Patterns of Entrepreneurship

Management 4th Edition Kaplan

Solutions Manual
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 CHAPTER 7 – SPECIAL TOPIC: SOCIAL ENTREPRENEURSHIP

OBJECTIVES

• Understand the similarities and differences between business and socially focused
entrepreneurial organizations.

• Decide whether profits are compatible with a social entrepreneurship venture.

• Learn how to focus your passions for social or environmental change into an
achievable plan.

• Understand the differences between a pure, hybrid, dual-mission and cooperative

models.

• Know the steps to create a business plan that uses best practices of commercially
focused entrepreneurs targeted to socially beneficial ends.

• Manage the personal, financial and professional risk that comes with running a
nonprofit organization.

CHAPTER OVERVIEW AND TIPS ON TEACHING CHAPTER

This chapter covers the legal and taxation issues associated with social ventures as well
as the unique classes of business models and management skills that are required for such
ventures. Use the seven cases, min-cases and profiles to apply the concepts and
perspectives on social entrepreneurship.

INTRODUCTION

• Social entrepreneurship is taking off as not only a way of doing business but as a
movement.

• The millennium generation is exposed through global media to the major

challenges that are challenging the poorer nations, the underprivileged in the
developed world as well as possible cataclysmic impacts on the planet from
global warming, energy demands, pollution, water shortages, epidemics, aging
populations, chronic diseases, wealth gaps, urbanization, famine, and so on.

• For the purposes of this chapter, we will narrow this viewpoint to defining
social entrepreneurs as those who use market-oriented entrepreneurial approaches
to address social issues.

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SOCIAL ENTREPRENEURS AND GREEN INITIATIVES

• Part of the social entrepreneurship movement deals with green or sustainable

business.

• The aims of these companies are also considered a subset of social

entrepreneurship, as they are concerned with issues such as global warming,
pollution, and natural resource conservation.

INSTRUCTOR’S NOTES ON
PROFILE: KHANJAN MEHTA—A SOCIAL ENTREPRENEUR

Have students read the profile of Khanjan Mehta. Ask them if they agree with Khanjan’s
perspective that market-based methods can at times be more effective and efficient in
achieving social ends than charities or NGOs (nongovernmental organizations)? Do they
think the medical kiosk could be effective in developed countries (such as densely
populated cities with large populations or rural areas where visiting a medical facility is
far away)? Why or why not?

TO PROFIT OR NOT TO PROFIT

• The question also arises whether social entrepreneurial ventures should generate
a profit or remain a not-for-profit organization.

• While a business entrepreneur typically measures performance in profit and return

on capital, a social entrepreneur focuses primarily on creating social capital—the
main aim of social entrepreneurship is to further social and environmental goals,
and social entrepreneurs are most commonly associated with the voluntary and
not-for-profit sectors, but this need not preclude making a profit.

SOCIAL ENTREPRENEURSHIP AND TAX ISSUES

• There are 32 types of nonprofit organizations that can be found in the IRS code,
primarily under section 501(c), but also under sections 501(d)-501(n).

• It is important to note that nonprofit does not necessarily mean tax exempt. While
most people think of the two as synonymous, they are not.

• A charitable nonprofit or 501(c)(3) status organizations are designed to serve

charitable, religious, scientific, or education purposes, and have very strict rules

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 from the IRS as to how they can operate and what purposes they can actually
serve. Section 501(c)(3) types of nonprofits are both tax exempt and can receive
tax deductible donations from donors.

• A significant con for a social entrepreneur of using the nonprofit form is that the
owners can never take the value out of the venture for themselves. If the nonprofit
were to sell or stop operations, the money from the venture needs to go into
another nonprofit.

DIFFERENCES BETWEEN BUSINESS AND SOCIAL ENTREPRENEURS

• Wealth is just a means to an end for social entrepreneurs.

• With business entrepreneurs, wealth creation is how success is measured.

• They are subject to market discipline; if they do not shift resources to more
economically productive uses, they tend to fail.

STAKEHOLDER ISSUES AND CHALLENGES

• Social ventures tend to have greater stakeholder issues and challenges than
traditional entrepreneurial ventures.

• Stakeholders both external and internal to the venture tend to view the social
venture as more than just a company.

• They view the social venture as a change agent that can impact the world for the
better.

GROWTH AND MANAGEMENT CHALLENGES

• When a social venture hires employees, they are frequently more followers than
employees.

• They are not merely in the social venture for a job, but tend to be driven by the
social mission.

• As systems are put into place to increase efficiency, the social venture runs the
danger of starting to appear to its employees as just another company.

ENHANCED REVENUE OPPORTUNITIES

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 • Social ventures can at times get third parties to pay for the services or products
they produce.

• A person may be unwilling to buy a new laptop for a stranger on the street, but
may be willing to buy one for a child in an underserved neighborhood, or be
willing to pay for the installation of a Mashavu kiosk even though unwilling to
pay for another person’s doctor visit.

SOCIAL ENTREPRENEURSHIP BUSINESS MODELS

There are four classes of business models that have as their core mission the creation of
social benefit:

• The first, the so-called pure model, is a not-for-profit structure in which

the enterprise is focused entirely on a social mission.

INSTRUCTOR’S NOTES ON
THE PURE MODEL AND MINI CASE: FAIR TRADE USA

Have students read the mini-case: Fair Trade USA and discuss the following
questions. What about the pure model that makes it most applicable to use in the case
of the Fair Trade system? Do you think the Fair Trade system is beneficial in all
instances? Why or why not?

• The second class of models are called hybrid, in which a legal structure is created
to enable both a social and a business mission to exist in a mutually supportive
relationship.

INSTRUCTOR’S NOTES ON
THE HYBRID MODEL

Have students read about the application of the two hybrid models on page 166 to
167, comparing and contrasting the application of the model in the Nonprofit and a
For-Profit examples. Discuss with students the lessons learnt about the application,
flexibility and use of the hybrid model in various circumstances.

• The third class, which we call the dual-mission model, uses a normal business
structure where profits can be attractive enough for external investors to
participate while the company fulfills a major social need.

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 INSTRUCTOR’S NOTES ON
THE DUAL-MISSION MODEL: ASTHMAPOLIS

Have students read the mini-case on the dual-mission model and Asthmapolis and
have them discuss the following questions. Why is the dual mission model most
applicable in this case? Discuss further the cost-benefit analysis of preventing versus
treating a disease such as asthma and how the application of the model helps to
achieve that?

• The fourth class gains scale by combining the efforts of a number of individual
small businesses that, on their own, may not be sustainable. They share a number
of resources, which allows each of them to survive and prosper.

INSTRUCTOR’S NOTES ON
THE COOPERATIVE MODEL: REGIONAL FOCUS
AND SPECIAL INTEREST FOCUS

Have students read the min-cases on Regional Focus and Special Interest Focus.
Compare and contrast the perspectives in both cases – how are they similar? How are
they different? Ask students if they like how the social cooperative model has been
applied in the Special Interest Focus example? What are the advantages and
disadvantages of such an application?

INSTRUCTOR’S NOTES ON
SOCIAL ENTREPRENEURSHIP BUSINESS MODELS

Have the students look again at the business models mentioned above. Have the
students share with the rest of the class, which of the models they like the most? Have
the students further discuss how they see the models applied to real world social
entrepreneurial ventures.

USING THE INVERSE COMMONS TO BUILD A SOCIAL ENTERPRISE

• The inverse commons is a term first introduced by Eric Raymond that is used to

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 describe the result of sharing in which users of a “good” actually contribute to the
overall value rather than detracting from it.

• Philosophy of Life: In this case, individuals are motivated by a spiritual need to

“leave the world a better place” for others.

• Altruism: One step up from here are individuals who, mostly for personal
reasons, have reached a stage in their lives in which “giving” in and of itself is
sufficient motivation. Perhaps we all have a philanthropic gene somewhere, and
the action here is closely related to this.

• Bricolage: This term was first coined by a French social sciences researcher, who
observed machinists creating complex and personal ornaments that they placed
close to their workplace.

• Peer Recognition: In this case, the personal satisfaction comes from having your
peers witness the excellent work that you have contributed.

• Fame: One step further, and the individual wants to be known for the excellence
of his or her contribution. Fame may be sufficient in and of itself, or might
be a planned step to a coveted and highly remunerated position.

INSTRUCTOR’S NOTES ON
THE MINI CASE: KIVA

Have students read the min-case: Kiva and discuss how the practices employed by
Kiva allows that organization to be successful. Is it a good idea to publicize the
financial information and statistics that are related to the business? Why or why not?
After reading the section on social media below, have students discuss what
advantages are provided to Kiva through the use of social media.

USING SOCIAL MEDIA TO GROW

• We have seen the emergence over the last few years of so-called social media
companies such as Twitter, YouTube, Facebook, LinkedIn, Groupon, and so on.

• The major revenue source has been targeted advertising.

• You can also use these social networks to find people whose passion to help
improve society aligns with your ideas for a social venture.

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• Ideally, videos should be both entertaining and useful, Rayburn adds. If your goal
is to get the viewer motivated and engaged, include a link to your web site on
videos.