Social Entrepreneurship – Making a Living by Making a Difference?

by Angelika Lauber

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Fifteen years ago, the Millennium Development Goals were defined. Today, in 2015, it seems that the world is as far away from eradicating extreme poverty, achieving universal primary education or instituting global gender equality as ever. NGOs, government institutions, development banks and charity funds have all failed to produce inclusive growth and development. This leaves the world once again in search of alternative ways to achieve enduring development.

In recent years, Social Entrepreneurship has become an increasingly trendy term. It attempts to draw upon business techniques to find innovative solutions to social problems, some of which are overseen or insufficiently addressed by development institutions and governments. Implemented successfully, social enterprises can address social problems efficiently and flexibly.

Especially in developing countries, many governments, academics and the public have high hopes for the idea. Tony Elumelu, a Nigerian billionaire and founder of the United Bank for Africa, was inspired to create an entire philosophy termed Africapitalism which puts faith in the power of the African private sector to transform the continent through long-term investments, creating both economic prosperity and social wealth. Even the United Nations have jumped on the bandwagon. They have set up a Social Enterprise Action Hub, “to create and advance innovative business models with social impact to address global development challenges.”

Yet, one should not be misled by the current euphoria: Social entrepreneurship is not a new concept. As early as 1860, Florence Nightingale founded the first nursing school in Great Britain, thereby developing modern nursing practices. In Austria, the Tabakfabrik Linz (tobacco factory Linz) developed a welfare programme for its employees in the late 1930s. Creative people, straddling both the social and business world, have always existed. Still, their efforts were never before considered the driving force of widespread development.

In his interview for Polemics, Diego Heatherman, Coordinator for the Social Impact Award (Austria), the largest student social entrepreneurship competition in Europe, provided prescient insights into the realities of social entrepreneurship. He said that especially among the younger generations, there is considerable enthusiasm for the idea of purpose-driven business. In 2014, 404 student teams participated at the Social Impact Award (SIA), joined workshops, developed their social business ideas and competed for over €75,000 available funds and stipends.

The concept has so much resonance today because the worsening economy has had a significant impact. “In particularly post-2008, it is increasingly hard to come by funds. Already small grants are cut. Donations dry up. In these times, being a self-sustaining business seems a more appropriate channel for creating social impact than being a charity organization,” Heatherman emphasizes.

Deborah Doane of The Guardian writes that the loss of confidence or even outright hostility towards NGOs and government institutions seems to be growing. They are criticized for being outdated and unable to reflect realities on the ground. Instead of a bureaucratic top-down approach, Heatherman explains, social entrepreneurs screen for ignored developmental gaps that can be filled by market-based approaches. “They aim to provide services and goods that are tailored to a specific social need. Often, the projects empower people and nurture skills…This can go a long way.” As the saying goes, give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime. He points to the café in which the interview is taking place. “The Connection” Café is one of SIA’s winning projects from 2011. It facilitates a career start for immigrants by employing them at the café and offering German language courses. For the young migrants working there, it is an invaluable stepping stone to financial independence.

However, the denunciation of more mainstream development strategies and a number of successful cases does not validate the worth of social entrepreneurship. In fact, there are many points for criticism. Often, noble ideas do not make good business plans. The “State of Social Enterprise Survey, Fightback Britain” from 2001 found that one of the biggest barriers to launching ventures effectively is availability and affordability of start-up finance. Many break down when business complexities set in. Others lack customer insights that would generate a wider customer base, inhibiting them from scaling up. In Britain, for instance, fewer than 10% of the tens of thousands of social enterprises generate more than £1 million in revenue.

But nobody claimed that social entrepreneurship is easy. In response to the manifold business challenges, hubs and networks are mushrooming. The Vienna Impact Hub, one of the first in the city, provides programmes and services to support budding entrepreneurs. While they cannot solve all the issues, they teach strategies to deal with obstacles more effectively. If done right, social ventures can be as stable and successful as purely profit-maximizing start-ups, found Professor Simon Denny, director of enterprise, development and social impact at Northampton University, in a 30-year study.

A second, even more severe, danger highlights that over-stressing the commendable work of social entrepreneurs as a panacea for the world’s woes risks de-politicizing the development sector. Service delivery eases acute needs in the short-term, but in the long-term, development strategies need to address political power relations and social structures on a systemic level. It is questionable whether private enterprises should even provide basic public services such as health, education or clean water.

“This is definitely a dilemma,” comments Heatherman. “In theory, I agree that governments should be responsible for basic need provision. But what to do if they don’t? Should people’s suffering be ignored until a government has the resources or will to act? How can we admonish good people who want to help others because nobody else does it?” There might be solutions to the conundrum. Heatherman muses about the possibilities of cooperation between the state and private sector by integrating the top social enterprise strategies into public institutions.

A last criticism is that, as social entrepreneurship becomes more popular, the risk increases of people exploiting its status. Heatherman acknowledges the danger of people taking advantage of the social values as a marketing trick to promote their business. In Austria today, this risk is still fairly limited as social entrepreneurs form a small, tight-knit community here. People usually know about the motives of their peers. A trickster would probably be detected right away. Trust still holds strong.” This is a different story in other countries where social entrepreneurship already has its own legal standing. There is still no satisfactory answer to the question of how to deal with free-riders exploiting benefits to social entrepreneurs such as tax breaks.

It can be said, then, that social entrepreneurship is an attractive alternative to conventional development strategies. It is not, however, the miracle solution that the world has been waiting for. It offers dynamic and innovative ways to create social impact. Nonetheless, it is vulnerable to intrinsic weaknesses—as most other development mechanisms are too. In the end, it is one of many pieces needed to complete the big development puzzle.

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