The problem with the definition of "social entrepreneurship"

I was excited to see that LeadSA and the Bertha Centre have setup a podcast series around Social Entrepreneurship - Social Enterprise 101 (iTunes). There is precious little content around this space in South Africa. This is a quality production and I'm looking forward to working through it.

The very first episode got me into debate mode within the first 5 minutes. You see, I have a problem with the traditional/academic definition of "social entrepreneurship" - and as usual, it's all about the money.

In the intro, the hosts (Sibongile Mafu and Bame Modungwa) specifically define a social enterprise as an entrepreneurial venture with a social mission - where all profits are funneled back into the business to further the social mission.

I have a number of problems with this definition.

Change the Model
Can we agree that existing models are broken? Pure charity is broken - it's mostly providing symptomatic relief. The problems it's trying to solve are still there. This is obviously not to underplay the critical role charity has played in a country like South Africa - but most would agree, pure charity doesn't have a rosy, sustainable future.

Pure capitalism is just as broken. Capitalism is causing most of the problems pure charity is trying to solve! Biggest wealth gap ever. All eyes on gini coefficients across the globe. Cultural backlash to neoliberalism. Pervasive poverty. Failure of trickle down economics. You name it.

By defining social entrepreneurship like they did on the podcast - you're not changing the model. You're just creating a better charity with less focus on solving the passion problem and more on business principles and sustainability.

Show The Talent The Money
Entrepreneurial talent is typically attracted with money. That's the base definition of entrepreneurship, isn't it? It's the way we keep score. I'm not saying that's right - see minor rant about capitalism above - it's just reality.

But if you accept the view that entrepreneurial people tend to be attracted to for-profits and socially minded passion problem solvers tend to get attracted to non-profits, then how are we going to attract these entrepreneurial skills that we say the "charity" sector so desperately needs, if we funnel all the money back into the enterprise?

Come entrepreneurial skills, bust your ass solving social problems - but always remember that the world fundamentally thinks that being financially rewarded for solving social problems is inherently evil.

Revenue Models Lower Reliance on Donor Funding
If you don't give returns to shareholders (i.e. profits get reinvested to continue the social mission), you'll never have access to the risk capital market. This was my primary irritation when I wrote the pre-forgood piece: "What pisses me off about the NGO sector...".

The risk capital market is untapped by the development sector - and it's critical for changing the stigma of failure around businesses with a social mission, breeding a culture of experimentation, iteration and innovation.

So basically, instead of donor funding, we're now after grant funding. And yet we won't escape our dependence on it. The worst thing that could happen is for social enterprises to become as dependent on grant funding as charities are currently on donor funding.

Allowing a social enterprise to return some profits to investors changes the game completely.

Set The Right Incentives
Reinvesting all profits back into a social enterprise is noble, for sure. But how is this going to solve the problem of personal wealth creation? I'm not being selfish or evil here - I'm being realistic.

One of the primary achievements of successful entrepreneurs (fair reward for the enormous risk and difficulty of building your own show) is wealth creation - the freedom to continue doing what you want to do.

If you're going to reinvest profits of a social enterprise, you essentially make equity worthless. These businesses are unlikely to be sold - so there's no possible exit in that fashion. All you're incentivized to do is continually bloat your salary, getting us right back to square one with the sustainability problems faced by charities.

Set the right incentives - social enterprises should free us to measure both profit AND social impact. We don't have to be billionaires - but why do you not want to reward entrepreneurs for solving social problems and making money at the same time?  I don't know where you draw the line, but I don't think enough people are having this conversation.

Perhaps I'm too capitalist? I'm not sure.

I see the bright, shining opportunity for systemic change in how we tackle social problems and the company structures and incentive cultures we can use to do it.

With forgood, our dream is: social and capital dividends - in equal measures.

Why is that wrong?

Further reading if you're interested:


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