1. Social Entrepreneurship J. Gregory Dees Fuqua School of Business Duke University September 14, 2004

2. Agenda  Entrepreneurship  Social Mission  Recent Trends  Case Example  Concluding Thoughts

3. Entrepreneurship: Beyond Starting a Business

4. Origins of the Term "Entrepreneur" Late eighteenth century, Jean Baptiste Say:  Entrepreneurs shift economic resources out of areas of lower and into areas of higher productivity and yield Twentieth century, Joseph Schumpeter:  The function of entrepreneurs is to reform or revolutionize the pattern of production

5. Entrepreneurial Innovation Schumpeter’s list:  New good or new quality of a good  New method of production  New market for existing good  New source of supply  New organizational or industry structure. “New” means new to the industry or market involved—not to the world

6. Peter Drucker, management guru:  The entrepreneur always searches for change, responds to it, and exploits it as an opportunity Howard Stevenson, HBS:  Entrepreneurship is the pursuit of opportunity without regard to resources currently controlled Recent Theories

7. Successful Entrepreneurship Drawing on these definitions, we can say that entrepreneurs are:  Change Friendly  Opportunity Oriented  Innovative  Resourceful  Value Creating (when successful)

8. Entrepreneur vs. Administrator Entrepreneurs  Start with perception of an opportunity  Bias toward action  Make adjustment as they go  Build teams and informal networks  Exhibit “flexible perseverance”  Focus on results Administrators  Start with resources in hand (budget)  Bias toward analysis  Resist deviations from plan  Work in hierarchies with clear authority  Value bureaucratic procedures  Focus on survival and organizational growth

9. Social Mission: Beyond Creating Private Value

10. The Meaning of “Social” Pertaining to human societies and the environments in which they exist Social goods tend to benefit groups, including individuals who have not produced or purchased them Social goods reflect values about the conditions under which humans should live together and flourish Can be contrasted with individual goods, determined by personal tastes

11. Focusing on Social Impact Social entrepreneurs are driven by a social mission, implying that: Success is defined by creating the intended social impact, not simply by  Economic value creation for owners, managers, and employees, or  Consumption value for customers Success in achieving this impact is both  Hard to measure in timely, reliable, cost- effective ways, and  Open to dispute due to value differences

12. Contrast with Business Businesses also create social impacts, both positive and negative, typically As unintended side-effects that Play a relatively minor role in organizational decision making Their social benefits result from an “invisible hand,” not by design Success is commonly defined in terms of private value creation (usually profit) Market discipline helps to reinforce private value creation

13. Limits of Market Discipline Social sector customer and capital markets are less effective at ensuring intended social impact  Intended beneficiaries frequently do not pay full cost  Payers cannot easily assess the social impact or the efficiency of operations  Comparisons across organizations are inherently problematic  Rewards to resource providers are not reliably correlated with performance “Invisible hand” is not as effective

14. Thus, Social Entrepreneurs...  Adopt a mission to create sustained positive social impact  Relentlessly pursue opportunities to serve this mission  Continuously innovate, adapt, and learn  Act boldly, not constrained by resources currently in hand, and  Exercise accountability for cost- effectively serving the social mission

15. Not Simply Nonprofit Management Entrepreneurial approach  Opportunity orientation, innovation, resourcefulness, etc. in contrast to organizational orientation, detailed planning, budget-driven, etc. Openness on organizational form  Nonprofit, for-profit, hybrid combination, cooperative, or even a new form But, SE can play a role in more innovative nonprofit organizations

16. Not Simply Responsible Business Entrepreneurial approach (as above) Primary mission must be social  Social impact as main objective rather than a secondary objective or a constraint  Tested by how decisions are made Openness on organizational form  Include nonprofits and hybrids, as well as businesses But, SE can play a role in more active socially responsible businesses

17. Recent Trends: Beyond Charity and Philanthropy

18. Increasing Impact Orientation Many of today's social entrepreneurs are blurring boundaries between the nonprofit and business sectors, as they:  Search for more sustainable and systemic solutions to social problems  Explore ways to improve organizational effectiveness and efficiency

19. Sustainable Solutions Charitable relief is essential, but it:  Does not address underlying problems  Can create unhealthy dependencies and be demeaning Current trends shift the emphasis to:  Reducing the need for charitable relief  Aligning social and economic value  Exploring market-based solutions

20. Improving Performance Philanthropy is essential, but it can:  Be unreliable, fickle, & time-consuming  Reduce performance pressures and foster inefficiencies Current trends shift the emphasis to:  Relying on more diverse and sustainable revenue streams  Using business tools to improve efficiency and impact

21. Case Example: Two Strategies for One Problem

22. Help The World See: Strategy 1 Mission: Provide primary eye-care in developing countries 1987: Philanthropic approach  Provide free exams and glasses  Rely on volunteer doctors and technicians  Recycle eyeglasses donated by the public  Use grants and in-kind donations to cover remaining costs

23. Help The World See: Strategy 2 1992: More commercial clinics  Provide free exams and medical referrals  Charge a modest fee for glasses  Train and employ local residents to prescribe and make glasses  Rely on some discounts, in-kind space, and start-up subsidies  Aim for operating self-sufficiency

24. Help The World See: Lessons and Observations Both approaches are entrepreneurial, and they present serious trade-offs  Philanthropic trips serve the most needy and provide a powerful experience for volunteers, but are only temporary and grant-dependent  Commercial clinics build local capacity and are less dependent on the kindness of strangers, but do not reach the poorest 20%

25. Help The World See: Further Lessons and Observations Commercial methods create new challenges  Concerns about quality and competition  Difficulty collecting fees from the poor  Elusive break-even Clinics and trips were separated in order to  Differentiate them for funders and other resource providers and  Recognize different skill requirements

26. Concluding Thoughts: Opportunities and Challenges

27. Growing Demand for MBA Skills Used wisely business skills can:  Create more sustained impact  Shift philanthropic resources to more appropriate uses  Leverage those resources  Improve financial strength and capacity of social sector organizations  Enhance efficiency and effectiveness

28. Risks and Challenges Business methods can pose problems  Creating mission drift  Driving down donations  Undermining the charitable and expressive character of the sector  Reducing the sector’s ability to generate “social capital”  Perceptions of unfair competition with local businesses

29. MBAs Can Add Value, But It is crucial to  Respect the work of those in your field  Be sensitive to the limits of markets and business methods  Manage potential risks and challenges  Prepare for resistance and skepticism  Learn your chosen field well  Consider blended solutions  Follow your passion!