All Entrepreneurship is Social…for Awhile

We’ve all had the “What is social entrepreneurship?” discussion. The topic was even the recent focus of Stanford Social Innovation Review’s cover article.

Yet the definitions we apply to social enterprise continue to vary widely based on a range of considerations.

Is a social enterprise necessarily for-profit or non-profit? How much profit is acceptable for a social enterprise, and what must be done with the profits generated? What type of social value must the organization create to be considered “social” (e.g., employing disadvantaged groups vs. providing access to health care)? Do environmental causes qualify as “social”?

Filipe Santos, a professor of entrepreneurship at INSEAD and academic director of their Social Entrepreneurship Initiative, has set much of this aside in his search for a shared operational definition of social entrepreneurship that can advance research on the topic. (See his working papers here.)

In Santos’ mind, the distinction that is important in defining social enterprise is that of value creation vs. value capture. Social enterprises maximize value creation (subject to organizational sustainability “constraints”), while traditional businesses obsess over maximizing value capture (i.e. profits). In turn, prioritizing value creation leads social enterpreneurs to engage in activities that create great value for society but that may not offer the same value capture opportunities as traditional business.

It’s a fascinating proposition, and one that could unleash a new wave of critical questions for social entrepreneurship.

The most significant and mysterious of these questions may be the one generated by the above parentheses. That is, what do those “organizational sustainability constraints” (i.e. generating enough income to grow and stay in business) amount to?

I’ve often defended profit in social entrepreneurship and advocated that social entrepreneurs let down their guard as it relates to profit-generation. Creating a profitable business is hard enough without constantly worrying about whether you will generate too much of it.

Yet, Santos is fundamentally right in his proposition that social entrepreneurs’ first priority is, by definition, to create value for society.

Perhaps this is the fundamental tension that will/must exist within every social enterprise – the tension generated by attempting to maximize value creation while keeping a watchful eye on value capture, in order to stay alive and vibrant.

But if that’s the case, then there is surely a lot we can learn from innovative entrepreneurs, as they face the same fundamental problem early in the life cycle of the organization.

In the beginning, groundbreaking entrepreneurs are motivated by and intensely focused on building a product/service that will solve an important problem and create value for customers. As the value of the product or service is proven, however, the business inevitably turns its attention from value creation to value capture. “How do we monetize this?”

In other words, the organization pivots on what Roger Martin (Dean of the Rotman School of Management) in his book “The Design of Business” calls exploration vs. exploitation (an idea borrowed from the great organizational thinker James March). As the exploitation mentality sets in, the enterprise tends to become more value capture and bottom-line focused.

Exploitation is not all bad. In fact, the need to push hard on the exploitation pedal may be even greater for BOP entrepreneurs who need process efficiencies and economies of scale in order to offer their product at an affordable price.  But it does carry with it the temptation to shift priorities away from social innovation and value creation to more traditional value capture concerns.

There’s more to this story, for sure, and this is intended to be just the beginning of a conversation. If this is a question you take seriously, please share your comments and thoughts!