A fourth view at the organizational level found in literature is that of SE as social purpose business ventures (Campbell, 1998; Larson, 2000;
Foryt, 2002; Schaltegger, 2002; Volery, 2002; Hockerts, 2003; Mair and Noboa, 2003a) In this case an emerging social innovation is seen as a business opportunity and turned into a commercial for-profit business creating, in the process, new market space while also attaining a social objective. Typical examples would be The Body Shop or Whole Foods Market.
At the societal level SE is often understood as networks for social entre- preneursandventure philanthropy. In this case information and practical support, as well as charitable donations or equity capital, are made available to entrepreneurial individuals and organizations that have a clear social mission and require a targeted amount of funds to realize it (Christopher, 2000; EMFK, 2002; Joshua Venture, 2002; Orloff, 2002).
A typical example is the Ashoka Fellow program that has networked over 1200 recipients worldwide who are working on radical social innovation and provided grants to allow them to realize their objec- tives (Bornstein, 1998; Ashoka, 2002; Drayton, 2002). Bill Drayton, a former McKinsey consultant and assistant administrator at the US Environmental Protection Agency (EPA), founded Ashoka in the early 1980s, and is probably one of the most vocal promoters of SE. Other examples include The Schwab Foundation for Social Entrepreneurship in Geneva and London-based UnLTD – the Foundation for Social Entrepreneurs.
So far practitioners have been the main driving force for SE. Research contributions have tended to ‘spread the word’ through anecdotal evi- dence and descriptive case studies. A literature review conducted by the Canadian Centre for Social Entrepreneurship yielded only seven journal articles against a host of 16 contributions from news magazines and websites. Not surprisingly the author concludes that ‘research on social entrepreneurship lags far behind the practice’ (Johnson, 2000: 2);
a finding shared by other scholars (Prabhu, 1999; Thompson et al., 2000).
In analyzing social enterprises I focus this paper on the sources of entrepreneurial opportunities for social purpose business ventures.
either sphere. In order to keep their balance these social enterprises need to discover and exploit opportunities to create both social and economic value. Emerson calls this ‘blended value’ creation (Emerson, 2003). In this paper I introduce three sources of social entrepreneurial opportunity that can explain the existence of social purpose business ventures: activism, self-help, and philanthropy. I propose the main actors that contribute to the generation of opportunities as well as their social and economic value propositions.
146 Social Entrepreneurship
Table 10.1 A conceptual framework for social entrepreneurial opportunities
Opportunity Main actors Economic value Social value proposition proposition Activism Activists Provides moral Social concerns
legitimization to the championed by the social enterprise activist group Communication and
distribution through activist networks
Self-help Beneficiaries Cheap labor and Social needs or concerns marketing of main beneficiaries of Cheap and patient the social enterprise capital
Loyal and patient clients
Philanthropy Donors Charitable grants and Social issues defined by
donations the donor
Business development advice
Networking with other social entrepreneurs
Activism
One source of social entrepreneurial opportunity is activist interference in the market place. Activists aim to influence politicians and man- agers through mostly confrontational and sometimes cooperative cam- paigns (Rondinelli and London, 2003; Spar and La Mure, 2003; Yaziji, 2003). Yet, upon realizing that they may best meet their goals through the support of social purpose enterprises, some activist groups have begun to explore that route more systematically.
A typical example is the fair trade movement. Traditionally develop- ment activists lobby politicians to provide more development aid to poor countries and blast multinationals they perceive to exploit small- holder producers in underdeveloped countries. However, in recent years they have also initiated and supported fair trade enterprises such as Cafédirect (today the sixth largest coffee brand in the UK) or Agrofair (a fast growing fair trade fresh fruit wholesaler in the Netherlands). These organizations are not only successful businesses in their own right, but they are also governed by the principle of social welfare maximization for the producers of cash crops in developing countries (Robins and Roberts, 1997; Tallontire, 2000). The reason these enterprises have suc- ceeded in a competitive market place lies in two kinds of support they have received from activists.
Firstly, development activists provide legitimization in the market place. Implicit or explicit endorsement from organizations such as Oxfam and CAFOD in the UK or Steun Onderontwikkelde Streken (SOS) and Solidaridad in the Netherlands, has helped to make fair trade a product distinction that customers trust. At the same time campaigns put industry incumbents like Kraft, Nestlé, Procter and Gamble, and Sara Lee on the spot, a good example being Oxfam’s campaign report:
‘Mugged – Poverty in your coffee cup’ (Economist, 2002; Oxfam, 2002).
Secondly, activists organized in church groups, development initia- tives, or local citizen committees provide free marketing and distribu- tion to fair trade enterprises. Knocking on doors, staging boycotts outside local retailers until they list fair trade products, and spreading news by word of mouth, all provide invaluable free marketing to these budding businesses.
As the market share of fair trade has grown, traditional players have started to crowd in on this opportunity. In the UK, Sainsbury’s and the Coop, for example, have launched their own brand fair trade labels that are registered with the activist groups and bear the official fair trade mark. Even Kraft Foods Inc. has begun to sell fair trade coffee certified by the Rainforest Alliance. Increasing economic pressure has been driving some fair trade pioneers out of the market. Oxfam, for example, stopped its own importing of fair trade products focusing instead on development (Stevens, 2001). Other fair trade enterprises such as Cafédirect have since revamped their communications toward stressing product quality and thus moving more into the direction of traditional business.
Activism provides social enterprises with a set of social entrepreneurial opportunities primarily by making the key assets of activist groups
Kai Hockerts 147
available to the social enterprise. Yaziji (2003) suggests legitimacy, aware- ness of social forces, distinct networks, and specialized technical exper- tise as the most relevant resources that activist groups possess. For budding social venture startups these resources can make the difference between survival and failure. However, activism-driven social enterprises are also at risk since public pressure groups usually have a short attention span. They operate in a world of campaigns and thus, ultimately, media attention. As soon as social enterprises become established, activist groups begin to lose interest as they are not in the institution-building business.
In the long run activist-based social enterprises face two options.
Either they tone down their social welfare mission and mutate into tra- ditional businesses competing primarily on price and quality, or they leave the business side to the incumbents and slide back into the activist world. The latter is not necessarily a failure. Oxfam’s decision to stop importing fair trade products was, at the same time, testimony to the fact that the activist organization had succeeded in kickstarting the fair trade movement. Now that more and more professional fair trade enterprises have emerged, Oxfam can move back to its original mission of alleviating poverty and lobbying policy makers.
Self-help
The beneficiaries of the social enterprise are a second source of social entrepreneurial opportunity. Usually beneficiaries of social initiatives would be expected to be powerless. Why else would they need support and protection from social enterprises? However, often the needy can pull themselves up given the opportunity. Thus, roping the benefi- ciaries into the business can be another source of opportunity for social enterprises; they can provide the enterprise with valuable resources.
Take the example of microfinance (Bornstein, 1996). Traditionally aid organizations have focused on providing donations. Yet charity is not the most effective way to help the poor. From this realization a host of microfinance enterprises have emerged that provide the poor with microloans, which in turn help them escape from poverty. How can social enterprises succeed at this task when traditional banks have failed at providing such services to the poor profitably? A primary asset of microfinance is the fact that it encourages the poor to save. These funds are, in turn, used to finance the microloans. Secondly, social enterprises such as Grameen Bank use their beneficiaries as employees thus reducing labor costs. Finally, knowing that they are the benefi- ciaries, clients of microfinance banks are highly loyal clients and this 148 Social Entrepreneurship
results in lower default rates than pure for-profit banks encounter.
Attracted by a growing market for financial services among the poor, banks and insurance providers have recently begun to duplicate the ideas of microfinance in a for-profit context. This, in turn, is putting the pioneering social enterprises under pressure and forcing them to choose between a return to the fold of charity or a move forward into commercial competition with the market incumbents.
Self-help can be a strong asset for social enterprises in all kinds of areas. GrameenPhone, for example, is emulating the village bank concept in bringing mobile telephony to the poor in rural Bangladesh (Quadir, 2003; Malaviya, Singhal, Svenkerud and Srivastava, 2004). Car sharing is another phenomenon taking on market incumbents by leveraging on its clients. This type of social enterprise has grown out of the desire of a small number of people to share their vehicles. These people were critical about car ownership from an ecological point of view, but still had an occasional need to use a car. Starting as an infor- mal self-help network founded by a handful of people, car sharing cooperatives have mushroomed all over Europe. The market leader, Mobility Car Sharing (MCS) in Switzerland, serves over 50,000 clients and owes its strong position largely to its cooperative members (Hockerts, 2004). Apart from putting up capital, cooperative members also donate time and effort to operating the car sharing system while spreading news about the business by word-of-mouth.
Social enterprises, drawing on self-help as a source of entrepreneurial opportunity, find this reflected in three primary categories. Firstly, beneficiaries are a source of cheap and patient capital. While the indi- vidual contribution of each participant is small, the aggregate result can be considerable. Secondly, recipients can provide cheap access to labor. They can also knock on doors and get the word out. In contrast to activist-driven enterprises, beneficiaries bring the additional advan- tage of being the social enterprise’s clients. Thus their message will be perceived as more objective than that of a political activist. Thirdly, self-help enterprises can be sure of their clientele. Where commercial operators might lose frustrated clients, the customers of social enter- prises have a higher level of patience. This is essential as they are often figuring out their business models on the fly. At least initially, this may result in lower quality products.
A drawback for self-help inspired social enterprises lies in their inertia. Here they are the exact opposite of activist enterprises. Having grown out of a very specific need of their beneficiaries, self-help enter- prises will tend to stick to the interests of these recipients, even when it Kai Hockerts 149
would make sense to employ the resources of the social enterprise in new regions or to address new target groups.
Philanthropy
A third source of opportunity can be philanthropic venture capitalists (Roberts, Emerson and Tuan, 1999). Whereas commercial businesses are expected to generate competitive rates of return this is not true for phil- anthropy-driven enterprises. Here the altruistic mission can be sufficient payback for philanthropic investors. As a consequence of subsidized capital, social enterprises can compete with market incumbents.
Good examples of philanthropy-driven enterprises are Rubicon Bakery and Rubicon Landscape Services, based in the Bay Area, California (Moore, 1999). Both businesses compete with traditional firms while providing jobs and training for disabled or homeless people. In order to deliver its products and services at a competitive price Rubicon relies on charitable support from philanthropic venture funds. The Roberts Enterprise Development Fund (REDF) is one of the contributors to Rubicon. REDF assists its portfolio organizations in a variety of ways, most notably by providing financing for organizational infrastructure, access to additional funds for capital expenses and strategic business development assistance. It also provides access to business networking opportunities, social outcome measurement and technological tools and training.
Over the past years venture philanthropists focusing particularly on social enterprises have sprung up in many countries. They include organizations such as Ashoka in the US, the Schwab Foundation for Social Entrepreneurship in Geneva, and London-based UnLTD – the Foundation for Social Entrepreneurs.
Philanthropy-driven social enterprises benefit from three advantages.
Firstly, venture philanthropists are a source of subsidized capital.
Secondly, rather than just providing charitable grants venture philan- thropy comes with valuable advice on launching and growing social enterprises. Finally, social enterprise funds link their portfolio invest- ments, in the process creating unique networks of social enterprises in which to learn and cooperate.
At the same time venture philanthropists demand, more than any other partner, accountability for an enterprise’s social performance.
This requires the social enterprise to keep its eye very closely on its social mission and thus avoid a drift away from the underlying social welfare objectives. At the same time philanthropy-driven enterprises may also be restricted by the altruistic focus of their investors. More 150 Social Entrepreneurship
importantly, most philanthropic funds have investment cycles; once they come to an end, social enterprises are expected to be able to succeed in the market place on their own. Those which cannot achieve this will tend to drift into a nonprofit state of mind.