I was once told that it was best not to try to define social entrepreneurship, social entrepreneurs or social enterprise because the area is so emotionally charged. But I believe some kind of definition is important because of the growing significance of social entrepreneurship and social enterprise for policy makers and businesses alike.
The debate increasingly recognises that social entrepreneurs and social enterprises are very similar in their characteristics and potential to mainstream entrepreneurs and enterprises. But their primary motivations are to help people or the environment and so they use business models that allow profit to be reinvested in the business rather than be redistributed to shareholders. This requires a new financing model that marries the fact that profit is re-invested with the need to provide a clear financial return to investors.
Social entrepreneurs are seen as pragmatic, innovative and visionary with a particular role in creating social value. It is of little surprise that established social enterprises are more likely to be found in the most deprived areas of England.
There has been a big change in the definition of social entrepreneurship over the past five years. In 2003 the social entrepreneurship sector itself struggled with the word "profit", arguing that it ran counter to achieving the social goals of the social entrepreneur or, ultimately, the social enterprise. As a result people argued that many projects would remain small, largely voluntary and community-based and not all social entrepreneurs would build social enterprises.
But there is a new breed of social entrepreneur that, like their mainstream counterpart, acknowledges the need for professionalism, adequate resources and ultimately growth, to be able effectively to serve the double bottom line. These entrepreneurs have as a starting point the need to build an entity based on values and value creation but are sufficiently pragmatic to know that business principles of wealth creation must also be followed.
This renders the definition of social entrepreneurship more complex but not impossible: what is important is the motivation of the entrepreneur or enterprise in the first place and not the ultimate attitude towards profit.
Focus on philanthropy
Successful global entrepreneurs such as Bill Gates, Warren Buffet and Sir Tom Hunter have raised public awareness around philanthropy. The activity of these entrepreneurs is often confused in the media with social entrepreneurship. But the difference lies in the fact that the entrepreneur-philanthropist begins their entrepreneurial life by starting a mainstream company. While this company may be a "values driven" company such as Microsoft, whose objective is to "maximise the opportunities for people to reach their full potential", their ultimate objective at the start-up phase is to create wealth around the central business idea or innovation they are developing. Once their personal wealth has amassed, this is then used to set up foundations and trusts—such as the GlaxoWellcome Trust and the Rowntree Trust—that have social, community or research objectives.
More recently, we have seen a new breed of entrepreneur-philanthropist whose business model is profit oriented and whose activities are commercial but who dedicate a proportion of their profits from the outset. The XL Results Foundation is a network of entrepreneurs who are coached and mentored on how to grow their businesses, irrespective of business goals, in the interests of returning some of their profit to social, welfare, economic development or community causes. They regard themselves as social entrepreneurs, although their model is actually philanthropic: their goals are to create a commercial organisation that generates profit and that hence can give back to communities. The communities themselves are the beneficiaries but not the purpose of the business.
Defining social entrepreneurship, social entrepreneurs and social enterprise is not easy as there are different approaches to socially motivated organisations and no one model is right. For example, more philanthropic structures serve a purpose for providing aid and support to specific global or community causes such as hunger, welfare or health. Similarly, the social business model requires a degree of philanthropy simply because investors should expect only social return and not economic return from their investment. In contrast, investors in social enterprises can expect both a social and an economic return as the entities are similar in structure but not in motivation to their mainstream counterparts.
Posted 11 June 2008 : Director.co.uk
