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Social Entrepreneurship: What’s the big deal, anyway?

I know, I know. I ended my previous post on a cliffhanger.

I should probably clear the air about “pivoting”. Throughout my time at UCLA, I was involved with several student-run nonprofits and was interested in socially impactful work. This was my secondary “feature”, per se. Having this feature ended up being quite important, because after I graduated, I came to the conclusion that there was no “product-market” fit with my initial idea (majoring in neuroscience).

At that point, many of my friends had received offers from consulting firms, large corporations, and other for-profit companies. I was tempted to follow a similar path; however, the idea of working at a nonprofit was always in the back of my mind. On one hand, I really wanted to work at an organization that was focused on creating social impact and improving marginalized people’s lives. On the other hand, I knew that working at a for-profit would likely provide more opportunities for growth and development, give me a chance to work with talented peers, and result in greater financial compensation.

I wished that there could be a way for me to have the best of both worlds. Imagine how invigorating it could be to work at an organization that has social impact ingrained in its product or service. Imagine working at a place where you are surrounded by talented employees who are driven by helping disadvantaged people live better lives. Imagine having a work environment that stresses innovation while placing social impact as its primary goal. Believe it or not, one day, I found out that this actually exists. It’s called social entrepreneurship.

Social entrepreneurship is “about applying practical, innovative and sustainable approaches to benefit society in general, with an emphasis on those who are marginalized and poor.” In addition, it “aims for value in the form of large-scale, transformational benefit.

Let’s try to dissect this definition.

The first word to focus on is “innovative”. It’s vital that a social entrepreneurial venture introduces a product or service that disrupts the status quo. Improving the efficiency of a system is not enough — a transformational change has to occur that will ultimately benefit a segment of society. Applying “band-aids” to solve societal problems is simply not what social entrepreneurship is about.

However, any entrepreneurial venture is, in theory, innovative. The real differentiating factor is the “emphasis on those who are marginalized or poor.” For for-profit entrepreneurs, the goal is to create a new product for a market that can afford it, while creating a financial profit for themselves and their investors. For social entrepreneurs, the goal is to create a product that benefits the underserved population. They prioritize the large-scale, social impact over the financial gains.

Now, this is not to say that social enterprises don’t or can’t earn profit. It’s just that a social entrepreneur has to establish a business model that prioritizes social impact over financial profit. Each situation warrants a different solution, which is why a social entrepreneur may choose to create a for-profit, nonprofit, or even hybrid model. Although the organizational structure may differ in each model, with varying levels of support coming from funders (i.e. impact investors, foundations, government, private donors, etc.), the underlying feature uniting all of these ventures is the social impact at a large scale. While social enterprises might need grants in the initial stages of their formation and growth, each social entrepreneur has to look into developing a revenue model that will allow them to reach financial sustainability. Lastly, it’s also important to note that any financial profit that these organizations do earn must be invested back into the enterprise.

So, how is this different from a traditional nonprofit or NGO? Well, for one, if an organization is focused on providing services for one segment of a community (i.e. an after school program) without planning on scaling its program, we cannot classify that as a social enterprise. Much like how the success of a for-profit startup is intimately tied to expanding their customer base past their early adopters, or “crossing the chasm”, the same expectations should be in place for social enterprises. Even if a nonprofit program is innovative and aims to benefit a marginalized community, there has to be the potential of scale; otherwise, it will not create a “new superior equilibrium.

There are definitely those who disagree with the necessity of scale. They argue that social enterprises can be small; in fact, that they are more effective when they are small because of their connection to the community that they work in. I do not argue with that: having that local, deep presence is something many “large” social enterprises struggle with. The issue I have with that argument is that these local organizations will not be able to eradicate wide-scale social problems. If you are a social entrepreneur, I believe you should have the mindset of changing the world. That fact is what makes social enterprises so special and necessary, and that is why scale is so important.

Although I’ve been hyping social entrepreneurship up, I want to be clear that there are definitely potential problems with some social enterprises. As Nelarine Cornelius, Full Professor and Director of the Bradford Centre for Business in Society, points out in her article, it’s imperative that the focus on the community does not disappear as the organization scales. In addition, some companies have begun to label themselves as social enterprises for commercial benefits instead of genuine commitment to the mission. We can’t get overwhelmed with innovation, advertisements, and cash flow at the expense of establishing strong community ties with the marginalized population.

I strongly believe that social entrepreneurship will have a huge impact on how many of the world’s problems will eventually be solved. It is definitely not a silver bullet, and support from nonprofits/NGOs, governmental agencies, and socially responsible businesses is crucial in helping disadvantaged populations. As more effective collaborations between these different players are established and as social entrepreneurship continues to develop, I think that we will be seeing the groundbreaking societal and environmental changes that we need to solve many of the world’s problems.

Lastly, for more visual learners, here is a short video from the Skoll Foundation, a leader in this field. It gives a few examples of successful social entrepreneurs that we have seen thus far, and offers a great introduction to social entrepreneurship.