The Effective Social Entrepreneur

This is a continuation of my exploration of four core approaches to philanthropy.

The Social Entrepreneur seeks to directly execute programs that align with a theory of change, defined by themselves. They are the enterprise with which the other approaches engage. They are primarily concerned with the net social impact that is a result of their programs. (See my note about my usage of the term “social entrepreneur”).

The Charitable Giver is buying program execution. The Philanthropic Investor is providing the capital needed to grow and improve nonprofit enterprises. The Social Entrepreneur is the enterprise that runs the programs. On the one hand, it seems odd to label this approach as an approach to philanthropy, but of course launching a nonprofit enterprise is one of the options available to philanthropists.

The Social Entrepreneur’s job is similar to a for-profit entrepreneur, except it is harder. While a for-profit entrepreneur needs to execute a business plan that turns a profit, the Social Entrepreneur needs to execute a business plan that is financially sustainable AND finances programs that actually make a cost effective difference.

In order to do this, the Social Entrepreneur needs to meet the needs of two sets of “customers” their intended beneficiaries and the Charitable Givers who will pay for the programs to be executed. Unfortunately, there can be tension between meeting both sets of needs simultaneously.

For instance, the Charitable Givers who pay for program execution, may prefer programs which are not as beneficial, but which reinforce their pre-existing beliefs about how the world should work. Or Charitable Givers may prefer programs that offer quantifiable results, even when that impact is lower and less cost effective than programs offering less quantifiable results.

Beneficiaries offer a similar set of issues. Programs need to be both effective, as well as be attractive to the beneficiaries. For instance, beneficiaries might not choose to participate in the most effective programs if they have challenging requirements. Or beneficiaries may simply not be aware of effective programs, if their availability is not communicated well.

Both of these challenges are unique to the nonprofit space. In the social sector, one group pays and judges the value of the transaction, while another group receives (and makes their own value assessments). In the for-profit sector, a single customer receives, pays and determines value.

While most Social Entrepreneurs, and the social sector in general, tends to focus on program design and execution, financing the Social Entrepreneur’s enterprise is of equal importance.

Importantly, the Social Entrepreneur has their own Theory of Change (see my note about Strategy in Philanthropy). The enterprise must be launched with both a business plan (a plan for financing the organization) as well as a theory of change, which guides the development of programs. Charitable Givers and Philanthropic Investors are both investing in or buying into the Social Entrepreneur’s theory of change. Even when working with Strategic Philanthropists, who have their own theory of change (more on this later), the Social Entrepreneur must stay focused on executing their own Theory of Change.

6 Comments

  1. Geri Stengel says:

    Oh, I wish you’d found another word! “Nonprofit enterprise” or something. As you said in your note, you need a better word for actually running programs and financing them with outside funds, By using “social entrepreneur,” you are muddying the waters around that phrase which is murky already. Social entrepreneurs are solving the root cause of the problem not just treating the symptoms. Their approach is both innovative and sustainable. Many of these companies are for profit, though they also be low-profit and even no-profit. Social entrepreneurs, by any definition, need extra support from peers, from funders, and from mentors to make sure they stay both sustainable and continue to emphasize social impact.

  2. Shaleen Shah says:

    I love the distinction you wrote here so my question to you is: Do you think that social entrepreneurship is just a buzz word? I just think that it is something hard to achieve and that many are calling themselves such because it’s a new word on the business block. But, social entrepreneurs for real? I still have my doubts.

  3. Overall, I am finding this breakdown in 4 core types of philanthropists very engaging and thought provoking. Something has been needling me, however.

    This is not the first time I’ve heard similar comments to your argument that while for-profit enterprise’s job is “executing a business plan that turns a profit”, non-profits are charged with being financially sustainable and making a difference.

    I think this is only partly true. For-profit enterprise does have to turn a profit, yes. But I know of few businesses whose business plans start with the mission statement, “We will strive every day to turn a profit”. All businesses exist to fill a need. Some of them are real, important social needs. For example, does the emergency reponse consulting firm that gets paid top dollar for teaching industrial supervisors how to prevent untold death and destruction not make a difference?

    Few people, in fact, want to work at a job where they do not feel like they are producing something of value. Lawyers believe they are either enforcing the rule of law and/or protecting the innocent. Writers believe they are bringing new ideas to the world. Movie makers believe they are providing a valuable outlet for stressed-out people, etc.

    This is not to say that the profit motive, groupthink, and a variety of other complicating factors don’t sometimes lead this idealistic model of how business works astray. Of course it does. The ideal of charities operating as if their true purpose is to create social change doesn’t always reflect the reality, either. But good businesses make their true mission the top priority despite the temptation to focus on finances as an ends rather than a means, as do good charities. In both cases, I suspect these are the ones that actually produce the most value – in whatever form.

    My main point is this: I believe we need to avoid dividing the world into; non-profit enterprises (charities, etc.) that create social value and don’t turn a profit on one side; and for-profit enterprises that are primarily motivated by revenue generation on the other. It’s limiting, it’s dangerous – it sends the message that you can either make money or do good, but not do both with the same activity. By that logic if you make money and still want to do good, you have to give your money to others.

    From reading your work over the past several months, Sean, I don’t believe that’s a message you would intentionally send. That’s why I wanted to write this comment and point out that with language like that of this post, you may be sending it anyway.

    Thanks again for your consistently good stuff – keep it coming!

    Nadine Riopel

    • Thanks for your thoughtful note. Indeed, that’s not the message I mean to send. I believe that all organizations, for-profit and nonprofit, produce a blend of financial and social value. However, a for-profit that is producing profit and not producing social value can go merrily along its way and be “successful”. My point in the comment about social entrepreneurs is that they must both finance their organization and produce social value. They too can be financially sustainable and not produce social value, but they would then not be achieving their goal or the goal of Charitable Givers, Strategic Philanthropists or Philanthropic Investors.