Social Enterprise PDF

SOCIAL ENTERPRISE ENTREPRENEURIAL FOUNDATIONS General introduction Entrepreneurship is part of our everyday lives  Across the globe, more of us try to set up a business than have children.  In countries such as Australia, Sweden, Singapore and the United King...

SOCIAL ENTERPRISE ENTREPRENEURIAL FOUNDATIONS General introduction Entrepreneurship is part of our everyday lives  Across the globe, more of us try to set up a business than have children.  In countries such as Australia, Sweden, Singapore and the United Kingdom (UK), more people start up than get married. Entrepreneurship gives you a holistic perspective on the fundamentals of business practice  At least 95 per cent of all businesses around the world are small enterprises.  If you are a European, by the time you are 40 you have about a one in eight chance of being an entrepreneur.  Even if entrepreneurship is not for you, there is a good chance that you will work for an entrepreneur at some point in your life. The word entrepreneur derives from the French words: entre, meaning “between,” and prendre, meaning “to take.” It was initially coined to refer to individuals who assume the risk between buyers and sellers, or those who undertake a specific task, such as starting a new business venture. Entrepreneur Someone who uses his business perspective in a situation of uncertainty. A person who has the skills to create and start a business and take risks in an innovative way. (Cantillon, 1775) Someone who displaces economic resources from an area of less value, toward a zone of greater productivity and higher performance.  Concept of value creation: It must respond to an unmet need or satisfy it in a more efficient or better way to meet (Jean-Baptiste Say, 1846) The function of entrepreneurs is to reform or revolutionize the production pattern by exploiting an invention or an unproven technological possibility to produce a new product or create an old one in a new way, opening a new source of supply of materials or a new output of products, reorganising an industry, or the economy. (Schumpeter, 2017) The entrepreneur is disruptive and generative. (Martin & Osberg, 2007) It is an agent of change in an economy by generating innovations, always seeks change, responds to it, and exploits it as an opportunity, is in a state of alert that allows him to generate innovations and take advantage of the opportunities that arise in society. (Drucker, 1993) A process by which individuals pursue opportunities without regard to resources they currently control for the purpose of exploiting future goods and services. The art of turning an idea into a business. 1 SOCIAL ENTERPRISE Entrepreneurship It exists different definitions → it is an elastic term, meaning different things to different people depending on the situation. There are three key components of a good definition: Risk and uncertainty We calculate risks based on experience. Uncertainty differs from risk because prior experience does not provide any useful guidance on how to deal with it. You cannot manage uncertainty, but you can manage risk. Entrepreneurship is the process of transforming « unknowns » into quantifiable risks. The Entrepreneur (Trait Approach) The entrepreneurial context Entrepreneurship is not only the expression of individual personality. Gartner suggests that instead of examining “who” the entrepreneur is, it is better to look at “what” they do in particular situations.  Entrepreneurial behaviours: how ideas turn into start-up propositions, how teams and organisations are formed and how resources are acquired and combined – rather than the dispositions of the entrepreneur. Opportunities do not just exist ‘out there’, waiting to be discovered by a detached and solitary entrepreneur. Opportunities are socially constructed by people working together to give meaning to the identification and realisation of opportunities.  Entrepreneurship is the creation of organisations (Gartner, 1989) 2 SOCIAL ENTERPRISE What makes an entrepreneur? Traits and biases Introduction In 1977 a university dropout was arrested for running a red light and driving without a licence in the US city of Albuquerque, New Mexico. This was not his first traffic offence. His ‘mug shot’ was taken and he had to post bail. This young man was Bill Gates, the founder of Microsoft. His behaviour shows a willingness to take risks – a propensity that may explain why, for a time at least, he became the world’s richest man. Physiological traits Risk-taking It is the greater willingness to pursue uncertain decisions or courses of action even if there is uncertainty about success or failure. Locus of control It is the generalized expectation that the outcome of an event is either within or beyond a person’s control (Rotter). If a you believe you are the author of your own fortune (or misfortune) you have a high internal locus of control. Need for Achievement McClelland argued that if you have high levels of achievement motivation you seek out contexts that provide moderate levels of risk taking, allow you to take individual responsibility and give you direct feedback on your actions. Other traits: Stress tolerance, the need for autonomy and a tolerance for ambiguity Theory of planned behaviour (TPB) Ajzen’s TPB theory argues that if we want to understand why someone acts in the way that they do, we have to examine their intentions. “A person’s readiness to behave in a certain way”. These are influenced by three factors: 1. Their attitude to the behaviour (how hard they will try to achieve a particular behaviour). 2. Perceived social norms (social pressures to achieve the behaviour). 3. Their perceived behavioural control (how likely they believe that the behaviour is achievable). Ajzen predicts that if you want to achieve something, believe you can do it and feel supported by your social network to succeed, you form positive intentionalities towards that activity. However, his theory does not examine how emotions or moods influence intentionalities. Self-efficacy 3 SOCIAL ENTERPRISE Bandura’s concept of self-efficacy Self-efficacy has led to the notion of entrepreneurial self-efficacy: “A person’s belief in their ability to successfully launch an entrepreneurial venture” (McGee et al. 2009).  It covers perceived capabilities in marketing, innovation, management, risk-taking and financial control. Intentions, however, are a necessary but not sufficient condition for choosing entrepreneurship:  Just because you have strong intentions or passion does not mean that you are necessarily going to succeed in starting up or growing your business. Cognitive biases Three main theories: Prospect theory: System 1 thinking: quick, automatic thinking. System 2 thinking: slow, deliberative, analytical thinking. The psychologists Amos Tversky and Daniel Kahneman argue that although we are capable of System 2 thinking, much of our decisionmaking – particularly under uncertainty – relies on System 1 thinking. Example: When commuting to university, you always know which route to take without having to consciously think about it. You automatically walk to the subway station, habitually get off at the same stop, and walk to your university while your mind wanders. It’s effortless. However, the subway line is down today. While your route to the subway station was intuitive, you now find yourself spending some time analyzing alternative routes to university in order to take the quickest one. Are the buses running? Is it too cold outside to walk? How much does a rideshare cost? Editing Information: Information about decisions is often incomplete, noisy and complex, so we use three simplifying strategies or heuristics (rules of thumb): 4 SOCIAL ENTERPRISE 1. Representative heuristic. This rule of thumb is the tendency to use an earlier ‘representative prototype’ from your experience of a person, event or action to make judgements. Alberto is good with numbers and likes to spend his spare time playing chess. Is Alberto an accountant or a salesman? This has implications for entrepreneurship:  Venture capitalists use ‘what success looks like’ stereotypes. This results in them being more likely to fund experienced entrepreneurs.  Behaviours and attitudes based on negative stereotypes may also explain why women are less likely to start up. 2. Availability Heuristic To ease and speed decision-making, we use easily recalled information. Take two individuals: one who spends all of their leisure time watching the news and another who only watches shopping channels. If they are asked how society has changed in recent years:  the first person might say that crime, terrorism and corruption are on the increase.  the second person might say that the rate of new product innovation, particularly in kitchenware, is phenomenal. 3. Anchoring and adjustment heuristic. Suppose there are two individuals, independent and unknown to each other.  One is presented with a bottle of champagne and asked two questions: a) Is the champagne more or less likely to be worth 60€?; and b) How much would they pay for it?  A second person faces the same situation but it is told that the champagne is worth 15€. Again, they are asked how much they would pay for it. Prices are “anchors”. We use them to make guesses about the value of a good or service. Anchoring matters in entrepreneurial contexts. For example, valuing a business is notoriously difficult and can come down to what the seller and the prospective buyer think it is worth. Reaching an agreement might be difficult if a buyer and seller use radically different anchors to frame negotiations about the value of the business. We use cognitive heuristics to frame choices because they economise on decision-making. Using these 3 heuristics can lead to systematic biases because how choices are presented influences the choice we make. 5 SOCIAL ENTERPRISE Evaluating choices: Which of these two choices do you prefer? First scenario: 1. A certain $240 win. 2. A 25 per cent chance of winning $1000 and a 75 per cent chance of winning nothing. Second scenario: 1. A certain $750 loss. 2. A 75 per cent chance of losing $1000 and a 25 per cent chance of losing nothing. Once we have edited or ‘framed’ our choices, we evaluate them in two way: The influence of framing, that risk propensities depend on whether we expect a gain or loss, and that we weigh probabilities differently, have led to the identification of cognitive biases:  Confirmation bias: only seeking out information that confirms our particular beliefs.  Hindsight bias: the tendency to overestimate our ability to predict an event after it has occurred Over optimism - It is the tendency to believe that negative events are less likely to occur and, by implication, that positive events are more likely. - Entrepreneurs are ‘super-optimists’. - When asked, 81 per cent of entrepreneurs said their chances of success were more than 70 per cent while one-third of them thought they were 100 per cent likely to be successful. Over confidence - It occurs in three ways: 1. Over estimating our ability to conduct a task. 2. Over estimating our performance relative to others (the ‘I am better than the average’ effect). 3. Over precision in judgements about the accuracy of our beliefs. Over optimism and over confidence – downside: - “Competition neglect”. - It stifles innovation. If entrepreneurs are more certain in their judgements, they tend to exploit an existing product rather than explore a new product. - It leads entrepreneurs to underfund their new business. Threatens its viability. - It can lead to lower entrepreneurial income levels and choosing sectors that are ‘easy’ to enter, even if these sectors are hyper-competitive and have thin average profits. Over optimism and over confidence – upside: - Entrepreneurs are less likely to follow their peers and therefore provide greater novelty in the marketplace. - Such biases also promote entrepreneurial effort and persistence because if someone believes that a goal is attainable and desirable, they are more likely to work hard to achieve it. 6 SOCIAL ENTERPRISE Entrepreneurial characteristics and contexts  Is having a business idea at university a good reason to drop out? Bill Gates and Mark Zuckerberg did, and they went on to become two of the world’s wealthiest people. Or is staying at university better because most self-made billionaires have a university degree?  Should you stay in a boring job with punishing hours or quit and start your own business? Is the lure of following your dream and the chance of making it big enough to sacrifice financial security in the short term? Economists answer these questions by comparing the expected relative returns of one choice against another. People will choose one occupation over another if they believe the return is relatively greater. Occupational choice framework - Utility. - Risk, ability and personal characteristics. - Entrepreneurial context. Utility: What motivates start up: It is either measured as a: Self-employed have higher levels of job satisfaction than employees: - Greater flexibility and choice about how, when or what work to do. Being in business has downsides too: - Self-employed individuals can work longer and more unsocial hours, suffer more from stress and experience health-related problems. Motivations for self-employment in the EU and selected countries: - Personal independence/self-fulfilment - Freedom to choose place and time of working - Better income prospects Difficulties faced by the self-employed: - Periods of having no customer, no assignments or project to work on - Periods of financial hardship - Delayed payments or non-payments Risk, ability and personal characteristics: (Static) utility models:  Assume all individuals are the same.  Fail to account to ability and risk propensities between individuals. Kihlstrom and Laffont’s (1979) model formalised the importance of risktaking propensity:  Risk-tolerant individuals are more likely to be entrepreneurs than either risk-neutral or risk-averse individuals. 7 SOCIAL ENTERPRISE Lucas (1978) proposed that entrepreneurial ability was heterogeneous, varying between individuals with low and high ability.  Ability determines the likelihood of becoming an entrepreneur: those with greater ability than the marginal individual (=who is indifferent between being an employee and an entrepreneur) become entrepreneurs while the less able become employees.  Entrepreneurial ability also explains an entrepreneur’s ability to grow a business: able entrepreneurs scale-up their firm because their talents can spread over a wide span of business activities. But what is ability? Lazear (2005) later extended Lucas’s model by suggesting that skills (a proxy for ability) are either: Start-up determinants: experience and education: The importance of context: - It is the “circumstances, conditions, situations, or environments that are external to the respective phenomenon and enable or constrain it”. (Welter, 2011) - It helps understanding when, how and why entrepreneurship happens and who becomes involves. - It both positively (assets) and negatively (liabilities) affect the decision to start up. Example: An young woman in rural Uzbekistan who had to go into business after her father’s death to earn income for her family: she took up gold embroidery and sewing. If we consider only the entrepreneur: We see a young woman who set up a business in a low-growth sector, which would confirm well-known results from previous research on female entrepreneurs in market economies, and which probably would be attributed to a lack of access to resources from her side. 8 SOCIAL ENTERPRISE If we take context into account: In rural post-soviet Uzbekistan, young women and girls are supposed to stay home until they are married. Therefore, the young woman learned a traditional craft because this was one of the few vocational training opportunities available to her; and this activity could be conducted from home.  Here, the institutional and social contexts, in the form of local traditions and norms that determine gender roles within families, help explain why female entrepreneurs start in specific, oftentimes low-growth and low-income, industries. ‘Where’ contexts for Entrepreneurship (Welter, 2011) The social context 1. Household characteristics: o Couples, those with children and those having entrepreneurial parents all increase the chances of start-up. Social capital It is “the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit. Social capital thus comprises both the network and the assets that may be mobilised through that network.” (Nahapiet, J., & Ghoshal, S., 1998).  Social networks provide credibility, information and support.  They build trust and reciprocity, making it easier and ‘cheaper’ to do business.  Entrepreneurs rely on family and friends (‘strong’ ties) but also draw on a range of support from business contacts and acquaintances (‘weak’ ties). Financial capital  It increases the likelihood of starting up.  As the economic model of occupational choice predicts, an individual may be more likely to become an entrepreneur if they face fewer financial constraints. Baumol’s entrepreneurial typology 9 SOCIAL ENTERPRISE - We should not focus on what increases or decreases the absolute supply of entrepreneurs. - Attempts to improve the ‘entrepreneurial mindset’ are ineffective because there is no shortage of people inclined towards entrepreneurship. - If a society appears to lack entrepreneurs, it is because those people are using their skills in an unproductive or destructive way. - Societies should focus on ensuring a switch to productive entrepreneurship, by changing the rules of the game. - How?  Encouraging stronger competition, more transparent tax policy and other changes in institutional and regulatory framework.  Increasing access to markets by improving demand conditions.  Ensuring resources such as skills and finance are easily available. Conclusion - There are psychological explanations for why some individuals choose entrepreneurship and others do not. - There are three main personality traits associated with entrepreneurial activities: risk-taking, locus of control and the need for achievement. - Entrepreneurial intentions and self-efficacy are important. These differ from traits because they suggest that the situation or context is important in explaining why some people choose an activity. - Cognitive biases influence entrepreneurial activities. - Entrepreneurs tend to be male, of ‘prime age’, have prior relevant experience and be motivated by nonmonetary benefits. - This choice depends on the relative utility of each state. - Entrepreneurial income (profits) is more uncertain than unemployment benefits or waged income. 10 SOCIAL ENTERPRISE ENTREPRENEURIAL ENVIRONMENT Entrepreneurial environment Entrepreneurial ecosystems Might be viewed as a complex adaptive system that can be compared to a natural ecosystem. A forest is a complex adaptive system made up of many, many different elements, including the plants and animals that live in it or otherwise influence how it works. Those many different elements behave autonomously from each other in most ways; but as they do what is necessary to ensure their own survival – and as they attempt to thrive – the end result of their collective behaviours is a forest that exists in a somewhat stable state of being. The forest is in somewhat stable state because it is ever evolving and changing to some degree as variables change. New insects, insects move in and out, new plants establish new roots = it does not necessarily change the fundamental nature of the forest. Parameter change occurs when something more substantial happens (e.g. forest fire). An entrepreneurial ecosystem: Thriving or not across a geographic region, remains in a somewhat stable state of being even through it is made up of a complex network of independent elements that continually adapt to the organisational environments in which they operate. - Variable changes: new leaders that replace the old ones, new rules and regulations, and entrepreneurial support systems that come and go. - Parameter change: might cause a bifurcation that leaves the system in a very different state (e.g. the introduction of a major new project that spawns new spin-off businesses and gives the region a needed economic boost, and maybe even leaves in with a new entrepreneurial culture, is an example of a parameter change) Types of entrepreneurship Intrapreneurship Also known as corporate entrepreneurship. It is an entrepreneurial activity undertaken within an established organization. Intrapreneurs are considered to be: - Significantly more risk averse that entrepreneurs - Earn lower incomes - Perceive less business opportunities in the short term - Do not consider that they have enough skills to succeed in the setting up a business Indigenous entrepreneurship Also known as aboriginal entrepreneurship. Indigenous entrepreneurship might simply be entrepreneurship carried out by Indigenous people. It can also refer to the common situation where indigenous entrepreneurs – sometimes through community- based enterprises – start businesses that are largely intended to preserve and promote their culture and values. 11 SOCIAL ENTERPRISE  There is rich heterogeneity among Indigenous peoples, and some of their cultural values are often incompatible with the basic assumptions of mainstream theories.  Indigenous entrepreneurship often has non-economic explanatory variables. Some indigenous communities´ economies display elements of egalitarianism, sharing and communal activity.  Indigenous entre is usually environmental sustainable; this often allows Indigenous people to rely on immediate available resources and, consequently, work in Indigenous communities is often irregular.  Social organizations among Indigenous people are often based on kinship ties, not necessarily created in response to market needs. Community-based enterprises Also known as community-based entrepreneurship. These organizations: - Derive from “a process in which the community act entrepreneurially to create and operate a new enterprise embedded in its existing social structure”. - Are managed and governed to pursue the economic and social goals of a community in a manner that is meant to yield sustainable individual and group benefits over the short and long term. Conceptualising social enterprises General introduction Social entrepreneurship is a hot topic. A growing number of policymakers, researchers, and practitioners believe that social enterprise may be a tool for creating social change. 1. Conceptualising social entrepreneurship Social entrepreneurship is a process that includes: - The identification of a specific social problem and a specific solution to address it. - The evaluation of the social impact. - The business model and the sustainability of the venture. - The creation of a social mission-oriented for-profit or a business-oriented non-profit entity that pursues the double (or triple) bottom line. Mair and Marti (2006) explain the concept of social entrepreneurship: 1. As a process of creating value of combining resources in new ways. 2. These resources combinations are intended primarily to explore and exploit opportunities to create social value by stimulating social change or meeting social needs. 3. When viewed as a process, social entrepreneurship involves the offering of services and product but can also refer to the creation of new organisations. Bottom line - Bottom Line: refers to the total of a financial report that shows the business’ net profit or loss. - Double Bottom Line: consists of a social and economic mission. - Triple Bottom Line: 12 SOCIAL ENTERPRISE Social entrepreneurship creates innovative solutions to immediate social problems and mobilise ideas, capacities, resources and social arrangements required for sustainable transformation. Attributes Definition of social entrepreneurship should include four elements: School of thought The “earned income” school of thought:  It refers to the use of commercial activities by non-profit organisations in support of their mission (as a way to become less dependent on donations and grants).  Based on non-profits’ interest to become more commercial and could be described as ‘prescriptive’, as it focused on strategies for starting a business that would earn income for a non-profit organisation. The social innovation school of thought:  Social entrepreneurs are defined as change makers as they carry out “new combinations” in at least one the following areas: new services, new quality of services, new methods of production, new production factors, new forms of organisations or new markets.  Social entrepreneurship can therefore be a question of outcomes and social impact rather than a question of incomes. The business school of thought:  It focuses on organisations rather than individuals and defines social enterprises as businesses whose main goal is to generate social and/or environmental impact.  For-profit businesses operating in any sector through market-based mechanisms but pursuing a double or triple bottom line.  This view does not exclude the possibility that social enterprises might need to rely on grants or other forms of funding to survive.  However, it requires that a significant portion of a social enterprise’s funds derives from self-generated revenues obtained by selling products or services in the market. The community school of thought:  It interprets as social entrepreneurship any activity, whether pursued by an individual or organisation, which aims to benefit the local community and to generate local development.  According to this view, both businesses and non-profit organisations can be examples of social entrepreneurship, as long as they have as their main aim the generation of social impact in their community. The shared ownership school of thought:  Organisations, such as cooperatives, that have a distributed ownership.  It provide employees and/or stakeholders with shares, thus involving them in decision-making and enabling them to benefit economically (e.g. by gaining dividends or benefiting from cheaper access to goods and services) from its activities. 13 SOCIAL ENTERPRISE 2. Social entrepreneurs Who are social entrepreneurs? “Social entrepreneurs are not content to give a fish or teach how to fish. They will not rest until they have revolutionized the fishing industry.” (Bill Drayton) How are social entrepreneurs? Both types of entrepreneurship employ the behaviours, skills, processes, tools, and techniques of entrepreneurs (Dees, 1998; Perrini & Vurro, 2004): How are social entrepreneurs? 1. Recognising and pursuing opportunities. Drawn from the literature of 2. Continuously innovating, learning, and adapting. commercial entrepreneurship 3. Not being limited by current resources 4. Creating and sustaining social value. Specific from the literature of social 5. A higher level of accountability to multiple entrepreneurship constituencies for the impacts achieved. Differences between commercial and social entrepreneurs - Social entrepreneurs tend to have more democratic or participatory decision making processes than do commercial entrepreneurs (Perrini and Vurro, 2004). - Social entrepreneurs are particularly unsatisfied with the status quo, making them better positioned to recognise opportunities for social change (Mair and Noboa, 2003). - Social entrepreneurs are more skilled than commercial entrepreneurs at building networks of support across diverse constituencies (Prabhu,1999). Role of social entrepreneurs Social entrepreneurs play the role of change agents by:  Adopting a mission to create and sustain social value (not just private value).  Recognising and relentlessly pursuing of new opportunities to serve that mission.  Engaging in a 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. 14 SOCIAL ENTERPRISE What motivates social entrepreneurs 3. Defining social enterprises Social enterprises combine innovation, entrepreneurship and social purpose and seek to be financially sustainable by generating revenue from trading. Their social mission prioritises social benefits above financial profit, and if and when a surplus is made, this is used to further the social aims of the beneficiary group or community, and not distributed to those with a controlling interest in the enterprise (Haugh and Tracey, 2004). EMES approach EMES: Research Network for Social Enterprises “Prescriptive criteria” “Ideal-type” (Weber’s terms): abstract construction that enables social enterprises to position themselves within the “galaxy” of social enterprises. Nine indicators in three subsets: Economic and Entrepreneurial Social dimensions Participatory Governance dimensions 1. A continuous activity producing 4. An explicit aim to benefit the 7. A high degree of autonomy. goods and/or selling services. community. 8. A decision making power not 2. A significant level of economic 5. An initiative launched by a based on capital ownership. risk. group of citizens or civil society 9. A participatory nature, which 3. A minimum amount of paid organisations. involves various parties affected work. 6. A limited profit distribution. by the activity. As a cross-sector organisation  For Austin et al (2006): social entrepreneurship is innovative, social value creating activity that can occurs across non-profit, business and public sector.  For Santos and Pache (2015): social enterprises, for instance, whose goal is to achieve a social mission through commercial activities, are caught between the competing demands of the market logic and the social welfare logic that they combine. 15 SOCIAL ENTERPRISE Competing institutional logics - Competing logics were considered to be temporary phenomenon resolved by competition. - Firms only had to adopt strategies and implement organisational structures in conformity with the prevailing logic (commercial model or social model). - Managers in hybrid organisations need to deal and comply with these competing demands, goals and organising principles concurrently (Pache and Santos, 2010). - The presence of competing institutional logics leads to the emergence of tensions at the organisational level as it often complicates agreements between the opposite demands. - Each individual logic requires a specific organisational structure and presupposes resources that allow the performance of particular practices (Brunnel et al. 2016). - Operating in a pluralistic environment generates three types of challenges: 1. Organisations have to gain legitimacy in each logic, which compels these organisations to adhere to different social systems, separate their different institutional identities from each other, and show credible commitment to each logic. 2. Conforming and committing to the different institutional demands implies that firm’s governance must reconcile opposing objectives. 3. Institutional pluralism may generate a process of organisational change, which is uncontrolled and may result in a failure to achieve compliance. AS HYBRID ORGANISATIONS - Both social value creation and economic value creation are core organisational activities. - A social enterprise that combines the organisational forms of both business and charity in its core is an ideal type of hybrid organisation (Beugré, 2017). - Hybrid organisational forms as structures and practices that allow the coexistence of values and artefacts from two or more categories. Hybrid organisational forms therefore draw on at least two different sectoral paradigms, logics and value systems, and in the case of social enterprises, relate to the emergence of novel institutional forms that challenge traditional conceptions of economic organising (Lyon et al. 2014). 4. Legal structures Having a hybrid model, for instance, can help social enterprises utilise the strengths of both legal forms: o The for-profit business helps social enterprises generate revenue from unrestricted sources. o The non-profit organisation may help social enterprises obtain grants and save money on property-related expenses, sales, and other taxes. 16 SOCIAL ENTERPRISE 5. Social enterprises emergence Institutional voids Two main theories that seek to explain how and why social enterprises emerge: Institutional Voids:  Develop in communities where there are absent and/or weak institutions that prevent poor people from addressing their basic human needs.  These voids are opportunity spaces for social entrepreneurs.  Social entrepreneurs in these contexts aim to increase self-sufficiency of the impoverished.  Social entrepreneurs use bricolage (making do with what is at hand) to achieve their goals in contexts where institutional voids exist. As such, entrepreneurs and organisations collaborate to meet diverse social needs in a cost-effective manner. Institutional Support:  Develop in contexts where there is high institutional support in general. Specifically, contexts where there is high government activity in regard to alleviating social problems.  Social enterprises are not driven by the propensity of social issues in a given area. Instead, they are driven by the existence of social issues coupled with government support that help social enterprises address them. Government is viewed by institutional support theorists as a partner to social enterprise. 6. Social enterprises challenge Leadership, Institutional logics, Clarity of mission, Scaling up, Legitimacy, Lack of institutional support, Liabilities of newness and smallness 7. Entrepreneurship versus social entrepreneurship Many schools of thought point toward the positive social effects of any form of entrepreneurship. If an innovative and pioneering person or company produces a purely commercial product - let’s take the initial creation of the mobile phone for use in developed markets - is this not social? Answer: yes, most commercial enterprises do in fact produce the kind of positive social changes necessary for sustainable development! Then why differentiate between social and other forms of entrepreneurship?  Social entrepreneurship refers to ventures and interventions targeting underserved populations, decreasing the gap between those who have access to social services and those who do not.  While commercial entrepreneurship often responds to a market opportunity, social entrepreneurship often tackles a market failure.  While the bottom line of a commercial enterprise is financial profit, the bottom line of a social enterprise is the social and/or environmental impact it creates. Is it a social enterprise? 1. Do they try to tackle a social and/or environmental issue leveraging business tools and mindset, or an innovative approach? 2. If they manage to become profitable, do they reinvest a significant part of their profits to generate further social and/or environmental impact, reaching more members of their target community or increasing their impact in the same community? 3. If they are non-profits and do not present revenue-generating activities or an entrepreneurial orientation, are they so innovative that they have the potential to change the status quo and solve the root cause of a social or environmental issue? 17 SOCIAL ENTERPRISE 4. Are they involving stakeholders, especially beneficiaries, in decisionmaking and try to treat everyone fairly across their value chain in order to maximise the social impact of their initiative? 5. Does their only social impact come from their end result or are their practices and activities also conducted in a sustainable and socially minded way? 6. Does their only social impact come from their end result or are their practices and activities also conducted in a sustainable and socially minded way? 8. Conclusion - Several definitions. No unified definition - There is lack of agreement on the domain, boundaries, forms, and meanings of social entrepreneurship - Social Enterprises as hybrid organisations. - Two institutional logics: social and commerical. - Various legal forms around the globe. SUMMARY SCHOOL OF THOUGHTS School of Main focus Key characteristic Ownership Social business thought model Earned income Organisation Defines social entrepreneurship as NA Non-profit the revenuegenerating activities of (forprofit if nonprofit organisations incorporation as separate entity) Social Individual Views the social entrepreneur as NA Non-profit Innovation individual innovator and leader, challenging the status quo to end injustice and inequality Business Organisation Defines social entrepreneurs as Concentrated For-profit businesses aiming primarily to or Share generate social impact, rather than profit. Probably the most commonly adopted view of social entrepreneurship Community Either individual Considers social entrepreneurship Concentrated Either non-profit or Organisation to be any activity aiming to or Share or for-profit generate benefits for the local community Shared Organisation Defines social enterprises as Shared For-profit ownership businesses having distributed ownership, enabling employees and stakeholders to be involved in decision-making 18 SOCIAL ENTERPRISE FROM IDEA TO START-UP PROPOSITION General introduction The transition from an idea to a viable business opportunity can seem like an overnight 'eureka moment’. The UK inventor James Dyson was frustrated by the poor suction of his bagged vacuum cleaner. This led to a ‘eureka’ moment when he saw a large industrial cyclone sucking ‘bad air’ up at a sawmill. Feeling inspired, he went back to his garden shed and developed a miniature version of the cyclone for a domestic vacuum cleaner Dyson took 15 years and 5127 prototypes to get his bagless vacuum cleaner to market. On average, an entrepreneur takes about three years to set up a viable business, and even longer if it is a technology orientated business. Early stages or ‘seed stage’ of venture creation is a process that identifies how entrepreneurs:  Come up with ideas.  Develop start-up proposition.  Turn their proposition into a viable business opportunity. “a sequence of individual or collective events, actions and activities unfolding over time in context”. (Pettigrew, 1997) Problem framing and reframing Introduction - In entrepreneurial situations, problems are often much more complex and ill defined. - It may take time to discover why customer service is poor, prices are high or why the needs of a disadvantaged community are not being met. - What is wrong or missing may also be difficult to figure out because the problem is hidden. A lot of times, people don’t know what they want until you show it to them. (Steve Jobs) 1. Generate opportunities from problems/needs 2. Formulating problema But where and how do most entrepreneurs get their ideas to respond to problems or needs? - Personal experiences - Hobbies or avocations - Serendipity or accidental discovery - Systematic or intentional search - Awareness 3. Reframing the problema Uncovering a problem is not necessarily the same as finding the real problem. A problem may be hidden. We could employ the “five whys” method: - Why is the team member not handing in their work for the project? Because they have been missing meetings. - Why have they been missing meetings? Because they have been off work for a month. - Why have they been off work for a month? Because they are stressed. - Why have they become stressed? Because they are being bullied at work. - Why are they being bullied at work? Because there are not systems in place to monitor and deal with workplace bullying. Not all five whys may be needed. 19 SOCIAL ENTERPRISE Jeff Bezos used the technique to understand why one of his workers had damaged their thumb: - Why was the worker’s thumb damaged? Because it was caught in a conveyor belt. - Why was it caught in a conveyor belt? Because the worker was chasing a bag that they had left on the conveyer belt. - Why was their bag on the conveyer belt? Because the worker had nowhere else to put their bag. Amazon resolved this safety issue by introducing tables for their staff. An alternative way of uncovering the real problem is to ask six open-ended questions – Why, Who, What, Where, When and How. 1. Why is this a problem? 2. Who faces this problem most often? 3. What do they currently do to solve the problem? 4. Where does the problem most frequently occur? 5. When does the problem most frequently occur? 6. How do they feel about the problem? Problem formulations can be visualised using a mind map.  The original problem is placed at the centre of a piece of paper, whiteboard or computer screen and related issues and new aspects are subsequently drawn.  To show causality, arrows are drawn between the original idea and branch ideas. 4. Fact-finding about the problem - Even if a problem is framed and reframed, it still leaves entrepreneurs open to particular biases. - They might assume that because the problem is a problem for them, it must be a problem for other people. - One way to estimate if a problem is really a problem is to collect information on the problem context, who is most frustrated by the problem and who they currently use to solve this problem. Generating solutions Some people do stumble on entrepreneurial solutions. Alexander Fleming accidentally discovered Penicillin. He had gone on holiday, leaving a pile of Petri dishes smeared with the Staphylococcus bacteria in his sink. When he returned, he discovered that the bacteria Penicillium notatum had killed the Staphylococcus. Amabile’s model of creativity 20 SOCIAL ENTERPRISE Techniques for generating solutions - Range of creative techniques for identifying solutions, such as: Brainstorming, Mind map, Bug Report, SCAMPER and Analogous Thinking. - These often rely on divergent thinking o Convergent thinking: People to believe a problem has only one answer (e.g. 5 + 5 = 10) o Divergent thinking: There could be many potential solutions. For example, ? +? = 10 can be solved by adding 5 + 5, but it can also be answered using fractions (e.g. 7¼ + 2¾) or negative numbers (25–15). Buy Report: - Popular technical used in classrooms to teach brainstorming. - To compile a bug report, students are instructed to list 50 to 75 conditions or “things” that bug them in their everyday life. Brainstorming: - The process of generating several ideas about a specific topic. - It ranges from a person sitting down with a post-it and jotting down interesting business ideas to formal “brainstorming sessions” led by moderators that involve a group of people. - Rules for brainstorming:  No criticisms allowed, including chuckles, raised eyebrows, or facial expressions that express skepticism or doubt. Criticisms stymies creativity and inhibits the free flow of ideas.  Freewheeling, which is the carefree expression of ideas free from rules or restraints, is encouraged; the more ideas, the better. Even crazy or outlandish ideas may lead to a good idea or solution to a problem.  The session moves quickly, and nothing is permitted to slow its pace. It is more important to capture the essence of an idea than to take the time to write it down really.  Leapfrogging is encouraged. This means using one idea as means of jumping forward quickly to other ideas. o Brainstorming: It can be done individually or as part of a group. One good way is for individuals to do brainstorming on their own first and do further brainstorming later in a group. o Brainwriting: People write down as many solutions as they can think of and then pass their paper to a team member, who adds to these solutions. Evaluating ideas - Creativity techniques emphasise the importance of coming up with a large number of solutions to a specific problem. - Therefore, these ideas have to be evaluated. - One way of teasing out which is the ‘best’ is to work out if the idea is creative. - There are two main criteria for judging the creativity of an idea: o If the idea is novel, original or rare relative to other ideas o If the idea is useful – relative to other ideas. 21 SOCIAL ENTERPRISE Me, market, money An idea must be converted into a product or service that customers want. For the entrepreneur, at some point the focus has to turn away from the idea to assessing its desirability and feasibility. Me: Entrepreneur’s assessment of how attractive the match between themselves and any idea is. Ideas have to be desirable and fit with an entrepreneur’s goals to make them worth pursuing. This involves assessing four features: - Does an idea match the entrepreneur’s goals? - Does the idea fit with the entrepreneur’s skills, experience, interests and dispositions? - Is the idea attractive to the entrepreneur’s friends, family and colleagues? - Is it the ‘right’ time? How desirable is starting up? Ikigai = reason for being Market: It is the belief that there is customer demand for an idea. This confidence can stem from different sources: assumption, family and friends believe in the idea, early few customers, etc. Competition: - An idea can meet consumer needs and have early customers but be impractical if the competition is too strong and there are regulatory or ethical barriers. Who is your target customer?; Who are your competitors?; What is happening in your market? 22 SOCIAL ENTERPRISE Money: Unavoidable start-up expenses. Most start-ups have limited resources and have to economise on these resources. Boostrapping: “combination of methods that reduce overall capital requirements, improve cash flow, and take advantage of personal sources of financing” (Ebben, J., & Johnson, A., 2006). What financial resources do you have for a start-up?; How can you bootstrap your start-up?; How can your social networks help you start up? Is starting up right for the idea? Even after evaluating if an idea is a practical and attractive start-up proposition, entrepreneurs still face risks and uncertainties. Starting up might eat up all of their savings, be stressful and involve long hours during which they see little of their family and friends. There are alternative ways of developing their business idea. Three main options: - Licensing or selling the idea. - Buying an existing business. - Franchising. The elevator pitch Short elevator pitch Entrepreneurs have to convince others: - Friends and family. To explain why they are embarking on starting up and to ask for support and assistance. - External audiences or financiers about their start up proposition. Short “elevator” pitch. The entrepreneur happens to meet a potential mentor or funder in an elevator. In the short time available, the entrepreneur takes up the opportunity to pitch their business idea hoping that it will lead to a concrete action such as having a full meeting later on, at which the entrepreneur can explain more fully their idea through a presentation or a plan. How to do it? There is no one format for an elevator pitch. It may be as short as ten seconds or last a few minutes. Nonetheless, a basic format may be: 1. To identify a problem (problem statement) and propose a solution (idea statement). 2. To explain how the idea will help improve the lives of people (the customer) and why it is better than what is currently on offer (the competition). 3. To identify why they or their team can deliver on the idea (motivations and expertise) and what support they need (call to action with stakeholder). 23 SOCIAL ENTERPRISE START-UP PLANNING PATHWAYS General introduction “Everybody has a plan until they get punched in the mouth.” (Mike Tyson) - Business plans are valuable, but writing them first can be a bad idea. - The main reason for not writing a formal plan first is that it is unlikely to survive initial contact with customers. - However, entrepreneurs often have to convince others - cautious investors, hesitant potential employees or sceptical mentors. - To better sketch out their start-up, entrepreneurs need to describe, clarify and potentially justify their start-up business model. - One of the main impetuses for start-up planning is to acquire external resources. Why writing a business plan The benefits of plans Writing a good plan answers essential questions such as where is the business concept now, where does it want to get to and how is it going to get there. Entrepreneurs should aim to create a business plan that: - Profiles the big picture. - Highlights the big picture. - Details the start-up team or individual and key advisors. - Specifies the nature and risk of rewards. A good plan gives entrepreneurs  A way to learn more about if a potential business opportunity is desirable and feasible.  Ways to select, evaluate and fine-tune the start-up activities.  Opportunities to anticipate and avoid demand and supply issues.  Give confidence and improve perceptions of control → Promote task persistence and goal commitment.  A reality check that helps avoid inbuilt cognitive biases.  Credibility among external stakeholders → Making it easier to access external finance. Katz and Gartner  Propose model of how start-ups emerge, they suggest four activities – or properties – that a start-up has to complete if it is to come to existence.  The “BRIE” casual model 24 SOCIAL ENTERPRISE The trouble with plans An entrepreneur who writes a formal business plan first is no more likely than a non-planner to create a viable start-up. Start-ups do not follow the BRIE model’s logical causal sequence. “Organizing a new venture is not a patterned or linear process but rather is simultaneous, messy and iterative” (Brush et al. 2008). Writing a plan too early has unintended consequences. It might present a poor picture of reality if market assumptions are unreliable or unproven. Start-up planning is a process that involves the entrepreneur having to come back – often repeatedly – to reassess earlier assumptions and hopes. Understanding the theory of a business model Business model: - It is a theory of a business that explains how a business intends to create, deliver and capture value. - It is narrative that ‘articulates the logic - It provides data and other evidence that demonstrates how a business creates and delivers value to customers. - It outlines the architecture of revenues, costs and profits associated with the business enterprise developing that value. The 12 key business model questions 1. Who are we? What is the identity and purpose of the start-up? 2. Is there a market out there? Is the start-up focused on a problem worth solving? How large is the potential market? How fast is it growing? 3. Is the business idea worthwhile? What is the idea? How does it benefit customers? 4. Who is the customer? Who specifically is the target customer? Why them? 5. How does the business reach its customers? What is its sales and marketing strategy? 6. How is the offer different in the market? Does it have an advantage over competitors? 7. How does the business source, make and distribute its products and services? 8. How does it make money? What is the revenue model? How does the business get paid, and who does it have to pay? 9. Why is this the right team? What skills and attributes do the people involved have to exploit the opportunity? 10. What is the plan for growth? How does the business intend to scale the business in subsequent years? 11. What does the start-up lack? Does the business need money to fund its development, operations or growth? Does it need mentors to bring expertise to the business? What is its exit strategy? 12. Is the start-up viable? What are the likely risks and rewards? Do the rewards outweigh the risks? 25 SOCIAL ENTERPRISE Feasibility planning - Feasibility plan or a presentation – pitch deck – gives an assess of the viability of the idea. - Entrepreneurs might use it: o ○ To self-assess their start-up’s strategy, operations and financial vitality. o ○ To convince outside audiences to back their idea. It is important mainly when there is a funding shortfall. - Working out answers to all 12 questions is important because there is often a structure to feasibility plans and pitches. - They usually start with a summary of the opportunity and then provide information on the product and market, competition, sales and marketing and growth plans before ending with an assessment of likely risks and rewards. - The 12 start-up questions may not always be required. Some external audiences may only require a narrative or pitch around the bare bones of a business model. Key elements of a business plan Start-up Question Business Plan Q.6. How is the offer different in the The competition: identification of in/direct competitors; five market? forces/blue ocean analysis; competitor analysis and benchmarking (competitor positioning map, product positioning statement). Q.5. How does the business reach its Sales and marketing: routes to market; sales and marketing customers? strategy and customer acquisition process. Q.7. How does the business source, Operations: timing of key activities (Gantt chart) and key partners, make and distribute its products and relevant regulatory requirements. services? Q.9. Why is this the right team? Management structure: team, advisors, managers and employees. Q.10. What is the plan for growth? Future plans: indication of likely future customer traction (plans for getting, keeping and growing customers); and for routes to growth (franchising, M&Q, organic growth). Q.8. How does it make money? Financial projections: key revenues and costs; key ratios (gross Q.12. Is the start-up viable? profit margin) and measures (breakeven point, cash burn rate); cashflow, profit and loss projections; estimation of risk and rewards (SWOT analysis). o Business plan is a detailed blueprint for setting up a business. It outlines the business goals and the strategies it will deploy. o Business model is a conceptual foundation of a business. It succinctly defines how the company will create, deliver and capture value. The business model is part of the business plan. 26 SOCIAL ENTERPRISE Tips: writing a plan Stick to the required format. Usually, plans are written in the third person. Start strongly. If the plan cannot quickly explain who you are, what you do, who it is for and what the opportunity is, the risk is that the plan will be put in the ‘No’ pile. Shows not just tells. Graphs and numbers are shortcuts for explaining your story. Identify your sources. Use footnotes, endnotes or a list of references in your plan. Target the plan. Adapt the sections of the plan to the reader. Remember, a plan is also a ‘call to action’: what is your strategy for gauging their interest once they have received the plan? Alternative approach to starting up Effectuation - If setting up a business was similar to cooking: o The best way forward is for the cook (founder) to follow a recipe (feasibility study, business plan) to make a deal (start-up). - Effectuation theory says that this only describes how some start-ups begin. o The cool (entrepreneur) find him/herself creating a meal in an unfamiliar kitchen, using new utensils and unexpected ingredients. - Setting up a business is not a linear casual process that can be sequentially planned. - It is a creative process through which entrepreneurs have to use their imagination and be resourceful in how they use limited resources. - Opportunities are created rather than found; Venturing requires other people to shape and support development. - Five principles:  Pilot in the plane  Bird in the hand  Affordable loss  Crazy quilt  Lemons into lemonade Differences between effectuation and casual logics: Effectuation Causality Entrepreneurs use means at their disposal (bird in Entrepreneurs begin with a given goal the hand) Focus on affordable losses Focus on expected returns Develop strategic alliances (crazy quilt) Develop a competitive analysis Exploit contingencies (lemons into lemonade) Exploit pre-existing knowledge Seek to control an unpredictable future (pilot in the Seek to predict an uncertain future plane) Are entrepreneurs really effectual? - Effectuation may not always lead to better outcomes - entrepreneurs flip between causation and effectuation. - “Flexible decision-making is more prominent in the earlier stages of venture creation, with a transition to more planning-based decisionmaking over time as the new venture and its market nature” (Reymen et al. 2015). 27 SOCIAL ENTERPRISE Bricolage - Bricolage argues that when resources are scarce, founders improvise by using their available resources, their expertise, the labour of others and their network of contacts to overcome barriers and create opportunities. “Making do by applying combinations of resources at hand to new problems and opportunities” (Baker and Nelson, 2005). - Bricolage also points to the socially constructed nature of start-ups: Opportunities are created rather than discovered. - Founders are action-oriented (Baker and Nelson, 2005). - Bricolage differs from effectuation because it involves the creative application of resources. Example: A farmer whose land contained a number of abandoned coal mines. These mines had large quantities of methane gas. By making do and creatively combining resources, the farmer adapted a generator to harness the methane to supply the power grid, to grow tomatoes, to warm a large pond for tropical fish and to use the fish waste as fertiliser for his tomatoes (Baker and Nelson, 2005). Lean start-up After the experiments with the MVPs, the founder can take three decisions:  Persevere – the results from the tests suggest that the business model is appropriate and the founder should scale the business.  Pivot – results show the need to reshape the business model.  Perish – the feedback suggests that the business is non-viable. Conclusion - One way of first sketching out and then detailing your business model is to focus on 12 start-up questions. - Different methodologies and approaches: Business Model Canvas, feasibility plan, business plan. - Start-up populations are large and diverse, and entrepreneurs have different ways of achieving start-up viability. They also learn in different ways, with some likely to prefer learning by doing rather than learning by planning. 28 SOCIAL ENTERPRISE FINANCING THE SOCIAL VENTURE General introduction - If the entrepreneur is the heart and brains of a start-up, finance is its blood. - Entrepreneurs – in theory – have a wide range of entrepreneurial finance available to meet their start-up and growth needs. - Entrepreneurs– in practice – often make very limited use of different funding sources. - Some entrepreneurs face potential financial constraints. The sources of entrepreneurial finance Businesses require two basic forms of finance:  “working capital” Capital to fund short-term operational needs. Example: paying suppliers, employee salaries  “investment capital” Capital to fund medium and longer term investments. Example: purchase of one-off physical asset (car, machinery, etc…) or to fund breaking into a new market, marketing development, etc… Funding can either come from internal and external sources. Insider finance relates to:  Finance that is available to the business from the entrepreneur, their family and/or friends and within the business.  Entrepreneurs might fund their working and investment capital needs through their own personal savings and funding from a personal credit card or a personal bank loan.  They may also turn to their family or friends to give them money, such as gifts or loans.  Once a business has profits the entrepreneur might keep the profits in the business to fund their present and future finance needs. External sources of finance Public funders local, regional and national governments provide:  Grants;  ‘Soft’ loans - repayable but often at interest rates below commercial rates;  Loan guarantees - guarantee by a public body to underwrite the whole or a proportion of a commercial loan if the borrower defaults;  Equity finance. Governments provide finance because they want to stimulate particular policy objectives. Banks Typically provide overdrafts, business credit cards and loans. Crowdfunding A large group of people (the ‘crowd’) agree to fund the entrepreneur. The crowd generally find about the entrepreneur’s funding campaign via a crowdfunding platform that usually takes a payment for hosting the crowdfunding campaign. There are different types of crowdfunding: donations, rewards, loans and equity based funding. Trade creditors Suppliers agree to supply a good or service on account and ask for payment at a specified later date. 29 SOCIAL ENTERPRISE Factors and Factors buy a company’s invoiced but not yet paid sales in return for a proportion of invoice these yet unpaid invoices. discounters: Invoice discounters lend against unpaid invoices in exchange for a proportion of their value. Businesses need to have revenues to use both factors and invoice discounters. Asset Financiers Support the purchasing of fixed assets. Businesses can choose to hire purchase or lease the asset:  In hire purchasing - the company pays an initial deposit, followed by regular payments until they pay off the whole amount and they own the asset.  Leasing - follows the same process, but at the end of the term, ownership reverts to the original provider of the asset. Equity funders Exchange shares in a business for cash. There are two main types of equity providers: 1. Business angels: usually high net worth individuals or groups that come together to purchase a share in a business in exchange for investment in the business. Their hope is to, later on, sell their share of the business at a price much greater than they originally paid for it (a capital gain). 2. 2. Venture capitalists: financial intermediaries who set up a fund and seek to use the monies in the fund to buy shares in businesses with, again, the hope of later on selling their share for a capital gain. “Pecking order” preference of entrepreneurs Pecking order theory: - Even if different sources of money are priced identically, entrepreneurs prefer to first use their own money to fund their business. o Only when these personal sources and other forms of insider financing are exhausted, do start- ups turn to external finance. - It also predicts that if a small business has to choose between external debt and equity, their choice is for debt finance. - Why ○ Desire for control. Using existing resources involves no outsider involvement in decisionmaking. ○ Debt finance is preferable to equity finance because so long as the business pays back the capital plus interest from the loan, it is theoretically free to run its own affairs. In contrast, equity finance involves ceding some or all of the control of the business to outside investors. Patterns in entrepreneurial finance 30 SOCIAL ENTERPRISE Financial constraints facing small businesses: ties that bind? Consequences of financial constraint: For main consequences:  It prevents talented but poor individuals from becoming entrepreneurs. Those with high entrepreneurial ability and independent wealth are more likely to get funding for their start-up. In contrast, highly talented but poor individuals are more likely to struggle to raise outside finance. This acts as a barrier to start up for poorer people and consequently chokes off entrepreneurship in society as a whole.  Start-ups are under-capitalised. In the USA, 25 per cent of new businesses begin with no start-up capital at all, while 40 per cent are started with less than $5000. Women are also more reliant at start-up on internal finance than men.  Business costs increase. As the banking industry has become more concentrated, financial constraints have increased for start- ups and established businesses. This is particularly true in poorer countries. The fear of being rejected can also be enough to discourage some businesses from applying for finance, even if they are creditworthy.  Business growth is restricted and productivity falls. Many otherwise fast-growing businesses experience ‘equity funding gaps’, which can restrict them from growing to their potential. Funding social enterprises Sources of funding Governments - There are an increasing number of government agencies and programs specialised in seed funding, start-up funding, innovation. - These can sometimes exist within the framework of a subjectspecific agency or within the framework of a subject-agnostic program specialised in fostering entrepreneurship. - There are programs available in your country to support social entrepreneurs domestically. There could be both nationwide programs (like Start-up Britain in the United Kingdom or the Spark Programs in the United States) and more local programs (like Green Economy Malaga in Spain). - Many governments also extend funding to social entrepreneurs in other countries through their international aid agencies. Multi-lateral agencies - Multilateral agencies bring together funds from multiple governments around the world, to allocate to specific causes. For this reason, they are also often referred to as intergovernmental agencies. - Examples: The World Bank, UN agencies… NGOs - Social entrepreneurs may also turn to NGOs for funding. - NGOs include any private association organised by individuals having a common purpose. - NGOs can either implement their own programs, products, and services or they can provide funding to other implementing organisations to help fulfil their mission. - Example: MercyCorps, Oxfam… 31 SOCIAL ENTERPRISE Foundations - Foundations are non-profit organisations that were formed for the purpose of funding and supporting other social purpose organisations. - This is a type of philanthropy, the practice of promoting and supporting social welfare. Historically, some foundations have been formed by individuals or families and have commonly been referred to as private foundations (the Ford, Rockefeller, MacArthur, Hilton, Moore, Gates, Hewlett…). - Other foundations have been formed by public entities or communities and are commonly referred to as public foundations; these are often location specific, aiming to support a specific geographical community or, in some cases, a subpopulation. Investment Funds - Investment funds can be private or public, profit driven, or nonprofit. Individuals can come together to form investment funds, pooling their resources and dividing the profits. Example: Venture Capitalists. - Other forms of funding that are more tailored to social entrepreneurs: impact investing and venture philanthropy. CSR - Both privately and publicly held businesses might be open to sponsoring or partnering with a social venture. - This is based on the premise that in addition to their financial bottom line, they would also like to increase their contributions to the social and environmental bottom lines. Individuals - Angel Investors: an individual with the means to support an entrepreneur, who might be willing to take a chance on you and your idea. - Philanthropists: similar to angel investors but do not ask for a financial return on investment. Their goal is simply to create something new, not to make money. Most philanthropists operate through a foundation. - Friends and family: it is more easily accessible than some of the institutional routes, and some entrepreneurs find it less stressful, carrying less pressure. Types of funding - Donations - Grants - Awards - Loans - Equity Social investment approaches Crowdfunding: Ordinary people who do not have large amounts of money can still think of themselves as social investors. They can: - Lend money to people living in poverty to help them build small businesses. - Donate to help support an inspiring idea come to fruition; - Invest their money in social ventures through the increasing number of crowd investing platforms; 32 SOCIAL ENTERPRISE Philanthropy: Philanthropists: individuals who donate large sums of money to help create something that didn’t exist before, or help sustain or grow an existing venture or initiative. Strategic philanthropy Catalytic philanthropy Venture philanthropy Practice to achieve predetermined An approach whereby the Practice of providing financial and goals by studying what milestones philanthropic organisation takes nonfinancial support using a are needed to reach those goals responsibility for the outcomes, hands-on approach over a long- and taking an active role in mobilises others and uses all term investment, with predefined making sure that those milestones available tools, generating exit criteria that the organisation are achieved. actionable knowledge to develop is working to achieve before the the field further. investor withdraws support. Impact Investing: It require both a financial and a social return on the investment. This can take place in the form of either debt or equity.  Non-profit organisations reinvest the financial returns into other organisations and expand their impact without distributing any financial gains to their donors.  For-profit organisations distribute financial return to their investors in addition to reporting on their social impact. Example: Acumen Fund and Echoing Green Socially Responsible Investors: - Socially responsible investing is a domain inhabited by investors who come from the commercial sector but want to make sure that their investment activities are not producing social and environmental harm. - They are looking for investments that can generate large financial returns (larger than impact investing would) but they are also looking for information on the corporate social responsibility of their investees. 33