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Gregory Dees - Definition of Social Entrepreneurship (1998)

Gregory Dees - Definition of Social Entrepreneurship (1998)

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08/29/2011

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The Meaning of “Social Entrepreneurship”
J. Gregory Dees
Original Draft: October 31, 1998Reformatted and revised: May 30, 2001
 
The idea of “social entrepreneurship” has struck aresponsive chord. It is a phrase well suited to our times. It combines the passion of a social missionwith an image of business-like discipline,innovation, and determination commonlyassociated with, for instance, the high-tech pioneers of Silicon Valley. The time is certainlyripe for entrepreneurial approaches to social problems. Many governmental and philanthropicefforts have fallen far short of our expectations.Major social sector institutions are often viewedas inefficient, ineffective, and unresponsive.Social entrepreneurs are needed to develop newmodels for a new century.The language of social entrepreneurship may benew, but the phenomenon is not. We have alwayshad social entrepreneurs, even if we did not callthem that. They originally built many of theinstitutions we now take for granted. However,the new name is important in that it implies a blurring of sector boundaries. In addition toinnovative not-for-profit ventures, socialentrepreneurship can include social purpose business ventures, such as for-profit communitydevelopment banks, and hybrid organizationsmixing not-for-profit and for-profit elements, suchas homeless shelters that start businesses to trainand employ their residents. The new languagehelps to broaden the playing field. Socialentrepreneurs look for the most effective methodsof serving their social missions.Though the concept of “social entrepreneurship”is gaining popularity, it means different things todifferent people. This can be confusing. Manyassociate social entrepreneurship exclusively withnot-for-profit organizations starting for-profit or earned-income ventures. Others use it to describeanyone who starts a not-for-profit organization.Still others use it to refer to business owners whointegrate social responsibility into their operations. What does “social entrepreneurship”really mean? What does it take to be a socialentrepreneur? To answer these questions, weshould start by looking into the roots of the term“entrepreneur.”
Origins of the Word “Entrepreneur”
In common parlance, being an entrepreneur isassociated with starting a business, but this is avery loose application of a term that has a richhistory and a much more significant meaning.The term “entrepreneur” originated in Frencheconomics as early as the 17th and 18thcenturies. In French, it means someone who“undertakes,” not an “undertaker” in the sense of a funeral director, but someone who undertakes asignificant project or activity. More specifically,it came to be used to identify the venturesomeindividuals who stimulated economic progress byfinding new and better ways of doing things. TheFrench economist most commonly credited withgiving the term this particular meaning is JeanBaptiste Say. Writing around the turn of the 19
th
 century, Say put it this way, “The entrepreneur shifts economic resources out of an area of lower and into an area of higher productivity andgreater yield.” Entrepreneurs create value.In the 20
th
century, the economist most closelyassociated with the term was Joseph Schumpeter.He described entrepreneurs as the innovators whodrive the “creative-destructive” process of capitalism. In his words, “the function of entrepreneurs is to reform or revolutionize the pattern of production.” They can do this in manyways: “by exploiting an invention or, moregenerally, an untried technological possibility for  producing a new commodity or producing an oldone in a new way, by opening up a new source of supply of materials or a new outlet for products, by reorganizing an industry and so on.”Schumpeter’s entrepreneurs are the changeagents in the economy. By serving new marketsor creating new ways of doing things, they movethe economy forward.It is true that many of the entrepreneurs that Sayand Schumpeter have in mind serve their function by starting new, profit-seeking business ventures, but starting a business is not the essence of entrepreneurship. Though other economists mayhave used the term with various nuances, theSay-Schumpeter tradition that identifies
 
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entrepreneurs as the catalysts and innovators behind economic progress has served as thefoundation for the contemporary use of thisconcept.
Current Theories of Entrepreneurship
Contemporary writers in management and business have presented a wide range of theoriesof entrepreneurship. Many of the leading thinkersremain true to the Say-Schumpeter tradition whileoffering variations on the theme. For instance, inhis attempt to get at what is special aboutentrepreneurs, Peter Drucker starts with Say’sdefinition, but amplifies it to focus onopportunity. Drucker does not requireentrepreneurs to cause change, but sees them asexploiting the opportunities that change (intechnology, consumer preferences, social norms,etc.) creates. He says, “this defines entrepreneur and entrepreneurship— 
the entrepreneur always searches for change, responds to it, and exploits it as an opportunity
.” The notion of “opportunity”has come to be central to many current definitionsof entrepreneurship. It is the way today’smanagement theorists capture Say’s notion of shifting resources to areas of higher yield. Anopportunity, presumably, means an opportunity tocreate value in this way. Entrepreneurs have amind-set that sees the possibilities rather than the problems created by change.For Drucker, starting a business is neither necessary nor sufficient for entrepreneurship. Heexplicitly comments, “Not every new small business is entrepreneurial or representsentrepreneurship.” He cites the example of a“husband and wife who open another delicatessenstore or another Mexican restaurant in theAmerican suburb” as a case in point. There isnothing especially innovative or change-orientedin this. The same would be true of new not-for- profit organizations. Not every new organizationwould be entrepreneurial. Drucker also makes itclear that entrepreneurship does not require a profit motive. Early in his book on
 Innovation and  Entrepreneurship
, Drucker asserts, “No better textfor a
 History of Entrepreneurship
could be foundthan the creation of the modern university, andespecially the modern American university.” Hethen explains what a major innovation this was atthe time. Later in the book, he devotes a chapter toentrepreneurship in public service institutions.Howard Stevenson, a leading theorist of entrepreneurship at Harvard Business School,added an element of resourcefulness to theopportunity-oriented definition based on researchhe conducted to determine what distinguishesentrepreneurial management from more commonforms of “administrative” management. After identifying several dimensions of difference, hesuggests defining the heart of entrepreneurialmanagement as “the pursuit of opportunitywithout regard to resources currently controlled.”He found that entrepreneurs not only see and pursue opportunities that elude administrativemanagers; entrepreneurs do not allow their owninitial resource endowments to limit their options.To borrow a metaphor from Elizabeth BarrettBrowning, their reach exceeds their grasp.Entrepreneurs mobilize the resources of others toachieve their entrepreneurial objectives.Administrators allow their existing resources andtheir job descriptions to constrain their visions andactions. Once again, we have a definition of entrepreneurship that is not limited to businessstart-ups.
Differences between Business and SocialEntrepreneurs
The ideas of Say, Schumpeter, Drucker, andStevenson are attractive because they can be aseasily applied in the social sector as the businesssector. They describe a mind-set and a kind of  behavior that can be manifest anywhere. In aworld in which sector boundaries are blurring, thisis an advantage. We should build our understanding of social entrepreneurship on thisstrong tradition of entrepreneurship theory andresearch. Social entrepreneurs are one species inthe genus entrepreneur. They are entrepreneurswith a social mission. However, because of thismission, they face some distinctive challenges andany definition ought to reflect this.For social entrepreneurs, the social mission isexplicit and central. This obviously affects howsocial entrepreneurs perceive and assessopportunities. Mission-related impact becomes thecentral criterion, not wealth creation. Wealth is
 
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 just a means to an end for social entrepreneurs.With business entrepreneurs, wealth creation is away of measuring value creation. This is because business entrepreneurs are subject to marketdiscipline, which determines in large part whether they are creating value. If they do not shiftresources to more economically productive uses,they tend to be driven out of business.Markets are not perfect, but over the long haul,they work reasonably well as a test of privatevalue creation, specifically the creation of valuefor customers who are willing and able to pay. Anentrepreneur’s ability to attract resources (capital,labor, equipment, etc.) in a competitivemarketplace is a reasonably good indication thatthe venture represents a more productive use of these resources than the alternatives it iscompeting against. The logic is simple.Entrepreneurs who can pay the most for resourcesare typically the ones who can put the resources tohigher valued uses, as determined in themarketplace. Value is created in business whencustomers are willing to pay more than it costs to produce the good or service being sold. The profit(revenue minus costs) that a venture generates is areasonably good indicator of the value it hascreated. If an entrepreneur cannot convince asufficient number of customers to pay an adequate price to generate a profit, this is a strongindication that insufficient value is being createdto justify this use of resources. A re-deploymentof the resources happens naturally because firmsthat fail to create value cannot purchase sufficientresources or raise capital. They go out of business.Firms that create the most economic value havethe cash to attract the resources needed to grow.Markets do not work as well for socialentrepreneurs. In particular, markets do not do agood job of valuing social improvements, publicgoods and harms, and benefits for people whocannot afford to pay. These elements are oftenessential to social entrepreneurship. That is whatmakes it social entrepreneurship. As a result, it ismuch harder to determine whether a socialentrepreneur is creating sufficient social value to justify the resources used in creating that value.The survival or growth of a social enterprise is not proof of its efficiency or effectiveness inimproving social conditions. It is only a weak indicator, at best.Social entrepreneurs operate in markets, but thesemarkets often do not provide the right discipline.Many social-purpose organizations charge fees for some of their services. They also compete for donations, volunteers, and other kinds of support.But the discipline of these “markets” is frequentlynot closely aligned with the social entrepreneur’smission. It depends on who is paying the fees or  providing the resources, what their motivationsare, and how well they can assess the social valuecreated by the venture. It is inherently difficult tomeasure social value creation. How much socialvalue is created by reducing pollution in a givenstream, by saving the spotted owl, or by providingcompanionship to the elderly? The calculationsare not only hard but also contentious. Even whenimprovements can be measured, it is oftendifficult to attribute an them to a specificintervention. Are the lower crime rates in an areadue to the Block Watch, new policing techniques,or just a better economy? Even whenimprovements can be measured and attributed to agiven intervention, social entrepreneurs oftencannot capture the value they have created in aneconomic form to pay for the resources they use.Whom do they charge for cleaning the stream or running the Block Watch? How do they geteveryone who benefits to pay? To offset thisvalue-capture problem, social entrepreneurs relyon subsidies, donations, and volunteers, but thisfurther muddies the waters of market discipline.The ability to attract these philanthropic resourcesmay provide some indication of value creation inthe eyes of the resource providers, but it is not avery reliable indicator. The psychic income people get from giving or volunteering is likely to be only loosely connected with actual socialimpact, if it is connected at all.
Defining Social Entrepreneurship
Any definition of social entrepreneurship shouldreflect the need for a substitute for the marketdiscipline that works for business entrepreneurs.We cannot assume that market discipline willautomatically weed out social ventures that arenot effectively and efficiently utilizing resources.The following definition combines an emphasis

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