the indi­vidual social mission. In situations where social entrepreneurs are effectively taking the place of the public sector (say in health or education) the search for profit may be undesirable or inherently unachievable, whereas in situations where the social impact is directly linked to commercial success (e. g. employment or economic development initiatives) the case may be quite different.

In comparison with grant funding, developing independent funding streams clearly does allow greater strategic flexibility and the opportunity for quicker growth. Never­theless, the role of the social enterprise model within social entrepreneurship remains highly contested (see Boschee, 2001b; Dees, 2003). For example, Dees (2003) pointed out that the most important issue is not the funding structure of the social venture but its social impacts. From this perspective, the social enterprise is inherently neither better nor worse than any other social venture mechanism (i. e. not-for-profits that are grant maintained or donation driven).

Indeed, there may be a danger that focusing on generating earned income can dis­tract a social venture from its true social mission. Furthermore, it is a false assumption to think that a reliance on selling to the commercial market for income is inherently more sustainable than reliance on grant funding. As Dees (2003) noted, earned income is only a means to a social end and it is not always the best means. It can even be detri­mental, taking valuable talent and energy away from activities more central to deliv­ering on the organisation’s social mission. Though it is very popular right now, it is just one funding strategy among many and must be assessed on a case-by-case basis. The key is finding a resource strategy that works.

Within the social enterprise model there is further complexity. Dees (1996) iden­tified two organisational types of social enterprise: the ‘hybrid’ form and the ‘mixed’ form. The former integrates social and commercial objectives within its core activities, whilst the ‘mixed’ format has its social activity linked to its commercial activity but maintains clear boundaries between each. This is often achieved through the develop­ment of two separate organisations with different reporting systems, governance struc­tures, staff profiles and facilities, but with one providing funds for the other.

Alter (2003) developed Dees’s analysis further and identified three organisational models for social enterprises:

■ embedded (mission-centric social purpose enterprises),

■ integrated (mission-related enterprises as profit centres for subsidising social pur­pose venture),

■ complementary (unrelated to mission, leveraging tangible/intangible assets for income generation).

These she then further subdivided into 11 individual operational types.

The embedded social enterprise structure offers a number of social purpose options. The venture may offer entrepreneurial consultancy to other stakeholders, effectively ‘selling’ business support and training. Alternatively, the embedded organisation may act as a market intermediary offering product development or wholesale access to otherwise unavailable markets: this is the Fair Trade model. The venture could offer employment and job opportunities to the disenfranchised either as part, or all, of its social mission. The embedded model may also market a ‘fee-for-service’ approach that effectively commercialises its social services.

The integrated model typically develops a service subsidisation strategy with a strongly related commercial operation sustaining the core not-for-profit social ven­ture. One manifestation of this model is a market linkage organisation that acts as a broker connecting producer and consumer, not as a wholesaler but as a provider of information and marketing/consultancy services. Another is the service subsidisation form that uses a for-profit business to provide funds for the (typically not-for-profit) social venture.

Finally, the complementary model spans a range of more complex organisational formats including social franchising and social sector-private sector partnerships that are mutually beneficial. The latter are often characterised by the exchange of market access and expertise (for the commercial partner) and new funding and capital (for the social venture). In the UK, there have been a number of high-profile examples of public-private partnerships (e. g. the London Underground) that have applied this social enterprise model to the public sector with mixed results.

12.3 Chapter summary

Social entrepreneurship represents a new paradigm of social value creation and reflects a dynamic revolution in the social sector. This changing agenda has seen a move away from the traditional charity/philanthropic/voluntary models of social venture towards new organisational forms including social enterprises, hybrids and social sector-private sector partnerships. The public sector in many countries has also undergone change towards a more enterprising culture. Institutional funders are increasingly shifting to outcomes-based, rather than needs-based, investment strategies, while social ventures are now more focused on impact and effectiveness rather than sustainability.

However, many challenges remain. At an individual venture level, the continuing organisational pressure caused by limited resources inhibits vital capacity building and can limit the managerial skills being brought into the sector. Succession planning remains a difficult issue for many social ventures built around the individual ‘hero’ social entrepreneur, as does effective and transparent governance. Furthermore, performance measurement and the associated productive resource allocation are also challenged by the lack of established social metrics and benchmark data currently in place. The tightening market for grants has further emphasised how many social ventures are under-resourced and highlights the urgent need for a social capital market with signi­ficantly more liquidity than is currently available.

There are also several inherent tensions within the social entrepreneurship model. First, the institutionalising of the social entrepreneur as hero can ignore vital commun­ity involvement in a social venture’s development and governance. Second, social entrepreneurs have been accused of depoliticising social problems since their actions to address social market failures can ignore the role of campaigning and advocacy in bringing about more permanent social change. In a sense, effective social entrepreneurs can let governments ‘off the hook’. In a similar line of argument, social enterprises that conceptualise social action as business process are accused of ‘selling out’. Indeed, social entrepreneurs can also be criticised for their focus on impact and outcomes rather than on process which sometimes stands in sharp contrast to the tradition of community development projects. Finally, there is the danger that a constant strategic focus on innovation and change can lead social entrepreneurs to overvalue potentially short-term objectives. The tendency to seek high-impact interventions can also lead to a project-based approach that can ignore sustainability.

Nevertheless, social entrepreneurship is pioneering extraordinary changes in the social fabric of many communities across the world that offer sustainable paradigm shifts benefiting many people’s lives. Social entrepreneurship generates benefits through the creation of social capital, improved and more efficient provision of public goods, and via the establishment of new ‘hybrid’ business forms that will ultimately both open up the markets of the future through new models of trade and credit and redefine the role of enterprise within the social sector. Thus, social entrepreneurship would appear to articulate much of the emerging zeitgeist of the twenty-first century.