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How do opportunities develop in social entrepreneurship, and how is this distinct from how they develop in a commercial enterprise? A commercial enterprise needs startup capital, and seeks investors who will invest in return for the expectation of reward. How does this compare to the case in a social enterprise?

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migrated from economics.stackexchange.com Apr 29 '12 at 11:20

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To give you a feel for how "fuzzy" the concept of social entrepreneurship, I turn to the Wikipedias:

While a business entrepreneur typically measures performance in profit and return, a social entrepreneur focuses on creating social capital. Thus, the main aim of social entrepreneurship is to further social and environmental goals.

Which is the best crowd-sourced answer you'll get, and isn't very good.

The term itself started gaining favour only in the 1980s and '90s when donors started looking to reward and promote individuals in charitable or development organisations. Gradually it has become somewhat confused.

A commercial enterprise - if it does not engage in force or fraud to generate profits - is, of necessity, only profitable if it is liked by its customers. It is intrinsically social. It can only be liked if it is, in some measure, in alignment with how its customers see themselves (i.e. they see an advantage in parting with their cash in exchange for its goods).

A developmental or charitable initiative is somewhat different. Usually it is aimed at people (or things which people value, like animals or forests) but where there is no money, or will, to pay for the products. This can take a number of different forms:

  • Social insurance: aimed at people who, for whatever reason, are unable to feed, clothe or house themselves (including the disabled, the very young or the very old);
  • Social investment: aimed at people who, for whatever reason, cannot afford to educate or otherwise improve their own abilities in order to advance;
  • Environmental insurance: aimed at the rapid community response to disaster, be it fire or floods, and clean-up and support victims;
  • Environmental investment: aimed at the preservation of certain environmental goods (including individual species of animals) which, for whatever reason, an insufficient number of people see as important to preserve;

That covers everything from your local neighbourhood watch or volunteer first-aid service, to the soup-kitchen or orphanage or even the people who look after a local park. The main requirement is that the outcome be a social good that people expect but don't wish to pay for.

Those definitions also cover any business which is where we come to the blurring. Muhammad Yunus, of Grameen Bank fame, is often described as the world's foremost social entrepreneur. For running a bank. Grameen charges its impoverished borrowers an APR of 20%. Is Yunus a business genius for figuring out how to turn a profit out of the very poor? Or is he a socially responsible genius for ensuring that the very poorest can have access to affordable loans? Or both?

This is not to make fun of the social entrepreneurship concept, but to point out that the main difference has to be with the potential to make a profitable return. John Cadbury, founder of the famous chocolate makers, was a Quaker and saw his business as a way of providing a social alternative to alcohol. He campaigned against child labour and animal cruelty. But he was a businessman.

CK Prahalad came up with the brilliant organising thought of the "Fortune at the bottom of the pyramid" which encouraged real entrepreneurs to have another look at the poor, considering them as a large untapped market.

The real difference between social and commercial, then, is not about turning the poor into profitable businesses (commercial entrepreneurs are more than capable of doing this) but about applying the principles of entrepreneurship - innovation, ambition, clear objectives, marketable principles, iterative improvement and rapid discard of failure - to social ends that cannot, of their very nature, ever be profitable.

There are plenty of people and organisations investing in charities. Trillions of dollars available from governments, parastatals (like the UN), charitable foundations and individuals. There are - out of all the charities around - very few looking to be truly innovative about the way care is delivered to HIV-positive orphaned children, or how forests are preserved. There are ways in which this could probably be turned into a business, but that's a different question.

And really, there are a lot of people investing in social entrepreneurship. It just depends on your definition.

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