How Does a Social Startup Decide to Commercialize? It May Depend on the Founder's Gender

 
 
How does the founder of a social venture decide to create a "hybrid" business rather than a traditional nonprofit organization? The decision has a lot to do with the founder’s gender, according to new research by Stefan Dimitriadis, Matthew Lee, Lakshmi Ramarajan, and Julie Battilana.
 
 
by Carmen Nobel
people-talking-wearing-hats.jpg2016 Echoing Green Fellow Christine Su is co-founder and CEO of PastureMap. The for-profit software company helps sustainable ranchers record their grazing practices on mobile devices.  (Photo courtesy of Echoing Green.)

A division of labor has traditionally separated businesses from charitable organizations: Businesses focus on commerce, while charities engage in activities that support social welfare. Increasingly, however, founders of social ventures interested in improving society are pursuing hybrid business models, which blend aspects of both. Rather than depend solely on charitable donations or grants, hybrid organizations generate their own commercial revenues that sustain their pursuit of a social mission.

While hybrid models can enhance financial sustainability, they also pose new challenges for entrepreneurs. Hybrids run the risk of losing sight of their social mission in their quest for revenue generation. It can also be risky and difficult to finance a hybrid: Venture capitalists may be turned off by the idea of funding an organization preoccupied with its social mission, while charitable foundations may be skeptical of an organization that looks like a business.

So how does the founder of a social venture decide to create a hybrid rather than a traditional charity? New research suggests the decision has a lot to do with the founder’s gender.

"in communities where female leadership of conventional businesses is more of a cultural norm, female-led social ventures are likelier to engage in commercial activity"

Overall, social ventures founded by women are much less likely to engage in commercial, revenue-generating activity than those founded by men. However, in communities where female leadership of conventional businesses is more of a cultural norm, female-led social ventures are likelier to engage in commercial activity.

These are among the key findings in the paper Blurring the Boundaries: The Interplay of Gender and Local Communities in the Commercialization of Social Ventures, published in a recent issue of the journal Organization Science. The paper was authored by Stefan Dimitriadis, a doctoral student in the Organizational Behavior Unit at Harvard Business School; Matthew Lee, an assistant professor of strategy at INSEAD; Lakshmi Ramarajan, the Anna Spangler Nelson and Thomas C. Nelson Associate Professor of Business Administration at HBS; and Julie Battilana, the Joseph C. Wilson Professor of Business Administration at HBS and the Alan L. Gleitsman Professor of Social Innovation at Harvard’s Kennedy School.

“Although cultural beliefs that disassociate women from commercial activity may result in female social venture founders being less likely to use commercial activity than their male counterparts, these effects are moderated by cultural beliefs about gender and commercial activity within founders’ local communities,” the researchers write. “The presence of female business owners in the same community mitigates the role of founders’ gender on the use of commercial activity.”

Past research has looked at the decision of whether to go hybrid with a social venture. In one study, for example, Battilana and Lee discovered that having a parent who worked in a for-profit as opposed to a nonprofit organization would increase the likelihood of approaching a social venture with a business-minded bent.

The team hypothesized that cultural gender norms might play a role, too.

“Gendered cultural beliefs associate women with personal qualities such as caring, selflessness, and communalism, attributes that are consistent with the goals and motivations of the social sector,” they write. “Men, on the other hand, are seen to be stereotypically competitive, risk taking, and agentic, attributes consistent with the goals and motivations of the commercial sector.”

To determine whether gender indeed played a role in a social venture’s revenue strategy, the researchers analyzed a sample of 584 applications to a fellowship competition for nascent social ventures sponsored by Echoing Green, a global nonprofit organization that provides seed-stage funding, leadership development, and network opportunities to emerging social change leaders. The competition is prestigious; past recipients have achieved tremendous success in their missions, including Teach For America, a nonprofit organization that recruits young college graduates to teach in low-income neighborhoods, and Carbon Lighthouse, a commercial organization that helps businesses profit from making their buildings carbon neutral. (Not to put too fine a point on it, Teach For America was founded by a woman, and Carbon Lighthouse by two men.)

The researchers then developed a five-point commercialization scale, ranging from one for projects that relied (or planned to rely) exclusively on noncommercial sources of funding (like charitable donations and foundational grants) to five for projects that relied exclusively on commercial revenue—retail sales, for example.

For female founders, the number of female-owned businesses in the applicant’s community was positively related to the decision to commercialize, the researchers discovered.

While men proved more likely to commercialize social ventures overall, the difference decreased in communities with high levels of female business ownership. This effect seemed to be related to the presence of women in business leadership in the communities specifically; the researchers tested for effects of female leadership in politics and civil society, but found no similar effect.

Next, they analyzed a comprehensive sample of new nonprofit organizations founded in the United States over a two-year period—some 31,160 new ventures listed in the NCCS-GuideStar National Nonprofit Research Database, produced by the National Center for Charitable Statistics at the Urban Institute.

The findings in this second analysis mirrored the first: Overall, new nonprofit organizations with female leadership were much less likely to commercialize social ventures than male founders. But female-led organizations in areas with a higher concentration of female-run businesses were much more likely to commercialize their ventures than those in areas where female-run businesses were rare.

The study echoed Echoing Green’s own observations about its fellowship application base.

“Echoing Green has learned over our 30-year history that female-identified applicants to our fellowship do propose fewer commercialized social ventures, and this new research confirms the broader relevance of that data and some of our anecdotal learnings on the role of gender in social venture commercialization,” says Liza Mueller, director of operations and knowledge management at the New York–based organization.

“The research findings on proximity and exposure to female leadership are affirming to our theory of change that diverse communities—across a host of dimensions—are essential to increasing global equity and sustainability,” Mueller continues. “We believe that increased access and exposure to other leaders and models, paired with resources including quality legal guidance on selecting an appropriate revenue model, can help to break down cultural and structural barriers to leadership and organizational development, especially for non-white, non-male, and non-cisgender social change leaders.”

Beyond the implications for social ventures, the findings shed light on the way cultural beliefs may affect women’s entrepreneurship in general. “The presence of female business owners within a local community is likely to weaken cultural beliefs disassociating women from commercial activity,” the researchers write. “We hope our study will catalyze further research on the intersection of gender and organizational processes, as well as the challenges and opportunities it presents for individuals and society.” 

Related Reading:

'Hybrid' Organizations a Difficult Bet for Entrepreneurs
What to Do When Your Organization Has Dueling Missions

What do you think ?

Have cultural beliefs about gender ever affected your business decisions? Please add your thoughts and experiences in the comment section below.

About the Author

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

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