Social Entrepreneurship 101
March 11, 2022
Social Entrepreneurship 101
What is the difference between social entrepreneurship and entrepreneurship? Typically, entrepreneurs are beholden to shareholders and must measure their success through company valuation and profitability. A social entrepreneur is a category within entrepreneurs that has the community as their stakeholder, so their definition of success includes how their operations impact this community of interest.
Social entrepreneurship focuses on social, cultural, or environmental issues through implementing solutions or creating funds. The key is that there is a focus on helping society, though this doesn’t have to mean the entity doesn’t also benefit, and this concept can be applied to a wide range of organizations.
Social entrepreneurs have a common interest in social responsibility. That means the company should be aware of its actions and be accountable to its customers, stakeholders, and the world at large. There are a few categories to consider for the socially responsible entrepreneur:
- Environmental Responsibility – some companies use alternative energy sources and sustainable materials, or engage in environment-focused volunteering or donation programs.
- Ethical Responsibility – this includes ensuring employees receive competitive pay and comprehensive benefits, plus are treated with respect.
- Philanthropic Responsibility – some companies donate a portion of their earnings to a prominent cause or sponsor a nonprofit organization’s fundraiser.
- Economic Responsibility – this means prioritizing doing good, not just making money. This is intertwined with the above types of responsibilities.
Socially responsible business practices can bolster customer trust and public respect, plus impact employee satisfaction and retention. There are a variety of different entity types that can incorporate social responsibility.
Social Entrepreneurship History and Entities
The concept of social entrepreneurship emerged in the 1980s and since then, has grown and gained momentum. Decades later, there’s still no consensus on specifics of the concept or categories. Often, any social work or environmental innovation gets put into this definition, as well as any business efforts that seek to do something rather than maximize profit gains.
Many people associate social entrepreneurship with the type of entity that the company forms. For-profit businesses are typically structured as corporations, LLCs, or sometimes sole proprietorships or partnerships. Social enterprises are often assumed just to be non-profits, and while this is one option, there are many potential structures depending on the strategic and financial structure and goals of the company. Let’s go over a few different business structures that social entrepreneurship can typically adhere to.
All entities, even non-profit organizations, must generate revenues to cover their costs. There are different options for where they generate these revenues, and non-profit organizations typically choose one of two key options, or a combination of these:
- Donations- A charitable donation is a gift of cash or a form of property made to a nonprofit organization to help it accomplish its goals.
- Fee for Service – this is In a term that describes various models of earning income in exchange for products or services. A fee-for-service nonprofit uses its earnings to support its mission and prioritizes benefit to the community over profits.
An example of a nonprofit organization is Teach For America, a nonprofit organization whose mission is to “enlist, develop, and mobilize as many as possible of our nation’s most promising future leaders to grow and strengthen the movement for educational equity and excellence”.
A big misconception around a Benefit Corporation is that it is the same as a B-Corp. This is not true. A Benefit Corporation is the legal structure for businesses that allows you to put the mission ahead of stakeholder or financial gain. Benefit Corporations are not non-profits, hybrids, or charities. Non-profits may not become benefit corporations unless they switch to a for-profit structure. An example would be Kickstarter, a public benefit corporation based in Brooklyn, New York, that maintains a global crowdfunding platform focused on creativity. Their mission is to “help bring creative projects to life”.
An L3C is a Low-Profit Limited Liability Company. This model is for entrepreneurial entities who value purpose and profits. This can be a business that benefits society and also generates profits for its owners. Examples include companies like the Mission Center, a Missouri-based company that provides administrative services to nonprofits, and InterSector Partners, a Colorado company that helps nonprofits achieve sustainability.
For-Profit Entities such as an LLC, Corporation, Sole Proprietorship
These types of organizations can still be socially responsible. A great example is TOMs Shoes, this is a for-profit entity that gives away one pair of shoes for every pair sold, supporting larger health, education, and community development programs through strategic partnerships. To this day TOMs gives ⅓ of profits for grassroots good.
Funding Options for Social Entrepreneurs
The pursuit of financial gain doesn’t have to be at odds with ethical, conscience-driven action, as shown by the above entity types. A socially responsible business has multiple options for how it might be funded:
- Investment – many ‘impact investors’ are interested in investing specifically in socially responsible businesses. Impact investors are often attracted to these types of businesses as they want to see their investments go towards a business that is not only likely to succeed, but also succeed in its mission to create positive change. So long as your entity structure is not that of a non-profit, you may consider taking on an investor.
- Debt – you may consider a loan, though keep in mind that some lenders consider a non-profit to be higher risk, meaning it can be more difficult to secure a loan.
- Fundraising – non-profit organizations are able to get donations to help accomplish their goals. In some ways, your donors become your ‘customers’ since you need to continually replenish your funds from this source.
- Revenues – all entity types have the option of selling a good or service in exchange for revenues.
Social Entrepreneurship Programs
Similar to there being many incubator and accelerator programs for emerging startups more generally, there are programs targeted specifically for the fledgling social entrepreneurs. Here are a few examples for you to target as you start your social ventures.
- Echoing Green Fellowship – Through our full-time Fellowship, we find people working on a plan to make the world better in a big way. Then we help them become impactful leaders by connecting them with the tools, resources, and communities they need to bring their ideas to life. A stipend over 18 months (80,000 USD). Funding offered to for-profit organizations is in the form of recoverable grants.
- Ashoka – Ashoka identifies and supports the world’s leading social entrepreneurs, learns from the patterns in their innovations, and mobilizes a global community that embraces these new frameworks to build an “everyone a changemaker world.”
- Fast Forward – Fast Forward mobilizes the funding, resources, and support tech nonprofits need to create positive impact at scale.
- Halcyon Incubator – The Halcyon Incubator is committed to solving 21st-century challenges throughout the nation and the world. By helping social entrepreneur fellows transform audacious ideas into scalable and sustainable ventures, the Incubator acts as a catalyst for measurable social outcomes. During the 18-month full-time Halcyon Incubator fellowship, a diverse cohort of fellows receives free residency and workspace, mentorship and leadership coaching, robust support from business consultants, and a living stipend to develop their entrepreneurial vision.
- Rally – Rally is an international hub for social entrepreneurs to access the required knowledge, resources, and people to transform their ideas or existing work into sustainable ventures that create positive social change.
Conclusion: Take Action
Awareness around social entrepreneurship continues to grow around the world. As more aspiring young entrepreneurs find problems that they wish to solve in the world, they may find that social entrepreneurship is a right fit for them. If you feel a strong connection to social entrepreneurship, continue to do your research and follow the steps necessary to start your journey in social entrepreneurship. LaunchX encourages entrepreneurs of all backgrounds, types, and passions. Many of our alumni go on to make tangible contributions in social entrepreneurship. Join the thousands of innovators and change-makers who make up our alumni community of young entrepreneurs today by applying to our summer program.