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Five things you should know about social entrepreneurship

Five things you should know about social entrepreneurship

Date: 08/01/2013

Jeffrey A. Robinson, Ph.D. is a Senior Fellow at The Center for Urban Entrepreneurship & Economic Development at Rutgers Busines school


"What is that? Socialism?"


That was the reaction I got one time when I was introduced as a professor of social entrepreneurship.


And my answer was, "No, its not socialism."


But, social entrepreneurship is different than traditional entrepreneurship.  It is a different approach to addressing social problems in our communities.  Simply put, social entrepreneurship (SE) uses some of the best aspects of capitalism as an approach to address social problems and environmental challenges.


The conversations I often have with people trying to find out more about SE get more complicated after that. And, depending who I am talking to, I try to make it as relevant to their perspective as possible. Here are five things I say when I talk about social entrepreneurship:


1.  SE is social problem solving using a business and enterprise approach.  During this year's U.S. Presidential election there has been a lot of talk about job creation.  Creating jobs is one of the most important ways that entrepreneurs impact communities and the economy. But, some entrepreneurs have figured out that if they set their companies or organizations up in a certain way, they can increase their social impact. For example, the Greyston Bakery in Yonkers, New York hires people who most companies would not employ.  Not only do they create jobs, but they send the profits from making the brownies and other products back to the Greyston Foundation, the entity that owns the for-profit bakery  In fact, if you've had any of the flavors of Ben & Jerry's Ice Cream that have brownies in them, you had brownies from the Greyston Bakery.  That leads me to my second point ...


2.  SE is double and sometimes triple bottom-line thinking.  Traditional business is only concerned about "the bottom-line" meaning the profits that are left after all of the expenses are paid from the revenue generated through sales.  Social entrepreneurs not only mind the financial impact of their business decisions, but they also are about maximizing the social good they are doing.  That's double bottom-line thinking.  Therefore, you'll hear these enterprises called "double bottom-line" companies.  When they also include reducing their carbon footprint or through their action alleviate environmental problems, we call them "triple bottom-line" companies.


A great example of this type of thinking is a company in the Brooklyn (NY) Navy Yard called IceStone.  Ice Stone makes durable surfaces that you might find as a counter top in a kitchen or for bathrooms, tables and bars. They make the durable surfaces out of a recycled glass and concrete composite that looks amazing. They manufacture this in a retrofitted warehouse where they have implemented many environmentally-friendly practices in their business to reduce their waste and carbon footprint.  They hire locally and provide a living wage to their employees.  It's this type of thinking that allows for a company to be more than a profit making venture - these types of companies create economic returns, maximize the positive social impact and minimize the negative environmental impact. To achieve these goals, you have to be creative about how you organize your company.


3.  SE uses new organizational forms or old organizational forms in new ways to social change. In order to achieve these multi-part goals, sometimes it is necessary to break with tradition. Traditionally, we have used the non-profit or not-for-profit organization (outside of the U.S. we call these non-governmental organizations or NGOs) as the vehicle for social change.  Think about all of the great organizations that tackle the most intractable social problems in society or the organizations that advocate for those who have no voice in how resources are distributed. These organizations have been at the forefront of change in the local community and nationally for years.


Unfortunately, by relying upon non-profit organizations for social change, we made it easy for traditional for-profit businesses and the business models that sustain them to only be focused on profit maximization. What we've learned in recent years, is that these for-profit business models and approaches can be used for social change, too.


So, social entrepreneurs with the double- and triple-bottom line mindset I described above have broken with the idea that you have to be a non-profit organization to be about social change.  They have done so for different reasons. Some of these organizations have diversified their income away from government and foundation grants and begun to raise money via contracted services or selling products that generate an income for the organization.  Others are using for-profit models because they have access to different funding streams than a traditional non-profit.  In these cases, social entrepreneurs are at the forefront of figuring out innovative organizational arrangements and sustainable business models that amplify the social impact of these organizations.  In the Greyston Bakery example, the for-profit bakery is owned by the non-profit Greyston Foundation.


4. SE enables different types of financing to engage social change and sustain effective initiatives.  Social entrepreneurs are great at identifying creative ways to make positive social impacts an foster social change.  If we value these social changes, how do we "invest" in it.  Using investment logic for social change may seem strange to some but this kind of thinking is becoming more prevalent because of the desire to try new approaches or scale up approaches that are working better than the status quo.  In the world of technology entrepreneurs, venture capitalists and other investors seek companies that are going to give them the biggest return on their financial investment.  For the so-called social impact investor or social venture capitalist, the idea is to find the appropriate company or organization that will bring the biggest SOCIAL return on investment.  There may be a modest financial return on investment too but the goal is to invest in solutions that work.


And now social entrepreneurs, especially those that choose the for-profit form or one of the new legal entities are able to harness the funding available from a new class of investors and use these sources of funding to amplify their positive social impact.  In other words, they are now using the vehicle of entrepreneurship and the principles of entrepreneurial finance to effect social change.  And with the advent of social impact bonds, crowd funding and the growth of the social impact investing space, these would-be social  entrepreneurs have more options for funding their approach to making a difference.  However, along with this increased ability for funding comes an increased level of accountability.


5.  SE employs new approaches to accountability.  Social investors and foundations have been changing their approach to funding social change efforts.  The most significant change is the use of investment logic in their funding activities and evaluation requirements. Investors think differently than grantors.  An investor expects a return on the investment.  As such, there must be a way to verify that the expected return on the investment was met or in the language of social entrepreneurship there must be a way to measure the social impact.  Some of these investors are using this social impact measurement as means of evaluation.    And, if you are going to have an investment logic being used for social impact, you are not just talking about counting outputs (the direct results of your organizations activities); you must also measure the outcomes of your efforts (the social or economic result of your efforts).


The take away from these five ideas is that the mechanisms of social change have new concepts that are being integrated into the field and those of us interested in social change should get used to more entrepreneurial approaches to making positive social impact.  Towards this end, Rutgers Business School and the PSEG Foundation developed the New Jersey Social Innovation Institute to train community leaders with new approaches to problem solving how to use social entrepreneurship to make change.  We tell them these five things and much more to prepare them the challenges of the 21st century.  And, no, it isn't socialism.  


Jeffrey A. Robinson is also an assistant professor of management and entrepreneurship and the founding Assistant Director of The Center for Urban Entrepreneurship & Economic Development at Rutgers Business School. His research describes how business practices and entrepreneurship can be used to impact societal issues.  He is particularly concerned about community and economic development issues for urban metropolitan areas in the United States and abroad. He is the author of books and articles on such topics as social entrepreneurship, African American women in entrepreneurship, and patterns of Black employment.


Article was previously posted by America Abroad

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