How should a Social Entrepreneur be defined, by their impact or their income strategy?
After decades of frustrating setbacks, scientists at CERN think they have found the Higgs boson particle — a breakthrough success after $12 billion of research funding and smashing particles into each other in all imaginable ways. A few days ago, my colleague Amy Clark argued that there is a lesson about collaboration to be learned. I will use this discovery to argue that there is also an important insight for funders of social innovation.
The CERN research shows us that definitions are never more than hypotheses until an innovator thinks outside of the box. This is also the case in the field of social innovation, where experts and academics have struggled to define “social entrepreneurship” ever since the term was coined 30 years ago. Just like scientific research, social innovation often defies funders’ rigid definitions and expectations.
This promise itself has a dual impact. It is great news for many social entrepreneurs who are asking themselves new questions about monetizing their impact. But it also silently shifts the definition of social entrepreneurship for everybody – with unintended and unfortunate consequences.Many of the funders who have entered the burgeoning field of social entrepreneurship in recent years come from a background of commercial finance, and naturally they favor definitions focusing on the social ventures’ ability to repay investments. Some have gone so far as to suggest we can only fund the solutions to the world’s toughest social problems if we go leave philanthropy behind and tap into fantastic sums of capital ($500 billion, according to a Monitor study) by making profitable investment propositions.
First, the analogy of business and social entrepreneurship is useful but incomplete. It does not take into account that money and value flow differently in the citizen sector. What is earned income, anyway? In the citizen sector, grants and donations are often a form of market payment by a third party who steps in when beneficiaries cannot pay or when the benefit is too widely distributed to be “monetized.” (David Bornstein recently made a brilliant pointabout the confusion of investing in vs. buying from social entrepreneurs). The key question is not about the source of funding streams, but about their reliability. Social entrepreneurs who succeed in combining income from beneficiaries with steady supporter donations and grants from a healthy mix of foundations can be at least as stable as any purely customer-based social business.
Second, it is a dangerous promise for some social entrepreneurs (as I have argued elsewhere). Dangerous, because it may force them to abandon lower-revenue strategies that may lead to higher impact, and dangerous, because it locks out social entrepreneurs working on particularly tough problems with very early markets that are years or decades away from generating returns.
Microcredit, a poster child for self-sustaining social business, required $12 billion (about the same as the CERN researchers) in grant funding before it built its market, according to Monitor. In fact, many of today’s breakthrough successes of social entrepreneurs do not follow the business school earned-income blueprint, but use mixed income sources instead. Many of them also use open growth instead of value-capturing organizational growth, as the global scaling strategies of Ashoka Fellows in the Globalizer program clearly show.
The lesson investors could learn is this: Insisting on earned income early on can reduce the chances of funding the best solution available. Therefore, using self-financing as a definition for social entrepreneurship is a distraction. If we need definitions, let us use those that do not restrict the opportunity space, but open it up.
Recently, my six-year-old godson asked what I do for a living. I paused and thought through the myriad of definitions of social entrepreneurship in my head, and decided against all of them. “Do you know someone in your class who you trust will achieve anything they set out to do, someone who always finds the solutions?” I asked. “Hm. Yes,” he responded after a while. “Okay, now imagine that person has as only one goal: to build a new solution for a problem we have in our society … That is the person I want to find and give money to do just that.”
I like the analogy that social entrepreneurs are the research and development arm of our societies. If we take it seriously and keep an open mind with regards to income strategies, and leverage all the different funders living on their different planets, there could be more breakthrough successes in the citizen sector on par with the historic discovery made in Geneva.
Editor's Note: This article originally appeared on Forbes.com and was written by Felix Oldenburg, Director of Ashoka Germany. In the article he discusses the complexities of money and value flow into Social Enterprises in comparison to other businesses.