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With entrepreneurship on the rise and with the nonprofit sector looking toward business for new ideas, can entrepreneurs bring their energy and skills to bear against social ills? And if so, how?
These questions were explored in early March at the "Dialogue on Social Entrepreneurship," a student-run collaboration between the Harvard Business School and Harvard's John F. Kennedy School of Government. As the first joint effort of its kind to address the topic of enterprise in the social sector, the day-long event attracted students and professors from both HBS and the Kennedy School, as well as representatives of cutting-edge nonprofits that are applying entrepreneurship to a variety of social issues.
According to the Kennedy School's Peter Frumkin, an assistant professor of public policy and one of the moderators of the program, the two sectors have much in common, and both look across the divide between them in order to learn.
One of biggest trends in nonprofits in recent years has been exposure to a range of management practices including entrepreneurship, Frumkin said. The for-profit sector, at the same time, is learning about missions and values.
"While this sounds warm and fuzzy on the surface," said Frumkin, "it conceals a growing set of tensions." Entrepreneurship in the nonprofit sector raises red flags about mission coherence and even distortion. When a social service organization operates a coffee shop, he said, the amount of staff time and energy expended can be substantial. "Do the benefits outweigh the headaches, especially if [the project] is only remotely related to the organization's mission?"
Nonprofits also continue to enjoy tax exempt status. "Why do they still get it, when they sell products?" Frumkin asked. And business does not stand idly by waiting for an opportunity, either. Beyond competing for new markets, businesses have blurred boundaries by taking on social activities and publicizing them to gain market attention in strategic ways, Frumkin said.
Fear of business
Most of what happens in America is capitalism, according to Lisa Schorr (HBS
MBA '98), the Director of Business Enterprise Development at Pine Street
Inn.
Schorr's organization provides numerous services to homeless people in New
England; these programs are supported in part by a clothing resale business.
Another business is in the planning stages. "We have to recognize
[capitalism], and let's try to work with it," Schorr told the group.
"The nonprofit sector is a little bit scared of business," she said. "One of the issues that comes up is that anything that has to do with business can't have anything to do with helping people. But I think to be involved in commercialism itself can only enhance what a nonprofit does, if you are selective about it."
Innovation and energy are critical for filling some needs of society, agreed most participants. The blurring of traditional boundaries can in some instances compel people to solve problems in creative ways. One panelist, Nick Gleason (HBS MBA '97), whose Boston-based Internet services company CitySoft hires from the inner city, remarked, "If your sole choice [for funds] is the Rockefeller Foundation, it doesn't support innovative solutions to certain kinds of problems." Instead, Gleason said, creating "hybrid" institutions and networks is the key to innovation.
What spells success?
Traditionally, nonprofits have been able to avoid the hurdles of
accountability that for-profits must confront on a regular basis. According to
Jed Emerson, HBS Senior Research Fellow, business people have it very easy
because they're clear about their success: They can track it. "But
understanding the value of social wealth is very tough to do," Emerson
acknowledged. "It's not good enough anymore to say, 'We think we're
helping people's lives.'"
So how best should new nonprofits incorporate entrepreneurial models to actually "measure" their results? Conference panelists offered a variety of suggestions.
The measurement process is straightforward for Vanessa Kirsch of New Profit, Inc. New Profit invests, venture capital style, in over 100 social projects and helps them evolve. She gets a sense of progress on a quarterly basis, she said. "If they hit their benchmarks, they get more money," Kirsch said. If they don't hit the benchmarks, she said, they get "exited."
Eric Schwarz, President of Citizen Schools (an after-school program aimed at children aged 9 to 14), asserted that it is possible to measure progress in a way that satisfies both investors and constituents. The measurements can include tangible data such as revenue increases and revenues over budget. People who run the organizations should also talk to their "customers" and ask their opinions about the quality of service. In the case of Citizen Schools, Schwarz said, "customers" means the children and teachers.
When fielding questions from investors about metrics, Schwarz suggested, "you need to go on the offense, and think about how you best measure your success. Focus it as much as possible on the customers. If you're doing a good job, probably more people will come for your service this year than last year."
"We do look at outcome measures other than financial ones," added Schorr of Pine Street Inn. "This process forces us to discipline ourselves and make sure we get better and better every year."
Is business the answer?
The underlying premise in many discussions about social entrepreneurship,
commented panelist Jeffrey Bradach, is that for-profits are more effective than
traditional nonprofits in solving social problems. "We do have to be
careful," he cautioned. A former member of the faculty at HBS, Bradach is
now Managing Partner of The Bridge Group, a consulting firm for nonprofits which
works closely with Bain & Company.
In the end, predicted Bradach, there will be large segments of society that are not, as he put it, "amenable to market."
"I don't think markets can work everywhere," he said. For-profits are getting into certain human services, for instance: everything from children's day-care to elder care. "Who does the car accidents?" asked Bradach. "No one wants that because it's not economical for anybody.
"The market goes where the market goes. There are places where the market doesn't go. We need to understand how to create a healthy, vibrant nonprofit."
Nonprofits can also be vehicles of self-expression, Bradach reminded the audience. "Look at Habitat for Humanity," he said, referring to an American nonprofit that builds and renovates affordable housing for people in need, with the help of volunteer labor. "It's a miracle the houses stay up," Bradach observed. "Sure, [the organization] could be more efficient. But it's not just about building houses. It's also about building communities.
"Don't just define success in commercial terms and bring that assumption to nonprofits," added Bradach. "There are other things nonprofits bring to a healthy society."
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