Supporters of social entrepreneurship often cite examples of “heroes” who have successfully built organizations to solve social problems on a global scale. But social entrepreneurship also includes many efforts to fix targeted, local problems rather than working toward large-scale global change. An increasing number of social entrepreneurs are experimenting with ways to use commercially generated revenue to grow and maintain their social impact.
These findings are part of one of the most robust quantitative studies of social enterprise to date. Undertaken by Harvard Business School Associate Professor Julie Battilana and her colleague Matthew Lee, a doctoral student at Harvard Business School, they analyzed 6 years worth of applicant data from Echoing Green. The purpose of the study is to expand the field of vision beyond “heroic stories” that dominate the discussion on social entrepreneurship. In this interview, they share some initial findings from their research.
Jill Richmond: Tell me about the origins of the study and partnership with Echoing Green.
Julie Battilana: The idea behind the research was to understand the field of social enterprise and where it might be headed. We knew a lot about the highly visible, very successful social entrepreneurs. It is probably helpful to the field of social entrepreneurship that some social entrepreneurs have become very visible. But the social entrepreneurship field is so much bigger than the handful of well-publicized cases. To understand where the field is headed, we needed to look beyond what has worked in the past.
We are fortunate to be working with Echoing Green because they have, for a long time, received applications from a broad segment of the social entrepreneurship field. We randomly selected approximately 3,500 applications to the Echoing Green Fellowship between 2006 and 2011. Based on an extensive process of reading and interpreting these applications, our team built a rich dataset that captures over 100 variables about social entrepreneurs and the ventures they are creating. Throughout, we sought to lay a foundation for research in this field, but also to support social entrepreneurs and their organizations. We believe that we emerged wi th insights that were only possible as an outcome of our collaboration with experienced practitioners like Echoing Green.
Jill Richmond: Current qualitative studies have a bias toward entrepreneurs that scale. One result of your data is that many social entrepreneurs remain hyper-local. Can you tell us a bit about this?
Julie Battilana:The big discussion about entrepreneurs trying to make massive changes is a bit skewed. We found from the data that most social entrepreneurs think local. These social entrepreneurs are often paying more attention to the unique beneficiaries and stakeholders in their own communities, rather than how to solve social problems on a global scale. What they have in mind are questions such as: “How do I solve this one problem in my community?” These social enterprise initiatives play a key role in addressing social problems because local problems often demand tailored, innovative solutions.
A second, exciting finding was that an ever-growing number of social entrepreneurs intend to fund their social ventures through commercially-generated revenues, rather than through charitable donations. These social entrepreneurs create organizations that are neither typical corporations nor typical not-for-profits but rather a combination of the two. We call these organizations, which combine a social mission with a model for generating commercial revenue, “hybrid” organizations.
|Highlighted Findings |
According to an article about the study, the following key trends emerged from a random sample of 3,500 fellowship applications:
-54.2% of applicants proposed business models based entirely on donations in 2011 vs. 63.2% in 2006
-40.6% have elected models based on a mix of donations and generated revenue in 20011 vs. 33% in 2006
-5.2% intended to drive revenue only from self-generated revenues in 2011 vs. 3.9% in 2006
Hybrids have long existed in certain sectors such as healthcare and microcredit, but they are now represented, and have been spreading, across all sectors, including consulting, retailing, consumer products, apparel, food processing, and IT services. A big change from the past is that hybrid entrepreneurs are thinking more about how they can integrate social and commercial activities in a way that is central to what they do. We are very excited about the innovations this approach has created and will continue to create in the coming years.
Jill Richmond: In this study you partnered with Echoing Green. Do you see yourselves seeking new data points?
Julie Battilana: If we have learned one thing from this process, it is that decision-makers in the social enterprise field are hungry for data. Our study is one of the first to pull together data about a large number of social entrepreneurs in a way that allows it to be analyzed using rigorous quantitative methods. We recently presented our approach to a number of leading researchers and practitioners interested in replicating our research on a larger scale. We hope that our study can be a model for future partnerships between philanthropists, impact investors, social entrepreneurs, representatives of public authorities, and academics.
We would love to develop our findings [into a long-term study] and we anticipate that we will. We are now continuing to collect data from fellows over time. We are currently exploring options for growing this database, and building other datasets useful both for researchers and practitioners.
Jill Richmond: In other interviews, you have spoken consistently about “mission drift”- what is your concern?
One interest of ours is whether and how “hybridity” can be maintained over time. If you look at commercial microfinance organizations, which are examples of hybrid organizations, some of them have been criticized for losing track of their social mission as they have become more profitable. Such a focus on profit, to the detriment of social mission, is what we refer to as “mission drift”. Not surprisingly, many commentators have expressed doubts about hybrids’ ability to avoid this pitfall. We need to better understand how hybrids can successfully remain focused on their social mission, while relying on commercial activities to generate revenue and sustain their operations.
We are currently conducting additional research with a team of researchers in order to better understand the determinants of social performance in socioeconomic hybrid organizations. Our ultimate objective is to help emerging social enterprises adopting this hybrid model figure out how they can achieve financial self-sustainability, while not losing sight of their social mission.
Jill Richmond: What potential impact will your findings have on policy making and operating in the social enterprise ecosystem?
Julie Battilana: Clearly, modern capitalism has faced a lot of attacks in the last few years. Social entrepreneurship is not a panacea, but it can show us a lot about what is possible when we recognize the interconnectedness of business, the social sector, and society at large. Social entrepreneurs are not substitutes for government services, but they have the ability to work in concert with government and other stakeholders to promote social welfare.
That said, there is a long way to go. One critically important step will be the development of institutions that support organizations blending social mission with commercial revenue. Currently, hybrid organizations struggle because the available legal structures, capital markets, and labor markets were not designed for hybrids. Rather, they were designed for for-profit organizations on the one hand, and not-for-profit ones on the other.
Important questions include: What are the best investment vehicles to support social enterprises? Should they have or receive certain tax exemptions? The assessment of social performance is also a key issue that must be considered, especially as investors and policymakers demand this information to support and regulate these organizations.
We as a society have a lot to do to help these organizations succeed because they are facing a number of challenges. But things are moving in the right direction. The field of social entrepreneurship is on the rise. Now that we’ve seen the transformative potential of individual organizations both large and small, we need to build the foundation that will allow more of them to flourish.