Early Challenges of
Nascent Social
Entrepreneurs
Maija Renko
Social entrepreneurs are celebrated as transformational leaders whose accomplishments create opportunities for those less fortunate. However, little is known about the early stages of social enterprise development. This study focuses on how a nascent entrepreneur’s prosocial motivation affects the progress in building a new venture. Results show that prosocial motivation decreases the likelihood of firm emergence within a 4-year follow-up period, and even more so when the product offering of the emerging venture is new to the markets. These findings are discussed in the light of previous research on prosocial moti-vation, social entrepreneurship, market novelty, and nascent entrepreneurship.
Introduction
Over the past decade, the general public as well as academia have started to pay increasing attention to those entrepreneurs whose primary motivation for building enter-prises is to catalyze social change or address social needs. The term “social entrepreneur” describes those individuals who establish enterprises primarily to meet social objectives rather than generate personal financial profit (Dees, 1998; Mair & Martí, 2006; Wei-Skillern, Austin, Leonard, & Stevenson, 2007). In this research, I focus on nascent entrepreneurs (NEs)—individuals who are in the process of starting up new ventures— who have stated early on that their primary motivation for new business activity is helping others, helping their community, or aiding the economy and economic development. These individuals are in the process of building organizations that could become the celebrated social enterprises of the future, and in this study, I investigate their early progress in the start-up process.
The start-up process of a new venture is precarious: most entrepreneurial activities end in “near-misses,” that is, organizations that die while emerging (Reynolds, 2007; Vesper, 1983). It turns out that many individuals who intend to start a new business never proceed to actual operations. Based on Panel Study of Entrepreneurial Dynamics (PSED) data, Reynolds reports that 6 years from entering the firm creation process, about one third of NEs have left the process, one third report an ongoing business, and about one third are still working on the start-up. While the availability of longitudinal data on the start-up process is improving, leading to an increasing number of published articles and
Please send correspondence to: Maija Renko, tel.: (312) 413-8237; e-mail: maija@uic.edu.
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dissertations,1 little systematic research exists on the start-up processes of those
enter-prises primarily established to address social needs. This study addresses this research gap by answering the following research questions: Does having a primarily social motivation for starting up an organization shape the outcomes of the process? If so, why and how? What is the role of providing an innovative, novel product or service in the process of building firms that address societal needs? To answer these questions, I rely on previous literature on nascent entrepreneurship, social entrepreneurship, as well as theorizing on prosocial motivation (Batson, 1987; Grant, 2007; Grant & Berry, 2011). While the moti-vation to make a prosocial difference has been increasingly examined as an important driver of job-related outcomes in organizational behavior literature (see, e.g., Grant, 2008, for a review), it has yet to be applied in the context of social entrepreneurship.
After describing the theoretical background of the research in detail, I develop five hypotheses, which are then tested in a panel study data set of 193 NEs, some of whom are “conventional”2 and others who are “social” NEs (Dacin, Dacin, & Matear, 2010).
Methods are described followed by the results of the empirical study. I conclude with a discussion of the key findings in relation to previous literature, and suggest some direc-tions for future research.
Theory and Hypothesis Development
Building an Enterprise With a Social Mission—Early Challenges
Motivation has been defined as a set of psychological processes that directs, energizes, and sustains action (Mitchell & Daniels, 2003). The reasons and motives that drive individuals to start new firms have been widely studied (e.g., Baum & Locke, 2004; Hessels, van Gelderen, & Thurik, 2008; Shaver, Gartner, Crosby, Bakalarova, & Gate-wood, 2001). Goals at the time of business creation reflect the goals and motives of the key agents involved, and only after the organization continues to exist as a separate entity will it possess goals that are increasingly distinct from those of founding entrepreneurs (Katz & Gartner, 1988; Mintzberg & Waters, 1985). When companies are young or just emerg-ing, one individual in control of an organization is often able to impose his or her vision on it. NEs’ concept of the emerging organization’s future is coupled with an ability to impose that vision on the organization through his or her personal control of its actions (Mintzberg & Waters).
In this study, the focus is on those motivations of NEs that are directed at creating social change or otherwise addressing social needs. These social motivations and goals are central to most current definitions of social entrepreneurship (Dacin et al., 2010), and while a variety of definitions exist, they all center around the primary goals of the process. The underlying motivation for social entrepreneurship is to create social value, rather than just personal or shareholder wealth (e.g., Dacin et al.; Peredo & McLean, 2006; Wei-Skillern et al., 2007). This desire to expend effort based on a concern for helping or contributing to other people has been labeled “prosocial motivation” in previous research (Batson, 1987; Grant, 2007).
Previous research in organizational behavior and social psychology has found that prosocial motivation can serve multiple goals. For example, employees may want to help others in their organization because they care about them, because they feel that it is the right thing to do, or because they want to achieve or maintain membership in a valued group. Similarly, business owners may want to help their customers and stakeholders for a variety of reasons and doing so will make them feel good about themselves (Batson, Ahmad, Powell, & Stocks, 2008; Grant & Berry, 2011). Recent research indicates that prosocial and self-interested motivations do not neces-sarily involve mutually exclusive or opposing desires but, instead, are empirically independent and can even be positively related (De Dreu & Nauta, 2009). In line with this perspective, research on social entrepreneurship emphasizes that social entrepre-neurs can simultaneously pursue prosocial and financial (self-interested) goals (e.g., Williams & Nadin, 2011). Previous research has linked prosocial motivation to a number of positive outcomes, such as higher job performance, personal initiative, and organizational citizenship behaviors (De Dreu & Nauta; Grant & Sumanth, 2009), pro-duction of ideas that are useful to future generations (McAdams & de St. Aubin, 1992), increased well-being (Weinstein & Ryan, 2010), and group creativity and innovation (De Dreu, Nijstad, Bechtoldt, & Baas, 2011). Expanding this line of research to social entrepreneurship seems logical, given the centrality of social mission in social enterprises.
While a wealth of studies have examined the motivations of entrepreneurs in general, a prosocial motivation has received little attention. Previous literature on nascent entre-preneurship has described entrepreneurial motivation directed toward goals such as self-realization, financial success, personal growth, status, and autonomy (Gatewood, 1993; Manolova, Brush, & Edelman, 2008; Renko, Kroeck, & Bullough, 2011). All these motivations focus on the enterprising individual; their wealth, well-being, personal devel-opment, satisfaction, and their family’s well-being. In other words, these motivations are largely self-interested as opposed to prosocial (Meglino & Korsgaard, 2004). However, as the recent surge in studies addressing social entrepreneurs shows, some individuals are driven to the start-up process by reasons that primarily stem from their willingness to see social change and the less fortunate succeed. Even if such prosocially motivated entre-preneurs are a rare breed, their importance for the economy and society is increasingly recognized. It is therefore important to understand the particular dynamics and challenges that characterize the start-up processes of these organizations (Short, Moss, & Lumpkin, 2009).
Building a new organization of any kind requires the entrepreneur to actively engage in the social environment by convincing a group of stakeholders to provide the necessary resources and to transform an opportunity into a working venture (Wood & McKinley, 2010). While building a new, viable organization is a challenging endeavor, and only some NEs manage to reach the goal of running an operational business (Reynolds, 2007), building a new venture with a primarily social mission may be particularly challenging for a number of reasons.
concern for the welfare of these people (Grant, 2007). Such affective commitment may be rare, particularly when the social cause of the venture is either geographically distant (e.g., developing countries from the perspective of Western investors), or psychologically distant (e.g., well-being of individuals struck by a rare medical condition). Finding early, dedicated champions for social enterprises is particularly difficult since value contribu-tions are not easily reducible to the advancement of certain stakeholders (Murphy & Coombes), and few stakeholders may share the same affective connection with the social cause as the NE does (cf. Grant).
Second, even if an affective commitment between a stakeholder and the cause of a social venture exists, the stakeholder may remain unconvinced of the impact that the venture can have (cf. Grant, 2007). Social impacts and outcomes created by social ventures take time to materialize, and demonstrating the potential for social impact is challenging—what would an early prototype of a microlending organization or venture philanthropy investor have looked like? While a venture capitalist may be convinced by the pro forma calculations, market growth and industry growth promised by a conven-tional entrepreneur, a social entrepreneur faces the challenge of demonstrating potential for a social impact while few formalized tools for social performance measurement exist (Austin, Stevenson, & Skillern, 2006; Ruebottom, 2011; Short et al., 2009; Wei-Skillern et al., 2007). In addition to challenges in demonstrating the ultimate social impact that the venture may create, estimating financial outcomes is difficult when a new firm proposes to put resources in use where they have not been employed before (Kistruck, Webb, Sutter, & Ireland, 2011). The value of resources for use in new ways and in unusual contexts is not knownex ante; uncertainty in accurately valuing resources translates into potentially low net present values of social ventures, making it hard to attract early investors (Seelos & Mair, 2007).
Third, more so than conventional ventures, social enterprises need to get the sup-port of, and even collaborate with, government organizations and other incumbents, the historic providers of social benefits. These institutions are bureaucratic and ineffi-cient, and novel ideas of social change may clash with their interests, creating barriers to social entrepreneurship (Baines, Bull, & Woolrych, 2010; Murphy & Coombes, 2009).
Finally, these negative effects of a social mandate on an emerging enterprise may be further corroborated by a social entrepreneur’s own deep, personal involvement in the venture. While social entrepreneurs often have an especially high understanding of the specific needs of the constituencies they assist (often the social entrepreneur is a member of the same disadvantaged population) (Zahra, Rawhouser, Bhawe, Neubaum, & Hayton, 2008), this understanding may come with subjective and emotional biases that hinder the objective management decisions required to build and grow any venture (Murphy & Coombes, 2009). Perceptions of such biases may create further challenges in committing other stakeholders, who do not necessarily share such a personal rela-tionship to the social issue being addressed. Indeed, previous research on prosocial motivation suggests that when an individual such as a nascent social entrepreneur has direct contact with the beneficiaries of her work, her experiences become emotionally charged, and she is more affectively engaged in her work as a result of firsthand expo-sure to her actions affecting others (Grant, 2007). Such an intense affective commitment by the NE may have detrimental effects on progress in the start-up process (Baron, Hmieleski, & Henry, 2012).
Hypothesis 1: Efforts of nascent entrepreneurs whose planned businesses primarily aim at providing solutions to social problems are less likely to result in the emergence of a viable enterprise than the efforts of conventional entrepreneurs.
Building an Innovative Enterprise—Additional Challenges
Social ventures develop at the intersection of enterprising individuals, market trends, and needs of the society. Beyond the impact of prosocial motivation of a NE, the outcomes of a start-up process are also impacted by factors external to the entrepreneur (situational factors). For example, across a number of empirical studies, Graziano, Habashi, Sheese, and Tobin (2007) find that prosocial motivation affects the extent to which an individual helps others but that situational factors moderate this relationship. In the context of emerging ventures, the novelty of the firm’s product/service offering may be a key situational factor that influences the result of a start-up effort (Koellinger, 2008; Samuels-son & DavidsSamuels-son, 2009).
Entrepreneurs are believed to be innovators, and the two terms are sometimes used almost synonymously. However, empirical examinations of representative samples of new firms have shown that, in fact, most new businesses imitate existing competitors’ business models, products, and services, and only bring about incremental improvements to the marketplace (Reynolds, 2007; Shane, 2008). In addition to variation in the levels of novelty to the market (Shepherd, Douglas, & Shanley, 2000), nascent entrepreneurial ventures also vary with regard to the locus of that novelty. Previous research has paid attention to novelty in production, management, and market offering of a new venture (Cliff, Jennings, & Greenwood, 2006; Jennings, Jennings, & Greenwood, 2009; Shepherd et al.); the focus in this study is on the novelty of market offering. Still, comparatively little research exists on how a new firm’s degree of novelty affects its destiny (Jennings et al.), and apparently no studies have empirically examined these effects in the context of social ventures. As summarized by Short et al. (2009), innovation is a key theme in social entrepreneurship research, but the field needs more theory-based examinations of novelty and innovativeness.
Based on the liability of newness perspective, Shepherd et al. (2000) theorize that new ventures with a more novel market offering will face a reduced likelihood of early survival compared with more imitative ventures. They further theorize that market novelty is detrimental for new ventures since educating customers and building legitimacy require large resource commitments. These arguments are in line with the flipside of a first-mover advantage: first movers in any market face greater market uncertainty and risks while giving imitators an opportunity to learn from the first mover’s experience (Drucker, 1985; Lieberman & Montgomery, 1988). Studies of the progress among nascent ventures have shown that innovative new ventures that introduce new types of products or services to the marketplace are more complex to set up, requiring more time and effort than imitative ventures (Koellinger, 2008; Samuelsson & Davidsson, 2009). Overall, while innovations benefit society, emerging ventures with highly novel product or service offerings are likely to suffer from higher development costs, increased demand uncertainty, lack of legiti-macy, and long development times, which may discourage the NE and lead to discon-tinuation of the start-up effort.
Hypothesis 2: The higher the degree of novelty in a planned venture’s market offering, the less likely the emergence of a viable enterprise.
may be met with even greater resistance than the introduction of a new commercial product or service. Zahra et al. (2008) describe the novelty of social entrepreneurial opportunities in the light of three attributes: urgency, accessibility, and radicalness. Com-bined, these three attributes communicate the level of novelty in an opportunity, and are also reflected in the novelty of the solution that emerges to address the opportunity (cf. Amason, Shrader, & Tompson, 2006; Choi, Lévesque, & Shepherd, 2008).
Urgentsocial entrepreneurial opportunities are novel in the sense that they arise from unpredicted events, such as natural disasters, wars, or similar events of devastation, and can create immediate and dire needs among unprepared communities (Zahra et al., 2008). The opportunities presented by such events require quick, immediate responses on the part of social entrepreneurs. Because of the unexpected nature of events that create these opportunities, the solutions by social entrepreneurs often have to be improvised and invented on the spot, requiring creativity and novel approaches. For example, The Sep-tember 11 Fund was launched within 2 days of the devastating events of SepSep-tember 11, 2001, in the United States (Wei-Skillern et al., 2007). Accessibilityfor a social entrepre-neurial opportunity refers to the level of perceived difficulty in addressing a social need through traditional welfare mechanisms (e.g., government programs) (Zahra et al.). Hence, accessibility captures one aspect of “competition” that affects social enterprises; social entrepreneurs search for innovative solutions to those problems that are less acces-sible to traditional providers. In such cases, they are likely to have truly novel solutions and the most significant impact. However, hard-to-access areas of society (e.g., schooling of girls in cultures that traditionally only promote male education, cf. Mortenson & Relin, 2006) will present significant challenges for building social enterprises. Finally, some-times the novelty of a social entrepreneurial opportunity simply resides within the solution itself, rather than stemming from the nature of the problem addressed (urgency) or the relative lack of other solutions (accessibility). Theradicalnessof an opportunity refers to the extent to which a major innovation or social change is necessary to address a particular problem. Novel solutions that deviate from established organizations’ or governments’ current operations are likely to be met with resistance within these very institutions. At the same time—as for example the emergence of charter schools in the United States demonstrates—new social ventures with previously unspecified missions and business models may be uniquely positioned to introduce such radical social innovations.
While those social enterprises that end up being celebrated as great examples to follow address opportunities characterized by novelty in every sense of the word (urgent social problems, hard-to-access markets, and radically new solutions), we know little about the effects of radical newness at the earliest stages of social venture development. However, a look back to the early stages of some now-successful social enterprises shows that their very innovativeness was actually hindering—rather than helping—their devel-opment. For example, founders of Teach For America, which is today widely recognized as a successful social innovation, initially had difficulty convincing key stakeholders of the viability of their idea. As a college senior, Wendy Kopp had proposed Teach For America in her Princeton University undergraduate thesis. She was convinced that many in her generation were searching for a way to assume a significant responsibility that would make a real difference in the world, and that top college students would choose teaching if a prominent teacher corps existed (Teach For America, 2010). However, rather than embracing such a novel solution for urgent problems in urban education, early audiences were highly skeptical of the idea. As Kim Smith describes it:
about, it doesn’t make sense, no college graduates are going to give up jobs in business to go teach in inner cities and rural areas. [. . .] Wendy and I knew that was wrong. We knew our peers, we knew people wanted to go into teaching, but weren’t doing it because they weren’t being recruited like they were being recruited into investment banks and consulting firms, and because the process was so laborious and so bureaucratic in order to get certified. We created a design to solve those problems. (Smith, 2003)
In another example of early resistance to a solution that later became a Nobel-prize winning success story, the founder of Grameen Bank struggled to gain recognition, legitimacy, and customers for his emerging microlending organization. Muhammad Yunus describes attracting his early customers to the Grameen Bank microlending program as follows:
. . . But it was difficult to persuade these frightened creatures. They had never inter-acted with any institution in their lives. Everything that I offered them was strange and threatening. Progress was slow that day. Very slow. As it was slow on many that followed. (Yunus & Jolis, 1999, p. 77)
The radical solution suggested by Jacqueline Novogratz in the form of now-successful Acumen Fund—an investment organization combining aspects of philanthropy with busi-ness concepts and accountability—was also met with early resistance. The founder describes the task of listing the first 20 investors (founding partners) as follows:
More than a few Wall Streeters explained that they kept a strict division between the way they made money and the way they gave it away. “You are trying to do both at the same time, and it will never work. Businesses operate for profit alone, and this is how they make good decisions,” an investment banker told me one summer afternoon. “Your idea of combining business and philanthropy not only won’t work, it is mis-guided.” (Novogratz, 2009, p. 219)
It seems that the novelty of a social venture’s offering, captured in the attributes of urgency, accessibility, and radicalness (Zahra et al., 2008), further compounds the nega-tive effects that the NE’s prosocial motivation can already have on start-up progress. In order to invest their time, money, or other resources in an emerging social venture, stakeholders must be convinced of the impact that the venture can have on beneficiaries. When the needs are urgent and solutions untried, establishing confidence among investors and other stakeholders becomes increasingly difficult. Further problems are presented by the slow-moving, often conservative government organizations and other incumbents whose support is needed for a social venture to emerge. The more novel the solution offered by an emerging social venture, the more significant the clash with these bureau-cratic organizations is likely to be, and the more unlikely their support becomes. Finally, the urgency of the needs that spark ideas for novel, socially oriented new ventures may also hinder the emotional neutrality and objective management decisions needed to create a viable venture. As mentioned earlier, an intense affective commitment by the NE may have detrimental effects on progress in the start-up process (Baron et al., 2012), and emotions are likely to run particularly high when novel solutions are needed for help with unpredicted events. When combined, these observations lead to:
Building an Enterprise With a Social Mission—The Role of Time Invested Even if the hypotheses presented thus far focus on the extra challenges that NEs face when trying to build ventures to address social needs, we should not lose sight of the fact that some of their efforts are still successful. What, then, can a NE do to defy the odds and to build a viable social enterprise?
Entrepreneurs are known to be tenacious in their efforts; they persevere even in the face of serious adversity and they pursue their business ideas with a passion (Cardon, Wincent, Singh, & Drnovsek, 2009; Markman, Baron, & Balkin, 2005). A look at case histories of prominent social entrepreneurs makes these characteristics seem all the more important (Bornstein, 2004; Mortenson & Relin, 2006; Novogratz, 2009; Yunus & Jolis, 1999). The very opportunity of bringing about sustainable solutions to pressing social problems is a promise that inspires the social entrepreneur and early venture team members. That a social venture has potential to create social value in addition to economic value for the founders can serve as a significant source of inspiration and passion for the entrepreneurial team at the early stages of venture development, when challenges abound (cf. Grant, 2007).
NEs who are successful in their efforts to build social enterprises remain tenacious and on course even at difficult times. At the earliest stages of venture development, the key contributions to the emerging firm are likely to come from the members of the start-up team (owners) (Kim, Aldrich, & Keister, 2006). Intense efforts (investments of time) by the early team members at the nascent stage are significantly related to subsequent reports of new firm births (Reynolds, 2007). The hours invested by the start-up team capture the different industry-independent types of actions that may be needed to realize the goal of new venture emergence (e.g., searching for external start-up capital, enlisting the venture in business registries, networking with industry peers, and writing a business plan). Hence:
Hypothesis 4: The more time the owners invest in the development of the nascent venture, the more likely the subsequent emergence of a viable organization.
The time invested in an emerging social venture can help overcome many of the specific challenges that these types of nascent organizations face. For example, while stakeholders do not always recognize disruptive, novel social innovations as valuable because it is hard for outsiders to assess their potential value (Christensen & Overdorf, 2000), NEs may mitigate this problem by collecting data to support their claims of social impact and by persistently communicating with key stakeholders (Wei-Skillern et al., 2007). Not only may stakeholders eventually become convinced by the impact assessments provided by the start-up team, but also the team’s investment of time and effort in a new venture serves as a signal of their commitment to outsiders. Also, a start-up team’s investments of time and effort can help to bring incumbents and gov-ernmental partners on board, making progress more likely. These observations lead to the final hypothesis:
Hypothesis 5: Time invested in the development of the nascent venture moderates the relationship suggested in hypothesis 1 so that the amount of time invested attenu-ates the negative relationship between a social motivation to start a business and the likelihood of the emergence of a viable enterprise.
Method
Sample
The hypotheses are tested in a sample derived from the Panel Study of Entrepre-neurial Dynamics II (PSED II) data set. The distinctive feature of the PSED is that it identifies and surveys NEs in the process of starting new ventures, thereby overcoming potential survivorship and recall biases typical for surveying entrepreneurs already in business (Gartner, Shaver, Carter, & Reynolds, 2004). At the time of the research, data from the initial data collection round of PSED II (A) and four follow-up waves (B–E) with the same NEs—each completed approximately 1 year apart—were available. Hence, data for the independent variables come from “Wave A” of PSED II data col-lection, which took place in September 2005–February 2006, and data for dependent variables come from up to 4 years later. The initial screening processes involved tele-phone interviews of 31,845 individuals, selected using random-digit-dial sampling pro-cedures, throughout the United States. To be identified as a NE during the screening process, the respondent had to exhibit the following characteristics: (1) they anticipated having some ownership in a new firm; (2) they had to be actively trying to start a new firm in the past 12 months; but (3) there was no positive monthly cash flow covering all expenses and salaries for 6 of past 12 months. Of the NEs satisfying the screening criteria, further selection and volunteering criteria resulted in 1,214 NEs being subse-quently interviewed by telephone in Wave A (response rate of 77%). The PSED II database is representative of the U.S. adult population due to relatively high response rates and weights used to correct for differences in selection probabilities and nonre-sponse rates from random data collection. Applying these weights for analyses is essen-tial for the generalizability of any studies related to PSED II data set (Reynolds & Curtin, 2004). In the following analyses, the weights are adjusted to reflect the reduc-tion in the number of cases due to missing and not applicable responses. All analyses are run in a data set where cases with missing data have been removed. The PSED data set and related codebooks are publicly available on the consortium’s website.3
3. http://www.psed.isr.umich.edu/psed/home
Figure 1
Hypothesized Relationships
H1: - Social
motivation
Time invested in venture Novelty to the market
Organizational emergence H3: +
H2: -
H5:
Measures
Organizational Emergence. The dependent variable, “organizational emergence,” is mul-tidimensional and follows prior research suggesting that organizations emerge when the NE assembles some key resources for the new firm: hires employees, receives external financing, and achieves first sale (Reynolds & Miller, 1992; Tornikoski & Newbert, 2007).4
Relying on data collected up to 4 years after the initial interview, each NE was coded as either having achieved each of the above-mentioned milestones, or not.5 Using these
measures, the dependent variable is operationalized according to the total number of milestones (0–3) the emerging organization had achieved divided by the total number of milestones (1–3) that the NE indicated were relevant to the start-up (achieving first sale was assumed as constant and relevant to all start-ups). Thus, in computing the dependent variable, I only deemed the specific resource acquisition activities (i.e., hiring of employees and the receipt of external financing) “relevant” if the respondent indicated that he/she had sought or was seeking to obtain these ends. This resulted in a continuous variable pertaining to the percentage of relevant emergence factors achieved, ranging from zero to one.
Prosocial Motivation. A relatively common approach to the analysis of PSED data has been a comparison of various groups within the data set: NEs compared with nonentre-preneurs (Schjoedt & Shaver, 2007), franchisee entrenonentre-preneurs compared with other NEs (Sardy & Alon, 2007), nascents of African descent compared with nascents of European descent (Singh, Knox, & Crump, 2008), and low-tech nascents compared with high-tech nascents (Liao & Welsch, 2003). Following these types of studies, the screening of NEs with a prosocial motivation from this data set was based on respondents’ answers to the following two open-ended questions: (1) “Why do you want to start this new business?” (AA2a) and (2) “What are the one or two main opportunities that prompted you to start this new business?” (AA5a). Responses to these questions were subsequently classified by the survey administrators using an array of 44 categories for the first question and 62 for the second. If the NE’s first answer to either one or both of these questions was categorized as “Help others; help community” or “Aid in economy; economic develop-ment; economy,” the individual was considered to have a prosocial motivation for the start-up, hence categorized as a nascent social entrepreneur (Dacin et al., 2010). These criteria resulted in 55 out of the total 1,214 NEs in the PSED II data set to be classified in this category. Using the first mentioning of a reason to start as a basis for social NE classification is in line with the majority of definitions of social entrepreneurship, which emphasize that the primary reason behind social entrepreneurs’ involvement in new business activity is their quest to help others, help the society, and their willingness to create social value (Austin et al., 2006; Dacin et al.; Short et al., 2009). In the pursuit of such goals, social entrepreneurs purposefully plan and organize to solve social problems (Light, 2009). The stated goals at the time of venture initiation should be good proxies for the venture’s social orientation.
4. According to Reynolds and Miller (1992), organizations emerge when the nascent entrepreneur invests personal commitment, hires employees, makes the first sale, and receives external financing. Since all respondents in the sample have indicated personal commitment (that is, all were actively trying to start a new business at the time of the first interview), Reynolds and Miller’s first dimension is a constant for all cases. Hence, in line with Tornikoski and Newbert (2007), we define organizational emergence along the remaining three dimensions: hiring employees, making the first sale, and receiving external financing.
I also used the same questions (AA2a and AA5a) to screen out a comparison group of conventional NEs. While NEs clearly enter the start-up process with a variety of primary motivations (Gatewood, 1993; Manolova et al., 2008; Renko et al., 2011), for the purposes of this study I screened out those who were primarily motivated by money, that is, their first answer to question AA2a and/or AA5a was categorized as “Income, to make money.” The final measurement for the social vs. conventional NE is coded as “2” for social and “1” for conventional NEs. The juxtaposition of prosocial motivation with an economic motivation to create this variable is based on the review of Dacin et al. (2010), who summarize existing literature and conclude that the primary goals of social entrepreneurs include creating social change and well-being, while primary goals of conventional entrepreneurs are economic/financial (see also Mair & Martí, 2006). Clearly, other moti-vations (besides social and economic) for nascent entrepreneurship are also prevalent, but for the purposes of this study, the division to economic vs. social motivation is appropriate.
There were initially 55 NEs categorized as “social” and 169 cases in the “conven-tional” (financially motivated) group. However, two cases were eliminated from the final data set since they answered “Income, to make money” to question AA2a, but “Help others, help community” to AA5a. This resulted in a data set of 53 social NEs and 167 financially motivated NEs. After the deletion of cases with missing data for any of the variables in the analyses, the final data set (n=193) includes 45 social NEs and 148 conventional NEs.
Novelty to the Market. Novelty in this study is measured as a quality of the nascent firm’s offering in the marketplace (Shepherd et al., 2000). It is operationalized as a continuous variable based on the NEs’ answers to the following two questions in the first interview (Wave A): “Will all, some, or none of your potential customers consider this product or service new and unfamiliar?” (variable AS1) and “Right now, are there many, few, or no other businesses offering the same products or services to your potential customers?” (variable AS2). The values of the novelty variable vary between 2 and 6, 2 standing for a product/service that none of the customers will consider novel and for which there are many competitors, and 6 representing a product/service that is considered novel by all potential customers and for which there are currently “no other businesses offering the same products or services to potential customers.”
Time Invested in Venture by Team. This variable was calculated as the natural logarithm of the total amount of hours that the members of the start-up team (up to four members) had devoted to the new venture by the time of the first interview (sum of variables AH14_1–AH14_4). Even if the data set contains some larger teams, Davis, Longest, Kim, and Aldrich (2009) recommend using the values for up to the first four members only.
industry (restaurants, consumer services, health services, finance, insurance, real estate firms, and business consulting services), in retail (retail stores), and in manufacturing. Also, high-technology businesses may have a higher risk of early failure than non-high-tech firms, as well as have higher levels of market novelty than non-high-tech firms. Hence, a dummy control for high-technology businesses is included in the empirical models. To investigate the effects of prosocial motivation, one should also account for an additional motivational basis for starting up—some individuals are starting businesses because they have no other options for work (necessity entrepreneurs), while others actually perceive a lucrative business opportunity (opportunity entrepreneurs), or there may be a combination of necessity- and opportunity-based reasons (Reynolds, 2007). The empirical models include a dummy control variable fornecessity motivationto account for this possibility. In addition, enterprises were at various stages in the “nascent” cycle when they were caught for the initial interviews; it is important to control for the effects of time. I computed a control variable for thetime lag(in months) between the time when the NE answered the first round of PSED II questions (Wave A), and when they first had thought about starting this new business. Finally, I also control for thegenderof the NE.
Analysis and Results
All analyses and descriptives reported here are based on weighted data, unless oth-erwise mentioned. Before reporting tests of the proposed hypotheses, I explore some general patterns in the data set. Table 1 shows the means and standard deviations of a number of continuous variables separately for the two groups (social and conventional NEs). The only significant differences that emerge are with regard to organizational emergence and novelty to the market. The average novelty of social NEs is significantly (p<0.001) higher than that of conventional NEs. However, on the organizational emer-gence variable social NEs score significantly lower (p<0.05) than conventional NEs. This
Table 1
T-test for Differences in Variables, Social NEs Vs. Conventional NEs
Social NEs
(n=45)
Conventional
NEs (n=148)
T-values
for differences in means
Mean SD Mean SD
Novelty to the market 4.23 1.27 3.44 1.21 ***
Time invested in venture by team (ln) 6.16 1.78 6.00 1.87 Money invested in venture by team 3.29 3.07 3.69 3.01
Organizational emergence 0.42 0.46 0.59 0.43 *
Start-up team size (ln) 0.51 0.48 0.45 0.53
Nascent entrepreneur’s age 38.20 13.38 39.07 11.83 Nascent entrepreneur’s education 5.59 10.23 5.53 2.21
***p<0.001, *p<0.05
observation is in line with the first hypothesis. Overall, while social NEs aim to introduce novel, innovative solutions to the markets, their chances of making it to operative business status are lower than those of conventional entrepreneurs.
I also explored possible significant differences between social NEs and conventional NEs with regard to the following dummy variables: necessity motivation, gender, high-technology business, retail, service, and manufacturing business (Table 2). The only significant difference between the two groups emerged in the area of service businesses. Social NEs are significantly more likely to be involved in building service-based busi-nesses than conventional entrepreneurs (c2=7.02,p<0.01). While 75% of social NEs are starting service businesses, only 54% of conventional entrepreneurs are. No significant differences were detected between the two groups (social vs. conventional NEs) with regard to any of the other dummy variables listed in Table 2.
Tests of Hypotheses
Linear regression models were used to test the hypotheses (Table 4). Table 3 presents the correlation coefficients among all the variables, suggesting there is little multicol-linearity among the independent variables. Variance inflation factors (VIFs) were calcu-lated as a part of the regression procedure, and all VIF values in the main effect models were comfortably low, below 2.0. The two interaction models (Table 4) had two slightly elevated VIF values each, but these were still below the 10.0 threshold, indicating no major problems with multicollinearity (Neter, Wasserman, & Kutner, 1989). The other main assumptions for using multiple linear regressions—normality of the variables and homoscedasticity—were also met.
Table 4 presents the models to test hypotheses 1 through 5. First, the control model (Model 1) indicates that manufacturing businesses have lower chances of becoming operative businesses. The money that the start-up team invests in the venture has a significant and positive effect on starting up. Model 2 (Table 4) provides support for hypotheses 1 and 2: NEs’ social motivation and novelty of the planned venture’s offering decrease the probability of subsequent business formation (firm birth).
Table 2
Descriptives of Dummy Variables
Social NEs
(n=45)
(%)
Conventional
NEs (n=148)
(%)
Total sample
(%)
% Women 32.7 34.0 33.7
% Necessity motivation 11.5 14.9 14.0
% High-tech businesses 32.7 25.5 27.5
% Retail businesses 9.6 16.3 14.5
% Service businesses 75.0 53.9 59.6
% Manufacturing businesses 1.9 4.3 3.6
Hypothesis 3 predicted that market novelty would moderate the relationship between a social motivation and the likelihood of organizational emergence; a moderated regres-sion analysis is appropriate for testing the effects (Aiken & West, 1991). To deal with possible multicollinearity between the interaction term and its components, I mean cen-tered novelty before creating the interaction term by multiplying novelty with social motivation (Aiken & West). Model 3 in Table 4 suggests that this interaction is marginally (p<0.10) significant in the regression model. Hypothesis 3 receives marginal support, and the nature of this interaction is depicted in Figure 2. The market novelty variable was categorized into three equally sized groups in order to create Figure 2. Essentially, the negative effects of high levels of market novelty on organizational emergence are stronger among social NEs than among conventional NEs. Further, the lowest likelihood of suc-cessful firm birth (organizational emergence) is observed among social NEs that have the highest levels of market novelty.
Model 4 in Table 4 provides support for hypothesis 4, that time spent on the nascent venture increases the likelihood of organizational emergence. However, hypothesis 5 is not supported since the interaction term in model 5 does not add significant explanatory power to the model.
Results from the regression models (Table 4) support hypotheses 1, 2, and 4, and provide marginal support for hypothesis 3. Hypothesis 5 is not supported. These results are discussed in the following last section of the paper.
Discussion
Research on social entrepreneurship has been developing at a fast pace, but little systematic knowledge exists on key issues that affect the early development of social
Table 3
Unweighted Correlations (n=193)
Variable 1 2 3 4 5 6 7 8 9 10 11 12
1. Organizational emergence
1
2. Gender (0=male; 1=female)
-0.03 1 3. Time lag between idea
and first interview (ln)
-0.01 -0.06 1 4. Necessity motivation -0.03 0.01 -0.00 1 5. High-technology
business
-0.10 -0.00 0.06 -0.03 1 6. Team size (ln) -0.00 -0.05 -0.09 -0.01 0.05 1 7. Money invested in
venture by team
ventures. Researchers have warned of a bias in social entrepreneurship literature toward highlighting success and burying potential lessons to be learned from failure (Dacin et al., 2010; Peredo & McLean, 2006). Success stories are important to motivate and inspire future generations of social entrepreneurs but underestimate the difficult task of entrepre-neurial work. This study looks at the early challenges that nascent, socially motivated entrepreneurs face when trying to build new ventures. The empirical examination was made possible with the PSED II data, which follows enterprises that are in the process of being established. These data allowed me to avoid the success—and survival—biases that have been problematic in most previous studies of social entrepreneurs (Dacin et al.; Peredo & McLean). This is one of the first studies to take advantage of a nascent entrepreneurship data set in order to examine social entrepreneurship processes.
Distinguishing nascent social entrepreneurs from other types of NEs at the early stages of organizational planning and building is challenging, since in many ways social enterprises resemble other organizations (Austin et al., 2006; Dacin et al., 2010; Mey-skens, Robb-Post, Stamp, Carsrud, & Reynolds, 2010). For example, very few of them organize as legal entities that could be immediately identified as social enterprises, e.g.,
Table 4
Results of Regression Models
Dependent variable: organizational emergence (firm birth) (n=193)
Controls I
Model 1 Model 2 Model 3 Model 4 Model 5
Gender (0=male; 1=female) 0.04 0.04 0.03 0.05 0.03
Time lag between idea and first interview (ln)
-0.03 0.00 -0.01 -0.08 -0.08
Necessity motivation -0.03 -0.05 -0.06 -0.05 -0.05
High-technology business -0.03 -0.03 -0.06 -0.03 -0.04
Team size (ln) -0.11 -0.08 -0.07 -0.11* -0.11*
Money invested in venture by team 0.41*** 0.36*** 0.35*** 0.35*** 0.34***
Service business 0.02 0.09 0.08 0.10 0.08
Manufacturing business -0.12* -0.11 -0.12* -0.13** -0.14**
Retail business -0.01 0.01 0.01 0.03 0.01
Social motivation -0.13** -0.09 -0.17** -0.16**
Novelty to the market -0.14** 0.20
Social motivation¥novelty -0.37*
Time invested in venture by team (ln) 0.26*** 0.03
Social motivation¥time invested 0.30
R-square 0.19 0.23 0.25 0.27 0.28
Adjusted R-square 0.15 0.19 0.20 0.23 0.23
F-value 4.86*** 4.97*** 4.85*** 6.12*** 5.83***
DR-square *** ** (Model 1) * (Model 2) *** (Model 1) NS (Model 4) *p<0.10, **p<0.05, ***p<0.01
“hybrid” legal forms such as L3Cs. Instead, they adopt traditional for-profit or non-profit legal forms (Dees & Anderson, 2003). They operate across industries, they bootstrap, and they employ a variety of funding sources to get started, just like conventional enterprises (Dacin et al.; Meyskens et al.). In the long run, outcomes that culminate in visible social impact could be used to distinguish social enterprises from conventional firms. This has led many to take the “I know it when I see it” approach that something can be defined as social entrepreneurship when clients and constituents are seen benefiting from it. However, output-focused operationalizations of social entrepreneurship, such as those where only successful social entrepreneurs are included (Meyskens et al.), are not desir-able if we want to understand social entrepreneurship beyond success stories. In this study, I have used the nature of the initial motivation for starting up to identify a sample of nascent social entrepreneurs. While this approach is in line with the majority of current definitions of social entrepreneurship, where the goals of the process are key to distin-guishing social entrepreneurs (Dacin et al.), further refinements in operationalizations of social entrepreneurship would benefit the field.
The findings of this study show that those NEs who enter the start-up process with primarily social, “others-focused” goals, are less likely to succeed in building viable organizations over a 4-year period than their conventional, financially motivated peers. Further, the findings provide some support for a hypothesis concerning the interaction of primary social goals of a nascent venture and the novelty of the venture’s planned offering. In other words, those social NEs who achieve key milestones in building their ventures (first sale, hiring of employees, acquiring external funding) are the ones offering imitative—rather than innovative—solutions. These results may seem paradoxical. While
Figure 2
Moderating Effect of Market Novelty on the Relationship Between Nascent Entrepreneur’s Motivation and Organizational Emergence
practical, real-world examples show that we are ready to celebrate radical social innova-tions once they have been proven to work, these results suggest that little support exists for those trying to make their way through the early hurdles of building new social ventures offering radically new solutions.
These findings make new contributions to the social entrepreneurship literature on several levels, regarding prosocial motivation, innovativeness of social ventures, as well as the earliest stages of social venture development.
The focus on prosocial motivation of the NE provides a new theoretical lens for those looking to understand the goals and motivations of NEs. Prosocial motivation is the desire to expend effort to benefit other people (Batson, 1987). It involves a focus on the goal of protecting and promoting the welfare of other people, which is typically prompted by contact with others who need help (Batson; Grant, 2007). Entrepreneurial endeavors are intentional, goal-directed processes, and it is fair to assume that the focus on social good is present already in the initial motivation of a NE looking to start a social venture. While the specific goals and mission of a venture may evolve as it grows and ages, it seems likely that the prosocial motivation of organizational leaders remains strong. Whether the strength of this motivation affects outcomes other than the one employed in this study (organizational emergence) remains an interesting question for future research.
The effects of prosocial motivation have been investigated in a variety of organiza-tional contexts, but this is the first study that applies prosocial motivation theory in empirical entrepreneurship research. Past research on prosocial motivation has primarily associated it with positive outcomes such as helping behavior across a range of situations and victims (Graziano et al., 2007), improved negotiation outcomes and more problem solving (Beersma & De Dreu, 1999), creativity (Grant & Berry, 2011), higher job perfor-mance, personal initiative, and organizational citizenship behaviors (De Dreu & Nauta, 2009). Echoing these findings, conceptual research has proposed that entrepreneurs who appeal to collective interest, rather than self-interest, should be more successful in mobi-lizing resources for their ventures (Van de Ven, Sapienza, & Villanueva, 2007). However, the findings of this study stand in contrast to these expectations. That nascent social entrepreneurs struggle to establish operating businesses, even more so than conventional NEs, is surprising in the light of prosocial motivation theory, according to which such motivation should lead to increased effort and persistence (Grant, 2007).
It is through these mechanisms that a prosocial motivation of a NE may hinder venture development, thus creating boundary conditions for the positive performance conse-quences established in previous prosocial motivation research (e.g., De Dreu & Nauta, 2009). Future research would benefit from direct measurement of these proposed mecha-nisms. For example, empirical studies could investigate whether those nascent social entrepreneurs who have to rely on large governmental partners early on are actually at a disadvantage compared with those social ventures that can rely on more entrepreneurial partners for support. Further, research should examine whether proposing clear impact metrics early on in a business plan helps social entrepreneurs gain support from key stakeholders and build their ventures. With regard to emotional vs. more objective man-agement of an emerging social venture, one could try to measure the entrepreneur’s emotional distance from the cause being pursued and whether this distance matters for their management style and venture success.
Even if the effect of prosocial motivation on organizational emergence in the current study is negative, future research should further explore the boundary conditions of this relationship. One possible direction for future research could combine prosocial motiva-tion with other types of motivamotiva-tions to see if interacmotiva-tions exist. For example, studies among firefighters and fundraisers suggest that prosocial motivation contributes positively to persistence, performance, and productivity when it is accompanied by high levels of intrinsic motivation (Grant, 2008). Intrinsic motivation, which refers to the desire to expend effort based on interest in and enjoyment of the work itself (Grant), is an important element of entrepreneurship. It is possible that the two types of motivations, when combined, lead to persistence and positive outcomes in the start-up process. Overall, more research on the motivations of social entrepreneurs is needed.
Beyond implications for motivation research, this study also contributes to research on the market novelty of social ventures (cf. Weerawardena & Mort, 2006). While previous research has established that new ventures vary with regard to their levels of novelty (Cliff et al., 2006; Jennings et al., 2009; Shepherd et al., 2000), this study has revealed an important compositional difference between groups. The degree of market novelty differs significantly between socially and financially motivated NEs, and market offerings are considered more novel among nascent social entrepreneurs. Prosocial moti-vation, rooted in values of benevolence and universalism, can, by emphasizing the impor-tance of benefiting others (Grant, 2008), encourage budding entrepreneurs to think creatively about others’ perspectives and identify new strategies for creating social value. Indeed, previous research on organizational behavior has found that prosocial motivation is associated with higher creativity at a workplace (Grant & Berry, 2011), and I expand this finding to the context of entrepreneurship by establishing a link between prosocial motivation and novelty of a nascent venture’s market offering.
finding suggests that nascent social entrepreneurs with highly novel ideas would be well advised to focus on activities that can establish legitimacy and stakeholder support in the marketplace early on. The empirical findings also show that the time that the team invests in the development of a nascent venture early on is vital. Increasing the hours spent on the venture increases the likelihood of organizational emergence. Highly innovative social entrepreneurs especially should invest a bulk of this time into educating the marketplace and stakeholders on the potential social impact of their novel solutions.
Finally, the study provides an important empirical contribution in that the nascent stages of social entrepreneurship have—up to now—remained largely unexplored. The fact that less than 5% of NEs in the United States enter the start-up process with primarily social motivations and goals puts the phenomenon of social entrepreneurship into per-spective. Even if the contributions of successful social entrepreneurs to the society are of great importance, the empirical phenomenon itself is still rare. This remains a challenge for those trying to move research in this area beyond small samples and case study data. PSED types of research designs with, possibly, more focused sampling frames of social entrepreneurs could provide an important way forward in research. Longitudinal follow-up is important if we are to understand how resources, context, and opportunities interact to impact the outcomes of social entrepreneurship.
Acquiring external funding is one dimension in building a viable organization, and it is also one of the three components in the dependent variable in this study. Here, the findings of this study differ from those of Miller and Wesley (2010) who found that innovativeness—a construct similar to market novelty—of a social venture’s offering had a positive effect on investors’ assessment of the “probability of venture effectiveness,” a proxy for positive venture assessment by the investor. The difference in these findings compared with those of Miller and Wesley may be due to two factors. First, the current dependent variable captures the actual progress over time that NEs make in building their ventures, whereas the research design of Miller and Wesley is a cross-sectional study, where data on both independent (innovativeness) and dependent (venture effectiveness) variables come from the same respondents. Second, while the Miller and Wesley study assumes that the social venture is in existence, this study captures earlier effects of innovativeness and novelty in the start-up process. Hence, it is possible that while we discover negative effects of market novelty on organizational emergence, including acquiring external funding, the effects of novelty are different once an organization has been established.
Empirical data available for this study present an unfortunate limitation in that the sample size and especially the limited number of nascent social entrepreneurs in the sample make for challenging statistical analyses. Small sample sizes have been recog-nized as an issue typical for social entrepreneurship research (Short et al., 2009), and more purposeful sampling of social entrepreneurs and social ventures would help research in this area.
Conclusion
empirical findings of this study show that such NEs are less likely to be successful in their start-up activities—less likely to establish a viable firm—than nascents whose motivation is based on economic, financial goals.
Second, the findings show that nascent social entrepreneurs who are looking to introduce highly novel products or services to the marketplace are at a particular disad-vantage, and their chances of building operating new businesses are even slimmer. That is, those social venture opportunities that are considered truly novel by key stakeholders and for which very limited competition currently exists, are the onesleastlikely to be pursued further by nascent social entrepreneurs. This seems like a paradox, since examples of social ventures that have had the largest impact in recent history are the ones that are highly differentiated from established solutions—that is, they are high in novelty. There-fore, these results mean that at any point of time, there is a large number of social innovations being considered by nascent social entrepreneurs that end up not being pursued further, since the inherent novelty of the innovations makes hiring people, acquiring external funding, and achieving first sales challenging. This suggests that in order to help create more social innovations, policy makers, educators, and other con-stituents should pay particular attention to the earliest stages of social venture develop-ment. These nascent stages of venture development have largely been overlooked in social entrepreneurship research and policy so far.
NEs included in this study have been followed in a panel study, PSED II, over 4 years after they were first considering starting up a venture. This means that the effects of prosocial motivation and market novelty are observed over time as the entrepreneurs’ actions unfold. They are free from recollection and attribution biases that have charac-terized much of social entrepreneurship research up to date. However, future longitu-dinal research of social entrepreneurs and their venture building efforts would benefit from larger samples specific to social entrepreneurship. Based on the results of this study, I suggest that, in order to encourage the building of new social ventures, those endorsing such efforts should target their support to the earliest stages of organizational emergence, i.e., to nascent social entrepreneurs. The inherent novelty of a social venture opportunity should not be considered a limitation by potential employees, funders, and early customers. Instead, as examples of revolutionary and successful social ventures show, it is through these bold, novel opportunities that social entrepreneurs change the world.
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