Social Entrepreneurship – Business Management Ethics and Entrepreneurship Notes
Introduction:
- Any organization that uses business methods to address a social or environment problem in an innovative way is called social Entrepreneurship.
- It is a revolution occurring around the world today, where people from all walk of life are developing and implementing innovative, effective and sustainable solutions in response to social and environmental challenges.
- These solutions includes products, services, frameworks and interventions brought to market by both new startup and existing organizations, whether for profit or non-profit.
Definition of Social Entrepreneurship:
Greg Dees, co-founder of the centre for the Advancement of Social Entrepreneurship at Duke University and a member of the Impact
Entrepreneurship advisory board, wrote the definitive definition:
Who is a Social Entrepreneur:
- They are individuals and innovative solutions to society’s most pressing social problems.
- They are ambitious and persistent, tackling major social issues and offering new ideas for wide-scale change.
- They find what is not working and solve the problem by changing the system, spreading the solution, and persuading entire societies to take new leaps.
- They often seem to be possessed by their ideas, committing their lives to changing the directions of their field.
- They are both visionaries and ultimate realists, concerned with the practical implementation of their vision above all else.
- Each social entrepreneur presents ideas that are user friendly, understandable, ethical and engage widespread support in order to maximize the number of local people that will stand up, seize their idea and implement with it.
- In other words, every leading social entrepreneur is mass recruiter of local change makers – a role model proving the citizens who channel their passion in to action can do almost anything.
- Over the past two decades, the citizen sector has discovered what the business sector learned long ago:“ There is nothing as powerful as a new idea in the hands of a first-class entrepreneur.”
Why “Social” Entrepreneur?
- Social entrepreneurs act as the change agents for society.
- A business entrepreneur might create entirely new industries, a social entrepreneur comes up with new solutions to social problems and then implements them on a large scale.
Historical Examples of leading Social Entrepreneurs:
1. Susan B. Anthony (U.S.): Fought for Women’s Rights in the United States, including the right to control property. Helped spearhead adoption of the 19th amendment.
2. Vinoba Bhave (India):
- Founder and leader of the Land Gift Movement.
- Caused the redistribution of more than 70,00,000 acres of land to India’s untouchable and landless.
3. Dr. Maria Montessori (Italy):
Developed the Montessori approach to early childhood education.
4. Florence Nightingale (U.K.)
Founder of modern nursing, she established the first school for nurses and fought to improve hospital conditions.
5. Margaret Sanger (U.S.)
- Founder of the Planned Parenthood Federation of America.
- She led the movement for family planning efforts around the world.
6. John Muir (U.S.):
- He is a Naturalist and conservationist.
- He established the National Park System and helped found the Sierra Club.
7. Lean Mormet (France):
- He is responsible for the reconstruction of the french economy following World War II, including the establishment of the European Coal and Steel Community (ECSC).
- The ECSC and the European Common Market were direct precursors of the European Union.
Social Entrepreneurs play the role of change agents in the social sector by:
- Adopting a mission to create and sustain value.
- Recognizing and relentlessly pursuing new opportunities to serve that mission.
- Engaging in a process of continuous innovation, adoption and learning.
- Acting boldly without being limited by resources currently in hand.
- Exhibiting heightened accountability to the constituencies served and for the outcomes created.
How to identify a social entrepreneurship opportunity:
- Social entrepreneurship is developing dynamically in Europe, solving the problems of unemployment, social securities, civic engagement.
- The main mission of social entrepreneurship is to bring benefits to society.
- Entrepreneurship with a social aspect has great potential around the world and in Ukraine as well.
Social enterprises operate in complex environment. - Some may be competing against fully commercial businesses and some against state subsidized services.
- Creating Social values becomes the main driver for social, entrepreneurs, alongside achieving the relevant financial substainability to maintain that value.
- Several types of market niche filled by social enterprises can include.
1. Markets serving the very poor, where business margins are low and risks tend to be high. In some sectors such as micro financing.
- There is an on-going debate as to whether a fully commercial operation can fulfill the needs to the poorest client groups more and effectively than modified NGO models.
- Examples: Micro clinics run in low income areas; selling affordable irrigation tools to poor, smallholder farmers.
2. Other new and challenging markets where high costs may be incurred to stimulate demand and create new opportunities to the need to overcome stigma, acclimatize clients to more complex technology, challenge perceptions that services should be provided by the state.
Example: Social entrepreneurs which are operating in this market niche are providing counseling services to the people living with HIV, AIDS and other socially managed groups.
3. Markets for products producing environmental benefits but which may not be fully commercially competitive. Clearly, many environmentally beneficial business lines are fully commercially viable.
Creating a Social Business Model:
- Social enterprises apply business solutions to social problems.
- Since there are no shareholders in a non-profit organization, the profits from the related social enterprise are completely re-invested in the work of the organization.
A business model includes two key elements:
1. An operating strategy:
It includes internal organizational structure and external partnerships that are crucial for creating the organization’s intended impact.
2. A resource strategy:
It defines where and on what terms the organization will acquire the resource it needs to do its work.
A social enterprise can be integrated integrated with the non-profit organization in one of several ways.
| Embedded | Integrated | External | |
| 1. | The enterprise and the social program are one and the same. | The business activities overlap with the social program. | Social and business activities are separate and may not be related to the mission of the organization. |
| 2. | The business is created to serve clients. | The business is created as a funding mechanism and to enhance the mission of the organization. | The business is created mainly as a funding mechanics to support social activities. |
Social Enterprise New Balance Sheet:
- By raising a portion of the capital it needs from equity investors. A risky business can then borrow money from debt investors who seek predictable returns.
- In the emerging model of social enterprise capital markets, donors play the role of equity holders, providing capital that supports an enterprise.
- The tools that are taking social entrepreneurs in the direction are as follows.
Funding Social Ventures: Strategies for success:
- Social enterprises are entrepreneurial organisations that innovate to solve problems.
- They include non profit and for profit ventures and their returns social benefits and financial revenues.
- Some social enterprises earn a profit that is sufficient to get the business funded by investors.
- They might provide goods and services to customers willing to pay a premium for a socially beneficial product green energy, say or organic food. They might sell an essential service to poor customers at decent profits.
- Social enterprises cannot fund themselves entirely through sales or investment.
- They are not profitable enough to access traditional financial markets resulting in financial social return gap.
- A lack of funding opportunities is one of the major disadvantages that social enterprises face.
Innovation in Practice:
Some of the more forward – thinking foundations and social investors have realized that the current methods of financing social enterprises are inefficient, for the enterprises and themselves have started working to broadened the access to capital.
There are some of the mechanisms they are employing.
Loan Guarantees:
- The Bill and Melinda Gates foundation now issues loan guarantees, rather than direct funds.
- Its first guarantee allowed a charter school in Houston to raise $67 million in commercial debt at a low rate.
- It saves the school (and its donors) almost $10 million in interest payments.
Quasi equity debt:
- A quasi equity debt severity is particularly useful for enterprises that are legally structured as non-profits and therefore cannot obtain equity capital.
- The important characteristics of equity investment
- Its returns are indexed to the organization’s financial performance.
Pooling – Techniques that involve pooling funds have also opened new financial doors to Social enterprises, because the pooling institution can tailor its liabilities to the needs of different kinds of investors.
Social Impact Bonds:
- The social impact bond, deserves special notice for its ability to help governments fund infrastructure and services, specially as public budgets are cut and municipal bond markets are stressed.
- Launched in UK in 2010, this type of bond is sold to private investors who are paid a return only if public project succeeds.
- The government, for its part, pays a fixed return to investors for verifiable results.
- U.S. for an instance, issuing “space bonds” that would pay a return only if a manned were to reach Mars on schedule and under budget.
- Challenges for the Indian Social Enterprise Sector.
Major Challenges that this new age social enterprise sector faces are:
Limited access to early stage capital due to difficulties faced by domestic and foreign investment.
Indian regulations still don’t formally recognize for-profit social enterprise.
Social Entrepreneurship MCQ Questions
1. Any organization that uses business methods to address a social or environmental problem in an innovative way is know as:
(a) Innovation
(b) Enterprise
(c) Social Entrepreneurship
(d) Entrepreneurship
Answer:
(c) Social Entrepreneurship
2. Who act as a change agent of the society?
(a) God
(b) Human Beings
(c) Investors
(d) Social
Answer:
(d) Social
3. Which among the following is a social Entrepreneur ________.
(a) Susan B. Anthony
(b) Vinoba Bhave
(c) John Muir
(d) All of these
Answer:
(d) All of these
4. Social Impact Bonds where launched in:
(a) US
(b) UK
(c) India
(d) Australia
Answer:
(b) UK
5. ________ is a form of Pooling Techniques.
(a) Bonds
(b) Micro Finance
(c) Small funding
(d) Collective Investment
Answer:
(b) Micro Finance
6. ________ is one of the challenges facing a social entrepreneur.
(a) United access to early stage capital
(b) Development of new product
(c) Maintaining profits
(d) All of the above
Answer:
(a) United access to early stage capital
7. Which of the following is a key element of Social Business Model.
(a) An operating strategy
(b) A resource strategy
(c) Both (a) and (b)
(d) None of these
Answer:
(c) Both (a) and (b)
8. Social enterprises are entrepreneurial organizations that ________ to solve problems.
(a) Think
(b) Foster
(c) Innovate
(d) Wants
Answer:
(c) Innovate
9. Which of the following is a major disadvantages that social enterprises face.
(a) Lack of innovation
(b) Lack of Funding opportunities
(c) Both (a) and (b)
(d) None of these
Answer:
(b) Lack of Funding opportunities
10. ________ is particularly useful for enterprises that are legally structured as non profits and therefore cannot obtain equity capital.
(a) Quasi equity debt security
(b) Loan security
(c) Deemed security
(d) All of the above
Answer:
(a) Quasi equity debt security
11. The innovative methods used in social enterprises to broader the access of capital includes:
(a) Loan Guarantee
(b) Quasi equity Debt
(c) Pooling
(d) All of the above
Answer:
(d) All of the above
12. The funding of social enterprise is essentially a problem of:
(a) Availability of Investment options
(b) Financial structuring
(c) Profits
(d) None of these
Answer:
(b) Financial structuring
13. The key to managing return or funding in social enterprises is to offer ________.
(a) Consistent risks and returns to all investors.
(b) Different risks and returns to different kinds of investors.
(c) Returns on the basis of type of Social enterprise.
(d) All of the above
Answer:
(b) Different risks and returns to different kinds of investors.
14. In a social enterprise business model measurable impact is created by the generation of ________.
(a) Social Value
(b) Economic Value
(c) Service Value
(d) Funding Value
Answer:
(a) Social Value
15. As a Socia Entrepreneur ________ fought for Women’s Rights in the United States, including the right to control property and helped spearhead adoption for the 19th amendment.
(a) Dr. Maria Montessori
(b) Vinoba Bhave
(c) Susan B. Anthony
(d) Margaret Sanger
Answer:
(c) Susan B. Anthony
16. What would a return only if a manned mission were to reach Mars on schedule and under budget ________.
(a) Mars Bond
(b) Planet Bond
(c) Space Bond
(d) Satellite Bone
Answer:
(c) Space Bond
17. Who issues loan guarantees rather than direct funds.
(a) George F. Terry
(b) Bill Gates
(c) Bill and Melinda Gates
(d) All of these
Answer:
(c) Bill and Melinda Gates
18. Which of the following tools of Innovation are in Practice.
(a) Quasi – equity Debt
(b) Pooling
(c) Social Impact Bond
(d) All of these
Answer:
(d) All of these