is About Innovation and Impact, Not Income
J. Gregory Dees, Adjunct Professor and Faculty Director, Duke's
Fuqua School of Business Center for the Advancement of Social Entrepreneurship
have seen that the function of entrepreneurs is to reform
or revolutionize the pattern of production . . ."
Joseph A. Schumpeter, Capitalism, Socialism
Having worked in this field for a while, I am always
delighted to find that people are increasingly familiar with the
term "social entrepreneur." Too often, however, they identify
social entrepreneurship with nonprofits generating earned income.
When the Schwab
Foundation for Social Entrepreneurship named Linda and Millard
Fuller of Habitat for Humanity and Wendy Kopp of Teach
for America, among others, as outstanding social entrepreneurs,
it must have confused many people. Both organizations are well known,
but neither of them is known for its earned income strategies. They
rely heavily on grants and donations. In fact, these social entrepreneurs
are masterful at attracting philanthropic donations. What makes
them entrepreneurial is that each of them has pioneered creative
ways of addressing social problems and marshaled the resources to
support their work. Habitat mobilizes volunteers to build affordable
houses for the poor. Teach for America recruits talented college
graduates to teach in economically distressed schools. Schwab was
following a view long endorsed by Bill Drayton at Ashoka
that social entrepreneurship is about innovation and impact, not
income. This view is well grounded in entrepreneurship theory (see
my paper on “The
Meaning of Social Entrepreneurship,”) but not sufficiently.
Despite efforts to spread an innovation-based definition, far too
many people still think of social entrepreneurship in terms of nonprofits
generating earned income. This is a dangerously narrow view. It
shifts attention away from the ultimate goal of any self-respecting
social entrepreneur, namely social impact, and focuses it on one
particular method of generating resources. 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 organization'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.
Focusing on earned income leads people to embrace
the problematic idea of a "double bottom line." Profits
should not be treated with equal importance to social results. No
amount of profit makes up for failure on the social impact side
of the equation. Any social entrepreneur who generates profits,
but then fails to convert them into meaningful social impact in
a cost effective way has wasted valuable resources. From a management
point of view, the financial "bottom line" is certainly
important, but it is not on the same level as social impact. Social
entrepreneurs have only one ultimate bottom line by which to measure
their success. It is their intended social impact, whether that
is housing for the homeless, a cleaner environment, improved access
to health care, more effective education, reduced poverty, protection
of abused children, deeper appreciation of the arts, or some other
Many activities that generate earned income are not entrepreneurial
at all. Earned income has become commonplace. In fact, if religious
congregations are excluded, earned income has exceeded donations
as a source of funds for public charities in the U. S. for many
years now. Hospitals charge fees for medical services; private schools
charge tuition; performing arts groups sell tickets; many museums
charge admission and often have gift shops in their lobbies. No
one thinks of these practices as examples of "social entrepreneurship"
even though they all involve generating earned income. It would
be absurd to give a social entrepreneurship award, for instance,
to a major hospital simply because of its extremely high percentage
of earned income from patient fees and the record profits at its
gift shop and parking garage. Yet, this would be a logical implication
of taking earned income as the yardstick of social entrepreneurship.
High levels of earned income are often not innovative and may not
be correlated with high levels of social impact.
Any form of social entrepreneurship that is worth promoting broadly
must be about establishing new and better ways to improve the world.
Social entrepreneurs implement innovative programs, organizational
structures, or resource strategies that increase their chances of
achieving deep, broad, lasting, and cost-effective social impact.
To borrow from J.B. Say, the eighteenth century French economist
who first popularized the term "entrepreneur," they shift
resources into areas of higher productivity and yield. Habitat persuades
volunteers to shift their time from recreational activities to building
a house. Teach for America persuades bright college graduates who
did not major in education to devote two years of their careers
to teaching in schools that have a difficult time finding teachers.
This resource-shifting function is essential to progress. As Peter
Drucker has said, "What we need is an entrepreneurial society
in which innovation and entrepreneurship are normal, steady, and
Of course, some exciting forms of social entrepreneurship use earned
income strategies to achieve social impact. We should encourage
social sector leaders to explore innovative financial strategies
that make their organizations more effective in serving social needs
while leveraging social assets. Creative efforts to harness business
methods to serve social objectives are often entrepreneurial in
the best sense of that term. Consider Grameen Bank that was built
around an innovative approach of using peer-groups to improve the
economics and effectiveness of micro-enterprise lending as a tool
to fight poverty in Bangladesh. Or consider Delancey Street Foundation,
a residential community of hardcore substance abusers in San Francisco
that runs several businesses to provide productive employment to
community members and generate funds for the organization. These
are powerful examples of how social sector leaders can blend business
methods with social objectives. What makes them entrepreneurial
is not the source of income, but their innovations and their impact.
Earned income ventures are socially entrepreneurial only when they
have a social purpose beyond simply making money. If social entrepreneurship
is to be distinctive in any way, it must be because social objectives
matter in how the venture is organized and managed. If the only
way a venture serves your mission is by generating funds, it may
be business entrepreneurship, but it is not social entrepreneurship.
If I start a bakery to make money that will be used to support my
sailing hobby, we do not call the bakery a "sailing venture."
Likewise using the proceeds of the bakery for a social purpose does
not make it into a "social" venture. It is a social venture
only if social considerations are integrated into its objectives
and management. A purely moneymaking venture can be managed using
straight business principles. It makes no difference if the owner
intends to use the cash generated by the venture to buy a bigger
sailboat or to serve the homeless. True social ventures often require
a more complex skill set than straight business ventures.
Only if we can embrace a definition of social entrepreneurship
that focuses on innovation and impact, we can put funding strategies
in their proper perspective. It is not surprising that people are
drawn to the earned income definition of social entrepreneurship.
Resources are scarce and social needs are great. Everyone wants
to explore new avenues for generating resources and earned income
seems promising. Unfortunately, some social sector leaders appear
to be more concerned about attracting resources and sustaining their
organizations than they are about assessing, sustaining, and improving
their social impact. They assume they are doing a great job on the
social side and that they deserve the additional funding, often
without much systematic evidence. These are risky assumptions. Finding
ways to sustain organizations that are not cost-effectively delivering
social value is a terrible waste of energy and resources. Social
sector leaders should look for creative resource strategies that
enhance their impact, rather than simply sustain their organizations.
By embracing a definition of social entrepreneurship that focuses
on innovation and impact, we can assure that social objectives are
taken seriously in the entrepreneurial process. In the end, social
entrepreneurship must be about creating social value, not simply
about making money.
This article originally appeared on The Skoll Foundation’s
in September 2003. Social Edge is a lively and provocative online
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