Impact of social entrepreneurship

Two smiling young African businesswomen are standing in a modern office space. In the background you can see the lettering "Innovate".
© Getty Images/Jonathan Erasmus

Five experts, five questions: question 3

Social entrepreneurship involves entrepreneurial concepts that seek to solve social challenges in an innovative and businesslike way. However, the focus is not on profit, but rather on impact orientation. What are the benefits of social entrepreneurs and businesses as opposed to ‘conventional’ forms of engagement (such as via NGOs, volunteering, and similar activities)?

Ingo Steffgen

As an MBA graduate and having worked for a major corporation for more than 10 years, I have since been struggling to appreciate the level of sustainability of charitable business models. I got the impression that social entrepreneurship was a healthy compromise and I still think so. When working with small NGOs I often noticed how full external funding can make an organisation dependent on a single funding provider, how recruiting and adequately remunerating good staff can be a challenge, and how the projects’ ‘marketing’ can prevent comprehensive social acceptance. Financial diversification of social enterprises allows for more leeway across all areas, in particular due to the fact that this allows for profitable as well as loss-making projects, which may be more important from a social point of view, to be realised in a balanced approach.

Magdalena Parcheva

The advantages of social entrepreneurship are primarily related to the adoption of a social business model. A key specificity of social business models is that they presuppose commitment to a social mission, creation and adoption of social innovations aimed at social impact.
On the other hand, the business component is of special importance: the development of activities that will allow self-funding, functioning, development of the organization, as well as the financing of goals related to the implementation of the social mission.
In this sense, the advantages over traditional forms lie in the relation "social innovation - social enterprises".

Our Experts

Here you can find the .

Raju Gurung

There is only so much you can sustain as a social-impact venture if there is no sustainable profit to sustain the business, and you constantly require injection of funds. You should, instead, focus on impact creation, which as a natural consequence will generate profit. Traditional forms of NGOs are still instrumental in a variety of initiatives such as disaster relief and hunger relief. But we must also recognise that many of these larger organisations are becoming increasingly expensive to operate, highly bureaucratic and slow in delivering impact, as there is widening gap between the entity and where impact is being created. This presents a unique opportunity to develop bespoke solutions to local problems in a lean manner or even collaborate with larger NGOs, and for NGOs to rethink the way they deliver impact.

Evans Quartey Hammond

Understanding the benefits of social entrepreneurship over traditional forms of engagement, such as NGOs, requires us to clarify that the difference is solely due to motivation – whereas NGOs are driven purely by altruism, social entrepreneurs are motivated by both altruism and the generation of profit from their initiatives. Social entrepreneurship employs commercial strategies to maximise improvements in financial, social, and environmental well-being. This may include maximising social impact as well as profits for co-owners in order for them to achieve their objectives if funds are not made available to them.

Although non-governmental organizations (NGOs) play an important role in international development, their annual budgets can range from millions to billions of dollars. They are therefore completely reliant on a variety of funding sources, ranging from private donations and membership dues to government contributions. This results in some NGO initiatives become static, structurally immobilised, and vulnerable to decay if funds are not made available to them. Whether they operate in a for-profit or non-profit context, most NGOs are never fully compensated for the time, risk, effort, and capital that they invest in their initiative. The imperative to drive social change is signalled by social entrepreneurship, and it is that potential payoff, with its long-term, transformative benefit to society, that distinguishes the field and its practitioners from NGOs.

Tamara Ferreira Schmidt

The difference between social entrepreneurship and social service/social activism isn't in the initial entrepreneurial contexts or in many of the personal characteristics of the founders, but rather in the outcomes.

The "conventional" forms of engagement never break out of their limited frame: their impact remains constrained, their service area stays confined to a local population, and their scope is determined by whatever resources they can attract. These ventures are inherently vulnerable, which may mean disruption or loss of service to the populations they serve.

On the other hand, the social entrepreneurship's outcome would be a stable new equilibrium whereby even if one element doesn't work as expected, there would be a robust system in place through which the routine won't be affected and the community will continue to be served.

* mandatory field