Summary
Social and environmental entrepreneurship
Lotte Martens
Preparation Lecture 1:
Reading Austin, J., Stevenson, H., & Wei–Skillern, J. (2006). Social and commercial
entrepreneurship: same, different, or both? Entrepreneurship Theory and Practice
Key similarities between social and commercial entrepreneurship.
Social entrepreneurship: Entrepreneurial activity with an embedded social purpose. A partial
indicator of the rise in decent years is the growth in the number of non-profit organizations.
Social entrepreneurship is defined as an innovative, social value-creating activity that can occur
within or across the nonprofit, business, or government sectors.
underlying common drive for social entrepreneurship is to create social value, rather than
personal and shareholder wealth, and the activity is characterized by practices.
4 different variables to guide the comparison:
1. Market failure: Social-purpose organizations emerge when there is a social-market failure.
Due to the inability of those needing the services to pay for them. A problem for the
commercial entrepreneur is an opportunity for the social entrepreneur.
-> Market failure will create differing entrepreneurial opportunities for social and commercial
entrepreneurship.
2. Mission: Differences in the mission will be a fundamental distinguishing feature between
social and commercial entrepreneurship that will manifest itself in multiple areas of
enterprise management and personnel motivation. Commercial and social dimensions within
the enterprise may be a source of tension.
3. Resource mobilization: Human and financial resource mobilization will be a prevailing
difference and will lead to fundamentally different approaches to managing financial and
human resources.
4. Performance measurement: Performance measurement of social impact will remain a
fundamental differentiator, complicating accountability and stakeholder relations.
Still, some elements of both social and commercial entrepreneurship such as charitable activity must
reflect on economic realities, while economic activity must still generate social value.
Three streams of research to analyze entrepreneurship: focus on the results of entrepreneurship, the
causes of entrepreneurship, and entrepreneurial management.
The model of Sahlman stresses the creation of a dynamic fit among four interrelated components:
the people, the context, the deal, and the opportunity (PCDO). -> For commercial entrepreneurship!
- People: Those who actively participate in the venture or who bring resources to the venture.
Both those within the organization and those outside who must be involved for the venture
to succeed.
, Despite many similarities, the nature of the human and financial resources for social
entrepreneurship differs in some key respects, primarily because of difficulties in resource
mobilization. Social entrepreneurs are rarely able to pay market rates for key hires nor are
they able to offer other equity incentives such as stock options, except when the social
entrepreneur has opted for a for-profit organizational form.
Social entrepreneurs are often faced with more constraints: limited access to the best talent;
fewer financial institutions, instruments, and resources. -> critical to developing a large
network of strong supporters, to be skilled/
- Context: Those elements include the macroeconomy, tax and regulatory structure, and
sociopolitical environment.
Differs between social and commercial entrepreneurship because of the way the interaction
of a social venture’s mission and performance measurement systems influence
entrepreneurial behavior.
The market selection mechanisms in the social sector are relatively less intense because they
tend to be less powerful and act over longer periods.
- Deal: Substance of the bargain that defines who is a venture gives what, who gets what, and
when those deliveries and receipts will take place.
Because of how resources must be mobilized and because of the ambiguities associated with
performance measurement, the terms of the deals are fundamentally different for
commercial and social entrepreneurs.
The value transactions in social entrepreneurship differ from commercial entrepreneurship in
kind, consumer, timing, flexibility, and measurability.
- Opportunity: “Any activity requiring the investment of scarce resources in hopes of a future
make a return”.
The opportunity dimension of the framework is perhaps the most distinct owing to
fundamental differences in missions and responses to market failure.
For commercial entrepreneurship: Economic returns, focus on breakthroughs and needs.
For social entrepreneurship: The desired future state that is different from the present and
the belief that the achievement of that state is possible. -> Social returns, focus on serving
basic, longstanding needs more effectively through innovative approaches.
PCDO Framework
,Social Entrepreneurship Framework, SVP, Social-value proposition
Opportunity + people/capital
SVP =deal
Additional contextual factors (demographics, political, and sociocultural)
Interdependent relationships
SVP:
- Focus first and foremost on the SVP
- The social entrepreneur much achieve a state of alignment both externally and internally
among the key components of the framework, the opportunity, people, capital, and context.
> organizational alignment
- The organization may have greater social impact by working in collaboration with
complementary organizations, or even former or potential competitors.
Organizational boundaries
- Areas for investigation:
o Markets
o Mission
o Capital
o People
o Performance
o Context.
Reading Santos, F. M. (2012). A positive theory of social entrepreneurship. Journal of business
ethics
Social entrepreneurship: The pursuit of sustainable solutions to neglected problems with positive
externalities.
Value creation from an activity happens when the aggregate utility of society’s members increases
after accounting for the opportunity cost of all the resources used in that activity. -> societal or
system level.
Value capture happens when the focal actor can appropriate a portion of the value created by the
activity after accounting for the cost resources that he/she mobilized. -> Organization or unit level
, These two dimensions are not perfectly correlated. So organizations need to be clear about
their central goal being value capture or value creation. In most situations, organizations will
maximize one of the dimensions and satisfy the other dimension. -> Any change in the main
focus or any ambiguity about the organization’s positioning on this issue will be identity
challenging.
A predominant focus on value creation, as opposed to value capture, is what distinguishes
social entrepreneurship from commercial entrepreneurship.
Commercial entrepreneurs need to pursue new opportunities for value capture.
Governments have a key role in dealing with externalities; three main government mechanisms to
correct for negative externalities:
- regulation
- taxation
- market creation.
Governments have multiple roles and often scarce resources, so some externalities are likely
to be neglected.
Commercial entrepreneurship is a more effective mechanism for action than social entrepreneurship
due to the strength of market-based incentives in capitalist economies.
In areas with strong externalities, particularly positive externalities, where the potential for value
capture is lower than the potential for value creation because the benefits for society in the activity
go much beyond the benefits accrued to the entrepreneurs commercial entrepreneurs fail to act and
social entrepreneurs can play a role.
Proposition 1; The distinctive domain of action of social entrepreneurship is addressing neglected
problems in society involving positive externalities.
Proposition 2; Social entrepreneurs are more likely to operate in areas with localized positive
externalities that benefit a powerless segment of the population.
Proposition 3; Social entrepreneurs are more likely to seek sustainable solutions than to seek
sustainable advantages
Proposition 4; Social entrepreneurs are more likely to develop a solution built on the logic of
empowerment than on the logic of control.
Social entrepreneurship provides a distributed mechanism for society to identify neglected problems
with positive externalities, develop innovative solutions to address them, and, often, change
institutional arrangements so that the externality becomes visible and is internalized by other
societal actors.
The distinction between social entrepreneurship and social activism. Social activism is a political
activity, that requires exerting pressure on governments and corporations using political
mechanisms. Their goal is not to develop sustainable solutions to problems but to develop actions
