Business Horizons (2008) 51, 267—271

www.elsevier.com/locate/bushor

EXECUTIVE DIGEST

Social entrepreneurship: Key issues and concepts

S. Trevis Certo *, Toyah Miller

Mays Business School, Texas A&M University, College Station, TX 77843-4221, U.S.A.

1. A beginning A number of groups and organizations have rec-

ognized socially-oriented ventures. Fast Company,
Entrepreneurship involves the identification, evalu- for example, recently recognized Better World
ation, and exploitation of opportunities (Shane & Books, an organization that addresses the global
Venkataraman, 2000). In this sense, opportunities literacy problem by helping fund community reading
represent occasions to bring new products or serv- programs via sales of donated books, for outstanding
ices into existence such that individuals or organ- social entrepreneurship. As another example, the
izations are able to sell new outputs at prices higher Manhattan Institute Award for Social Entrepreneur-
than their cost of production. (For an excellent ship honors leaders who develop solutions for press-
review of opportunities and entrepreneurship, see ing social problems. Recently, the Manhattan
Eckhardt & Shane, 2003.) The implication, of Institute recognized the Houston-based Prison En-
course, in this definition is that the fundamental trepreneurship Program for its work providing pris-
mission of entrepreneurial activities involves profit oners with the skills needed to start new ventures
generation, and these profits help entrepreneurs to upon their release, along with other worthy organ-
build personal wealth. izations.
In recent years social entrepreneurship, a sub- Even some of the most renowned capitalists have
discipline within the field of entrepreneurship, has embraced, and served as champions for, social en-
gained increasing attention from entrepreneurship trepreneurship. Perhaps the most notable example
scholars. Social entrepreneurship involves the rec- involves Bill Gates, the founder of Microsoft. In a
ognition, evaluation, and exploitation of opportu- recent speech at the World Economic Forum in
nities that result in social value — the basic and Switzerland, Mr. Gates championed a new form of
long-standing needs of society — as opposed to capitalism: ‘‘Such a system would have a twin mis-
personal or shareholder wealth (Austin, Steven- sion: making profits and also improving lives for
son, & Wei-Skillern, 2006). Social value has little those who don’t fully benefit from market forces.’’
to do with profits but instead involves the fulfill- (For more information on this speech, see Guth,
ment of basic and long-standing needs such as 2008, p. A1.)
providing food, water, shelter, education, and In the remainder of this article, we review re-
medical services to those members of society search in social entrepreneurship to better under-
who are in need. stand how this concept has developed over time. In
so doing, we illustrate how social entrepreneurship
differs from the traditional conceptualization of
* Corresponding author.
entrepreneurship. We also provide some ideas for
E-mail addresses: [email protected] (S.T. Certo), future research in the domain of social entre-
[email protected] (T. Miller). preneurship.

0007-6813/$ — see front matter # 2008 Kelley School of Business, Indiana University. All rights reserved.
doi:10.1016/j.bushor.2008.02.009
268 EXECUTIVE DIGEST

2. Social entrepreneurship: What is it? cial entrepreneurship might involve individual en-
trepreneurs, new or existing organizations (both
Despite the emergence of social entrepreneurship in non-profit or for profit), or governments. In other
both the academic and business worlds, there re- words, there is no single type of social entrepreneur.
mains some tension in the academic literature re- According to Austin et al. (2006), there are at least
garding its exact definition. This tension, though, is three primary ways to distinguish between commer-
consistent with similar issues in the broader entre- cial and social entrepreneurship. First, new commer-
preneurship literature (Peredo & McLean, 2006). cial and social ventures differ in terms of overall
As Venkataraman (1997, p. 120) noted, ‘‘there are mission. (For an overview of mission statements in
fundamentally different conceptions and interpre- the entrepreneurship context, see O’Gorman & Dor-
tations of the concept of entrepreneur and the an, 1999.) While commercial entrepreneurs are pri-
entrepreneurial role, consensus on a definition of marily concerned with private gains, social
the field in terms of the entrepreneur is perhaps an entrepreneurs are more concerned with creating
impossibility.’’ social value. Of course, commercial entrepreneurs
To better understand social entrepreneurship, may produce social value in the process of creating
Austin et al. (2006) distinguished between two types private gains, and social entrepreneurs may produce
of entrepreneurship. In their framework, commercial private gains in the process of creating social value
entrepreneurship represents the identification, eval- (Emerson & Twersky, 1996). Despite these potential
uation, and exploitation of opportunities that result secondary gains, these two types of organizations are
in profits. In contrast, social entrepreneurship refers driven by two very different missions.
to the identification, evaluation, and exploitation of Directly related to their differences in missions,
opportunities that result in social value. Opportunity commercial and social entrepreneurship differ dra-
awareness and recognition reflect an entrepreneur’s matically in terms of performance measurement
ability to detect when either supply or demand for a (Austin et al., 2006). In commercial entrepreneur-
value-creating product or service exists (Kirzner, ship, performance is typically measured in terms of
1973). Social entrepreneurs have an acute under- financial performance. Examples of such financial
standing of social needs, and then fulfill these needs performance measures include profitability (i.e.,
through creative organization. This focus on social return on assets, return on equity) and sales growth.
value is consistent across various definitions of social (For a more comprehensive review of such perfor-
entrepreneurship (e.g., Peredo & McLean, 2006; mance measures, see Murphy, Trailer, & Hill, 1996.)
Shaw & Carter, 2007). Other than this focus on social Because financial performance metrics are stan-
value as opposed to private wealth, the definitions dardized, they can be recognized and appreciated
of commercial and social entrepreneurship are quite by entrepreneurs and investors.
similar. These similarities underlie Dees’ (1998, p. 2) In contrast, performance measures for social
declaration that ‘‘[s]ocial entrepreneurs are one entrepreneurship are less standardized and more
species in the genus entrepreneur.’’ idiosyncratic to the particular organization. For
More formally, Austin et al. (p. 2) define social example, take a new venture formed to provide
entrepreneurship as ‘‘innovative, social value cre- educational services to children in inner cities.
ating activity that can occur within or across the How would the leaders of this venture assess per-
nonprofit, business, or government sectors.’’ There formance? Using profitability as a performance mea-
are two important points worth noting about this sure would most likely not prove useful, as the
definition. First, the definition explicitly notes the mission of the organization does not involve produc-
role of innovation. Social entrepreneurship presum- ing monetary gains. Instead, a survey designed to
ably involves applying a new technology or approach assess the influence of the program on students’ test
in an effort to create social value. This focus on scores may prove more useful. In addition, growth in
innovation is consistent with the Schumpeterian the number of students served might represent
view of entrepreneurship which emphasizes the role another indicator that the program is well received
of innovation in entrepreneurship; social entrepre- by the local community. While it remains difficult to
neurs, then, may be viewed as social innovators evaluate the performance of a social venture, de-
(Casson, 2005). Dees (1998, p. 4) confirms the role veloping mechanisms that help to alleviate this issue
of innovation by suggesting that social entrepre- represents an important task in establishing the
neurs ‘‘play the role of change agents in the social legitimacy of social entrepreneurship as an area
sector by. . .engaging in a process of continuous of academic inquiry (Mair & Martı́, 2006). Our un-
innovation, adaptation, and learning.’’ Second, derstanding of how to measure social value is lack-
the definition highlights the various contexts in ing, yet new metrics exist to quantify value in the
which social entrepreneurship may take place. So- social sector (Young, 2006).
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Third, commercial and social entrepreneurship there exists a continuum for which commercial and
differ in terms of resource mobilization (Austin social entrepreneurship serve as anchors (Austin
et al., 2006). Perhaps the importance of this dis- et al., 2006; Peredo & McLean, 2006). In other
tinction is most obvious when considering financial words, organizations can pursue commercial entre-
resources. Commercial entrepreneurs have at their preneurship, social entrepreneurship, or some com-
disposal one important factor when attempting to bination of both. In fact, some scholars even refer to
attract financial resources: the allure of potential organizations that pursue both commercial and so-
returns. Angel investors and venture capitalists, for cial objectives as hybrids (Davis, 1997). In a sense,
example, provide capital to commercial entrepre- then, these hybrids pursue two bottom lines, one of
neurs with the hope that they will one day receive which deals with profits while the other deals with
even more capital in return. (For an excellent over- social value.
view of angel investors and venture capitalists, see It is important to note, though, that not all agree
Morrissette, 2007.) In addition to financial resour- with the notion that a person or organization can
ces, resource mobilization also involves human re- pursue two bottom lines and be considered social
sources. Commercial entrepreneurs are able to hire entrepreneurs. As Peredo and McLean (2006) sug-
employees based on the same factor: potential gest, for example, some firms engage in cause-
returns. When individuals decide to work for com- related marketing as a mechanism to increase sales,
mercial entrepreneurs, they typically do so based on profits, and shareholder wealth. It is difficult to
the premise that their effort will result in financial argue that employing such tactics for a purely prof-
rewards such as wages, benefits, future windfalls itable objective indicates that one is a social entre-
(i.e., stock options), or some combination of these preneur. Peredo and McLean (2006, p. 62) note, for
rewards. example, ‘‘It is tempting to say that only ventures
Without the allure of potential returns, social en- willing to accept a significant reduction in their
trepreneurs may face more difficulties in mobilizing profits as a consequence of their pursuit of social
financial resources. Starting a new social venture goals should be considered examples of social en-
requires identifying funding sources that are primari- trepreneurship.’’ The authors quickly point out,
ly interested in creating social — as opposed to eco- though, that determining motive is difficult (if not
nomic — value. Fortunately, a more recent trend impossible) and as such, this distinction is perhaps
toward venture capital funding of social ventures not important.
has transformed social entrepreneurship. Philan-
thropic venture capital companies, such as Ashoka,
the Acumen Fund, and Venture Philanthropy Partners, 4. Future research
provide financial resources, consulting, and interor-
ganizational relationships for new social ventures. As noted earlier, social entrepreneurship has gained
Venture capital is being sought by social entrepre- attention in many diverse fields, and this diversity
neurs to fund their operations because social organ- has resulted in several definitions. An important
izations have suffered a decline in operating fund agenda for the further development of social entre-
reserves (Boschee, 1995). For example, the Roberts preneurship research involves creating consensus
Enterprise Development Fund assists social organiza- across these fields as to the definition and key
tions by providing financing for organizational infra- elements of the construct, as well as resolving some
structure, strategy, and business development. of the foundational debates. For example, social
This same principle also applies to locating hu- entrepreneurship has been characterized both
man resources. Often, social ventures cannot afford broadly as an innovative social venture (Cochran,
to pay market rates for employees. Consequently, 2007; Dees & Anderson, 2003) and more narrowly as
many social ventures rely on volunteers and employ- the use of market-based activities to solve social
ees who are more concerned with creating social needs and generate earned income through innova-
value than earning and building private economic tion (Thompson, 2002). Establishing concrete defi-
wealth. Finding employees with these motives, of nitions will help overcome the vagueness of the
course, remains difficult for social entrepreneurs. concept of social entrepreneurship, which places
obstacles on research in the area. We can draw
parallels to the development of the field of entre-
3. Is social entrepreneurship really preneurship, which began with and expanded be-
different? yond definitional and attribute-based descriptions.
Therefore, multiple issues remain which, if ad-
Despite the differences between social and com- dressed, may help social entrepreneurship research
mercial entrepreneurship, some scholars claim that further progress.
270 EXECUTIVE DIGEST

First, having a social mission is a central attribute the source of value creation in social ventures
of a social venture, yet there are differences in the (Thompson, 2002). In addition, the funding of social
degree of its significance to the organization (Per- ventures is an important activity of social entrepre-
edo & McLean, 2006). Social ventures may place neurs. While a number of public organizations pro-
different levels of importance on the social mission. vide business consulting to social entrepreneurs,
For example, the social mission may be the major monetary resources are necessary to implement
focus of an organization, or profit may be the major the ambitious social visions of social entrepreneurs.
motive of an organization that happens to provide The latest trend toward venture capital funding of
some social product or service (Alter, 2006). In fact, social ventures has created a new business model for
some argue that having a blended value (both social social entrepreneurs, whereby the entrepreneur
and profit) is important for social entrepreneurs can trade operational control of the venture for
(Emerson & Twersky, 1996), while others suggest financial support. While prior research has exam-
economic value should be a limited concern for ined venture capital assessments for profit-seeking
social entrepreneurs and the social mission must ventures (MacMillan, Siegel, & Narasimha, 1985;
be central (Dees, 1998; Seelos & Mair, 2005). While Shepherd, 1999), little is known about the decision
there is debate over the necessity for social ven- rules that philanthropic venture capitalists use to
tures to generate earned income, scholars seem to select social ventures or how they actually influence
agree that social entrepreneurship includes both venture outcomes (Austin et al., 2006; Cochran,
for-profit and not-for-profit ventures. Overall, this 2007).
calls for more research into understanding how Finally, the majority of extant research on social
differences in importance of the social motive influ- entrepreneurship involves case studies (e.g., Al-
ence strategy and resources (Austin et al., 2006). vord, Brown, & Letts, 2004; Emerson & Twersky,
Another area for future research involves exam- 1996; Thompson, 2002). Although there exists some
ining the characteristics of social entrepreneurs. broad, empirical research on social entrepreneur-
Similar to early work in entrepreneurship, which ship, the lack of empirical studies has placed limits
compared characteristics of managers to those of on our understanding of the important antecedents
entrepreneurs, research is needed to understand and outcomes of social entrepreneurship. Moving
the personal characteristics and cognitive schemas toward more rigorous empirical studies, and estab-
of social entrepreneurs (Roper & Cheney, 2005). lishing major theoretical perspectives by which
Because social entrepreneurship is mission-relat- researchers may explore these questions, should
ed, internal values and motivation largely drive the benefit both practitioners and academics (Mair &
venture (Dees, 1998; Hemingway, 2005). For exam- Martı́, 2006; Sharfman, Busenitz, Townsend, &
ple, social entrepreneurs are often driven by their Harkins, 2006). Roberts and Woods (2005) suggest,
passion to meet the needs of a population (Born- for example, that many social entrepreneurs are
stein, 2004), or by their personal values (Drayton, left without strategic patterns to implement due to
2002; Hemingway, 2005), charisma (Roper & Che- lack of education. More research in the area, how-
ney, 2005), and leadership skills (Thompson, Alvy, & ever, may help to provide the theory and evidence
Lees, 2000). Future research could also focus on needed to educate and advise social entrepre-
the actions and behaviors of social entrepreneurs neurs.
that help improve the performance of these ven-
tures. As mentioned earlier, however, establishing
consistent measures of social performance repre- 5. Final thoughts
sents a critical development needed to examine
this issue. The most provocative and striking element of
Two important actions which may shed light on social entrepreneurship has been its ability to
social venture success involve social networking and combine elements of the business and volunteer
venture capital fundraising. One research opportu- sectors, yet this combination may also represent
nity involves investigating the social networks of the greatest obstacle to the definition of the field.
social entrepreneurs. Leadbeater’s (1997) theory With its roots in both entrepreneurship and public
on social entrepreneurship suggests that social ven- policy, researchers and practitioners must lay out
turing begins as an individual mobilizes others to- the important questions and key defining elements
ward a social goal using her social network. Thus, of social entrepreneurship. We believe research-
social capital is important to resource acquisition ers can work across disciplinary barriers to study
because human resources are needed to devote this emerging phenomenon, and we provide a
time and money to the organization, alliances are number of potential research ideas for that en-
necessary to maintain operations, and community is deavor.
EXECUTIVE DIGEST 271

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