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The Role of Social Entrepreneurship in Sustainable Business

sustainable business

By Thomas S. Lyons, Ph.D., Baruch College, City University of New York

Typically, when we think about “sustainable business,” we concentrate on corporate social responsibility (CSR): energy efficiency, reduced carbon footprint, recycling and reuse, fair treatment of employees, and charitable giving, among other considerations. Most of the sustainable business programs, in the universities that have them, are corporate focused. Yet, corporations are not the only variety of sustainable businesses.

Sometimes sustainable business is manifested in the activities of startups and small businesses that pursue double and triple bottom lines. These are mission-driven companies that are dedicated to being socially responsible from their inception, unlike most (though not all) corporations that pursue CSR for marketing purposes or to cut costs and increase profits. While there is value in doing the “right” things, even if it is for selfish reasons, there is a certain purity about these social enterprises that has a special appeal for those of us who cherish people and planet as well as profits.

The realm in which these mission-driven enterprises operate has come to be known as “social entrepreneurship,” a term widely credited to Bill Drayton, founder of the social venture philanthropy, Ashoka. What exactly is social entrepreneurship? My colleague from New York University, Jill Kickul, and I have suggested in our book, Understanding Social Entrepreneurship: The Relentless Pursuit of Mission in an Ever Changing World, that it is “the application of the mindset, processes, tools, and techniques of business entrepreneurship to the pursuit of a social and/or environmental mission.”

This is a good starting place, but it assumes knowledge of business entrepreneurship that some readers may not have. Because of this, it might be helpful to go back to a definition developed by J. Gregory Dees, widely considered to be the “father” of the field of social entrepreneurship. In an unpublished paper written in 1998, Dees stated that:

Social entrepreneurs play the role of change agents in the social sector by:

  • Adopting a mission to create and sustain social value (not just private value),

  • Recognizing and relentlessly pursuing new opportunities to serve that mission,

  • Engaging in the process of continuous innovation, adaptation, and learning,

  • Acting boldly without being limited by resources currently in hand,

  • Exhibiting a heightened sense of accountability to the constituencies served and for the outcomes created.

In defining social entrepreneurship this way, Dees helps us to understand the major characteristics of business entrepreneurship that apply, the characteristics that make social entrepreneurship unique, and how the two are blended. The second, third and fourth bullet points in the definition provide the business-related core.

First, all entrepreneurs are what the late entrepreneurship educator Jeffrey Timmons called “opportunity obsessed.” They constantly look for opportunities to add value to the lives of their customers and prospective customers. Social entrepreneurs, too, are always looking for opportunities to advance their mission, social and/or environmental, thereby enhancing the lives of their target beneficiaries. Second, entrepreneurship is synonymous with innovation because entrepreneurs implement inventions, their own or those of others; that is, they find ways to get the given invention to market by addressing issues of affordability, quality, durability, accessibility, etc., in a way that meets the needs of the customers in that market. Social entrepreneurs do the same thing for people facing social challenges and for the environment. Finally, business entrepreneurs utilize the resources of others to start and grow their ventures. They do this by selling these “others” (investors of various forms of capital) on their business concept’s potential for success. Social entrepreneurs must do the same, utilizing the strength of a compelling mission.

What makes social entrepreneurship distinct from business entrepreneurship is its unwavering focus on the social/environmental mission. This is true, no matter what legal structure the social entrepreneur chooses. For-profit social enterprises put mission before profits, typically using their excess revenues as a means of scaling the reach of their mission. Nonprofits are increasingly finding that they cannot rely on philanthropy to sustain themselves, much less grow. Thus, they are pursuing earned income strategies that leverage the organization’s excess capacity and capability. By law, the earned income they generate must be reinvested in the enterprise and its mission. Hybrid social enterprises, which combine features of both for-profits and nonprofits, use this legal structure to expand potential revenue streams, all aimed at increasing and sustaining the organization’s ability to pursue its mission.

In Understanding Social Entrepreneurship, Kickul and I ask the question, “Is a venture that offers dry-cleaning services using environmentally friendly processes and cleaning products a social venture?” The answer lies in this enterprise’s mission. If this dry cleaner is “green” because she has recognized a market niche catering to people who value the environment and her goal is profit, then hers is not a social enterprise; although, it may be a sustainable business. If, on the other hand, the entrepreneur is focused on environmental sustainability, and profit is secondary and a means to growing and sustaining that mission, this business is a social enterprise.

Dees’s final distinguishing feature of social entrepreneurship from business entrepreneurship is that the former is held to a higher standard of accountability. This is not to say that business entrepreneurs are not accountable; they are – to their customers and shareholders. However, social entrepreneurs are accountable to a much larger group – their stakeholders, who are people who have a financial and/or emotional stake in their success. This group includes investors, employees (including volunteers in nonprofits), direct beneficiaries, and the community or society. There is no such thing as a closely-held, private social enterprise. Social entrepreneurs operate in a fishbowl and are responsible for demonstrating their social impact and for complete transparency.

Further, measuring the performance of a social enterprise is much more complex than it is for a commercial business, which can simply measure financial success. Measuring and monetizing lives saved, quality of life increased, and environmental damage mitigated (among other impacts), while possible, are exceedingly difficult to do.

Thus, social entrepreneurship can be thought of as a unique, totally mission-driven form of sustainable business. This is why we include this subject in the curriculum of our MBA in Sustainable Business Program at Baruch College of the City University of New York. We want our students to be exposed to both the corporate and small enterprise manifestations of sustainable business practice. I would add that learning the entrepreneurial, in addition to the managerial, approach to sustainable business administration can give students who choose not to launch their own social enterprise the skills to be “sustainable business intrapreneurs” – managers who are thinking and acting like social entrepreneurs within a corporation.

Thomas S. Lyons, Ph.D. is Lawrence N. Field Family Chair in Entrepreneurship and Professor of Management at Baruch College, City University of New York.

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