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.
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."
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."
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.