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SocialEntrepreneurship

& GovernmentA New Breed of Entrepreneurs

Developing Solutions to Social Problems

by Andrew M. WolkFounder & CEO, Root Cause

MIT Senior Lecturer, Social Entrepreneurship

From The Small Business Economy:A Report to the President, 2007,

by The Small Business Administration, Office of Advocacy.

A Report


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ii Social Entrepreneurship and Government

Dear Mr. President:

Te Oce o Advocacy o the U.S. Small Business Administration (SBA) is

pleased to present Te Small Business Economy: A Report to the President.*Te

American economy is blessed with an entrepreneurial spirit that continues tobe the envy o many nations around the world. Small business leaders provide

new ideas, employ additional workers, and develop innovative products and

services. By investing in their businesses, the small rm owner makes a major

contribution to the local, regional, and national economy.

Over the past year, the Oce o Advocacy has conducted research that

documents these points. First, Kathryn Kobe o Economic Consulting Services

reconrmed our knowledge that small businesses account or hal o private,

nonarm gross domestic product. Second, Donald Bruce, John A. Deskins,Brian C. Hill, and Jonathon C. Rork nd that a states ability to generate new

establishments is the most important actor that leads to higher gross state

product, state personal income, and total state employment. Finally, Larry

Plummer, a doctoral student at the University o Colorado at Boulder who

served as a visiting research economist in this oce, ound that new business

entrants provide long-term benets to the local economy; the increased com-

petition might be painul in the short term, but with time, collaborative eorts

accrue to everyones betterment. Tese and other studies can be ound on theOce o Advocacys research page at http://www.sba.gov/advo/research.

Tis edition oTe Small Business Economy eatures two chapters on owner

demographics based primarily on the 2002 Survey o Business Owners rom

the U.S. Census Bureau. In documenting the number o small businesses

owned by minorities, women, veterans, and service-disabled veterans, we gain

a better understanding o their contributions to the economy.

Tis report also summarizes the economic and small business nancial

climate in 2006, and examines small business procurement. Generally, theeconomy and nancial markets were supportive o small business growth in

2006. Te Oce o Advocacy, through its implementation o the Regulatory

Flexibility Act o 1980 and Executive Order 13272, has assisted small busi-

nesses by helping to reduce the regulatory compliance costs o proposed rules.

For instance, in FY 2006, Advocacys eorts resulted in cost savings o $7.25

billion in the rst year and $117 million annually or small businesses. Tese

* This letter originally appeared in The Small Business Economy: A Report to the President, 2007, ed. U.S.

Small Business Administration, Ofce of Advocacy (Washington: United States Government Printing Ofce,

2007): iiiiv. Republished with permission.


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Social Entrepreneurship and Government iii

are costs that will not be borne by the small business owners as a result o

changes in the regulations they comply with.

We also eature two chapters rom external contributors. Andrew Wolk

o the Root Cause Institute and a senior lecturer at the MassachusettsInstitute o echnology presents a number o examples o social entrepre-

neurship across the country and outlines steps governments are taking to

promote social entrepreneurs as a mechanism or solving some o our nations

problems. Some may ask, What does social entrepreneurship have to do

with small business? A short answer might be that social entrepreneurship

exhibits many o the attributes o small business entrepreneurship, serving

as an engine o innovation, job creation, and economic growth. Moreover,

by bringing together aspects o the public, private, and nonprot sectors

to address a market ailure, social entrepreneurs have, in a variety o ways,

helped create an economic environment in which private entrepreneurs and

small businesses can fourish. Te longer answer may be to read on and see

how this chapter answers the question. It is an excellent chapter that will

provoke discussion in academic and policymaking circles.

A second chapter rom external contributors, by William Gartner o

Clemson University and Jianwen (Jon) Liao o the Illinois Institute o

echnology, discusses the need or pre-venture planning. Tey nd that

nascent business owners who engaged in business planning during the startup

phase and wrote a ormal business plan were more likely to open and remain

in business. In essence, they suggest that the process o drating a business

plan was essential to the overall success o the venture. While that might

seem common sense to many, a debate in recent years has sometimes chal-

lenged the need or pre-venture planning as a prerequisite or success. Tis

chapter lends credence to those who suggest that planning matters.In sum, the 26.8 million small businesses in the United States play a vital

role in the economic well-being o our nation. Te research o the Oce

o Advocacy continues to document the importance o the entrepreneur in

maintaining economic growth, employing workers, bringing new innovations

to the marketplace, and remaining competitive in a global economy.

Chad Moutray

Chie Economist and Director o Economic Research


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iv Social Entrepreneurship and Government

About the Author

ANDREW WOLK is the ounder and CEO o Root Cause and oversees

the organizations overall strategic direction. Root Cause builds social

innovators and educates social impact investors to support the liecycle o

developing enduring solutions to social problems. Andrew has consulted to

dozens o organizations working in the elds o civic engagement, economic

development, education, the environment, seniors, and more. As part o

Root Causes knowledge sharing ocus, Andrew has co-authored the Root

Cause How-to Guide Business Planning or Enduring Social Impact:

A Social-Entrepreneurial Approach to Solving Social Problems (available at

www.rootcause.org, January 2008). He also ounded the two social

enterprises that Root Cause leads: InnerCity Entrepreneurs (ICE)

and the Social Innovation Forum. Andrew is a senior lecturer in socialentrepreneurship at MIs Sloan School o Management and the

Department o Urban Studies and Planning.


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Social Entrepreneurship and Government v

Acknowledgments

Tis project was managed by Marie Zemler Wu, senior editor, an

independent consultant providing support to government and nonprot

organizations that seek innovative solutions or assisting children and amilies

living in poverty. Trough research, analysis, and strategic planning, Marie has

helped clients including the Annie E. Casey Foundation, Harvard Universitys

Innovations in American Government Awards program, Columbia

Universitys National Center or Children in Poverty, and New York Citys

Administration or Children and Families.

Special thanks to Kelley Kreitz and Andrea E. McGrath or their editorial and

project management expertise, and to Jackson Shuler or research support.

Te author is also grateul to the many people who contributed case studies,

provided interviews, and served as reviewers or this report:

Case studies

Kh a

riangle Residential

Options or SubstanceAbusers (ROSA)

Mchl Bo

City Year

Bo B

Outside the Classroom

Kh F

INAmerica

Jm Fchm

Benetech

dll Hmmo

KaBOOM!

Jo sch

New Leaders or New

Schools

sy schz

Resolve to Stop the

Violence Program

(RSVP)


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vi Social Entrepreneurship and Government

interviews

s Cppol

Girl Scouts o the USA

Chyl doy

Echoing Green

Bll dyo

Ashoka

d e

National Corporation

or Community Service

Ch Gbl

Massachusetts 2020

K Gg

Sustayne, Social

Enterprise Group

sph Golmh

Harvard University

Kennedy School o

Government

Lc HoSkoll Foundation

Mchl Hll

Environmental

Protection Agency

Ho Hock

Manhattan Institute

r. to Joho

Jones Day

al Khz

City Year

Mg Kock

Americas Promise

rob Lg

Mannweiler

Foundation

Pl Lgh

New York University

Wagner Graduate

School o Public Service

ncy McG

Aspen Institute

sh Mll

Caliornia Center or

Regional Leadership

Jy MoOce o the Louisiana

Lieutenant Governor

Jfy robo

New York University

Stern School o

Business

d roll

Lex Mundi Foundation

JB schmm

College Summit

ec schz

Citizen Schools

Blly sho

Share Our Strength

e skloo

Surdna Foundation

Km sym

New Prot

rch tby

Solar rade

Corporation

tmohy Zk

Carnegie-Mellon

University Heinz

School o Public Policyand Management,

Australia


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Social Entrepreneurship and Government vii

reviewers

Bh ao

each or America

a dholk

Root Cause Consulting

toy dll

KaBOOM!

Ch Gg

New Mountain

Ventures

Mlo Ll

United Way o

Massachusetts Bay

alx nchol

University o Oxord

Sad Business School

e rob

MI Sloan School o

Management

Bll t

INAmerica

rchl Moh-

wllm

Aspen Institute

Jl Zck

Root Cause


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Social Entrepreneurship and Government 1

Social Entrepreneurship andGovernment:A New Breed oEntrepreneurs

Developing Solutions to Social Problems

Synopsis

Social entrepreneurshipthe practice o responding to market ailures with

transormative, nancially sustainable innovations aimed at solving social

problemshas emerged at the nexus o the public, private, and nonprot

sectors.1 It is a new breed o entrepreneurship that exhibits characteristics

o nonprots, government, and businessesincluding applying to social

problem-solving traditional, private-sector entrepreneurships ocus on

innovation, risk-taking, and large-scale transormation. While social entre-

preneurship is not a new phenomenon, the eld has experienced enormous

growth over the past 15 years, receiving increasing recognition rom jour-

nalists, philanthropists, researchers, and policymakers as an important anddistinctive part o the nations social, economic, and political landscape.

Tis chapter introduces city, state, and ederal government ocials to

social entrepreneurship. Given the traditional role o the government in

responding to market ailuresand the $1 trillion plus per year o ederal

unds dedicated to resolving domestic social problems2the author argues

that there is a yet-to-be-harnessed opportunity or government leaders and

social entrepreneurs to collaborate to leverage public and private resources and

generate transormative, cost-eective solutions to the most challenging socialproblems acing the nation and world. Incorporating insights rom experts in

1 Tis report was published by the Oce o Advocacy o the U.S. Small Business Administrationas Chapter 6 oTe Small Business Economy: A Report to the President, 2007. Te viewspresented here are those o the authors and not o the U.S. Small Business Administration orthe Oce o Advocacy. Tis report and other Root Cause publications can be accessed through

www.rootcause.org.

2 U.S. Bureau o the Census, Consolidated Federal Funds Report or Fiscal Year 2004. Tis gure is based

on ederal spending in 2004 on direct benets, service grants and contracts, and government agency sta.Tis does not include the additional unds raised and spent at the state and local levels, nor does it includemoney spent on oreign assistance.


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2 Social Entrepreneurship and Government

the eld o social entrepreneurship and case studies examining eight success-

ul social-entrepreneurial initiatives, the chapter answers the ollowing three

questions: (1) What is social entrepreneurship? (2) How does social entre-

preneurship help government benet Americans? (3) How is government

currently supporting social-entrepreneurial initiatives?Some may ask, What does social entrepreneurship have to do with

small business? A short answer might be that social entrepreneurship

exhibits many o the attributes o small business entrepreneurship, serving

as an engine o innovation, job creation, and economic growth. Moreover,

by bringing together aspects o the public, private, and nonprot sectors

to address a market ailure, social entrepreneurs have, in a variety o ways,

helped create an economic environment in which private entrepreneurs and

small businesses can fourish. Te longer answer may be to read on and see

how this chapter answers the question.

Introduction: Social Entrepreneurship Entersthe Public Eye

In his 2007 State o the Union address, President George W. Bush acknowl-

edged an individual who represents an emerging eld with a growing sig-nicance or policymakers. Among his honored guests at the U.S. Capitol

was Julie Aigner-Clark, ounder o the protable childrens video company,

Baby Einstein, and current producer o child saety videos with the National

Center or Missing and Exploited Children. Te president praised her by

saying: Julie represents the great enterprising spirit o America. And she is

using her success to help otherswe are pleased to welcome this talented

business entrepreneur and generous social entrepreneur.3

Tat the president o the United States honored a social entrepreneur in his State o the Union address exemplies the growing recognition that

social entrepreneurshipthe practice o responding to market ailures with

transormative, nancially sustainable innovations aimed at solving social

3 Bush, State o the Union 2007, http://www.whitehouse.gov/news/releases/2007/01/20070123-2.html.


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problems4has received in recent years. Te eld constitutes a new breed

o entrepreneurship that exhibits characteristics o nonprots, government,

and businessesincluding applying to social problem solving traditional,

private-sector entrepreneurships ocus on innovation, risk-taking, and large-

scale transormation.5 Tis new movement has come into the limelight in anumber o ways in recent years:

In 2006, each For America Founder Wendy Kopp and City Year

Co-Founders Michael Brown and Alan Khazei were proled among U.S.

News and World Reports op 25 Leaders. Muhammad Yunus and his organi-

zation, the Grameen Bank, were awarded a Nobel Peace Prize. Victoria Hale

o the Institute or OneWorld Health and Jim Fruchterman o Benetech

received genius awards rom the MacArthur Foundation. All identiy

themselves as social entrepreneurs.6

In 2005, the Public Broadcasting System (PBS) and the Skoll Foundation

created and aired a two-part miniseries proling Te New Heroes, 14 social

entrepreneurs rom around the globe. Tey ollowed the series with a three-

year grant program encouraging lmmakers, documentary lmmakers, and

journalists to produce work that promotes large-scale public awareness o

social entrepreneurship.7

For the past six years, the World Economic Forum, which annually

brings together business, government, and national leaders who are commit-

ted to improving the state o the world, has hosted a Social Entrepreneurs

Summit. In partnership with the Schwab Foundation, the orum convenes

4 Tis working denition o social entrepreneurship will be discussed in more detail and illustrated withexamples, in the sections that ollow. Market ailure occurs when the cost o a good or service is higherthan the price that individuals are willing or able to pay, yet the social benets rom that good or servicemake its availability worthwhile or maintaining a healthy, productive society, (Gruber, Public Finance andPublic Policy).

5 Early twentieth-century economist Joseph Schumpeter is largely responsible or this conception o en-trepreneurship. He argued that, the unction o entrepreneurs is to reorm or revolutionize the pattern oproduction by exploiting an invention, (Schumpeter, Te Teory o Economic Development). For a detaileddiscussion o the history o entrepreneurship and its relationship to social entrepreneurship, see Dees, TeMeaning o Social Entrepreneurship.

6 Tis article uses the term social entrepreneur to mean a person or small group o individuals who oundsand/or leads an organization or initiative engaged in social entrepreneurship. While those cited here iden-tiy themselves as social entrepreneurs, the term is applied throughout the article to any individual who tsthis denition regardless o whether they would use it to characterize themselves. Social entrepreneurs arealso sometimes called public entrepreneurs, civic entrepreneurs, or social innovators.

7 Skoll Foundation, PBS Foundation and Skoll Foundation Establish Fund to Produce UniqueProgramming About Social Entrepreneurship, http://www.skolloundation.org/media/press_releases/internal/092006.asp.


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social entrepreneurs as one o its special-interest communities, placing social

entrepreneurship on par with only nine other interest groups, including

global growth companies, international media, and labor leaders.8

Popular media have brought the term social entrepreneurship greater

household recognition. Te New York imes, Te Economist, and the HarvardBusiness Review have all printed stories ocused on social entrepreneurship.9

As social entrepreneurship is rapidly nding its way into the vocabu-

lary o policymakers, journalists, academics, and the general public, the

United States is acing incredible societal challenges and needs. One in eight

Americans, including one in our Arican Americans, lives in poverty.10 One-

quarter o adults ail to nish high school, creating a national graduation rate

that lags 8 percent behind rates in the European Union.11 Despite the highest

per capita spending on health care,12 the U.S. health system is ranked number

37 in the worldlower than any other developed nation.13 On any given day,

one out o every 108 American men is incarcerated.14

Te boom o the eld o social entrepreneurship, and its promise as a

means o addressing the daunting social problems that America currently

aces, are o particular importance or policymakers. By ar, the largest

sources o services and unding to help solve these problems are ederal, state,

and local governments. In the domestic budget alone, the ederal government

spends more than $1 trillion each year providing direct benets to constitu-

ents, awarding service grants and contracts, and employing government

agency sta.15 State and local governments raise and spend their own unds

to benet their constituentscreating an even larger pool o governmental

spending and activities to solve social problems.

8 Schwab Foundation or Social Entrepreneurship, Summit Report, http://schwabound.org/the.htm?p=102.

9 Finder, A Subject or Tose Who Want to Make a Dierence,New York imes; Bishop, Te Rise othe Social Entrepreneur, Te Economist, 11-13; and Dees, Enterprising Nonprots, Harvard BusinessReview, 54-67.

10 DeNavas-Walt et al.,Income, Poverty, and Health Insurance, 13.

11 Organization or Economic Co-Operation and Development,Education at a Glance.

12 Caliornia HealthCare Foundation, Snapshot: Health Care Costs 101.

13 World Health Organization, Te World Health Organization Assesses the Worlds Health Systems,http://www.who.int/whr/2000/media_centre/press_release/en/index.html.

14 Harrison and Beck, Bureau o Justice Statistics Bulletin, 4

15 U.S. Bureau o the Census, Consolidated Federal Funds Report, 5.


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Government unding dwars the amount spent by the nations largest

oundations, which together donate $16.4 billion annually to nonprots,16

as well as the giving by individuals, who donate $163.5 billion each year to

social causes.17 O the nations 144 largest and astest-growing nonprots

all o which have $50 million or more in annual revenuemore than 40percent rely on government as their primary unding source. Te next most

common unding comes rom service ees, which are paid at least in part by

government agencies in 90 percent o cases.18

Given both the magnitude o needs and the scope o spending, govern-

ment leaders constantly ace tough decisions about how to improve the

lives o their constituents while most eectively using tax dollars. As elected

ocials and government agency sta approach these tough choices, social

entrepreneurs oer a new source o assistance. Government leaders and social

entrepreneurs share an interest in identiying ecient, eective, and sus-

tainable ways to solve dicult social problems. Despite this common goal,

however, little has been published by scholars and researchers to date on the

relationship between the two.

Attempting to ll this gap, this chapter provides an introduction to social

entrepreneurship or city, state, and ederal government ocials. Based on

case studies and interviews with experts, it breaks new ground in exploring

the ways in which government leaders and ultimately their constituents are

beneting rom social entrepreneurs eorts. Te author suggests that recent

trends aecting business, nonprots, and government have been instrumen-

tal in the emergence o social entrepreneurship as a new eld. Collaboration

between government leaders and social entrepreneurs is already occurring and

generating numerous benets or American society.

Although collaboration thus ar between social entrepreneurs and govern-

ment has occurred in isolated incidents, working together more strategicallyrepresents a yet-to-be-harnessed opportunity or government leaders work-

ing to resolve social problems. By adapting some o the same levers that have

16 Foundation Center, Foundation Giving rends, 2. Tis gure includes grants o $10,000 or more, madeby the nations 1,154 largest oundations during calendar year 2005. Research has shown this type ocalculation generally represents hal o all oundation giving, i smaller grants and/or oundations were tobe included.

17 John. J. Havens et al., Charitable Giving, 542. Data given in 2004 and adjusted by the researchers or

infation to 2002 dollars.

18 Fine and Foster, How Nonprots Get Really Big,4655.


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successully encouraged U.S. entrepreneurialism, government leaders have a

similar opportunity to support social entrepreneurshipand thereby gener-

ate transormative, nancially sustainable solutions to social problems acing

the nation. As Roger L. Martin and Sally Osberg state in a recent article or

the Stanord Social Innovation Review,Social entrepreneurship, we believe,is as vital to the progress o societies as is entrepreneurship to the progress o

economies, and it merits more rigorous, serious attention than it has attracted

so ar.19 Just as government support o private markets and entrepreneurship

has ueled growth in the U.S. economy, so too can governments support o

social entrepreneurship accelerate the solving o social problems.

o introduce social entrepreneurship to government and explore the

relationship between social entrepreneurship and government, this chapter

addresses three key questions:

What is social entrepreneurship?In the rst section, the author outlines key

trends that have pushed the public, private, and nonprot sectors to blur their

traditional economic and social roles, and show how social entrepreneurship

has emerged at the nexus o these sectors. Te author lays out his denition

o social entrepreneurship in detail, using cases that highlight three successul

social-entrepreneurial initiatives.

How does social entrepreneurship help government benet Americans?Te

second section discusses how social entrepreneurship can help government

benet American society, as the eld is uniquely situated to help improve

the lives o public ocials constituents. Case examples show how social

entrepreneurs leverage public and private resources, and test and develop new

solutions to social problems.

How is government supporting social-entrepreneurial initiatives?Although

governments eorts do not yet represent a coordinated, strategic approach

to supporting social entrepreneurship, local, state, and ederal governmentocials nonetheless have had signicant impacts on every initiative consid-

ered in the development o this chapter. In this section, the author looks at

methods used by government agencies and elected ocials to (1) encourage

social entrepreneurs to innovate, (2) create enabling environments or their

eorts, (3) reward their perormance, (4) help scale their successes, and (5)

produce knowledge to help them solve social problems.

19 Martin and Osberg, Social Entrepreneurship: Te Case or Denition, 35.


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Tree research methods are used to answer the three guiding questions:

literature review, consultations with experts, and interviews with leading

social entrepreneurs. Te author reviewed a variety o academic and popular

sources in the elds o social entrepreneurship, nonprot and business man-

agement, public policy, and entrepreneurship, and consulted with leadingexperts, who were selected based on their reputation and scholarship in social

entrepreneurship and related areas rom academia, philanthropy, business,

nonprot management, and government.20 Lastly, the author conducted

interviews and developed case studies on eight successul examples o social

entrepreneurship that are working within each o the three traditional sec-

tors, targeting a variety o social problems, and representing a variety o

geographic areas.21 Te eight examples are Benetech, City Year, INAmerica,

KaBOOM!, New Leaders or New Schools (New Leaders), Outside the

Classroom, Resolve to Stop the Violence Program (RSVP), and riangle

Resident Options or Substance Abusers, Inc. (ROSA).

What is Social Entrepreneurship?

History abounds with examples o individuals who could be considered

social entrepreneurs. Florence Nightingale, whose work in the mid- to

late 1800s is regarded as the oundation o the modern eld o nursing,

and Horace Mann, who greatly reormed public education earlier in the

same century, are oten cited as historic examples o social innovators

who changed Americas social landscape.22 Yet social entrepreneurship as

a distinctive part o American social and economic lie is a more recent

development that can only be understood within the context o the changes

that have taken place since the 1980s in the roles played by businesses,

government, and nonprots. Tis section will introduce social entrepre-neurship within that context, providing an overview o the roles o the

three sectorspublic, private, and voluntary; a description o trends that

have increasingly blurred the boundaries between these sectors, creating a

20 Many o these conversations took place at the Skoll World Forum on Social Entrepreneurship, held atOxord University in March 2007, and at New York Universitys Annual Conerence o Social Entrepre-neurs, held in April 2007.

21 o be included, each organization must have been an example o social entrepreneurship as dened inthis chapter; regarded by others in the eld as successul, suciently mature in its organizational develop-

ment to demonstrate results, and based in the United States.

22 Bornstein, How to Change the World.


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space or social entrepreneurship to emerge; and a detailed discussion o the

authors denition o social entrepreneurship in the context o this blending

o sectors, using case examples to illustrate.

Early threads o what would become the eld o social entrepreneurship

emerged in the United States just over two decades ago,23 and the variousnames it has gone by throughout its early development help to illustrate its

connection to all three sectors. In 1980, Edward Skloot ounded a consulting

rm to help nonprot organizations interested in creating business ven-

tures, which promptly became a pioneering institution o the eld. His 1983

Harvard Business Review article coined the term nonprot entrepreneur-

ship to describe the use o business ventures as a method or diversiying

nonprot organizations unding streams.24 In 1981, private-sector consultant

Bill Drayton ounded Ashoka: Innovators or the Public to seek, support,

and publicize individuals he originally called public entrepreneurs, and later

named social entrepreneurs.25 Management expert Peter Druckers 1985

bookInnovation and Entrepreneurship was among the rst to describe entre-

preneurship as a phenomenon that extended into multiple sectorsand was

not limited to prot-seeking enterprises.26

Te term social entrepreneurship began to appear routinely both in

the scholarly and popular presses in the early to mid-1990s. Early descrip-

tions o social entrepreneurs ranged rom anyone who starts a not-or-

prot to not-or-prot organizations starting or-prot or earned-income

ventures27 to business owners who integrate social responsibility into their

operations.28 While debate on the exact denition continues to this day,

most denitions describe social entrepreneurship broadly enough to include a

variety o organizational structures and activities, and yet narrowly enough to

recognize social entrepreneurship as a distinct eld. Much o the diculty o

settling on the details, it is argued here, stems rom the act that social-entre-preneurial initiatives tend to exhibit characteristics o each o the private,

23 For a more detailed history, see Dees and Anderson, Framing a Teory o Social Entrepreneurship.

24 Skloot, Should Not-or-Prots Go into Business?

25 Anderson and J Dees, Rhetoric, Reality, and Research, 3966.

26 Drucker,Innovation and Entrepreneurship.

27 Earned-income ventures are traditional or-prot businesses run within a nonprot organization tohelp cover operational costs.

28 Dees, Te Meaning o Social Entrepreneurship, 1. All denitions listed in this sentence come romthis article.


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public, and nonprot sectors, without tting neatly into any one o them. As

examples throughout this chapter will show, social-entrepreneurial initia-

tives can take the orm o nonprots, or-prots, or governmental programs.

Unlike traditional nonprots, businesses, or government programs, however,

such social-entrepreneurial initiatives will always exhibit characteristics oeach o the sectors.

For this reason, understanding the ways in which the three sectors are

well- and ill-suited to meeting Americas social and economic needs provides

the context, indeed describes the ertile opportunity, rom which social entre-

preneurship has emerged. As illustrated in Figure 6.1, each o these sectors

has traditionally carried out specic roles and responsibilities, making vital

contributions to the United States economic and social health.

Te Private Sector

Te private sector is dened here as all the corporations, small businesses,

and entrepreneurs utilizing markets to exchange goods and services to

maximize prot, while driving increased innovation and productivity in the

economy. Economists have long identied innovation as one o the private

sectors dening characteristics. Writing in the mid-1900s, amed scholar

Joseph Schumpeter commented, entrepreneurial innovation is the essence o

capitalism.29 Further, contemporary economist Milton Friedman has argued

that ree markets, competition, and consumer choices are also essential com-

ponents o capitalism.30

Te private sector is by ar the largest sector o the U.S. economy. Te

United States attains a gross domestic product o approximately $13 tril-

lion a year.31 Private-sector activity has created a national income more than

twice that o Japan, the next largest national economy in the world.32 U.S.

citizens enjoy the third highest per capita purchasing poweror standard o

livingin the world.33 Among the more than 150 million adults in the U.S.

29 Schumpeter, Te Teory o Economic Development.

30 Friedman, Capitalism and Freedom.

31 Central Intelligence Agency, Te World Factbook 2006, https://www.cia.gov/library/publications/the-world-actbook/print/us.html.

32 World Bank, World Development Indicators 2006, http://devdata.worldbank.org/wdi2006/contents/

cover.htm.

33 Ibid.


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work orce,34 less than 5 percent are unemployed,35 with the vast majority o

jobs provided by private sector businesses.

While the private sector contributes to the well-being o citizens by

developing and distributing products and services, meeting consumers needs,

creating jobs, driving innovation, and building wealth or the nation, it is

oten ill-suited to addressing social problems. Focusing on societal challenges

has typically been let to the government and nonprot sectors.

Te Public Sector

Public-nance theory tends to assign two major roles to government: 1) pro-

viding public goods, such as libraries, public education, national deense, and

34 Ibid.

35 U. S. Bureau o Labor Statistics, Te Employment Situation, http://www.bls.gov/news.release/empsit.nr0.htm.

Private Sector/Businesses

Utilize markets to exchangegoods and services or proft;drive productivity and innovation

Worlds largest economy$13 trillion GDP

More than 115 millionemployees

Public Sector/Government

Respond to market ailures byproviding public goods and ser-vices or through redistribution

87,900 units of government $4.3 trillion in revenue 18 million employees

Voluntary Sector/Nonprots

Engage individuals in action toachieve social impact

1.4 million organizations $1.4 billion in revenue 9.4 million employees

Figure 6.1 The Three Sectors Traditional Economicand Social Responsibilities


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policing; and 2) addressing inequalities produced by markets through redistri-

butionin the orm o unemployment benets, disaster assistance, or benets

to amilies living in poverty, to name a ew o the most common methods.36

It is possible to elaborate on these two roles by thinking in terms o mar-

ket ailure, which occurs when the private sector alone cannot meet a societalneed because the cost o providing the needed good or service is more than

its beneciaries are able or willing to pay. Public goods such as public schools

and libraries are classic examples o services that address market ailures.

Since such services do not provide the prots that would make them viable

private-sector enterprises, the private sector leaves the need to educate the

population unmet. Redistribution, which involves giving support to those not

served by private markets, is another way in which governments role can be

considered to be addressing market ailures. By providing public goods and

addressing inequalities in markets, then, government complements the pri-

vate sector, lling in gaps let by market ailures, while providing the struc-

ture and stability that allows the private sector and markets to work.

While much smaller than the private sector, the public sector nonethe-

less occupies a sizable part o the U.S. economy. According to the 2002

Census o Governments, 87,900 distinct government units operate across

the nation: they include the ederal government, 50 state governments, 3,034

county governments, and 35,937 municipal and township governments, as

well as 48,878 special purpose local governments, such as school districts.37

In 2006, ederal government revenues were approximately $2.4 trillion per

year,38 while state and local governments generated approximately $1.9 tril-

lion o revenue annually.39 In the same time rame, government at all levels

employs approximately 18 million ull-time civilian workers.40

Despite its size and role, government aces tough choices in allocating

its resources to meeting ever-evolving societal needs, and is oten ill-suitedto meet all those needs. It thereore oten seeks the partnership and support

36 Gruber, Public Finance and Public Policy.

37 U.S. Bureau o the Census,2002 Census o Governments, 1.

38 U.S. Department o the reasury,2006 Financial Report, 11.

39 U.S. Bureau o the Census, State and Local Government Finances, http://www.census.gov/govs/www/

state05.html.

40 U.S. Bureau o the Census,2002 Census o Governments, 13.


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o citizens, who tend to organize their eorts within the nonprot/voluntary

and private sector.

Te Nonprot/Voluntary Sector41

Te nonprot sectors traditional role is to engage individuals in action toachieve social goals.ypical examples include neighborhood associations,

religious organizations, private hospitals and schools, and social service

providers. Te organizations and activities that constitute the nonprot sector

generally dier rom the work o the public and private sectors in two ways.

First, the nonprot sector oten acts when both the public and private sectors

are unable to meet a particular social need.42 Second, while nonprot-sector

organizations are private and sel-governing, much like organizations in the

private sector, nonprot-sector organizations cannot distribute prots totheir leaders, and must use their revenues and prots to sustain and grow

their organizations.

While the nonprot sector is by ar the smallest o the sectors, it is also the

astest growing. Over the past 25 years, the total number o nonprot orga-

nizations has approximately doubled.43 Since 1994, the number o 501(c)(3)

groups in the United States expanded rom just over hal a million to nearly

850,000, or a growth rate o almost 65 percent.44 According to a study by

the Nonprot Employment Data Project at Johns Hopkins University, the

nonprot work orce now makes up 10.5 percent o U.S. jobs. Between 2002

and 2004, nonprot job growth outpaced that o the private sector in 46 out

o 50 states, generating 5.3 percent more new jobs.45 Currently, approxi-

mately 1.4 million tax-exempt organizations are registered with the Internal

Revenue Service (IRS).46 Nonprot organizations generate nearly $1.4 billion

o revenue annually, hold $3 trillion in assets, account or 5.2 percent o gross

41 oday, the terms nonprot sector and voluntary sector are oten used interchangeably, despite thecontinued existence o many voluntary groups that never ormally organize to obtain nonprot status. Teterm nonprot sector is used throughout this chapter.

42 Weisbrod, Te Future o the Nonprot Sector, 542.

43 Independent Sector, Facts and Figures About Charitable Organizations 2007, 2.

44 Urban Institute, Te Nonprot Sector in Brie: Facts and Figures rom the Nonprot Almanac 2007,3.

45 Johns Hopkins University, Employment in U.S. Nonprots Outpaces Overall Job Growth, http://

www.jhu.edu/news_ino/news/home06/dec06/employ.html.

46 Urban Institute, Te Nonprot Sector in Brie, 1.


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domestic product (GDP), provide 8.3 percent o wages and salaries paid in

the United States,47 and employ 9.4 million individuals.48

ax deductions as incentives or charitable contributions have played

a signicant role in the growth and nancing o the nonprot sector. Yet,

while the nonprot sector has grown substantially in the past two decadesand has been instrumental in meeting societal needs, its impact on a

national scale is still limited by its ability to sustain or scale initiatives. For

uture growth, it must rely on the much larger public and private sectors or

nancial resources and access to the channels that make scaling nonprot

solutions possible.

Blurring Sectors: rends Creating Fertile Ground or Social

Entrepreneurship to Emergeraditionally, each o the three sectors has maintained the distinct roles and

approaches described abovewith the private sector ocused on protable

markets, the public sector solving market ailures, and the nonprot sec-

tor engaging citizens in meeting societal needs. Since the 1980s, however,

several trends have reduced these distinctions, increasingly blurring the social

and economic roles that businesses, government agencies, and nonprots are

playing. As Figure 6.2 illustrates, these trends have expanded the overlapping

space between the sectors and created ample opportunity or social entrepre-

neurship to emerge and grow. As a result, social entrepreneurship exhibits

characteristics o all three sectors.

In the private sector, businesses and their employees are increasingly

engaging in activities that previously ell under the domain o nonprots and

government. For instance, private-sector companies have begun compet-

ing in elds such as education and social services, giving such companies

opportunities to provide services that were once considered core government

activities.49 In act, the number o private-sector contractors paid through

ederal unds increased by 700,000 rom 1999 to 2002rom 4.45 million to

47 Urban Institute, Te Nonprot Sector in Brie, 2-3: Note that these gures are inclusive only o theapproximately hal a million nonprot organizations reporting to the IRS in 2004, a requirement or any

with more than $25,000 in gross receipts.

48 Salamon and Sokolowski,Employment in Americas Charities, 3.

49 Salamon, Te Resilient Sector: Te State o Nonprots in America; andWeerawardena and Mort, Investi-gating social entrepreneurship, 2145.


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Vo

luntar

ySector/Non

proftsP

ub

licS

ector

/Governm

ent

Priva

teSector/Businesses

5.15 million people.50 In another trend, ollowing recent corporate scandals

and nancial crises, the private sector has aced new calls or business eth-

ics.51 Tese have led the private sector to begin to consider the role it plays in

society beyond maximizing prots.

Te public sector, too, has seen a shit in its practices. As Reinventing

Governmentauthors David Osborne and ed Gaebler describe, government

is increasingly steering rather than rowingand emphasizing cost-eective

50 Light, Fact Sheet on the New rue Size o Government, 4.

51 Lyndenberg, Corporations and the Public Interest.

Figure 6.2 Trends Pushing the Three Sectors to Blur Traditional Roles:Social Entrepreneurship Emerges in the Growing Intersection

Opportunities to provide public

services through private organizations

Call for business ethics

Social

entrepreneurship

Third-party

government

Public-privatepartnerships

Competitive

sourcing

Demands for efciency

Preferences for choice

and competition

Reliance on businessand nonprot service

providers

Corporate socialresponsibility

Earned-income

ventures

Demands for

accountability

Demands for

sustainability

Gaps in public

service delivery


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results over bureaucratic rules.52 According to Stephen Goldsmith, Daniel

Paul proessor o government, and director, Innovations in American

Government Awards Program at Harvard Universitys John F. Kennedy

School o Government, New Deal-style initiatives, in which government

assumes the dominant service-delivery role, have become increasingly rare,especially or newly developed programs.53 At the ederal level, the past three

administrations have devolved54 and reinvented55 government, pushing or

citizen-centered, results-oriented, market-based approaches, respectively.56

At state and local levels, limited budgets and persistent social needs have also

increased demands or eciency in the use o government unds.57 Many

constituents, accustomed to their choices in the marketplace, want to be

thought o as consumers and express preerences or choice and competition

on issues ranging rom public utilities to public schools. In response, govern-

ment agencies are ceasing to work as monopolies, and instead are relying on

nonprot and private service providers that are managed through contracts

and the allocation o grant unds.58

For the nonprot sector, pressures are growing to ll gaps in public ser-

vice delivery, ensuring that citizens can get the services they need even when

government is unwilling or unable to provide it. I they are to provide essen-

tial services, nonprot leaders are striving or sustainability to ensure that

they will continue to be able to meet the needs o the populations they serve.

Following the national scandal at a major nonprot in 1992, and as many

oundations adopt outcomes-driven approaches to unding, nonprots also

ace demands or accountability.

As each sector has entered the territory o the others, the blurring

between them has given rise to a host o new phenomena, which Stephen

Goldsmith characterizes as: the reality o a world in which the public and

private boundaries are becoming increasingly blurred and governments o

52 Osborne and Gaebler, Reinventing Government, chapter 1.

53 Goldsmith (proessor, Harvard University), interview with the author, April 24, 2007.

54 Hall,Inventing the Nonprot Sector.

55 National Partnership on Reinventing Government, archived Web site, http://govino.library.unt.edu/npr/index.htm.

56 Executive Oce o the President, Te Presidents Management Agenda, Fiscal Year 2002, 6.

57 Osborne and Gaebler, Reinventing Government.

58 Salamon, ed., Beyond Privatization: Te ools o Government Action.


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all ideological bents are partnering with private companies and nonprot

organizations to do more and more o the governments work.59 An increase

in public-private partnerships has involved more and more businesses and

nonprots as collaborators in government projects. Further, President Bushs

competitive sourcing initiative, which is currently being implemented, isslated to open hal o the ederal jobs that are not inherently governmen-

tal to market competition.60 At the same time, the increased popularity o

earned-income ventures has led many nonprots to develop business-like

ventures to generate revenues.61 Lastly, corporate social responsibility move-

ments have entered the mainstream, motivating businesses to account or

their community, environmental, and labor practices along with their prots.

Whether to improve their images, gain marketing advantages, or altruistically

benet society, corporations have demonstrated a growing interest in volun-

teer and philanthropic opportunities.

Social Entrepreneurship Emerges at the Nexus

As trends have pushed the traditional roles o the three sectors to blur, their

nexus has provided ertile ground or the growth o social entrepreneurship.

As scholar Alex Nicholls rom Oxord Universitys Skoll Centre or Social

Entrepreneurship explains, social entrepreneurship is not dened by its orga-

nizational orm but is best understood as a multi-dimensional and dynamic

construct moving across various intersection points between the public, pri-

vate, and social sectors.62

By blending some o the social and economic responsibilities tradition-

ally associated with each o the three sectors, social entrepreneurship may

take the orm o a nonprot, business, or government initiative. No mat-

ter what organizational orm it takes, social entrepreneurship also tends to

exhibit characteristics o all three. Like business, social entrepreneurship

utilizes markets to drive innovation and productivity. Like government,

social entrepreneurship responds to market ailures by providing public goods

and services. Like nonprots, social entrepreneurship engages individuals

in action to achieve social goals. As Nicholls concludes, Te organizational

59 Goldsmith and Eggers, Governing by Network, 23.

60 Light,An Update on the Bush Administrations Competitive Sourcing Initiative,2.

61 Aspen Institute, Te Nonprot Sector and the Market, 6.

62 Nicholls, Social Entrepreneurship, 12.


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mechanisms employed are largely irrelevant: social entrepreneurs work in the

public, private, and social sectors alike, employing or-prot, not-or-prot,

and hybrid organizational orms (or a mix o all three) to deliver social value

and bring about change.63 Returning to the denition, social entrepreneur-

ship, then, is the practice o responding to market ailures with transormative,nancially sustainable innovations aimed at solving social problems.

Tis section discusses in detail the three essential components o this de-

nition1) response to market ailures, 2) transormative innovations, and 3)

nancial sustainabilityand oers three case studies that illustrate how social

entrepreneurship exhibits these components.

Response to Market FailuresTe social problems that social entrepreneurs address result rom mar-

ket ailuresin which protable markets are unavailable, insucient, or

underdeveloped and where the potential monetary gains or responding to a

societal problem are less than the overall, society-wide positive impact o that

response. Because o the lack o opportunity to generate prot, private-sector

entrepreneurswho succeed by nding market opportunities and maximiz-

ing protsoten leave these needs unaddressed. raditionally, government

responds in such cases by deploying public unds to address the unmet needs.

Social entrepreneurship presents another option or addressing market

ailureswhich can be considered the sources o the opportunities that social

entrepreneurs act on.64 Like private-sector entrepreneurs, social entrepreneurs

seek opportunities to create valuebut the value they pursue is social rather

than purely economic. As Gregory Dees, a ounding scholar o the eld o

social entrepreneurship, explains, Markets do not do a good job o valuing

social improvements, public goods and harms, and benets or people whocannot aord to pay. Tese elements are oten essential to social entrepre-

neurship. Tat is what makes it social entrepreneurship.65 Roger L. Martin

and Sally Osberg echo this idea that social entrepreneurs can be considered

entrepreneurs who pursue social value: Unlike the entrepreneurial value

proposition that assumes a market that can pay or the innovation, and may

63 Ibid.

64 Phills and Denend, Social Entrepreneurs: Correcting Market Failures (A) and (B), 2.

65 Dees, Te Meaning o Social Entrepreneurship, 3.


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even provide substantial upside or investors, the social entrepreneurs value

proposition targets an underserved, neglected, or highly disadvantaged popu-

lation that lacks the nancial means or political clout to achieve the transor-

mative benet on its own.66

Trough interviews with leading social entrepreneurs and conversa-

tions with experts in the eld, the author has identied three dierent types

o approaches that social entrepreneurs take in targeting beneciaries andresponding to market ailures (Figure 6.3).

No Market

In a no-market approach to solving a social problem, the beneciaries o

the potential product or service will not be able to pay or it.67 As a result, a

social entrepreneur who selects such an approach cannot rely on any earned

revenues rom the beneciary to sustain the initiative. Most commonly,

no-market approaches take the orm o government initiatives or nonprotorganizations.

Limited Market

In a limited-market approach, the beneciaries or clients have some ability to

pay. As a result, a social entrepreneur who selects such an approach can rely

on some earned revenues rom the beneciary to sustain the initiative. Most

commonly, limited-market approaches tend to be nonprot organizations.

Low-prot Market

In a low-prot-market approach, the beneciary has the potential to pay the

ull cost while solving the social problem and thus has the potential to gener-

ate a prot. However, the market may be underdeveloped, or investments in

this market may yield returns that are less than typical or or-prot ventures.

Examples o this type o approach exist in both the nonprot and private

66 Martin and Osberg, Social Entrepreneurship: Te Case or Denition, 35.

67 Seelos and Mair, Social Entrepreneurship, 241246.

Figure 6.3. Market-Failure Continuum of Social-EntrepreneurialApproaches to Solving Social Problems

No Market Limited Market Low-prot Market


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sectors. In some cases, low-prot-market approaches eventually develop the

market or a product or service enough that they become traditional or-

prot enterprises.

Transormative InnovationsAshoka Founder Bill Drayton has amously commented that social entre-

preneurs are not content just to give a sh or teach how to sh. Tey will not

rest until they have revolutionized the shing industry.68 Like other entre-

preneurs, social entrepreneurs are creative thinkers, continuously striving or

innovation, which can involve new technologies, supply sources, distribution

outlets, or methods o production.69 Innovation may also mean starting new

organizations, or oering new products or services.70 Innovative ideas can be

completely new inventions or creative adaptations o existing ones.71Many scholars take this ocus on innovation even urther. Social entre-

preneurs are change agents,72 creating large-scale change through pattern-

breaking ideas,73 addressing the root causes o social problems,74 possessing

the ambition to create systemic change by introducing a new idea and per-

suading others to adopt it,75 and changing the social systems that create and

maintain problems.76 Tese types o transormative changes can be national

or global. Tey can also oten be highly localizedbut no less powerulin

their impact. Most oten, social entrepreneurs who create transormative

changes combine innovative practices, deep and targeted knowledge o their

social issue area, applied and cutting-edge research, and political savvy to

reach their goals. For all entrepreneurs, whether in the business or social

realm, innovation is not a one-time eventbut continues over time.

68 Ashoka, What is a Social Entrepreneur? http://ashoka.org/social_entrepreneur.

69 Dees, Te Meaning o Social Entrepreneurship,http://www.uqua.duke.edu/centers/case/docu-

ments/dees_sede.pd.

70 Mair and Marti, Social Entrepreneurship Research, 3644; Peredo and McLean, Social Entrepre-neurship: A Critical Review o the Concept, 5665; and Dees, Te Meaning o Social Entrepreneur-ship, http://www.uqua.duke.edu/centers/case/documents/dees_sede.pd.

71 Peredo and McLean, Social Entrepreneurship: A Critical Review o the Concept, 5665.

72 Ashoka, What is a Social Entrepreneur? http://ashoka.org/social_entrepreneur.

73 Light, Searching or Social Entrepreneurs, 30.

74 Dees and Anderson, Framing a Teory o Social Entrepreneurship, 46.

75 Kramer,Measuring Innovation, 5.

76 Alvord et al., Social Entrepreneurship and Societal ransormation, 260282.


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O course, while addressing a social problem with a potentially trans-

ormative innovation is an essential component o the denition o social

entrepreneurship oered here, succeeding in generating such transormation

is not. Te eld, like any other, includes success stories and strong leaders, as

well as those who all short o their aspirations.77 Nonetheless, the denitiono social entrepreneurship requires that initiatives at least have the potential

or transormative social innovation on a local, national, or global scale. Tis

characteristic distinguishes social entrepreneurship rom other nonprot,

business, or government service providers that may be more narrowly ocused

on meeting the most pressing social needs as they emerge.

Financial Sustainability

While social entrepreneurship is not dened by any one standard model orachieving nancial sustainability, working toward nancial sustainability is

essential i an approach to a social problem caused by market ailure is to be

successul enough to have transormative potential. Each organization must

nd a model responsive to the unique character o the social problem they

are trying to solve, and grounded in the realities o the type o approach to

market ailure they have adopted. In addition, social entrepreneurs also tend

to preer business-like productivity and eciency measures to determine their

capture and use o resources. Many produce cost-benet analyses, reports on

social return on investment, report cards on organizational perormance,

or other integrated measures o nancial and programmatic success that will

ultimately help the organization optimize their use o resources and maxi-

mize their results.

While the details vary, such nancial models generally include two com-

ponents: nonnancial resources and predictable revenue sources.

Nonnancial resources

Nonnancial resources are skilled or unskilled volunteers, and one-time or

recurring in-kind donations that enable social entrepreneurs to increase the

sustainability o their initiatives.78 For instance, David Eisner, CEO o the

Corporation or National and Community Service, points out that Engaging

the public in developing and implementing social solutions is a proven and

77 Peredo and McLean, Social Entrepreneurship: A Critical Review o the Concept, 59; and Light,

Reshaping Social Entrepreneurship, 4651.

78 Bhawe et al., Te Entrepreneurship o the Good Samaritan,http://ssrn.com/abstract=902685.


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inexpensive strategy. Look at the way nearly 600,000 volunteers were lever-

aged to complete intensely needed work in the year ater Hurricane Katrina

in a way we never could have paid or.79

Predictable revenue sourcesPredictable revenue sources are long-term, repeat, and perormance-based

unding sourcesoundation, individual, government, corporate, and ee-

basedthat will provide predictable unding, despite conditions o market

ailure. Which type o predictable revenue sources a nancial sustainability

model contains will depend on the organizations approach to market ailure,

as well as the social problem being addressed. No-market approaches will

look or long-term, repeat, and perormance-based unding sources, and may

also develop an earned-income venture to build into the model an alternativeto receiving income rom the direct beneciary. Limited-market approaches

will ocus on the same unding sources as no-market approaches, in addition

to collecting a portion o their costs rom the beneciaries o their product

or service. Low-prot-market approaches will ask the beneciary to pay, and

look or patient capital rom socially motivated investors who are willing to

accept below-market returns, or wait or prots while the market is devel-

oped, in exchange or social impact.

able 6.1 provides a summary o how the three components o social entre-

preneurship appear in each o the three major approaches to market ailure.

Case Studies o Social-Entrepreneurial Approaches to SolvingSocial Problems

Resolve to Stop the Violence Program (RSVP):A No-Market Approach to Reducing Recidivism

Market Failure

Te United States has one o the highest incarceration rates in the world.

According to a 2005 BBC report, U.S. recidivism rates are also highat

about 60 percent throughout the nation.80 While reducing these rates would

produce signicant societal benets in terms o reducing the overall prison

79 David Eisner (CEO, Corporation or National and Community Service), interview with the author,

April 30, 2007.

80 Wikipedia, Recidivism, http://en.wikipedia.org/wiki/Recidivism.


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population, cutting down on incarceration costs, and ultimately ending up

with more productive citizens, there is little hope o a market-based solution

to meeting this need.Delivering rehabilitation programs to prisoners does not provide an

opportunity to generate prot.

RSVP, a San Francisco-based government initiative housed in the citys

sheris department, provides an example o a social-entrepreneurial initiative

addressing a no-market opportunity. Te prisoners who are the beneciaries

o its intensive rehabilitation program have no ability to pay or it.

ransormative Innovation

Table 6.1 Social-entrepreneurial Approaches to Solving Social Problems

Approach tomarket ailure

No market

Target benefciariesare unable orunwilling to pay.

Limited market

Target benefciaries arewilling and able to paypartial costs.

Low-proft market

Target benefciaries arewilling and able to pay imarkets are developed.

Innovation Innovation occurs in a variety of forms throughout the market-failure continuum,including starting new organizations; oering new products or services; anddeveloping new or adaptive technologies, supply sources, nancing methods,distribution outlets, or methods of production.

Strategies orfnancial sustainability

Full subsidy

Makes use ofnonfnancialresources: skilled orunskilled volunteersand one-time orrecurring in-kinddonations.

Focuses onpredictable undingsources.

May build analternative toreceiving incomerom a targetbenefciary intothe model oraddressing theproblem.

Partial subsidy

Makes use of nonnancialresources: skilled orunskilled volunteers andone-time or recurring in-kind donations.

Asks benefciaries to pay

partial costs to generateearned income whileaddressing the socialproblem.

Focuses on predictablefunding sources.

May build an additionalincome source into themodel to supplementincome rom a targetbeneciary.

Patient or below-market

investment

Oten makes use ononfnancial resources:skilled or unskilledvolunteers and one-time orrecurring in-kind donations.

Creates a market withsupport o patient capitalrom socially motivatedinvestors who are willingto accept below-marketreturns and/or wait orprofts in exchange orsocial impact.

Once mature, relies onbenefciary payments and/or revenues generatedwhile addressing the

social problem.Likely organizationalorm

Governmentagenciesor nonproftorganizations.

Nonprot organizations. For-proft companies ornonprot organizations.


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When Sunny Schwartz decided to start the rst correctional program in the

country to adopt a restorative-justice approach to reducing recidivism, she

was already working with violent oenders at a San Francisco County prison

and had grown dissatised with traditional approaches to prisoner rehabilita-

tion: It was clear that we werent reaching most people in any kind o sus-tained, pro-social way. With the support o San Francisco Sheri Michael

Hennessey, Schwartz put together a diverse planning committee o ormer

oenders, crime victims, and community leaders to participate in the develop-

ment o the RSVP model: We had victims rights advocates. We had ormerly

abusive men and gang members. We had orthodox rabbis, Baptist ministers,

atheists. We had deputy sheris rom line sta to upper echelon. And then we

had the usual stakeholdersprobation and people on the bench.81

Te resulting program diers rom the usual approaches, which tend to

ocus either on punishment or the crime or rehabilitation o the oender,

by encouraging and teaching oenders to take responsibility or their crimes.

While some elements o RSVP programming resemble what might be

ound in typical rehabilitation programsEnglish and GED classes, parent-

ing programs, and substance abuse treatmentthe program also includes a

class that teaches oenders to experience empathy or those who have been

harmed by violence. Victims o crimes work with ormer oenders, commu-

nity members, business organizations, and other stakeholders to develop the

curriculum used or these classes, and to participate as trainers. When oend-

ers are released rom prison, many participate in an internship program and

receive employment training while perorming restorative acts in the commu-

nity. Tose who are successul eventually return to the prison as acilitators o

RSVP sessions. Additionally, some o the victims o the RSVP participants

also become advocates and work with RSVP.

Te results that RSVPs innovative programming has generated thus arindicate that the organization is on its way to developing a rehabilitation

method or violent oenders that has the potential to transorm current prac-

tices in U.S. prisons and change belies about what is possible when working

with prisoners. An independent, quantitative evaluation o RSVP ound that

the average annual incidence rate or ghts and other orms o in-prison vio-

lence or their program participants is essentially zero, compared with 28 in

a traditional lock-up prison settingeven though the participants sleep in

81 Sunny Schwartz, (program administrator, RSVP), interview with the author, April 17, 2007.


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open dorms. Further, oenders who participated in the program or at least

eight weeks had a 46 percent lower rate o re-arrest or violent crime than

those who served their time in a traditional jail. Tis dierence increased to

83 percent or those who completed at least 16 weeks o the program.82

Te organization is currently looking or ways to take its methods toother parts o the country. o date, jurisdictions in Austin, exas, and

Westchester County, New Yorkin addition to several local high schools

have approached RSVP or advice on replicating the program; organizations

rom New Zealand, Poland, and Mexico have begun to replicate the RSVP

model as well.


For no-market approaches like that o RSVP, achieving nancial sustain-ability requires ull subsidies in order to start and maintain the initiative. One

option in no-market conditions is to work within the government, where

public unding is available. RSVP, whose sta is made up entirely o public

employees, provides an example o this. Based on its results, the program was

able to secure predictable unding in the orm o a line item in the City o

San Franciscos budget.

Triangle Resident Options or Substance Abusers Inc.(TROSA): A Limited-Market Approach to Long-termSubstance-Abuse Treatment

Market Failure

A major gap exists in the United States between the needs o low-income

people suering rom substance abuse and the treatment programs available

to them. While addiction is a problem that people can suer rom or years

or even decades, ew public programs oer more than 30 days o treatment.

Since this population has little ability to pay even or short-term treat-

ment, markets have let the need or long-term care or substance abusers

unaddressed.

Te North Carolinabased nonprot ROSA takes a limited-market

approach to addressing this problem. Te organization has developed a

82 Gilligan and Lee, Te Resolve to Stop the Violence Project: Reducing Violence through a Jail-BasedInitiative.


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model that makes it possible or its beneciaries to help cover a portion o

the costs o the services they receive.


ROSA provides a two-year residential treatment program, which includescounseling, education, and what Founder Keith Artin calls vocational ther-

apy: everything rom someone learning a very specic tradelike getting a

truck licenseto basic on-the-job work ethics.83 While the programming

alone is a highly innovative approach to substance abuse treatment, equally

innovative is ROSAs model or delivering this program to its residents at

no nancial cost. Residents pay or the services they receive by working in

either the operations o the program itselhelping with ood preparation,

transportation, and administrationor in one o the organizations manybusinesses, including ROSA Moving, ROSA Lawn Care, and ROSA

Furniture and Frame Shop.


As with many limited-market opportunities, the challenge is making this

program nancially sustainable, as the vast majority o those in need o long-

term treatment or substance abuse have little ability to pay or such services.

ROSAs model addressed this challenge by using revenues earned romtheir business ventures to cover more than two-thirds o ROSAs operat-

ing needs. Te organization lls the remaining gap with support rom other

predictable unding sources.

Outside the Classroom: Identiying a Low-Proft Marketor Drug and Alcohol Awareness on College Campuses

Market FailureEach year, 1,700 college students in the United States die rom alcohol-

related causes. Colleges and universities have long ocused on hosting guest

speakers and alcohol-ree social events to address the problem, but the mar-

ket has ailed to produce a more eective solution.

Te or-prot organization Outside the Classroom set out to ll this need

through a low-prot-market approach. Te organization knew that a prot-

able market existed or its Web-based curriculum, yet several actors limited

83 Artin, (ounder, ROSA), interview with the author, May 9, 2007.


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that market. An Internet-based curriculum designed to be administered to

the entire student population was not a product that colleges and universities

were accustomed to paying or. Additionally, all o the potential purchasers,

public and private colleges and universities, operate as nonprot organiza-

tions. While the potential or protable sales did exist, it did not promisequick or substantial returns or early investors.


Recognizing that drinking and drugs are commonly represented as a standard

part o the U.S. college experience in American music, movies, and advertise-

ments, Outside the Classroom Founder Brandon Busteed set out to change

that perception. Te organizations innovation is a curriculum designed to

educate entire campus populations, in order to infuence not only individualschoices but campus culture as a whole.

In six years since its rst sale o its Web-based curriculum, Outside the

Classroom has begun to change the way some colleges and universities think

about alcohol and drug abuse prevention. During the 20062007 academic

year, approximately 25 percent o rst-year college students across the nation

completed the Outside the Classrooms web training. Early results have

been promising: an independent study examining the ecacy o Outside

the Classrooms programming ound that students who had used its online

prevention program, AlcoholEdu, experienced 50 percent ewer negative

consequences related to alcoholblackouts, hangovers, missed classes, physi-

cal ghting, unprotected sex, damaging property, and driving drunkthan

those who did not.


Like most social-entrepreneurial initiatives with a low-prot-market

approach, Outside the Classroom aced its biggest challenge in its start-up

phase. During that period, the organization was initially turned down by

dozens o grant makers and relied on patient angel investors to cover the

signicant up-ront costs or creating a curriculum and developing a market

or it. As angel investor Ed Roberts, proessor o management o technology

at MIs Sloan School o Management, recalls, When I invested in Outside

the Classroom, I was doing it primarily as a socially good act, with little aith

that I would ever see a return on my investment. Te idea was highly specu-

lative as to whether or not it would work and have any real impact. But I


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wanted to join my riend Howard Anderson in assisting this cause in which

he strongly believed. I now see that oten times allowing underdeveloped but

potentially socially meaningul markets to grow can produce good returns,

both in regard to the original social purpose as well as rom an investors

nancial perspective.84 Te nancial backing o investors who understoodthat their support had the potential o creating social benet in addition

to generating prots ultimately provided Outside the Classroom with time

to do both. oday, Outside the Classroom has captured 25 percent o the

college and university market, and some six years ater initially lending their

support, investors are now seeing their rst returns.

Summary: What is social entrepreneurship?

Each o these cases shows how social entrepreneurship takes up an opportu-nity to provide a solution to a social problem that has great potential soci-

etal benet, but little hope o generating the prots required by traditional

or-prot companies. Social entrepreneursadopting no-market, limited-

market, and low-prot-market approachesaddress these problems while

striving or what can be considered a dierent kind o prot: the generation

o new and transormative solutions to the nations most pressing social

problems. Te next section will show how social-entrepreneurial initiatives

are helping government benet Americans by leveraging public and private

resources and testing and developing solutions.

How Does Social Entrepreneurship HelpGovernment to Benet Americans?

Te previous section described social entrepreneurship and its emergence

because o trends increasingly causing the traditional roles o the private,public, and nonprot sectors to blur. Tis section provides examples o social

entrepreneurs who, as new contributors in the realm o social problem solv-

ing, have come to serve as resources or government as it addresses social

problems to improve the lives o Americans. As Citizens Schools Co-ounder

and CEO Eric Schwarz explains, Te best social entrepreneurs have great

results. Government is looking at ways to get results at low costs. Social

84 Ed Roberts, (proessor, Massachusetts Institute o echnology), interview with the author, June 12,2007.


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entrepreneurs can help them achieve this. Tey can test new ideas and inno-

vations, and partner with government to bring successul ones to scale.85

Government leaders continually ace pressures to allocate limited tax

revenues to address pressing societal needs, and many have achieved a great

degree o success. While social entrepreneurs will never take the place ogovernment, conversations with social entrepreneurs and experts in the eld

suggest that social entrepreneurship is uniquely positioned to help govern-

ment ocials better address societal needs. Specically, the social entrepre-

neurs interviewed help government improve the lives o their constituents in

two primary ways: (1) leveraging public and private resources and (2) testing

and developing solutions.

Five case studies illustrate how a variety o social-entrepreneurial initia-

tives have brought about these benets.

Leveraging Public and Private Resources

Because o their ocus on nancial sustainability, social entrepreneurs identiy

and utilize new and existing resources, both nancial and nonnancial, to

help them address social problems. Oten this means that social entrepre-

neurs are able to implement solutions to social problems on a wider scale

that have previously been too costly. At times, social entrepreneurs also end

up shiting costs rom public budgets to private resources, thus reeing up

government tax revenue to address other needs.

KaBOOM!

Market Failure

Swings, slides, and seesaws are the setting or many a childhood memory.

Creation o those playgrounds and outdoor play spaces or children has tra-

ditionally allen under the domain o local parks and recreation departments

o municipal governments. For many communities, however, building quality

playgrounds competes with a variety o other pressing needs or limited pub-

lic undsoten leaving children in poorer communities without access to

great places to play. Unortunately, the same places that lack public resources

or playgrounds also typically lack private ones, as the parents who live there

cannot pay or their own playground equipment.

85 Eric Schwarz, (CEO, Citizen Schools), interview with the author, April 26, 2007.


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ransormative, Financially Sustainable Innovation

KaBOOM!s innovation was to leverage private resources by identiying

an alternative revenue stream that would provide the organization with the

unds to build quality playgrounds in underserved communitiesthus adopt-

ing a no-market approach that channels new resources or playgrounds into

these communities where the beneciaries have no ability to pay. By work-

ing with major companies, including Home Depot, Sprint, and PepsiCo,

KaBOOM! has been able to oer two productscorporate team-building

and social marketingthat capture resources or playground building via

donations, service ees, and employee volunteer time. According to Founder

Darrell Hammond, Its beyond sponsorship. Its beyond partnership. Weve

really embedded ourselves into corporations and become a part o theirlong-term strategynot just their community aairs and do-good strategy,

but their business strategy as well, which means that, rom a ee side, theyre

willing to pay or it.86 Corporate volunteers gain team-building experience as

they work with neighborhood residents and one another to und, design, and

build new playgrounds. KaBOOM! also works with companies to develop

social-marketing campaigns centered on KaBOOM! projects. Te result is a

nancial model that is almost 100 percent supported by ees.

As KaBOOM! has expanded in size and reach, the organization has beenable to achieve even greater eciency in its nancial model, as a result o the

cost eciencies and benets gained rom operating at a much larger scale

than municipal parks and recreation departments ever could. By linking a

social problem without a market to a stable source o resources, KaBOOM!

has built 1,196 new playgrounds in 11 years.

Societal Benets

KaBOOM! has helped government to benet Americans by developing andleveraging a new source o private resources that supplements public budgets,

and at times even shits costs rom public budgets to private resources. Tis

approach has helped to build playgrounds in communities that otherwise

never would have been able to build them, or that can now spend the unding

that would have been spent on the playground on other priorities.

86 Darrell Hammond, (ounder, KaBOOM!), interview with the author, April 17, 2007.


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ITNAmerica

Market Failure

oo oten, older Americans must choose between their saety and their

mobilitybetween continuing to drive as their abilities decline or remain-

ing homebound and dependent on others ater giving up their cars. Prior

attempts to address this problem have ailed to ully meet the needs o their

target senior consumers. Senior transportation programs, oten government

unded, have typically relied on attempts to convince older people to ride

buses or subways; on organizing volunteers to pick up vanloads o seniors

or group trips; or oering rides to a handul o specic destinations,

such as medical appointments. Finding these options insucient, many

seniors continue to drive when they are no longer t to operate a vehicle,

or become increasingly housebound as they restrict their own driving and

become dependent on avors rom amily and riends. As INAmerica

Founder Katherine Freund explains, Depending on the private automobile

or transportation is inadequate or years beore people actually stop driv-

ing. And then people who do stop driving outlive that decision by about

ten years. Its a very big problem because o the aging o the population.

Tere are more older people. Tere are more older people living longer.Tere are more older people outliving the ability to drive longer. You can

see i you multiply those things together you come up with a pretty big

social problem.87

ransormative, Financially Sustainable Innovation

INAmerica created a new option or seniors: providing rides in private cars

available 365 days a year, 24 hours a day, with door-through-door service

using a combination o paid and volunteer drivers. aking a limited-marketapproach, INAmerica charges a nominal one-time membership ee o $35

and about 50 percent o the cost o a taxi or each ride. Payments must be

made or every ride, but no money changes hands in the vehicle. Seniors

und their personal transportation accounts in advance and receive a monthly

statement in the mail.

As the organization has embarked on an ambitious ve-year growth

strategy, INAmerica has been quite ecient in leveraging private

87 Katherine Freund, (ounder, INAmerica), interview with the author, March 3, 2007.


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resources. According to Freund, We have a very fexible approach to

resources. We say money is one kind o resource, but there are other kinds

o assets that have economic value. And i we can nd a way to capture di-

erent kinds o economic value, then we can use those resources also to pay

or rides. 88 Volunteer drivers, or example, make up about 40 to 60 percento the driving team. Tis helps the organization keep costs manageable, and

also oers a way or seniors to subsidize the cost o their own rides. Many

o the volunteers who are over the age o 60 contribute their own volun-

teer driving time through INAmericas ransportation Social Security

program, building up credits in their personal transportation accounts or

their own uture use o the services while they are still sae and healthy

to transport others. Family members may also supply volunteer time and

make in-kind contributions o their driving credits to their relatives who

are using the service. Seniors may trade their personal vehicles when they

are no longer able to use them and apply the liquidated equity to und their

personal transportation accounts. Te donated vehicles are oten used to

deliver rides.

In addition, INAmericas sotware, INRides, plans and tracks mem-

bership accounts, rides, and distances, maximizing the eciency o routes.

Freund characterizes this system as one o the organizations most important

innovations: One way to describe it is that we married a very grassroots

model to a very high-tech support system. So we used technology to create

eciency, and we took the unusual step o building it ourselves, instead o

purchasing o-the-shel technology, so that it would be aordable to small

organizations and communities.89

Societal Benets

INAmerica has developed a highly ecient model that ultimatelyunds

itselby capturing nominal ees rom customers and leveraging private

resources through volunteer time and community philanthropic support.

When the organization starts up an aliate program in a new city, itlimits

the amount o public unding it accepts to

Social Entrep

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