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Guideline for social entrepreneurship
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An Introduction to Social An Introduction to Social EntrepreneurshipEntrepreneurshipBy Kamal FaridiBy Kamal Faridi
An Entrepreneurial RevolutionAn Entrepreneurial Revolution
• 1 million new ventures a year in U.S.1 million new ventures a year in U.S.• 85% of the new jobs in small and 85% of the new jobs in small and
start-up firmsstart-up firms• Product/service introduction rate Product/service introduction rate
higher than ever beforehigher than ever before• Rate of wealth creation explodingRate of wealth creation exploding• And itAnd it’’s a global revolutions a global revolution
What Is Entrepreneurship?What Is Entrepreneurship?
Process of creating value by bringing Process of creating value by bringing together a unique package of together a unique package of
resources to exploit an opportunityresources to exploit an opportunity
The New Buzzword:The New Buzzword:Social EntrepreneurshipSocial Entrepreneurship
So, is entrepreneurship basically So, is entrepreneurship basically entrepreneurship regardless of entrepreneurship regardless of the context?the context?
Or is Or is ““social entrepreneurshipsocial entrepreneurship”” something truly different?something truly different?
What Is Social What Is Social Entrepreneurship?Entrepreneurship?
Nonprofits making moneyNonprofits making money
What Is Social What Is Social Entrepreneurship?Entrepreneurship?
Nonprofits making moneyNonprofits making money
For-profits doing things to show For-profits doing things to show they are not evilthey are not evil
What Is Social What Is Social Entrepreneurship?Entrepreneurship?
Nonprofits making moneyNonprofits making money
For-profits doing things to show they are not For-profits doing things to show they are not evilevil
Process of creating value by bringing together a Process of creating value by bringing together a unique package of resources to exploit an unique package of resources to exploit an
opportunityopportunity, in pursuit of high , in pursuit of high socialsocial returns returns
The only big difference between The only big difference between commercial and social commercial and social
entrepreneurship:entrepreneurship:
Denomination of the returnsDenomination of the returns
Social and commercial Social and commercial entrepreneurship have most of entrepreneurship have most of
the same characteristicsthe same characteristics
The Process of Social The Process of Social EntrepreneurshipEntrepreneurship
1.1. Find an opportunityFind an opportunity
2.2. Develop a business conceptDevelop a business concept
3.3. Figure out what success means Figure out what success means and how to measure itand how to measure it
4.4. Acquire the right resourcesAcquire the right resources
5.5. Launch and growLaunch and grow
6.6. Attain goalsAttain goals
The Main Difficulty: The Main Difficulty: MeasurementMeasurement
• What is profit?What is profit?• How do we count it?How do we count it?• What is What is ““social return o n social return o n
investmentinvestment”” for venture for venture philanthropists?philanthropists?
• Can we compare investments?Can we compare investments?
Three characteristicsThree characteristics
• Social entrepreneurship meets Social entrepreneurship meets needs unmet by commercial needs unmet by commercial markets and (usually) the markets and (usually) the governmentgovernment
• Social entrepreneurship is Social entrepreneurship is motivated by social benefitmotivated by social benefit
• Successful social Successful social entrepreneurship usually works entrepreneurship usually works with, not against, marketswith, not against, markets
Case 1: Housing Opportunities Case 1: Housing Opportunities Made Equal (H.O.M.E.)Made Equal (H.O.M.E.)
• ServicesServices– Core services in housing disputes and fair Core services in housing disputes and fair
housing advocacy in Virginiahousing advocacy in Virginia– Special projects and lawsuitsSpecial projects and lawsuits
• Opportunity: Educate people on fair Opportunity: Educate people on fair housing before-the-fact, instead of housing before-the-fact, instead of fixing situations after-the-factfixing situations after-the-fact
• Enterprise: Start fair housing training Enterprise: Start fair housing training InstituteInstitute
• Returns: More housing for the Returns: More housing for the disadvantaged, fewer complaintsdisadvantaged, fewer complaints
Case 2: Boaz & RuthCase 2: Boaz & Ruth
• Opportunity: Underused human Opportunity: Underused human capitalcapital
• Endeavor: New businesses using Endeavor: New businesses using former inmates in an aggressively former inmates in an aggressively faith-based settingfaith-based setting
• Social returns: Young people not Social returns: Young people not returning to jail, peaceful returning to jail, peaceful neighborhoodneighborhood
Forces on Social Forces on Social EntrepreneurshipEntrepreneurship
Environmental factors• Social climate conducive to social
entrepreneurship• Political climate that facilitates
social innovation
Availability of financial and nonfinancial resources
Perturbation of the environment• Political change• Cultural change• Economic change
Entrepreneurial personality traits
Preparation to exploit opportunities
• Education• Experience
Social entrepreneurshipprocess begins
External forces
Internal forces
Environmental factors• Social climate conducive to social
entrepreneurship• Political climate that facilitates
social innovation
Availability of financial and nonfinancial resources
Perturbation of the environment• Political change• Cultural change• Economic change
Entrepreneurial personality traits
Preparation to exploit opportunities
• Education• Experience
Social entrepreneurshipprocess begins
External forces
Internal forces
Social Entrepreneurs Social Entrepreneurs ““LookLook”” Like Like Any Other Kind of EntrepreneurAny Other Kind of Entrepreneur
Innovativeness
Education and experience
Achievement orientation
Independence
Sense of control over destiny
Low risk aversion
Tolerance for ambiguity
Entrepreneurialorientation
Community awarenessAnd social concern
Socially-entrepreneurialorientation
Innate characteristics
Innovativeness
Education and experience
Achievement orientation
Independence
Sense of control over destiny
Low risk aversion
Tolerance for ambiguity
Entrepreneurialorientation
Community awarenessAnd social concern
Socially-entrepreneurialorientation
Innate characteristics
Risk + InnovationRisk + Innovation
High risk aversion
Low risk aversion
Highly-innovative
Dreamer Entrepreneur
Not innovative
Stuck Gambler
Opportunities vs. ThreatsOpportunities vs. Threats
Opportunities for social Opportunities for social entrepreneurs look like threats entrepreneurs look like threats
and tragedies to othersand tragedies to others
Myths about Social Myths about Social EntrepreneurshipEntrepreneurship
• Social entrepreneurs are anti-businessSocial entrepreneurs are anti-business• The difference between commercial and The difference between commercial and
social entrepreneurship is greedsocial entrepreneurship is greed• Social entrepreneurs are nonprofit Social entrepreneurs are nonprofit
managersmanagers• Social entrepreneurs are born, not madeSocial entrepreneurs are born, not made• Social entrepreneurs are misfitsSocial entrepreneurs are misfits• Social enterprises usually failSocial enterprises usually fail• Social entrepreneurs love riskSocial entrepreneurs love risk
Why does social entrepreneurship Why does social entrepreneurship matter?matter?
A Nation of Social A Nation of Social EntrepreneursEntrepreneurs
Immigrant stock with a high Immigrant stock with a high entrepreneurial orientationentrepreneurial orientation
+ Faith in own abilities+ Faith in own abilities
+ Vast ungovernable frontier+ Vast ungovernable frontier
= Citizens willing to meet their = Citizens willing to meet their own social needs, without an own social needs, without an
excessive reliance on the stateexcessive reliance on the state
The Result: Nonprofit NationThe Result: Nonprofit Nation
• 1.5m 1.5m registered registered nonprofitsnonprofits
• Something like Something like 9m grassroots 9m grassroots organizationsorganizations
• 30 nonprofit 30 nonprofit links per links per citizencitizen
3%
6%
7%
0%
1%
2%
3%
4%
5%
6%
7%
8%
All nonprofits Public charities Private foundations
Av
era
ge
an
nu
al g
row
th r
ate
, 19
96
-20
04
A primer on nonprofit A primer on nonprofit organizationsorganizations
What Is a Nonprofit?What Is a Nonprofit?
• Tax & regulatory definition: an organization thatTax & regulatory definition: an organization that– Enjoys special tax statusEnjoys special tax status– Faces a nondistribution constraint (profit=0)Faces a nondistribution constraint (profit=0)
• Functional definition: an organization that forms toFunctional definition: an organization that forms to– perform perform ““public taskspublic tasks””
• environmental protection, social service environmental protection, social service provisionprovision
– perform tasks for which there is demand but no perform tasks for which there is demand but no supply from for-profits or governmentssupply from for-profits or governments• religious activity, art museumreligious activity, art museum
– influence the direction of public policyinfluence the direction of public policy• political party, issue organizationpolitical party, issue organization
23
International FactsInternational Facts
• U.S. is very largeU.S. is very large– represents more than ½ of all nonprofit represents more than ½ of all nonprofit
activity worldwide ($600b)activity worldwide ($600b)– has 45% of all worldhas 45% of all world’’s nonprofit s nonprofit
employeesemployees
• Rich nations tend to have more Rich nations tend to have more developed nonprofit sectors than developed nonprofit sectors than poor nationspoor nations– Government social spending is Government social spending is positivelypositively
correlated with nonprofit sector sizecorrelated with nonprofit sector size
International ComparisonsInternational Comparisons
Country Revenues from
government Revenues from
philanthropy Earned revenues Argentina 20% 8% 73% Australia 31% 6% 63% Austria 50% 6% 44% Belgium 77% 5% 19% Brazil 16% 11% 74% Colombia 15% 15% 70% Czech Republic 39% 14% 47% Finland 36% 6% 58% France 58% 8% 35% Germany 64% 3% 32% Hungary 28% 18% 55% Ireland 77% 7% 16% Israel 64% 10% 26% Japan 45% 3% 52% Mexico 9% 6% 85% Netherlands 59% 3% 38% Peru 19% 13% 68% Romania 45% 27% 29% Slovakia 22% 23% 55% Spain 32% 19% 49% U.K. 47% 9% 45% U.S. 31% 13% 57%
Source: Salamon, et al. 1999
Size of the Nonprofit Size of the Nonprofit WorkforceWorkforce
12.6
11.5
10.5
9.2
7.87.2
6.2
4.94.94.54.5
3.73.53
2.42.42.21.7
1.30.90.60.4
0
2
4
6
8
10
12
14
Holla
nd
Irela
nd
Belg
ium
Isra
el
USA
Aust
ralia
UK
Fra
nce
Germ
any
Spain
Aust
ria
Arg
enti
na
Japan
Fin
land
Peru
Colo
mbia
Bra
zil
Cze
ch R
epublic
Hungary
Slo
vakia
Rom
ania
Mexic
o
Perc
en
t of
em
plo
yees
NPO Types in the U.S.NPO Types in the U.S.
• 34 types: 501(c)(1)-(27), 501(d)-(f),(k),(n), 521(a), 52734 types: 501(c)(1)-(27), 501(d)-(f),(k),(n), 521(a), 527• 501(c)(3): 501(c)(3): public benefit organizationspublic benefit organizations
– Religious, charitable, educational, scientific, Religious, charitable, educational, scientific, literary, amateur sports promotion, prevention of literary, amateur sports promotion, prevention of cruelty to animals or childrencruelty to animals or children
– Private schools, houses of worship, social welfare Private schools, houses of worship, social welfare charities, hospitals, libraries, etc.charities, hospitals, libraries, etc.
• 501(c)(4): 501(c)(4): mutual benefit organizationsmutual benefit organizations– Local civic leagues, social welfare organizations, Local civic leagues, social welfare organizations,
employee associationsemployee associations– Volunteer fire departments, homeownersVolunteer fire departments, homeowners’’
associations, social clubs, festivals, etc.associations, social clubs, festivals, etc.• 501(c)(6): 501(c)(6): Trade organizationsTrade organizations
– Business leagues, chambers of commerceBusiness leagues, chambers of commerce
Ref.: Section 501, IR Code
Nonprofits Are Nonprofits Are Proliferating in the U.S.Proliferating in the U.S.
Number of nonprofits
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
1975 1980 1985 1990 1995 2000
The Nonprofit Sector Is The Nonprofit Sector Is Larger than GovernmentLarger than Government
Share of GDP (1998)
Nonprofit, 13%
Commercial, 80%
Government, 7%
Health Organizations Health Organizations Dominate the SectorDominate the Sector
Health, 35.91%
Education, 14.03%
Human Services, 4.96%
Grantmaking, 4.90%
Arts, 2.15%
Member Benefit, 1.67%
Other, 7.13%
Unknow n, 29.10%
Source: IRS 990 data, 2003
Revenue Sources Vary a Revenue Sources Vary a Lot by SubsectorLot by Subsector
Subsector Portion of nonprofit sector1
Total revenues1
Government funding2
Private donations2
Earned income2
Education 18% $119.7b 19% 16% 65% Social welfare 12% $79.8b 52% 20% 28% Health 49% $325.9b 42% 6% 52% Arts 2% $13.3b 10% 44% 46% Religion3 12% $79.8b 0% 84% 16% Total 100% $664.8b 33% 20% 47% 1. Source: Independent Sector (2002) 2. Source: Salamon (2002) 3. This category only counts sacramental activity
Health Organizations Tend Health Organizations Tend to Be Hugeto Be Huge
$0
$5,000,000
$10,000,000
$15,000,000H
ealth
Mem
ber
Ben
efit
Sci
ence
Edu
catio
n
Inte
rnat
iona
l
Soc
ial S
cien
ce
Gra
ntm
akin
g
Pub
lic B
enef
it
Em
ploy
men
t
Hum
an S
ervi
ces
Foo
d
Crim
e
Env
ironm
ent
Art
s
Hou
sing
Com
mun
ity
You
th
Ani
mal
s
Civ
il R
ight
s
Spo
rts
Pub
lic S
afet
y
Rel
igio
n
Source: IRS 990 data, 2003
All Subsectors Are Growing(but Health is exploding)
33 Source: Independent Sector 2002
0
50
100
150
200
250
300
350
Health Education Religion Socialwelfare
Arts andculture
Subsector
Bil
lio
ns
of
19
97
do
lla
rs
1977
1987
1997
Main Challenges at PresentMain Challenges at Present
• MoneyMoney• CompetitionCompetition• Demonstrating effectivenessDemonstrating effectiveness• TechnologyTechnology• TrustTrust• Human resourcesHuman resources• Public-sector relationsPublic-sector relations
Ref. Salamon 2002
Main Opportunities at PresentMain Opportunities at Present
• Demographic shiftsDemographic shifts• New philanthropyNew philanthropy• Heightened awareness of sectorHeightened awareness of sector• Increased social welfare Increased social welfare
spending through sectorspending through sector– Entitlement expansionEntitlement expansion– Welfare reformWelfare reform
Ref. Salamon 2002
Main Trends at PresentMain Trends at Present
• Explosive growthExplosive growth• Attention to marketing and Attention to marketing and
management movementsmanagement movements• Commercial venturesCommercial ventures• Development of umbrella Development of umbrella
organizations and formal educationorganizations and formal education• Effectiveness in competing Effectiveness in competing
economically and politicallyeconomically and politically
Ref. Salamon 2002
Main Risks at PresentMain Risks at Present
• Identity loss, Identity loss, ““mission creepmission creep””• Industry concentrationIndustry concentration• Pressure on managers for resultsPressure on managers for results• Loss of public trustLoss of public trust
Ref. Salamon 2002
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