Special Topic 1

Chapter 7
Social Entrepreneurship
Definition

Scope

Issues
Business Mo
dels

Inverse Co
mmons Patterns of Entrepreneurship Management
Social Medi 4th Edition, Chapter 7
a

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

 Presentation Outline
• Definitions of Social Entrepreneurship
Chapter 7 • Comparison with Business Entrepreneurship
• Issues
Definition - Non-profit or not?
Scope - Taxation
- Growth
Issues - Wealth Creation
Business Mo - Stakeholder Motivations
dels • Business Models with Examples
Inverse Co - Pure
mmons - Hybrid
- Dual-mission
Social Medi
a - Cooperative
• Inverse Commons and Social Media with Examples
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
 Definitions

Chapter 7 Broad Definition according to William Drayton, 1972:

“Social entrepreneurs are individuals with innovative so
Definition lutions to society's most pressing social problems”
Scope

Issues
Narrower Definition used in this course
“Social entrepreneurs use market-oriented entrepreneuri
Business Mo
dels al approaches to address social issues”

Inverse Co
mmons The second definition does not imply necessarily solving
“BIG” problems, and therefore can be more locally
Social Medi
a
applied.

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

 Limitations-1
•Social Entrepreneurship is often associated with “green” or s
Chapter 7 o-called “sustainable” initiatives addressing large societal chal
lenges such as global warming, social inequality, pollution and pr
Definition eservation of natural resources

Scope
•Solving these complex problems often requires large long-term i
Issues nvestments – major changes in human behavior are needed and c
Business Mo hallenges must be attacked in multiple ways at many levels
dels
•The initial wave of venture investments tackling these problems
Inverse Co
mmons has already passed its peak

Social Medi
a •Social entrepreneurs are learning to tackle smaller problems whi
ch can still have an eventual impact on larger challenges.
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
 Limitations - 2
• Social entrepreneurship ventures have many of
Chapter 7
the attributes of business ventures
Definition • They share many of the organizational aspects
Scope and are driven by founders having an “entrep
reneurial mind-set”
Issues
Business Mo
• They should be differentiated from:
dels - Charities such as the Red Cross
Inverse Co - Benevolent Trusts such as the Bill and Melinda Gat
mmons es Foundation
Social Medi
- Non-Governmental Organizations (NGO’s) such as
a Greenpeace , Doctor’s without Borders, etc.

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

 Profit or Non-Profit?

•The main aim of a social entrepreneurship venture

Chapter 7 is to create benefits to society

Definition •Many social ventures are operated as “non-profit” entiti

Scope
es

Issues •However there is no fundamental reason why a

Business Mo social venture should not be profitable
dels

Inverse Co
•Profits can be kept within the venture to expand its influ
mmons ence
Social Medi
a
•But profits can also be used to benefit investors,
employees, founders or donated to other social venture
s Copyright 2013 Jack M. Kaplan & Anthony C. Warren
 Taxation Treatment

Chapter 7
• In the US there are no less than 32 different tax t
reatments for non-profit enterprises
Definition • The most common code group is 501(c)
Scope • If you choose to be a not-for-profit entity then y
Issues
ou must seek good tax advice and make sure tha
t you follow the code exactly
Business Mo
dels • A not-for-profit entity does not imply that it is ta
Inverse Co
x-free
mmons • Tax exemption is for charities and foundations
Social Medi • Electing for tax exemption removes possible inc
a entives for owners, investors and employees.
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
 Comparison Between Business and So
cial Ventures
Atttibute Business Social
Chapter 7
Focus Wealth Creation Social Benefit

Definition
Market Forces Highly Dependent Partly Dependent
Scope
Market and Financia Very Strong Weak
Issues l Discipline
Business Mo
Funding Bootstrapping, investors Bootstrapping, donations,
dels
and loans rarely investors, volunteers
Inverse Co Employee Motivatio Wages, stock options Job satisfaction
mmons n

Social Medi Value Quantification Market determination Usually impossible to mea

a sure

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

 Stakeholder Issues

• Culture often emotionally charged – the “do-good ab

Chapter 7 ove all else” atmosphere
Definition
• External stakeholders such as donors, beneficiaries, ta
Scope x authorities and volunteers watch the venture carefull
Issues
y to check on mission fulfillment
Business Mo
dels • Internal stakeholders will bring their own, often passio
nate values into the organization. Hiring, training, ince
Inverse Co ntives and feedback must be emphasized
mmons

Social Medi • Regular and clear communications to ALL stakeholder

a s is demanded from leaders at all times.

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

 Growth Challenges
• Employees join for more than monetary benefit. As th
Chapter 7 e venture grows, they may feel betrayed if the organiza
tion becomes more bureaucratic and they feel “just an
Definition employee”
Scope
• In this case, employees who may have been working f
Issues or below market wages may now demand increases
Business Mo
dels • Volunteers may be less likely to contribute to a larger
Inverse Co
organization
mmons
• Sources of external funding for growth may be limited
Social Medi
a and continually seeking donors can undermine the effe
ctiveness of the organization
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
 The “Pure” Business Model

• Focused entirely on a social mission

Chapter 7
• Organized as a not-for-profit entity
Definition

Scope • Must rely on bootstrapping, volunteering, government

grants and donors for financing
Issues
Business Mo
dels • Structure may limit impact potential
PROS CONS
Inverse Co Clear Focus on Social Mission Complicated tax and corporate governance issues
mmons Limited conflict of interest issues Inability for founders to participate financially
Can get foundation grants Difficult to sustain over time

Social Medi
Clear Message to constituents Inability to attract equity investments
Easy to attract volunteers and donors Difficult to attract top talent
a All revenues used to build the enterprise
Low or zero tax liability
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
 Example of a “Pure” Social Enterprise

Chapter 7

Definition

Scope

Issues
Business Mo
dels

Inverse Co
mmons •Mission focused on helping poor family farmers globally
•Branding certifies that farmers are earning a fair wage and work in safe conditions
Social Medi •Concerned customers will pay a premium for being socially concerned
a •Educates consumers and distributors
•Funds community improvement projects in poor farming areas

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

 The “Hybrid” Business Model

• Combination of non-profit and for-profit entities

Chapter 7
• Can fulfill dual missions – social good and wealth creation
Definition
• Flexibility allows funding from investors
Scope

Issues
• Founders and employees can enjoy financial benefits

Business Mo • Ability to attract top talent at market rates.

dels PROS CONS
Provide social benefits AND wealth creation Complicated tax and corporate governance issues
Inverse Co Non-profit remains tax-exempt Need for separate and non-conflicting boards
mmons Non-profit can get foundation grants All intra-group transactions must be at market rates and a
t “arms’ length”
For-profit can attract external capital Ambiguous and untested taxation legislation
Social Medi For-profit can make tax-deductible donations to non-prof High accounting and legal fees.
a it
For profit can hire highly paid talent

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

 Example of a “Hybrid” Social Enterprise
Not-for-Profit First

Chapter 7

Definition

Scope

Issues
Business Mo
dels

Inverse Co
mmons
•Institute of Heartmath started out as a non-profit for wellness management
Social Medi •Relied on donations, research grants, and volunteering
a •After seven years founders formed a for-profit to sell products and
provide other services, and to attract investors……….

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

 Example of a “Hybrid” Social Enterprise
Not-for-Profit First (contd.)

Chapter 7

Definition

Scope

Issues
Business Mo
dels

Inverse Co
mmons
•Quantum Intech Inc. commercializes products and services developed
by the HeartMath Institute
Social Medi •This is a for-profit entity which pays taxes and has a “arms-length
a relationship” with the Institute
•Founders, employees and investors can benefit financially from the value created
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
 Example of a “Hybrid” Social Enterprise
For-Profit First

Chapter 7

Definition

Scope

Issues
Business Mo
dels

Inverse Co
mmons

Social Medi •Sea Tow International formed as a for-profit boat-rescue service

•Expanded globally using a franchising model
a
•Sea Tow Institute formed later as a non-profit entity
•The Institute provides education to boaters, and donates safety equipment
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
 The “Dual-Mission” Business Model

• A single for profit entity that balances a strong social mission within a va
lue building structure
Chapter 7
• Fulfills dual missions – social good and wealth creation
Definition
• Flexibility allows all types of funding including equity investors
Scope

Issues • Founders and employees can enjoy financial benefits

Business Mo • Ability to attract top talent at market rates.

dels PROS CONS
Provide social benefits AND wealth creatio Difficult to maintain social mission over tim
Inverse Co n e
mmons Simple governance and tax structure Potential conflict of interests between found
ers and investors
Able to attract external capital Sources of investment more limited than a p
Social Medi ure business mission enterprise
a Founders can benefit financially Exit strategies for investors limited
Can attract talent

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

 Example “Dual-Mission” Model

Chapter 7

Definition

Scope

Issues
Business Mo
dels

Inverse Co
mmons

Social Medi •Founded as a research entity to study epidemiology of asthma

a •Initially funded with federal research grants
•Developed products and services that can be sold profitably.

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

 The “Cooperative” Business Model

•A group of individual entities agree to cooperate based on the

Chapter 7 following values:
−Voluntary and Open Membership
−Democratic Member Control
Definition −Economic Participation of all Members
−Autonomy and Independence of Members
Scope −Education, Training and Information shared among Members
−Cooperation among Cooperatives
Issues
−Concern for Community
Business Mo •Cooperatives can benefit from economies of scale
dels •Cooperatives are usually locally based, but not always.

Inverse Co PROS CONS

mmons Provide clearly defined social benefits Often limited to local rather than global impact
Low or zero tax payments Governance issues may be complex
May get foundation grants Needs trust between cooperative members
Social Medi Easier to sustain over long time Profit distributions can be contentious
a Builds communities and trust Needs a clear leader to start the cooperative
Members can extract profits Deciding payments to management executives

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

 Example: Regional “Cooperative” Model

Chapter 7

Definition

Scope

Issues
Business Mo
dels
The Eno Energy Cooperative, Karelia, Finland
Inverse Co
mmons
•A cooperative between three local authorities to produce district heating
for residents using wood-chips
Social Medi • Wood chips are harvested from local forests, ash is used for fertilization
a •Without the scale of a cooperative the capital could not be raised to build
the system.
Copyright 2013
2012 Jack M. Kaplan & Anthony C. Warren
 Example: National “Cooperative” Model

Chapter 7

Definition

Scope

Issues
Business Mo
dels

Inverse Co
mmons
•Started by social entrepreneurs wishing to provide hard to find outdoor gear
Social Medi •Now a major on-line and retail store chain
a •Chose a cooperative model in which customers become members and receive
end-of-year profit distributions.
•Funded by membership fees.
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
 The Inverse Commons

• This term describes a community in which every time a member contributes

Chapter 7 to the resources of the community, value is provided to every member

• As the number of members grow, an individual contribution has an ever-

Definition increasing impact and thereby accelerates community growth

Scope • The internet has greatly expanded the ability to expand inverse commons

• In the context of social entrepreneurship, contributions are made voluntarily

Issues
Business Mo • Motivations for contributing to the common good include:
− Personal philosophy
dels
− Altruism
− Bricolage, the pure joy of creating
Inverse Co − Peer Recognition
mmons − Fame
• Well-known examples are Wikipedia, Linux Operating System, and YouTube
Social Medi uploads
a
• Capturing the power of the inverse commons can rapidly expand
a social enterprise
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
 Example-the Use of the Inverse Commons

Chapter 7

Definition

Scope

Issues
Business Mo
dels • A non-profit venture whose mission is to alleviate poverty by connecting
$25 “micro-lenders” to entrepreneurs in under-developed regions needing
Inverse Co just a small amount of capital to bootstrap their business
mmons • Kiva relies on volunteers in the field and at headquarters to that every dollar
loaned goes to directly to those in need
Social Medi • Kiva reached a “tipping-point” mid-2007 and are now growing rapidly
• The internet provided the mechanism for rapid growth
a
• The more they grow, and show that these loans make a difference AND
are repaid, the more lenders are attracted to this social venture………
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
 Kiva’s Rapid Growth
Total value of all loans made to date $260,093,400
Number of lenders to date 640,983
Chapter 7 No. of countries sourcing loans to date
Number of loans funded to date
218
342,308
Data on Nov 20th, 2011 Percentage of loans to women to date 80.68%

Definition (updated daily) Number of countries with field partners 61

Total number of field partners 146
Current repayment rate 98.93%
Scope Average loaned per lender $255.74
Average number of loans per lender 7.75
Number of skilled volunteers 450
Issues Amount lent per week $4.3 million
Average time between loans being made 4 seconds
Business Mo Number of loans per week 11405
dels

Inverse Co
mmons

Social Medi Tipping Point

a

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

 Social Media Tools

•The growth of social networks provides entrepreneurs ways to grow

ventures rapidly
Chapter 7
•This is particularly true for social ventures where you can tap into the
Definition motivations of inverse commons contributors and volunteers

Scope • Here are some that you join – there will certainly be more……

Issues
Business Mo
dels

Inverse Co
mmons

Social Medi
a
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
 And don’t forget the Blogosphere…

Chapter 7

Definition

Scope

Issues
Business Mo
dels

Inverse Co
mmons

Social Medi
a Map of the global interconnected Blogosphere
Source : Wikipedia

Copyright 2013 Jack M. Kaplan & Anthony C. Warren