The rise of the social entrepreneur

July 30, 2007

It used to be that the American non-profit sector was like Teflon – nothing bad would stick to it. But in the last ten years, something had changed. According to a New York University study Confidence in Charitable Organisations, pre-September 11 90% of the Americans polled had a great deal of confidence in non-profits. As of 2006 this figure has fallen to 20%, while only 18% believe non-profits do a very good job of running their programs and services, and just 11% believe they do a very good job at spending their money. For a country with more than 1 million non-profits working to fill the gaps left by the business and government, this figure is alarming.

So what does the future hold for non-profits? At the same time confidence in this sector is waning, the idea of social enterprises and social entrepreneurs is gaining momentum. These social entrepreneurs have become the “darlings” in America with high expectations that they bring new ideas and enthusiasm to fix America’s social ills. Although there aren’t figures to validate the rise of the social enterprise marketplace, organisations such as Ashoka and the Skoll Foundation are busy providing financial support and creating networks for social entrepreneurs. Additionally, leading US academic institutions, including Stanford University, New York University, Harvard and Yale have developed special programs to encourage social entrepreneurs and research the subject.

To capitalize on the growing popularity of social enterprise many traditional non-profits have added income earning ventures. These are seen as ways to address social issues and help the organisation become self-sustaining. Additionally, donors like social ventures because there is a perception that they are better able to handle the needs of the marketplace.

Two examples of successful social ventures are Genesys Works and the Delancey Street Foundation. Genesys Works trains high school students on technical aspects of either computer repair or engineering drafting. Once trained, these students are assigned to perform technical services to companies such as Shell, Chevron, and Continental Airlines. The program not only supports math and science skills, but it also links the students to potential employers.

The Delancey Street Foundation is a residential education center where drug addicts, criminals and the homeless learn to lead crime-free lives. The foundation earns revenue by operating more than 20 businesses, including a restaurant and a moving company. It was originally started in San Francisco, and now has locations in New York, New Mexico, North Carolina and Los Angeles. The foundation grosses $20 million a year from earned income and private foundation contributions, and has empowered more than 14,000 people.

But are these social ventures typical of the sector, or are they the exception? According to the Seedco Policy Center 2007 report – The Limits of Social Enterprise: A Field Study and Case Analysis – most social ventures lose money and require subsidies either from the government or donations. So, there are risks to the non-profit starting a social enterprise venture. In addition to the risk of trying something unproven, many organisations add programmes, which are beyond the organisation’s capacity, or are a shift from its core mission. The Seedco cites: “Having one’s social goals linked directly to one’s financial success can force non-profits to face decisions that can affect the organisation’s structure and priorities, and even challenge its very nature.”

When evaluating a potential investment in a social enterprise there are a few questions a donor should ask. Does the venture have a demonstrated track record? Is its funding diversified? Does it have a strong financial base? Has the organisation done enough research about the market need? While funding a new endeavor is always risky, by asking these questions, a donor can determine the level of the risk. Additionally, donors should make sure that they are properly funding the venture to ensure the greatest possibility of success. As noted in the Seedco report, when businesses are under-capitalised they fail. This is the same for a non-profit business venture, but with the added issue that non-profits are not supposed to fail.

The role of the social entrepreneur in the US is still a relatively new phenomena. And like the traditional entrepreneur, there are probably more examples of failure than success. However, unlike a failed business venture, the stakes are higher for a non-profit. After all, not only will it lose money but a vital societal need will go unmet. And while we’ve seen some evidence of success, only time will tell what impact these efforts will have in changing the paradigm of the US’s social problems.

Jen Peckman is a researcher in the New York office of The Corporate Citizenship Company.