Enterprise and Small Business Principles

The social dimension

The second distinguishing element of social entrepreneurship, its ‘social’ dimension, is also problematic. Primarily, this is because there has yet to be sufficient critical analysis given to the underlying complexity inherent in many normative concepts of the social goods generated by social entrepreneurship. The conceptualisation of the ‘social’ in this context has often been dependent on an, at times tautological, acceptance of what actually constitutes a normalised and effective social mission combined with a subjective and often partial sense of what characteristics define a socially driven indi­vidual. Blau (1977) highlighted the implicit contingency of the social web in which all human actions occur, suggesting that to isolate specific ‘social’ actions is ontologically impossible. Granovetter (1985) supported this view noting that all actions are ultim­ately ‘social’ given that they are inevitably constrained by, and embedded in, social relations.

Consequently, there remains a lack of rigour in the, often monological, analysis of social action that presumes positive social value is its inevitable outcome and lacks any inter-subjective dimension (see Habermas, 1989; Fraser, 1992). These assumptions can also act as apologists for the poor performance of some social ventures masking opera­tional shortcomings in worthy mission objectives. Interestingly, another key feature of

Table 12.1 Defining the 'social' in social entrepreneurship

Defining characteristic


Contested issues

Context of social venture

Process of social venture Outcomes and impacts

Public welfare; environmentalism; development and aid

Close engagement with key stakeholders; employ and train disenfranchised; act as trade intermediary

Improved public welfare; individual empowerment; crisis alleviation

Acts as privatisation of public goods; does not address underlying political issues; narrow focus can create dependency

Stakeholder selection criteria/exclusion from process; empowerment of stakeholders

Social impact often unmeasured; short-termism

the successful social entrepreneur is a desire to address and reject such obfuscation through new metrics and accountability.

Nevertheless, even acknowledging a level of positivist spin within the construction of social entrepreneurship as a normative concept, the social element within it will be framed here by an analysis of three operational dimensions within a given venture:

■ the operational context (typically the social or welfare sector),

■ the process of the social venture (engaging key stakeholders in the operation),

■ the outcomes and impacts of the social venture (articulating its social mission).

It could reasonably be observed that each of these criteria could also be applied to a range of actions associated with profit-maximising corporations, rather than exclu­sively to social sector ventures. Such activities range from the strategic implementation of a corporate social responsibility agenda to a more enterprising approach to cor­porate social innovation (Kanter, 1999). However, the discriminatory issue here is one both of degree of integration of the social venture into core activities and the nature of the overall commitment to a social mission. Few mainstream companies develop opera­tions with social value creation as their first objective. Indeed, it could well be argued that it is not their business to do so. In the final analysis, therefore, the majority of socially focused corporations are unlikely to be confused with social entrepreneurs.

The next section will explore each of these three dimensions further. Such an approach allows social entrepreneurship to be clearly set apart from conventional private sector ventures, but also exposes a range of contested issues and multiple interpretations (see the summary in Table 12.1).

12.6.1 Operational context

Historically, the main operational areas in which social entrepreneurs have worked have been:

■ poverty alleviation through empowerment (e. g. the micro-finance movement);

■ healthcare, ranging from small-scale support for the mentally ill ‘in the community’ to larger-scale ventures tackling the HIV/AIDS pandemic;

■ education and training, such as widening participation and the democratisation of knowledge transfer;

■ environmental preservation and sustainable development, such as ‘green’ energy projects;

■ community regeneration, such as housing associations;

■ welfare projects, such as employment for the unemployed or homeless and drug and alcohol abuse projects;

■ advocacy and campaigning, such as Fair Trade and human rights promotion.

Of course, these are not distinct categories in reality and work in one often overlaps with another (e. g. a project like the Kaleidoscope initiative in London working with drug users can span the health, community, employment and welfare fields simultaneously). Indeed, some of the most successful and innovative social entrepreneurs consciously develop cross-sector activity to maximise social impact (and resource availability) across their whole value chain.

Social entrepreneurship typically evolves in the intersections between the three estates of modern society - the public sector, the market and civil society - where social mar­ket failures emerge and new opportunities for social value creation may be discerned (see Figure 12.1). However, the societal context of social entrepreneurship is complex. A number of distinct, and sometimes conflicting, points of origin can be identified across the junctions of the three estates of society, each reflecting a range of contexts. These can be grouped as: grassroots; institutional; political; spiritual; and philanthropic. Fur­ther, a variety of entrepreneurial approaches appropriate to each - innovative ‘means’ to social capital generating ‘ends’ - can also be discerned (see Table 12.2).

Grassroots activity is often driven by a lack of institutional support at either a macro - or micro-level that generates the need for new community action. For example, the Coin Street Housing Association grew out of a community reaction to the lack of affordable public or private accommodation in a part of inner-city south London. By leveraging local social capital and building a new institutional structure within existing legal boundaries a social market failure in community housing was effectively addressed. Such activity also generated a replicable model for other communities.

Social entrepreneurship typically addresses serious social needs from an embedded community perspective. By mapping these two dimensions (level of social need and level of community involvement), social entrepreneurship can further be positioned in relationship to the other two estates of society: the private and public sectors (see Figure 12.2). In quadrant one lie ventures that have low community involvement and low strategic engagement with social need. The profit-maximising private sector firm sits here. The traditional public sector welfare model resides in quadrant two. This rep­resents the paternalistic distribution of social goods still common across many nations that attempts to addresses serious social need but does not engage closely with the communities it aims to benefit. This is the model that is under review in the UK (and, in a different context, in the US) as public sector demand-side ‘choice’ and empowerment

Figure 12.1 The three estates of society

Table 12.2 Contexts for social entrepreneurship


Social market failure





Lack of



Critical social innovation

Coordinated creation of social capital through local/community action







Normative social innovation

Social entrepreneurship champions new social institution

Open University


Retreat of centralised government control from society

Market socialism

Introduction of enterprise/private sector market philosophy into public sphere

Public-private finance initiatives (e. g. London Underground)


Decline of church influence in society

Commercialisation of congregation - and church-based activities

Revitalise role of faith in public affairs





Lack of finance for development of social capital

Foundations coordinating charity giving as social entrepreneurial start-up funding

Link business and social innovation

Skoll Foundation and community education

Level of community involvement





Figure 12.2 Mapping social need and community involvement

Level of strategic engagement with social need

initiatives have become a key policy focus. Quadrant three contains ventures built upon a high level of community involvement but with low levels of strategic engagement with social need. The cooperative model can be placed here, although with important caveats. Namely, many cooperatives do, indeed, address serious social needs. For example, the crippling social effects of wholesaler monopsony in producer markets for coffee are being overcome by the Fair Trade movement’s efforts to encourage producers to join together in cooperatives. However, many established cooperatives, particularly the retail cooperatives in developed countries, whilst continuing to generate valuable social cap­ital through their membership structures, no longer address serious social need as their prime operating principle. At the intersection of high levels of community involvement and high strategic engagement with social need (quadrant four) sits the archetype of social entrepreneurship.

It should also be noted that these positions are not set but dynamic. For example, with the rise of a broad strategic acceptance of the corporate social responsibility (CSR) agenda across major corporations, many private sector firms are trying to reposition themselves towards quadrant three. This involves a greater acknowledgement of the
significance of their relationship with all stakeholders, at least at a marketing, if not always operational, level (see Bakan, 2004, and The Economist, 2005, for a range of caveats around CSR). Similarly, the traditional public sector model of centralised delivery of social goods is increasingly aiming to move towards a more community focused format, hence the suggestion that social entrepreneurs have an obvious role to play here. The development of cooperative models across the globe, noted in the Fair Trade example above, is reflected in the dynamic range of applications that spans both quadrants three and four. Finally, the popularity of the social enterprise model of social entrepreneurship demonstrates a move by some social sector firms towards acknow­ledging some value in the discipline and efficiency of the better example of private enterprise.

The institutional approach to social market failure can be more resource hungry, but aims for significant impacts and has a broader social focus. Typically, this form of social entrepreneurship reacts to significant changes in the macro-social landscape that require large-scale solutions. The Tateni (a Nguni term of affection) project started by Veronica Khosa in South Africa (Bornstein, 2004: 183-99) provides a good example. In this case, the social entrepreneur reacted to the inadequacy of institutional support for victims of the catastrophe of AIDS/HIV by creating a homecare service that would both complement the existing welfare system and offer a new model of community- based training and action in healthcare. Between 1995 and 1999, the project’s staff made over 200,000 home visits and trained over 1,000 new homecarers.

The astute political sensitivity of many social entrepreneurs has already been noted, but broader political contexts also exist. First, there has been a move towards ‘rein­venting’ government in a number of countries (Osbourne and Gaebler, 1992). This entails bringing more entrepreneurial or ‘business’ thinking into public sector depart­ments and operations in order to enhance their efficiency and impact. Second, as gov­ernments in Northern countries have increasingly retreated from their traditional role as providers of social goods, new models of provision have emerged. These have often taken the form of hybrid organisations that mix public and private agendas (the Public - Private Finance Initiatives in the UK are typical examples). In the UK this movement has been characterised as the ‘Third Way’ or ‘market’ socialism (Giddens, 1998, 2000). Finally, in developing countries in the south, other manifestations of the political agenda of social entrepreneurship can be seen. For example, in Brazil, the rationale behind the planning and execution of the extraordinary civic entrepreneurship embodied in the Curatiba community was entirely political (see, for example, Spengler and Ford, 2002; Leadbeater and Goss, 1998).

The political context of social entrepreneurship is, perhaps, the most fiercely con­tested of all. Often there is a perceived strategic conflict between addressing resources towards achieving institutional change for social impact and targeting the alleviation of immediate social crises. (This is considered further below as a part of the discussion of ‘critical’ and ‘normative’ social entrepreneurs.) Thus, the context in which social entrepreneurs operate may itself be the cause of social market failures. Consequently, the social good generated at an individual venture level may be seen as compromised by the very engagement with the problem. More productive would be an attempt to change the socio-political discourse around the need for such social goods. Failure to do this may result in stakeholder dependency and the maintenance of a socially dys­functional status quo. The more politically entrenched social actors often level such critiques at social entrepreneurs, also accusing them of ‘privatising’ welfare provision by taking on government contracts to deliver public goods often in competition with private sector firms.

Recent policy discussions concerning the delivery of public sector welfare in the UK can be seen as part of a larger discussion concerning the wider societal role of social entrepreneurship. The New Labour government has increasingly promoted a role for social enterprises at the intersection between citizen and state to empower communit­ies and generate choice in welfare provision. The ambitious aim is to extend the role of social entrepreneurship beyond addressing social market failures and into increas­ing the efficiency and legitimacy of the delivery of state supported social goods. Indeed, this has been a central policy initiative in the UK for the Social Enterprise Unit within the Department of Trade and Industry as well as Regional Development Agencies (Department of Trade and Industry, 2002, 2003b). Such thinking taps into the demo­cratic principles of participation and empowerment that are inherent in many social ventures.

The decline of organised religion in some northern cultures has provided another context for new social entrepreneurship within religious institutions aimed at both reviving faith communities and mobilising faith-based resources towards wider social problems. The former is the commercialisation of some congregations where exploit­ing the money-raising possibilities of a parish to support and sustain it has become a strategic norm. The latter reflects the long tradition of faith-based solutions to social problems within civil society and is an emergent component of public sector policy in some countries, particularly the US. For example, the association between the Fair Trade movement and church groups has long been important in generating social and financial capital. Indeed, the bulk of sales for Traidcraft, one of the leading Fair Trade enterprises in the UK, still comes from retail activity rooted in Christian congregations across the country.

Finally, the philanthropic origin of some social entrepreneurship both reflects a long­standing convention of socially responsible giving and looks forward to new paradigms of social ‘investment’ through the emergent venture philanthropy market. These are social venture funds characterised by high levels of engagement with the social entre­preneur, long investment horizons, higher levels of risk taking, and a rigorous focus on auditing social impacts, where possible. Thus, venture philanthropy is, in essence, the philanthropic application of venture capital principles and practice. Moreover, in addition to funding, venture philanthropists typically provide networking, manage­ment advice and an array of other supports to organisations within their portfolio. The emergence of a number of significant venture philanthropy organisations in recent years, such as the Acumen Fund, New Philanthropy Capital, the European Venture Philanthropy Association, and New Profit Inc., demonstrates the growing interest in this model of social investment. However, it is important to note that the volume of funds currently under management by venture philanthropy groups still remains very small. Consequently, the most significant contribution being made by the venture philanthropy model currently lies in its ‘engaged’ approach to social investment rather than in the funds that it is directly contributing.

12.6.2 Process

In terms of process, social entrepreneurs are primarily focused on social innovation and the opportunity recognition of new social value creation. Thus, social entrepreneurs engage with a wide range of business and organisational models, both not-for-profit and for-profit, since it is not the mechanism by which social value is created that mat­ters, but rather how to maximise their social impact. Furthermore, social entrepreneurs seek out opportunities to add social impact throughout their entire value chain, often employing and training disenfranchised groups as a part of delivering their social mis­sion or revitalising depleted community resources such as housing stock. The process of social entrepreneurship, therefore, may typically be characterised by a range of social missions that are addressed at different points in the value chain.

However, such strategic complexity can be problematic. Addressing multiple stake­holder needs across a range of social missions in the context of often limited resources can lead to mission drift or strategic uncertainty as one set of social impacts is set against another. At the very least this can cause operational dysfunction. For example, Aspire was a successful social venture that employed homeless people to deliver Fair Trade catalogues and subsequent customer orders. However, significant sales growth at the UK end of the enterprise led the founders to be over-ambitious in their first social mission (employing the homeless) without planning carefully for their second (provid­ing sustainable orders to Fair Trade producers). This lack of focus resulted in an over­commitment to orders that brought about a cash-flow crisis and ultimate bankruptcy. This was highly damaging to the Fair Trade producers reliant on Aspire’s sales, although many of its UK employees found other work helped by the founders.

Social entrepreneurs often develop new transactional paradigms or organisational forms to solve social problems (e. g. Fair Trade). In this context, Leadbeater (1997: 8) noted that ‘social entrepreneurs identify under-utilised resources - people, buildings, equipment - and find new ways of putting them to use to satisfy unmet social needs’. Thompson et al. (2000: 328) supported this view in their definition of social entrepre­neurs as: ‘People who realise where there is an opportunity to satisfy some unmet need that the state welfare system will not or cannot meet, and who gather together the neces­sary resources (generally people, often volunteers, money and premises) and use these to make a difference.’

The impact of the new social entrepreneurship model has been felt across the range of socially focused activities. On the one hand, the model has contributed to a recon­figuring of existing social ventures such as charities, not-for-profit organisations and NGOs. On the other, social entrepreneurs have helped catalyse the public sector to become more effective, accountable and flexible in its approaches to social provision.

For the former group, traditional measures of performance have been re-engineered to increase impact and accountability. Outputs have been recast as outcomes framed in terms of social value creation and impact, rather than simple numbers. For example, a charity would cease to be judged on its ability to raise money and remain solvent but rather on the effectiveness with which it addressed its social mission. Similarly, asset structures need to take increasing account of social, as well as financial and physical capital. Thus, measures of successful relationship building, trust, networks and co­operation become more important in strategic planning and assessment. This fits well with social ventures’ typical ownership structures highlighting key stakeholders. Of course, all of this revolutionary thinking is contested and problematic, not least in terms of metrics. But what is patently clear is that social entrepreneurship is generating entirely new paradigms of social venture creation and development that are creating their own definitional terms and taxonomies as they emerge. This dynamic lack of clear terms of reference is one of the reasons behind the current discrepancy between resource allocation and socially entrepreneurial opportunities.

However, the normalising assumption that such approaches automatically maximise social value can be questioned. By some measures, individual social impacts can only ever be partial - some actors must be excluded by selection processes that are likely to be more pragmatic than needs based, if only because establishing a hierarchy of social need is invidiously difficult. Such issues inevitably question the empowerment of stake­holders by some social ventures and also raise issues of accountability and transparency.

12.6.3 Outcomes

Finally, in terms of outcomes and impacts a number of other contested issues are also apparent. Dees (1998a: 2) noted: ‘For social entrepreneurs the social mission is explicit and central. This obviously affects how social entrepreneurs perceive and assess oppor­tunities. Mission-related impact becomes the central criterion, not wealth creation.’ Such activity blurs the traditional view that ‘value’ can be understood as either eco­nomic or social and that these two notions are quite separate, with for-profit business generating the former and non-profit social activism the latter. The commitment is not to the traditional model of profit accumulation and equity growth, but rather to the creation and maintenance of ‘social capital’ (see further, Putnam, 2001, 2004) through building communities around new nexi of connectivity that solve social problems. These key assets often take the form of relationships, networks, trust and cooperation that give access to physical and financial capital (Leadbeater, 1997). This conceptual­isation is also present in Emerson’s Blended Value proposition which combines fully monetised social impacts with more conventional financial data to judge the perform­ance of a social venture (Emerson, 2003).

Fukyama (1995) defined ‘social capital’ as ‘the ability of people to work together for common purposes in groups and organisations’. Leadbeater (1997) adapted this to suggest a further meaning embracing the building of something of real value to local communities or society. The social entrepreneur, then, exploits one form of social cap­ital - relationships, networks, trust and cooperation - to access physical and financial capital that can be used to create something of value for the community. Whilst the outcomes of social entrepreneurship may be non-profit enterprises, they are also likely to be for-profit, particularly in the arena of public-private collaborations. Another import­ant arena for social entrepreneurship has been in the ‘reinventing of government’ - namely applying ‘professionalism’ to the public sector (see Osbourne and Gaebler,


The main problematising issue here is metrics: measuring social impact and social value creation remains difficult and often highly contingent. A number of qualitative and quantitative measures have emerged recently, most notably the social return on invest­ment (SROI) model pioneered by the Roberts Enterprise Development Foundation (REDF) (Emerson, 1999a) and subsequently refined by the New Economics Founda­tion (2004). However, these metrics have yet to become fully accepted, let alone widely used (indeed, REDF itself has recently abandoned using SROI). Consequently, there are few agreed social impact benchmarks or best practices available to social entrepreneurs and their stakeholders. Establishing the success or failures of social entrepreneurship by outcomes and impacts alone will, therefore, remain open to criticism and dispute. Moreover, the narrow and targeted focus of many successful social ventures can lead to operational short-termism: namely, a failure to address more fundamental, systemic issues in planning and implementing strategy. This can both reduce long-term social impact and threaten overall sustainability.

12.6.4 Strategic focus

Finally, there is also complexity at the strategic level of socially entrepreneur action. As has already been noted, at the heart of the contested nature of social entrepreneur­ship is a sense that it encompasses two apparently contradictory trends in modern developed society: on the one hand, the supremacy of the neo-liberal consensus based on free market models (and on the 1980s conceptualisation of the entrepreneur as primarily a business champion) and, on the other, a return to valuing social justice as a nexus of public and private good (the driving force behind the emergence of corporate social responsibility as a board-level agenda item). In essence, social entrepreneurs reclaim the innovation and creativity of the entrepreneurial paradigm for the wider public good. They address social market failures left unaddressed by other institutions and identify opportunities for social value creation that the market ignores. This is their social mission and fulfilling it is the first strategic objective.

Within this definition, two types of social change agent may be discerned: the critical social entrepreneur and the normative. As has been noted above, social entrepreneur­ship typically addresses social market failures, namely gaps in (often state) provision for social sectors such as healthcare, education, sustainable development and commun­ity regeneration. In many cases, the commercial market puts little or no value on these social goods and, consequently, gaps in provision inevitably appear. The rise of ‘crit­ical’ social entrepreneurs reflected these failures. These are social innovators aiming critically to improve the provision of social goods through new ventures spontane­ously re-engineering social markets to satisfy communitarian needs. Such social action challenges the status quo and aims radically to rethink social value creation. A power­ful example is the global micro-credit revolution of the past 20 years. On the other hand, ‘normative’ social entrepreneurs do not reject the social systems of the time by seeking structural change, but choose instead to offer new mechanisms within existing institu­tional frameworks for increasing social goods in general. The work of ‘serial’ social entrepreneur Lord Michael Young in the UK provides a number of good examples, namely the creation of the Open University and the Consumer’s Association.

There is also evidence of an increasing blurring between these two types in public policy initiatives driven by the UK and US governments starting in the 1980s. The Thatcher and Reagan governments aimed to redefine the concept of social entrepre­neurship as part of a political agenda to introduce private enterprise into the public sector by developing policies based on the new dogma of free market deregulation and the privatisation of state assets. This was coupled with a rolling back of taxation and, as a consequence, the boundaries of state provision were redrawn. At the same time a new ‘enterprise culture’ was encouraged through tax mechanisms that favoured the individual commercial entrepreneur. Such recasting of the entrepreneur marked a rad­ical departure from either the normative or critical approaches that had gone before and signalled a retreat in governmental engagement with social goods. Ironically, it was the latter that unwittingly provided the template for much subsequent socially entrepreneurial activity.

In the 1990s as the social impacts of deregulated free markets became apparent in mass unemployment, huge rises in inequality and a jump in social deprivation, new models of welfare began to emerge that both decoupled ‘enterprise’ and ‘business’ and challenged the perceived conservatism and stasis of the public sector. This was most clearly articulated in the development of Third Way politics (Hutton, 1996; Giddens, 1998, 2000) within the Clinton and Blair administrations, which particularly reflected this dynamic societal change as well as a growing acknowledgement of the increasing failure of centralised public sector solutions. Institutional reform was typically linked to macro-level policy frameworks at a government level, spurred on by new ‘think and do tanks’ in the UK such as Demos and the New Economics Foundation. These policy interventions encouraged the growth of an enterprising social sector in both voluntary organisations and the public sector itself (cf. Osbourne and Gaebler, 1992). Interestingly, this agenda not only created a new breed of ‘public-private’ professional managing social institutions such as the National Health Service, but also generated further gaps in basic social provision thus heralding a new round of grassroots social entrepreneurship.

It is clear, then, that social entrepreneurship is a multi-faceted, dynamic and often highly contingent phenomenon. Nevertheless, for all these definitional challenges and caveats, it is still the case that a distinct paradigm of social entrepreneurship may be discerned by delineating the consistent features across a diverse range of social enter­prises. Based on these, social entrepreneurship will be defined in this chapter as:

Innovative and effective activities that focus primarily on resolving social market fail­ures both by creating new opportunities to add social value and consistently using a range of resources relentlessly to maximise social impact.

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