18 Jan 2012  Research & Ideas

Beyond Heroic Entrepreneurs

Research in progress by Harvard Business School's Julie Battilana and Matthew Lee reveals that a large number of social entrepreneurs are focused on local rather than global change, and on sustainable funding. Key concepts include:

  • The goal of the research team is to identify broad trends and provide a springboard from which to study where the field of social enterprise is headed.
  • Existing qualitative studies have tended to focus on heroic, successful entrepreneurs, providing a skewed view of what the field of social entrepreneurship really looks like.
  • Early results suggest many social entrepreneurs are not focused on changing the world, but rather on effecting change in their own backyards.
  • Another trend: An ever-growing number of them intend to fund their social ventures through commercially generated revenue rather than charitable donations.

 

In recent years, business schools and investors alike have been paying more attention to social entrepreneurs, those who create ventures with the primary goal of achieving positive social change.

But most people encounter the field only through its most prominent cases—typically visionaries who have built national or global organizations that have achieved social impact.

This focus on success stories has led to a skewed view of social entrepreneurship as nothing more or less than a field of huge, realized dreams.

"A big weakness of the existing qualitative studies is that they're very biased toward heroic entrepreneurs."

"A big weakness of the existing qualitative studies is that they're very biased toward heroic entrepreneurs," says Matthew Lee, a doctoral candidate at Harvard Business School whose research focuses on social enterprises. "But to understand what the whole field looks like, you need to include everyone in your tent…not just the giants like Teach For America and City Year."

To that end, Lee has teamed up with HBS Associate Professor Julie Battilana to collect and analyze quantitative data on social entrepreneurship. Their goal is to identify broad trends and provide a springboard from which to study where the field is headed.

While their research is in its early stages, they already have uncovered two key trends about social entrepreneurs: One, many are not focused on changing the world, but rather on effecting change in their own backyards. Two, an ever-growing number intend to fund their social ventures through commercially generated revenue rather than charitable donations—a model known as a "hybrid" organization.

"Hybrid organizations have a social mission but generate most of their revenue from commercial activities," Battilana explains. "As with traditional nonprofits, what's most important is the social purpose, but hybrids also have economic objectives to generate enough revenue to sustain their operations."

Echoing Green

Battilana and Lee, who were designing the database essentially from scratch, decided to focus their research on entrepreneurs who also were starting from scratch—those for whom social ventures were still in the very early phases. They identified an ideal data pool through a partnership with Echoing Green, a socially focused investment organization offering two-year fellowships, including seed funding, to a select number of entrepreneurial applicants. It's a highly competitive process: of the more than 2,500 applications the organization receives for the annual competition, only 12 to 24 fellowships are awarded.

To get a broad sense of social entrepreneurship at its formative stages, they looked at a random sample of fellowship applications between 2006 and 2011, yielding some 3,500 profiles of social entrepreneurs in their nascence. They coded the profiles with several criteria, including the aims of the projects and their beneficiaries, the proposed business models, and plans for legal incorporation.

By analyzing the applications, the researchers were able to discover key trends in the entrepreneurs' plans to fund their social ventures in the long term. Not only were more of them less inclined to rely only on donations, but there was also a trend toward self-sustainability.

In Echoing Green's pool of applicants for 2006, 63.2 percent proposed business models based entirely on donations, 33 percent offered models based on a mix of donations and generated revenue, and 3.9 percent proposed models meant to run entirely on self-generated revenue. In 2011, 54.2 percent of applicants had proposed donation-only models, with 40.6 percent proposing a mixed model. And 5.2 percent intended to run entirely on revenue generated by the business; among these was fellowship recipient Joel Jackson, whose for-profit venture manufactures inexpensive off-road vehicles for a rural Kenyan market.

In terms of how the applicants would register their organizations' legal status, in 2006 85.1 percent planned to register as a nonprofit, 6 percent as a hybrid, and 8.9 percent as a for-profit operation. In 2011, 15.8 percent planned to register as a hybrid, with 17.5 percent as a for-profit business. (While the ability to register as a hybrid is not yet available in every geography as it often requires the creation of a new legal status, it is becoming more common, Battilana says.)

"Social entrepreneurship also includes people trying to start a community garden."

Providing quantitative data about the rise in hybrid models is important for social entrepreneurs, Battilana says, because traditionally there has been a tendency to divide the business world into black and white: the for-profit sector, solely driven by the prospect of financial success, and the not-for-profit world, which eschews the almighty dollar in the pursuit of curing societal ills.

Supporting entrepreneurs who blur these traditional lines will require the investment community to broaden its view. For those who traditionally fund charity-fueled nonprofits, a broader view will mean thinking less in terms of straight-out grants and more in terms of fostering growth. For those used to a venture-capital model of funding fast-growing software start-ups, it will mean realizing that a socially focused company may grow slower than, say, a cloud computing firm, but that the long-term effects may be worth the wait. (Several experts in the field gathered last year at HBS to discuss such funding issues at a seminar hosted by the School's Social Enterprise Initiative.

"If there's such a rise in the hybrid models, as more and more people try to use them as vehicles for the creation of social and economic value, the next step will be in determining how to make that work," Battilana says. "The investment world needs to figure out financing solutions that will fit these models."

Thinking locally

The data also showed a rise in the number of international fellowship applicants: while some 74 percent of applicants in 2006 were North American, less than half of applicants in 2011 were. While this may indicate that social entrepreneurship is spreading across the globe, at least from Echoing Green's perspective, the data also showed that most applicants' ventures remain hyper-local in their aims.

"Because we're used to hearing heroic stories of social entrepreneurs saving the world, I think our expectation was that most [prospective] social entrepreneurs had something global in mind," Lee says. "But when we did the analysis, 40 percent of these folks actually aspire to create change at the community or city level. Sure, there are people who are literally trying to solve global issues like poverty and water scarcity, but social entrepreneurship also includes people trying to start a community garden."

This is literally the case for Bethel Erickson-Bruce, who founded an urban farm in Waco, Texas, to raise awareness of sustainable agriculture and train community members in how to start their own gardens.

In the next stage of their research, Battilana and Lee plan to follow the Echoing Green fellowship applicants for the next few years to answer long-standing questions about social entrepreneurs, such as how they tackle issues of funding and growth.

In the meantime, they continue to share the initial results of what may be the largest quantitative data collection of social entrepreneurship to date.

"The database is a source of knowledge not only for the investors, but also for the social entrepreneurs themselves," Battilana says.

About the author

Carmen Nobel is senior editor of Harvard Business School Working Knowledge.

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Comments

    • Ben Reno-Weber
    • CEO, Kentucky YMCA

    An interesting model for examining social entrepreneurship is the YMCA. The Y has long been a mission-driven organization with a funding model that blends donations and program-fees. Financial sustainability is seen organizationally as a key to long-term impact, and that has driven an ongoing push for organizational efficiencies.

    The recent brand renewal efforts have focused on leveraging the Y's brand to increase mission focus and charitable donations, which build upon but do not replace sound fiscal management. Each Y is required to stand on its own, which means that each Y has both the freedom and the necessity to embed itself in the local community, responsive to that community's needs.

    As a former BCG consultant and HBS alumnus, I was surprised to find so many of the principles that felt so revolutionary when studying Social Entrepreneurship already at work in such a venerable organization.

    New social enterprises would do well to take note of the lessons learned by more than a century and a half of experience. And with more than 2,600 Y's in 10,000 communities across the US and operations in 124 countries, chances are pretty good you can find one in your backyard.

     
     
     
    • Mary Welsh Schlueter
    • CEO, Partnership for Innovation in Education

    Your article is "spot on". Social entrepreneurs are trying to show how beta changes in smaller networks are scalable once we have the research and measurables that can tell our story and incent funding from a multi-stakeholder base. At PIE, we are helping K-12 students create "apps" that teach financial literacy, with the program revenue funding the schools and its partners. Moreover, we are teaching kids career-readiness with case-based entrepreneurship taught in the classroom and the corner office. Innovation doesn't suddenly happen at age 22, we can create it in kindergarten and beyond with technology as our ally.

     
     
     
    • Ben Litalien
    • 3rd Year Doctoral Student, University of Maryland University College

    My dissertation is focused on the "social franchise" where nonprofits engage the franchise model in support of their mission. There have been some "heroic" experiences, but mostly unrealized expectations (e.g. Ben & Jerry's). This may fall under the "hybrid" model you reference. I would be interested in visiting with you if this is something you would like to consider "in the tent".

     
     
     
    • David Lindsay
    • Lecturer/Tutor, Napier business School

    Interesting research - in the Uk there has been for a number of years a certain pressure on organisations to re-invent thier ethical corporate governance policies to reflect the "new" social awareness that they think will appease the shareholders...the problem here is that the mind-set of the traditional for-profit organisation is totally at odds with that of the social entrepreneur who , rather than taking a marketing "pull" approach rather opts for a personal "push" approach to "changing the way we do business" -indeed not a reactionary strategy, more a philanthropic [community] philosophy where pure profitability is placed second on the agenda to local inclusion and a transparent "balance of trade" .

     
     
     
    • Ariel Beery
    • Co-Director, PresenTense

    We at the PresenTense Group fully agree. For the past five years we've worked with over 300 social entrepreneurs, and have found that the 'small business' social entrepreneurs are just as important, if not more important, to invest in.

    Due to a skew in the field (and a fear of what we call 'sectoral innovation') we've had to call our entrepreneurs "Community Entrepreneurs" so folks would be willing to accept their work as just as important as the massive ventures they compare them too.

    Keep up the good work, and tell us if we an help enlarge your sample size.

    Ariel

     
     
     
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited

    Social entrepreneurship is developing due to the caring attitude of such entrepreneurs towards community issues like saving the environment, poverty alleviation, health (including malnutition, child mortality,etc.) concerns, illiteracy, and so on. In India, many NGOs and others are engaged in such activities. Charitable non-profits also play such roles. Corporates are now voluntarily including Corporate Social Responsibility in their charters earmarking funds out of their profits to meet such causes. Thus, we have all types of entrepreneurs - hybrids, not/for profit - but the overall impact on society is minimal. Poverty ridden countries need a planned approach and actions taken here and there are not at all enough. Still then, those who have a real concern and are doing their best to serve social purposes need to be encouraged and lauded.

     
     
     
    • Michael Roy
    • Researcher, Glasgow Caledonian University

    Hi there, Greetings from the UK. Well Scotland, anyway. We're still at least nominally part of the UK. I wondered if you might be able to shed some light on a few things for me.

    1. I agree that the weakness of the existing qualitative research (such as it is) is heavily skewed towards "heroic" social entrepreneurs but I think this is more of a problem with US rather than European research. I think (although this is not grounded in any research) that this is because the social enterprise movement in the states is very closely tied with the philanthropic movement, which is often tied to individuals. I'm not saying it's the same people, just that there seems to be (like the positive psychology movement) more of a focus on the individual rather than society. We simply don't have philanthropy on the same scale as you guys, simply because it's not needed to the same extent in our statist social democracies. Would you tend to agree?

    2. I'm slightly confused about the taxonomy. How can a 'for profit' company be a social enterprise? A social enterprise is a business that reinvests its profits for some stated social and/or environmental aim, and not for distribution to its shareholders (beyond any initial investment). As I understand it the 'not for profit' description is a US tax classification and most social enterprises would fall under this banner. Any company that has the profit imperative ahead of its social aims (however laudable) is not a social enterprise but a for profit organisation that happens (incidentally) to be doing good. I'm not being disrespectful of such organisations: they are an amazing power for good in the world and should be encouraged generally. But a company that engages in CSR as a sideline to making money in and of itself is not a social enterprise in my book. But I know you guys are much more 'elastic' in your opinions about these things than us Scots (again, because of your in trinsic relationship with the Anglo Saxon capitalist model). The English are taking a leaf out of your book, much to our annoyance, allowing state municipalists and private sector opportunists to masquerade as social enterprises. You should see some of the things that are happening to our lovely NHS. Sheesh.

    3. Social enterprise has always been a broad church: a spectrum ranging from totally reliant upon the state (which is not an altogether robust or sustainable model) to completely unreliant upon grants in any form. A social enterprise cannot exist on charity alone. (That's called a 'charity' not a social enterprise). But are you really coining the phrase 'hybrid organisations' for those that are in the middle of the spectrum? Or is this something to do with the US tax classification again? Or is it something to do with the distribution of profits? It's not clear to me as (like I said before) the profit distribution (or 'asset lock') question is pretty straightforward to me. And to Yunus too, btw.

    4. Talking of whom, Yunus has his own classification - type 1 and Type 2 social enterprise/business. Presumably you could have a hybrid of the two. Does that mean (if we adopt your classification that we could technically have a hybrid hybrid?

    5. Social enterprises create 'triple bottom line' or 'blended' value. Does that mean we could have a blended hybrid hybrid?

    6. I know I'm being facetious (although only slightly) but as you can see, the problem with taxonomy as it applies to social enterprise is that it starts to get pretty messy pretty quickly. Although there are problems with not defining it too (as I said earlier)! The good news is that I'm yet to meet a social entrepreneur who cares greatly about such things. All they care about is "making a difference" (locally) and exercise pragmatism and realpolitik at each turn. Nobody in their right mind sets off wanting to change the world. They start off changing themselves, their family, their community, their college, their city and so on. If they happen to make a small change to the world, in a small way, then that's brilliant.

    Any self proclaimed social entrepreneur who wishes to want to change the world without trying to change things in a small way first - preferably to their immediate surroundings - should be treated with extreme suspicion: they are likely to be a wealthy narcissist with a conscience problem, an egotistic sociopath, or both. A hybrid perhaps.

    But after all that is said: more power to your elbow. I look forward to hearing how your thinking develops, particularly on how investment can be leveraged to widen scale and impact whilst preventing mission drift. That's a tough one.