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SocialEntrepreneurship
& GovernmentA New Breed of EntrepreneursDeveloping Solutions to Social Problems
by Andrew M. WolkFounder & CEO, Root Cause
MIT Senior Lecturer, Social Entrepreneurship
From The Small Business Economy:A Report to the President, 2007,
by The Small Business Administration, Office of Advocacy.
A Report
The best summary/taxonomy/description of social entrepreneurship
Ive ever read. Edward Skloot, Former President, The Surdna Foundation
In an environment of burgeoning coverage, I thought your paper was
one of the best. Bill Drayton, CEO and Founder, Ashoka
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Social Entrepreneurship and Government i
Dear Mr. President:
Te Oce o Advocacy o the U.S. Small Business Administration (SBA) is
pleased to present Te Small Business Economy: A Report to the President.*Te
American economy is blessed with an entrepreneurial spirit that continues to
be the envy o many nations around the world. Small business leaders providenew ideas, employ additional workers, and develop innovative products and
services. By investing in their businesses, the small rm owner makes a major
contribution to the local, regional, and national economy.
Over the past year, the Oce o Advocacy has conducted research that
documents these points. First, Kathryn Kobe o Economic Consulting Services
reconrmed our knowledge that small businesses account or hal o private,
nonarm gross domestic product. Second, Donald Bruce, John A. Deskins,Brian C. Hill, and Jonathon C. Rork nd that a states ability to generate new
establishments is the most important actor that leads to higher gross state
product, state personal income, and total state employment. Finally, Larry
Plummer, a doctoral student at the University o Colorado at Boulder who
served as a visiting research economist in this oce, ound that new business
entrants provide long-term benets to the local economy; the increased com-
petition might be painul in the short term, but with time, collaborative eortsaccrue to everyones betterment. Tese and other studies can be ound on the
Oce o Advocacys research page at http://www.sba.gov/advo/research.
Tis edition oTe Small Business Economyeatures two chapters on owner
demographics based primarily on the 2002 Survey o Business Owners rom
the U.S. Census Bureau. In documenting the number o small businesses
owned by minorities, women, veterans, and service-disabled veterans, we gain
a better understanding o their contributions to the economy.
Tis report also summarizes the economic and small business nancial
climate in 2006, and examines small business procurement. Generally, the
economy and nancial markets were supportive o small business growth in
2006. Te Oce o Advocacy, through its implementation o the Regulatory
Flexibility Act o 1980 and Executive Order 13272, has assisted small busi-
nesses by helping to reduce the regulatory compliance costs o proposed rules.
For instance, in FY 2006, Advocacys eorts resulted in cost savings o $7.25
billion in the rst year and $117 million annually or small businesses. Tese
* This letter originally appeared in The Small Business Economy: A Report to the President, 2007, ed. U.S.
Small Business Administration, Ofce of Advocacy (Washington: United States Government Printing Ofce,
2007): iiiiv. Republished with permission.
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ii Social Entrepreneurship and Government
are costs that will not be borne by the small business owners as a result o
changes in the regulations they comply with.
We also eature two chapters rom external contributors. Andrew Wolk
o the Root Cause Institute and a senior lecturer at the Massachusetts
Institute o echnology presents a number o examples o social entrepre-
neurship across the country and outlines steps governments are taking to
promote social entrepreneurs as a mechanism or solving some o our nations
problems. Some may ask, What does social entrepreneurship have to do
with small business? A short answer might be that social entrepreneurship
exhibits many o the attributes o small business entrepreneurship, serving
as an engine o innovation, job creation, and economic growth. Moreover,
by bringing together aspects o the public, private, and nonprot sectors
to address a market ailure, social entrepreneurs have, in a variety o ways,
helped create an economic environment in which private entrepreneurs and
small businesses can fourish. Te longer answer may be to read on and see
how this chapter answers the question. It is an excellent chapter that will
provoke discussion in academic and policymaking circles.
A second chapter rom external contributors, by William Gartner o
Clemson University and Jianwen (Jon) Liao o the Illinois Institute oechnology, discusses the need or pre-venture planning. Tey nd that
nascent business owners who engaged in business planning during the startup
phase and wrote a ormal business plan were more likely to open and remain
in business. In essence, they suggest that the process o drating a business
plan was essential to the overall success o the venture. While that might
seem common sense to many, a debate in recent years has sometimes chal-
lenged the need or pre-venture planning as a prerequisite or success. Tischapter lends credence to those who suggest that planning matters.
In sum, the 26.8 million small businesses in the United States play a vital
role in the economic well-being o our nation. Te research o the Oce
o Advocacy continues to document the importance o the entrepreneur in
maintaining economic growth, employing workers, bringing new innovations
to the marketplace, and remaining competitive in a global economy.
Chad Moutray
Chie Economist and Director o Economic Research
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Social Entrepreneurship and Government iii
About the Author
ANDREW WOLK is the ounder and CEO o Root Cause and oversees
the organizations overall strategic direction. Root Cause builds social
innovators and educates social impact investors to support the liecycle o
developing enduring solutions to social problems. Andrew has consulted to
dozens o organizations working in the elds o civic engagement, economic
development, education, the environment, seniors, and more. As part o
Root Causes knowledge sharing ocus, Andrew has co-authored the Root
Cause How-to Guide Business Planning or Enduring Social Impact:
A Social-Entrepreneurial Approach to Solving Social Problems(available at
www.rootcause.org, January 2008). He also ounded the two social
enterprises that Root Cause leads: InnerCity Entrepreneurs (ICE)
and the Social Innovation Forum. Andrew is a senior lecturer in socialentrepreneurship at MIs Sloan School o Management and the
Department o Urban Studies and Planning.
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iv Social Entrepreneurship and Government
Acknowledgments
Tis project was managed by Marie Zemler Wu, senior editor, an
independent consultant providing support to government and nonprot
organizations that seek innovative solutions or assisting children and amilies
living in poverty. Trough research, analysis, and strategic planning, Marie has
helped clients including the Annie E. Casey Foundation, Harvard Universitys
Innovations in American Government Awards program, Columbia
Universitys National Center or Children in Poverty, and New York Citys
Administration or Children and Families.
Special thanks to Kelley Kreitz and Andrea E. McGrath or their editorial and
project management expertise, and to Jackson Shulman or research support.
Te author is also grateul to the many people who contributed case studies,
provided interviews, and served as reviewers or this report:
Case studies
Kh a
riangle Residential
Options or Substance
Abusers (ROSA)
Mchl Bo
City Year
Bo BOutside the Classroom
Kh F
INAmerica
Jm Fchm
Benetech
dll Hmmo
KaBOOM!
Jo sch
New Leaders or New
Schools
sy schz
Resolve to Stop the
Violence Program
(RSVP)
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Social Entrepreneurship and Government v
interviews
s Cppol
Girl Scouts o the USA
Chyl doy
Echoing Green
Bll dyo
Ashoka
d e
National Corporation
or Community Service
Ch Gbl
Massachusetts 2020
K Gg
Sustayne, SocialEnterprise Group
sph Golmh
Harvard University
Kennedy School o
Government
Lc Ho
Skoll Foundation
Mchl Hll
Environmental
Protection Agency
Ho Hock
Manhattan Institute
r. to Joho
Jones Day
al Khz
City Year
Mg Kock
Americas Promise
rob Lg
Mannweiler
Foundation
Pl Lgh
New York University
Wagner Graduate
School o Public Service
ncy McG
Aspen Institute
sh Mll
Caliornia Center or
Regional Leadership
Jy Mo
Oce o the Louisiana
Lieutenant Governor
Jfy robo
New York University
Stern School oBusiness
d roll
Lex Mundi Foundation
JB schmm
College Summit
ec schz
Citizen Schools
Blly sho
Share Our Strength
e skloo
Surdna Foundation
Km sym
New Prot
rch tby
Solar rade
Corporation
tmohy Zk
Carnegie-Mellon
University HeinzSchool o Public Policy
and Management,
Australia
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vi Social Entrepreneurship and Government
reviewers
Bh ao
each or America
a dholk
Root Cause Consulting
toy dll
KaBOOM!
Ch Gg
New Mountain
Ventures
Mlo Ll
United Way o
Massachusetts Bay
alx nchol
University o Oxord
Sad Business School
e rob
MI Sloan School o
Management
Bll t
INAmerica
rchl Moh-
wllm
Aspen Institute
Jl Zck
Root Cause
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Social Entrepreneurship and Government 1
Social Entrepreneurship andGovernment:A New Breed oEntrepreneursDeveloping Solutions to Social Problems
Synopsis
Social entrepreneurshipthe practice o responding to market ailures with
transormative, nancially sustainable innovations aimed at solving social
problemshas emerged at the nexus o the public, private, and nonprot
sectors.1 It is a new breed o entrepreneurship that exhibits characteristics
o nonprots, government, and businessesincluding applying to social
problem-solving traditional, private-sector entrepreneurships ocus on
innovation, risk-taking, and large-scale transormation. While social entre-
preneurship is not a new phenomenon, the eld has experienced enormous
growth over the past 15 years, receiving increasing recognition rom jour-
nalists, philanthropists, researchers, and policymakers as an important and
distinctive part o the nations social, economic, and political landscape.
Tis chapter introduces city, state, and ederal government ocials to
social entrepreneurship. Given the traditional role o the government in
responding to market ailuresand the $1 trillion plus per year o ederal
unds dedicated to resolving domestic social problems2the author argues
that there is a yet-to-be-harnessed opportunity or government leaders and
social entrepreneurs to collaborate to leverage public and private resources andgenerate transormative, cost-eective solutions to the most challenging social
problems acing the nation and world. Incorporating insights rom experts in
1 Tis report was published by the Oce o Advocacy o the U.S. Small Business Administrationas Chapter 6 oTe Small Business Economy: A Report to the President, 2007. Te viewspresented here are those o the authors and not o the U.S. Small Business Administration orthe Oce o Advocacy. Tis report and other Root Cause publications can be accessed through
www.rootcause.org.
2 U.S. Bureau o the Census, Consolidated Federal Funds Report or Fiscal Year 2004. Tis gure is basedon ederal spending in 2004 on direct benets, service grants and contracts, and government agency sta.Tis does not include the additional unds raised and spent at the state and local levels, nor does it includemoney spent on oreign assistance.
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2 Social Entrepreneurship and Government
the eld o social entrepreneurship and case studies examining eight success-
ul social-entrepreneurial initiatives, the chapter answers the ollowing three
questions: (1) What is social entrepreneurship? (2) How does social entre-
preneurship help government benet Americans? (3) How is government
currently supporting social-entrepreneurial initiatives?
Some may ask, What does social entrepreneurship have to do with
small business? A short answer might be that social entrepreneurship
exhibits many o the attributes o small business entrepreneurship, serving
as an engine o innovation, job creation, and economic growth. Moreover,
by bringing together aspects o the public, private, and nonprot sectors
to address a market ailure, social entrepreneurs have, in a variety o ways,
helped create an economic environment in which private entrepreneurs and
small businesses can fourish. Te longer answer may be to read on and see
how this chapter answers the question.
Introduction: Social Entrepreneurship Entersthe Public Eye
In his 2007 State o the Union address, President George W. Bush acknowl-
edged an individual who represents an emerging eld with a growing sig-
nicance or policymakers. Among his honored guests at the U.S. Capitol
was Julie Aigner-Clark, ounder o the protable childrens video company,
Baby Einstein, and current producer o child saety videos with the National
Center or Missing and Exploited Children. Te president praised her by
saying: Julie represents the great enterprising spirit o America. And she is
using her success to help otherswe are pleased to welcome this talented
business entrepreneur and generous social entrepreneur.3
Tat the president o the United States honored a social entrepreneur
in his State o the Union address exemplies the growing recognition that
social entrepreneurshipthe practice o responding to market ailures with
transormative, nancially sustainable innovations aimed at solving social
3 Bush, State o the Union 2007, http://www.whitehouse.gov/news/releases/2007/01/20070123-2.html.
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Social Entrepreneurship and Government 3
problems4has received in recent years. Te eld constitutes a new breed
o entrepreneurship that exhibits characteristics o nonprots, government,
and businessesincluding applying to social problem solving traditional,
private-sector entrepreneurships ocus on innovation, risk-taking, and large-
scale transormation.5 Tis new movement has come into the limelight in a
number o ways in recent years:
In 2006, each For America Founder Wendy Kopp and City Year
Co-Founders Michael Brown and Alan Khazei were proled among U.S.
News and World Reports op 25 Leaders. Muhammad Yunus and his organi-
zation, the Grameen Bank, were awarded a Nobel Peace Prize. Victoria Hale
o the Institute or OneWorld Health and Jim Fruchterman o Benetech
received genius awards rom the MacArthur Foundation. All identiy
themselves as social entrepreneurs.6
In 2005, the Public Broadcasting System (PBS) and the Skoll Foundation
created and aired a two-part miniseries proling Te New Heroes, 14 social
entrepreneurs rom around the globe. Tey ollowed the series with a three-
year grant program encouraging lmmakers, documentary lmmakers, and
journalists to produce work that promotes large-scale public awareness o
social entrepreneurship.7
For the past six years, the World Economic Forum, which annuallybrings together business, government, and national leaders who are commit-
ted to improving the state o the world, has hosted a Social Entrepreneurs
Summit. In partnership with the Schwab Foundation, the orum convenes
4 Tis working denition o social entrepreneurship will be discussed in more detail and illustrated withexamples, in the sections that ollow. Market ailure occurs when the cost o a good or service is higherthan the price that individuals are willing or able to pay, yet the social benets rom that good or service
make its availability worthwhile or maintaining a healthy, productive society, (Gruber, Public Finance andPublic Policy).
5 Early twentieth-century economist Joseph Schumpeter is largely responsible or this conception o en-trepreneurship. He argued that, the unction o entrepreneurs is to reorm or revolutionize the pattern oproduction by exploiting an invention, (Schumpeter, Te Teory o Economic Development). For a detaileddiscussion o the history o entrepreneurship and its relationship to social entrepreneurship, see Dees, TeMeaning o Social Entrepreneurship.
6 Tis article uses the term social entrepreneur to mean a person or small group o individuals who oundsand/or leads an organization or initiative engaged in social entrepreneurship. While those cited here iden-tiy themselves as social entrepreneurs, the term is applied throughout the article to any individual who ts
this denition regardless o whether they would use it to characterize themselves. Social entrepreneurs arealso sometimes called public entrepreneurs, civic entrepreneurs, or social innovators.
7 Skoll Foundation, PBS Foundation and Skoll Foundation Establish Fund to Produce UniqueProgramming About Social Entrepreneurship, http://www.skolloundation.org/media/press_releases/internal/092006.asp.
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4 Social Entrepreneurship and Government
social entrepreneurs as one o its special-interest communities, placing social
entrepreneurship on par with only nine other interest groups, including
global growth companies, international media, and labor leaders.8
Popular media have brought the term social entrepreneurship greater
household recognition. Te New York imes, Te Economist, and the Harvard
Business Review have all printed stories ocused on social entrepreneurship.9
As social entrepreneurship is rapidly nding its way into the vocabu-
lary o policymakers, journalists, academics, and the general public, the
United States is acing incredible societal challenges and needs. One in eight
Americans, including one in our Arican Americans, lives in poverty.10 One-
quarter o adults ail to nish high school, creating a national graduation rate
that lags 8 percent behind rates in the European Union.11 Despite the highest
per capita spending on health care,12 the U.S. health system is ranked number
37 in the worldlower than any other developed nation.13 On any given day,
one out o every 108 American men is incarcerated.14
Te boom o the eld o social entrepreneurship, and its promise as a
means o addressing the daunting social problems that America currently
aces, are o particular importance or policymakers. By ar, the largest
sources o services and unding to help solve these problems are ederal, state,
and local governments. In the domestic budget alone, the ederal governmentspends more than $1 trillion each year providing direct benets to constitu-
ents, awarding service grants and contracts, and employing government
agency sta.15 State and local governments raise and spend their own unds
to benet their constituentscreating an even larger pool o governmental
spending and activities to solve social problems.
8 Schwab Foundation or Social Entrepreneurship, Summit Report, http://schwabound.org/the.htm?p=102.
9 Finder, A Subject or Tose Who Want to Make a Dierence,New York imes; Bishop, Te Rise othe Social Entrepreneur, Te Economist, 11-13; and Dees, Enterprising Nonprots, Harvard BusinessReview, 54-67.
10 DeNavas-Walt et al.,Income, Poverty, and Health Insurance, 13.
11 Organization or Economic Co-Operation and Development,Education at a Glance.
12 Caliornia HealthCare Foundation, Snapshot: Health Care Costs 101.
13 World Health Organization, Te World Health Organization Assesses the Worlds Health Systems,http://www.who.int/whr/2000/media_centre/press_release/en/index.html.
14 Harrison and Beck, Bureau o Justice Statistics Bulletin, 4
15 U.S. Bureau o the Census, Consolidated Federal Funds Report, 5.
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Social Entrepreneurship and Government 5
Government unding dwars the amount spent by the nations largest
oundations, which together donate $16.4 billion annually to nonprots,16
as well as the giving by individuals, who donate $163.5 billion each year to
social causes.17 O the nations 144 largest and astest-growing nonprots
all o which have $50 million or more in annual revenuemore than 40
percent rely on government as their primary unding source. Te next most
common unding comes rom service ees, which are paid at least in part by
government agencies in 90 percent o cases.18
Given both the magnitude o needs and the scope o spending, govern-
ment leaders constantly ace tough decisions about how to improve the
lives o their constituents while most eectively using tax dollars. As elected
ocials and government agency sta approach these tough choices, social
entrepreneurs oer a new source o assistance. Government leaders and social
entrepreneurs share an interest in identiying ecient, eective, and sus-
tainable ways to solve dicult social problems. Despite this common goal,
however, little has been published by scholars and researchers to date on the
relationship between the two.
Attempting to ll this gap, this chapter provides an introduction to social
entrepreneurship or city, state, and ederal government ocials. Based on
case studies and interviews with experts, it breaks new ground in exploringthe ways in which government leaders and ultimately their constituents are
beneting rom social entrepreneurs eorts. Te author suggests that recent
trends aecting business, nonprots, and government have been instrumen-
tal in the emergence o social entrepreneurship as a new eld. Collaboration
between government leaders and social entrepreneurs is already occurring and
generating numerous benets or American society.
Although collaboration thus ar between social entrepreneurs and govern-ment has occurred in isolated incidents, working together more strategically
represents a yet-to-be-harnessed opportunity or government leaders work-
ing to resolve social problems. By adapting some o the same levers that have
16 Foundation Center, Foundation Giving rends, 2. Tis gure includes grants o $10,000 or more, madeby the nations 1,154 largest oundations during calendar year 2005. Research has shown this type ocalculation generally represents hal o all oundation giving, i smaller grants and/or oundations were to
be included.
17 John. J. Havens et al., Charitable Giving, 542. Data given in 2004 and adjusted by the researchers orinfation to 2002 dollars.
18 Fine and Foster, How Nonprots Get Really Big,4655.
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6 Social Entrepreneurship and Government
successully encouraged U.S. entrepreneurialism, government leaders have a
similar opportunity to support social entrepreneurshipand thereby gener-
ate transormative, nancially sustainable solutions to social problems acing
the nation. As Roger L. Martin and Sally Osberg state in a recent article or
the Stanord Social Innovation Review,Social entrepreneurship, we believe,
is as vital to the progress o societies as is entrepreneurship to the progress o
economies, and it merits more rigorous, serious attention than it has attracted
so ar.19 Just as government support o private markets and entrepreneurship
has ueled growth in the U.S. economy, so too can governments support o
social entrepreneurship accelerate the solving o social problems.
o introduce social entrepreneurship to government and explore the
relationship between social entrepreneurship and government, this chapter
addresses three key questions:
What is social entrepreneurship?In the rst section, the author outlines key
trends that have pushed the public, private, and nonprot sectors to blur their
traditional economic and social roles, and show how social entrepreneurship
has emerged at the nexus o these sectors. Te author lays out his denition
o social entrepreneurship in detail, using cases that highlight three successul
social-entrepreneurial initiatives.
How does social entrepreneurship help government benet Americans?Tesecond section discusses how social entrepreneurship can help government
benet American society, as the eld is uniquely situated to help improve
the lives o public ocials constituents. Case examples show how social
entrepreneurs leverage public and private resources, and test and develop new
solutions to social problems.
How is government supporting social-entrepreneurial initiatives?Although
governments eorts do not yet represent a coordinated, strategic approachto supporting social entrepreneurship, local, state, and ederal government
ocials nonetheless have had signicant impacts on every initiative consid-
ered in the development o this chapter. In this section, the author looks at
methods used by government agencies and elected ocials to (1) encourage
social entrepreneurs to innovate, (2) create enabling environments or their
eorts, (3) reward their perormance, (4) help scale their successes, and (5)
produce knowledge to help them solve social problems.
19 Martin and Osberg, Social Entrepreneurship: Te Case or Denition, 35.
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Social Entrepreneurship and Government 7
Tree research methods are used to answer the three guiding questions:
literature review, consultations with experts, and interviews with leading
social entrepreneurs. Te author reviewed a variety o academic and popular
sources in the elds o social entrepreneurship, nonprot and business man-
agement, public policy, and entrepreneurship, and consulted with leading
experts, who were selected based on their reputation and scholarship in social
entrepreneurship and related areas rom academia, philanthropy, business,
nonprot management, and government.20 Lastly, the author conducted
interviews and developed case studies on eight successul examples o social
entrepreneurship that are working within each o the three traditional sec-
tors, targeting a variety o social problems, and representing a variety o
geographic areas.21 Te eight examples are Benetech, City Year, INAmerica,
KaBOOM!, New Leaders or New Schools (New Leaders), Outside the
Classroom, Resolve to Stop the Violence Program (RSVP), and riangle
Resident Options or Substance Abusers, Inc. (ROSA).
What is Social Entrepreneurship?
History abounds with examples o individuals who could be considered
social entrepreneurs. Florence Nightingale, whose work in the mid- tolate 1800s is regarded as the oundation o the modern eld o nursing,
and Horace Mann, who greatly reormed public education earlier in the
same century, are oten cited as historic examples o social innovators
who changed Americas social landscape.22 Yet social entrepreneurship as
a distinctive part o American social and economic lie is a more recent
development that can only be understood within the context o the changes
that have taken place since the 1980s in the roles played by businesses,government, and nonprots. Tis section will introduce social entrepre-
neurship within that context, providing an overview o the roles o the
three sectorspublic, private, and voluntary; a description o trends that
have increasingly blurred the boundaries between these sectors, creating a
20 Many o these conversations took place at the Skoll World Forum on Social Entrepreneurship, held atOxord University in March 2007, and at New York Universitys Annual Conerence o Social Entrepre-neurs, held in April 2007.
21 o be included, each organization must have been an example o social entrepreneurship as dened inthis chapter; regarded by others in the eld as successul, suciently mature in its organizational develop-ment to demonstrate results, and based in the United States.
22 Bornstein, How to Change the World.
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8 Social Entrepreneurship and Government
space or social entrepreneurship to emerge; and a detailed discussion o the
authors denition o social entrepreneurship in the context o this blending
o sectors, using case examples to illustrate.
Early threads o what would become the eld o social entrepreneurship
emerged in the United States just over two decades ago,23 and the various
names it has gone by throughout its early development help to illustrate its
connection to all three sectors. In 1980, Edward Skloot ounded a consulting
rm to help nonprot organizations interested in creating business ven-
tures, which promptly became a pioneering institution o the eld. His 1983
Harvard Business Review article coined the term nonprot entrepreneur-
ship to describe the use o business ventures as a method or diversiying
nonprot organizations unding streams.24 In 1981, private-sector consultant
Bill Drayton ounded Ashoka: Innovators or the Public to seek, support,
and publicize individuals he originally called public entrepreneurs, and later
named social entrepreneurs.25 Management expert Peter Druckers 1985
bookInnovation and Entrepreneurshipwas among the rst to describe entre-
preneurship as a phenomenon that extended into multiple sectorsand was
not limited to prot-seeking enterprises.26
Te term social entrepreneurship began to appear routinely both in
the scholarly and popular presses in the early to mid-1990s. Early descrip-tions o social entrepreneurs ranged rom anyone who starts a not-or-
prot to not-or-prot organizations starting or-prot or earned-income
ventures27 to business owners who integrate social responsibility into their
operations.28 While debate on the exact denition continues to this day,
most denitions describe social entrepreneurship broadly enough to include a
variety o organizational structures and activities, and yet narrowly enough to
recognize social entrepreneurship as a distinct eld. Much o the diculty osettling on the details, it is argued here, stems rom the act that social-entre-
preneurial initiatives tend to exhibit characteristics o each o the private,
23 For a more detailed history, see Dees and Anderson, Framing a Teory o Social Entrepreneurship.
24 Skloot, Should Not-or-Prots Go into Business?
25 Anderson and J Dees, Rhetoric, Reality, and Research, 3966.
26 Drucker,Innovation and Entrepreneurship.
27 Earned-income ventures are traditional or-prot businesses run within a nonprot organization tohelp cover operational costs.
28 Dees, Te Meaning o Social Entrepreneurship, 1. All denitions listed in this sentence come romthis article.
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Social Entrepreneurship and Government 9
public, and nonprot sectors, without tting neatly into any one o them. As
examples throughout this chapter will show, social-entrepreneurial initia-
tives can take the orm o nonprots, or-prots, or governmental programs.
Unlike traditional nonprots, businesses, or government programs, however,
such social-entrepreneurial initiatives will always exhibit characteristics o
each o the sectors.
For this reason, understanding the ways in which the three sectors are
well- and ill-suited to meeting Americas social and economic needs provides
the context, indeed describes the ertile opportunity, rom which social entre-
preneurship has emerged. As illustrated in Figure 6.1, each o these sectors
has traditionally carried out specic roles and responsibilities, making vital
contributions to the United States economic and social health.
Te Private Sector
Te private sector is dened here as all the corporations, small businesses,
and entrepreneurs utilizing markets to exchange goods and services to
maximize prot, while driving increased innovation and productivity in the
economy. Economists have long identied innovation as one o the private
sectors dening characteristics. Writing in the mid-1900s, amed scholar
Joseph Schumpeter commented, entrepreneurial innovation is the essence ocapitalism.29 Further, contemporary economist Milton Friedman has argued
that ree markets, competition, and consumer choices are also essential com-
ponents o capitalism.30
Te private sector is by ar the largest sector o the U.S. economy. Te
United States attains a gross domestic product o approximately $13 tril-
lion a year.31 Private-sector activity has created a national income more than
twice that o Japan, the next largest national economy in the world.32
U.S.citizens enjoy the third highest per capita purchasing poweror standard o
livingin the world.33 Among the more than 150 million adults in the U.S.
29 Schumpeter, Te Teory o Economic Development.
30 Friedman, Capitalism and Freedom.
31 Central Intelligence Agency, Te World Factbook 2006, https://www.cia.gov/library/publications/the-
world-actbook/print/us.html.
32 World Bank, World Development Indicators 2006, http://devdata.worldbank.org/wdi2006/contents/cover.htm.
33 Ibid.
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10 Social Entrepreneurship and Government
work orce,34 less than 5 percent are unemployed,35 with the vast majority o
jobs provided by private sector businesses.
While the private sector contributes to the well-being o citizens by
developing and distributing products and services, meeting consumers needs,creating jobs, driving innovation, and building wealth or the nation, it is
oten ill-suited to addressing social problems. Focusing on societal challenges
has typically been let to the government and nonprot sectors.
Te Public Sector
Public-nance theory tends to assign two major roles to government: 1) pro-
viding public goods, such as libraries, public education, national deense, and
34 Ibid.
35 U. S. Bureau o Labor Statistics, Te Employment Situation, http://www.bls.gov/news.release/empsit.nr0.htm.
Private Sector/Businesses
Utilize markets to exchangegoods and services or proft;drive productivity and innovation
Worlds largest economy$13 trillion GDP
More than 115 millionemployees
Public Sector/Government
Respond to market ailures byproviding public goods and ser-vices or through redistribution
87,900 units of government $4.3 trillion in revenue 18 million employees
Voluntary Sector/Nonprots
Engage individuals in action toachieve social impact
1.4 million organizations $1.4 billion in revenue 9.4 million employees
Figure 6.1 The Three Sectors Traditional Economicand Social Responsibilities
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Social Entrepreneurship and Government 11
policing; and 2) addressing inequalities produced by markets through redistri-
butionin the orm o unemployment benets, disaster assistance, or benets
to amilies living in poverty, to name a ew o the most common methods.36
It is possible to elaborate on these two roles by thinking in terms o mar-
ket ailure, which occurs when the private sector alone cannot meet a societal
need because the cost o providing the needed good or service is more than
its beneciaries are able or willing to pay. Public goods such as public schools
and libraries are classic examples o services that address market ailures.
Since such services do not provide the prots that would make them viable
private-sector enterprises, the private sector leaves the need to educate the
population unmet. Redistribution, which involves giving support to those not
served by private markets, is another way in which governments role can be
considered to be addressing market ailures. By providing public goods and
addressing inequalities in markets, then, government complements the pri-
vate sector, lling in gaps let by market ailures, while providing the struc-
ture and stability that allows the private sector and markets to work.
While much smaller than the private sector, the public sector nonethe-
less occupies a sizable part o the U.S. economy. According to the 2002
Census o Governments, 87,900 distinct government units operate across
the nation: they include the ederal government, 50 state governments, 3,034county governments, and 35,937 municipal and township governments, as
well as 48,878 special purpose local governments, such as school districts.37
In 2006, ederal government revenues were approximately $2.4 trillion per
year,38 while state and local governments generated approximately $1.9 tril-
lion o revenue annually.39 In the same time rame, government at all levels
employs approximately 18 million ull-time civilian workers.40
Despite its size and role, government aces tough choices in allocatingits resources to meeting ever-evolving societal needs, and is oten ill-suited
to meet all those needs. It thereore oten seeks the partnership and support
36 Gruber, Public Finance and Public Policy.
37 U.S. Bureau o the Census,2002 Census o Governments, 1.
38 U.S. Department o the reasury, 2006 Financial Report, 11.
39 U.S. Bureau o the Census, State and Local Government Finances, http://www.census.gov/govs/www/state05.html.
40 U.S. Bureau o the Census,2002 Census o Governments, 13.
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12 Social Entrepreneurship and Government
o citizens, who tend to organize their eorts within the nonprot/voluntary
and private sector.
Te Nonprot/Voluntary Sector41
Te nonprot sectors traditional role is to engage individuals in action to
achieve social goals.ypical examples include neighborhood associations,
religious organizations, private hospitals and schools, and social service
providers. Te organizations and activities that constitute the nonprot sector
generally dier rom the work o the public and private sectors in two ways.
First, the nonprot sector oten acts when both the public and private sectors
are unable to meet a particular social need.42 Second, while nonprot-sector
organizations are private and sel-governing, much like organizations in the
private sector, nonprot-sector organizations cannot distribute prots totheir leaders, and must use their revenues and prots to sustain and grow
their organizations.
While the nonprot sector is by ar the smallest o the sectors, it is also the
astest growing. Over the past 25 years, the total number o nonprot orga-
nizations has approximately doubled.43 Since 1994, the number o 501(c)(3)
groups in the United States expanded rom just over hal a million to nearly
850,000, or a growth rate o almost 65 percent.44 According to a study bythe Nonprot Employment Data Project at Johns Hopkins University, the
nonprot work orce now makes up 10.5 percent o U.S. jobs. Between 2002
and 2004, nonprot job growth outpaced that o the private sector in 46 out
o 50 states, generating 5.3 percent more new jobs.45 Currently, approxi-
mately 1.4 million tax-exempt organizations are registered with the Internal
Revenue Service (IRS).46 Nonprot organizations generate nearly $1.4 billion
o revenue annually, hold $3 trillion in assets, account or 5.2 percent o gross
41 oday, the terms nonprot sector and voluntary sector are oten used interchangeably, despite thecontinued existence o many voluntary groups that never ormally organize to obtain nonprot status. Teterm nonprot sector is used throughout this chapter.
42 Weisbrod, Te Future o the Nonprot Sector, 542.
43 Independent Sector, Facts and Figures About Charitable Organizations 2007, 2.
44 Urban Institute, Te Nonprot Sector in Brie: Facts and Figures rom the Nonprot Almanac 2007,3.
45 Johns Hopkins University, Employment in U.S. Nonprots Outpaces Overall Job Growth, http://www.jhu.edu/news_ino/news/home06/dec06/employ.html.
46 Urban Institute, Te Nonprot Sector in Brie, 1.
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14 Social Entrepreneurship and Government
Vo
luntar
ySector
/Nonpro
ftsP
ub
licSec
tor
/G
overnm
ent
Priva
teSector/Businesses
5.15 million people.50
In another trend, ollowing recent corporate scandalsand nancial crises, the private sector has aced new calls or business eth-
ics.51 Tese have led the private sector to begin to consider the role it plays in
society beyond maximizing prots.
Te public sector, too, has seen a shit in its practices. As Reinventing
Governmentauthors David Osborne and ed Gaebler describe, government
is increasingly steering rather than rowingand emphasizing cost-eective
50 Light, Fact Sheet on the New rue Size o Government, 4.
51 Lyndenberg, Corporations and the Public Interest.
Figure 6.2 Trends Pushing the Three Sectors to Blur Traditional Roles:Social Entrepreneurship Emerges in the Growing Intersection
Opportunities to provide public
services through private organizations
Call for business ethics
Social
entrepreneurship
Third-party
government
Public-privatepartnerships
Competitive
sourcing
Demands for efciency
Preferences for choice
and competition
Reliance on business
and nonprot service
providers
Corporate socialresponsibility
Earned-income
ventures
Demands for
accountability
Demands for
sustainability
Gaps in public
service delivery
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Social Entrepreneurship and Government 15
results over bureaucratic rules.52According to Stephen Goldsmith, Daniel
Paul proessor o government, and director, Innovations in American
Government Awards Program at Harvard Universitys John F. Kennedy
School o Government, New Deal-style initiatives, in which government
assumes the dominant service-delivery role, have become increasingly rare,
especially or newly developed programs.53 At the ederal level, the past three
administrations have devolved54 and reinvented55 government, pushing or
citizen-centered, results-oriented, market-based approaches, respectively.56
At state and local levels, limited budgets and persistent social needs have also
increased demands or eciency in the use o government unds.57 Many
constituents, accustomed to their choices in the marketplace, want to be
thought o as consumers and express preerences or choice and competition
on issues ranging rom public utilities to public schools. In response, govern-
ment agencies are ceasing to work as monopolies, and instead are relying on
nonprot and private service providers that are managed through contracts
and the allocation o grant unds.58
For the nonprot sector, pressures are growing to ll gaps in public ser-
vice delivery, ensuring that citizens can get the services they need even when
government is unwilling or unable to provide it. I they are to provide essen-
tial services, nonprot leaders are striving or sustainability to ensure thatthey will continue to be able to meet the needs o the populations they serve.
Following the national scandal at a major nonprot in 1992, and as many
oundations adopt outcomes-driven approaches to unding, nonprots also
ace demands or accountability.
As each sector has entered the territory o the others, the blurring
between them has given rise to a host o new phenomena, which Stephen
Goldsmith characterizes as: the reality o a world in which the public andprivate boundaries are becoming increasingly blurred and governments o
52 Osborne and Gaebler, Reinventing Government, chapter 1.
53 Goldsmith (proessor, Harvard University), interview with the author, April 24, 2007.
54 Hall,Inventing the Nonprot Sector.
55 National Partnership on Reinventing Government, archived Web site, http://govino.library.unt.edu/
npr/index.htm.56 Executive Oce o the President, Te Presidents Management Agenda, Fiscal Year 2002, 6.
57 Osborne and Gaebler, Reinventing Government.
58 Salamon, ed., Beyond Privatization: Te ools o Government Action.
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16 Social Entrepreneurship and Government
all ideological bents are partnering with private companies and nonprot
organizations to do more and more o the governments work.59 An increase
in public-private partnerships has involved more and more businesses and
nonprots as collaborators in government projects. Further, President Bushs
competitive sourcing initiative, which is currently being implemented, is
slated to open hal o the ederal jobs that are not inherently governmen-
tal to market competition.60 At the same time, the increased popularity o
earned-income ventures has led many nonprots to develop business-like
ventures to generate revenues.61 Lastly, corporate social responsibility move-
ments have entered the mainstream, motivating businesses to account or
their community, environmental, and labor practices along with their prots.
Whether to improve their images, gain marketing advantages, or altruistically
benet society, corporations have demonstrated a growing interest in volun-
teer and philanthropic opportunities.
Social Entrepreneurship Emerges at the Nexus
As trends have pushed the traditional roles o the three sectors to blur, their
nexus has provided ertile ground or the growth o social entrepreneurship.
As scholar Alex Nicholls rom Oxord Universitys Skoll Centre or Social
Entrepreneurship explains, social entrepreneurship is not dened by its orga-nizational orm but is best understood as a multi-dimensional and dynamic
construct moving across various intersection points between the public, pri-
vate, and social sectors.62
By blending some o the social and economic responsibilities tradition-
ally associated with each o the three sectors, social entrepreneurship may
take the orm o a nonprot, business, or government initiative. No mat-
ter what organizational orm it takes, social entrepreneurship also tends toexhibit characteristics o all three. Like business, social entrepreneurship
utilizes markets to drive innovation and productivity. Like government,
social entrepreneurship responds to market ailures by providing public goods
and services. Like nonprots, social entrepreneurship engages individuals
in action to achieve social goals. As Nicholls concludes, Te organizational
59 Goldsmith and Eggers, Governing by Network, 23.60 Light,An Update on the Bush Administrations Competitive Sourcing Initiative,2.
61 Aspen Institute, Te Nonprot Sector and the Market, 6.
62 Nicholls, Social Entrepreneurship, 12.
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Social Entrepreneurship and Government 17
mechanisms employed are largely irrelevant: social entrepreneurs work in the
public, private, and social sectors alike, employing or-prot, not-or-prot,
and hybrid organizational orms (or a mix o all three) to deliver social value
and bring about change.63 Returning to the denition, social entrepreneur-
ship, then, is the practice o responding to market ailures with transormative,
nancially sustainable innovations aimed at solving social problems.
Tis section discusses in detail the three essential components o this de-
nition1) response to market ailures, 2) transormative innovations, and 3)
nancial sustainabilityand oers three case studies that illustrate how social
entrepreneurship exhibits these components.
Response to Market FailuresTe social problems that social entrepreneurs address result rom mar-
ket ailuresin which protable markets are unavailable, insucient, or
underdeveloped and where the potential monetary gains or responding to a
societal problem are less than the overall, society-wide positive impact o that
response. Because o the lack o opportunity to generate prot, private-sector
entrepreneurswho succeed by nding market opportunities and maximiz-
ing protsoten leave these needs unaddressed. raditionally, governmentresponds in such cases by deploying public unds to address the unmet needs.
Social entrepreneurship presents another option or addressing market
ailureswhich can be considered the sources o the opportunities that social
entrepreneurs act on.64 Like private-sector entrepreneurs, social entrepreneurs
seek opportunities to create valuebut the value they pursue is social rather
than purely economic. As Gregory Dees, a ounding scholar o the eld o
social entrepreneurship, explains, Markets do not do a good job o valuingsocial improvements, public goods and harms, and benets or people who
cannot aord to pay. Tese elements are oten essential to social entrepre-
neurship. Tat is what makes it social entrepreneurship.65 Roger L. Martin
and Sally Osberg echo this idea that social entrepreneurs can be considered
entrepreneurs who pursue social value: Unlike the entrepreneurial value
proposition that assumes a market that can pay or the innovation, and may
63 Ibid.
64 Phills and Denend, Social Entrepreneurs: Correcting Market Failures (A) and (B), 2.
65 Dees, Te Meaning o Social Entrepreneurship, 3.
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18 Social Entrepreneurship and Government
even provide substantial upside or investors, the social entrepreneurs value
proposition targets an underserved, neglected, or highly disadvantaged popu-
lation that lacks the nancial means or political clout to achieve the transor-
mative benet on its own.66
Trough interviews with leading social entrepreneurs and conversa-
tions with experts in the eld, the author has identied three dierent types
o approaches that social entrepreneurs take in targeting beneciaries andresponding to market ailures (Figure 6.3).
No Market
In a no-market approach to solving a social problem, the beneciaries o
the potential product or service will not be able to pay or it.67 As a result, a
social entrepreneur who selects such an approach cannot rely on any earned
revenues rom the beneciary to sustain the initiative. Most commonly,
no-market approaches take the orm o government initiatives or nonprot
organizations.
Limited Market
In a limited-market approach, the beneciaries or clients have some ability to
pay. As a result, a social entrepreneur who selects such an approach can rely
on some earned revenues rom the beneciary to sustain the initiative. Most
commonly, limited-market approaches tend to be nonprot organizations.
Low-prot Market
In a low-prot-market approach, the beneciary has the potential to pay the
ull cost while solving the social problem and thus has the potential to gener-
ate a prot. However, the market may be underdeveloped, or investments in
this market may yield returns that are less than typical or or-prot ventures.
Examples o this type o approach exist in both the nonprot and private
66 Martin and Osberg, Social Entrepreneurship: Te Case or Denition, 35.
67 Seelos and Mair, Social Entrepreneurship, 241246.
Figure 6.3. Market-Failure Continuum of Social-EntrepreneurialApproaches to Solving Social Problems
No Market Limited Market Low-prot Market
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Social Entrepreneurship and Government 19
sectors. In some cases, low-prot-market approaches eventually develop the
market or a product or service enough that they become traditional or-
prot enterprises.
Transormative Innovations
Ashoka Founder Bill Drayton has amously commented that social entre-
preneurs are not content just to give a sh or teach how to sh. Tey will not
rest until they have revolutionized the shing industry.68 Like other entre-
preneurs, social entrepreneurs are creative thinkers, continuously striving or
innovation, which can involve new technologies, supply sources, distribution
outlets, or methods o production.69 Innovation may also mean starting new
organizations, or oering new products or services.70 Innovative ideas can be
completely new inventions or creative adaptations o existing ones.71Many scholars take this ocus on innovation even urther. Social entre-
preneurs are change agents,72 creating large-scale change through pattern-
breaking ideas,73 addressing the root causes o social problems,74 possessing
the ambition to create systemic change by introducing a new idea and per-
suading others to adopt it,75 and changing the social systems that create and
maintain problems.76 Tese types o transormative changes can be national
or global. Tey can also oten be highly localizedbut no less powerulintheir impact. Most oten, social entrepreneurs who create transormative
changes combine innovative practices, deep and targeted knowledge o their
social issue area, applied and cutting-edge research, and political savvy to
reach their goals. For all entrepreneurs, whether in the business or social
realm, innovation is not a one-time eventbut continues over time.
68 Ashoka, What is a Social Entrepreneur? http://ashoka.org/social_entrepreneur.69 Dees, Te Meaning o Social Entrepreneurship,http://www.uqua.duke.edu/centers/case/docu-ments/dees_sede.pd.
70 Mair and Marti, Social Entrepreneurship Research, 3644; Peredo and McLean, Social Entrepre-neurship: A Critical Review o the Concept, 5665; and Dees, Te Meaning o Social Entrepreneur-ship, http://www.uqua.duke.edu/centers/case/documents/dees_sede.pd.
71 Peredo and McLean, Social Entrepreneurship: A Critical Review o the Concept, 5665.
72 Ashoka, What is a Social Entrepreneur? http://ashoka.org/social_entrepreneur.
73 Light, Searching or Social Entrepreneurs, 30.74 Dees and Anderson, Framing a Teory o Social Entrepreneurship, 46.
75 Kramer,Measuring Innovation, 5.
76 Alvord et al., Social Entrepreneurship and Societal ransormation, 260282.
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20 Social Entrepreneurship and Government
O course, while addressing a social problem with a potentially trans-
ormative innovation is an essential component o the denition o social
entrepreneurship oered here, succeeding in generating such transormation
is not. Te eld, like any other, includes success stories and strong leaders, as
well as those who all short o their aspirations.77 Nonetheless, the denition
o social entrepreneurship requires that initiatives at least have the potential
or transormative social innovation on a local, national, or global scale. Tis
characteristic distinguishes social entrepreneurship rom other nonprot,
business, or government service providers that may be more narrowly ocused
on meeting the most pressing social needs as they emerge.
Financial Sustainability
While social entrepreneurship is not dened by any one standard model orachieving nancial sustainability, working toward nancial sustainability is
essential i an approach to a social problem caused by market ailure is to be
successul enough to have transormative potential. Each organization must
nd a model responsive to the unique character o the social problem they
are trying to solve, and grounded in the realities o the type o approach to
market ailure they have adopted. In addition, social entrepreneurs also tend
to preer business-like productivity and eciency measures to determine theircapture and use o resources. Many produce cost-benet analyses, reports on
social return on investment, report cards on organizational perormance,
or other integrated measures o nancial and programmatic success that will
ultimately help the organization optimize their use o resources and maxi-
mize their results.
While the details vary, such nancial models generally include two com-
ponents: nonnancial resources and predictable revenue sources.
Nonnancial resources
Nonnancial resources are skilled or unskilled volunteers, and one-time or
recurring in-kind donations that enable social entrepreneurs to increase the
sustainability o their initiatives.78 For instance, David Eisner, CEO o the
Corporation or National and Community Service, points out that Engaging
the public in developing and implementing social solutions is a proven and
77 Peredo and McLean, Social Entrepreneurship: A Critical Review o the Concept, 59; and Light,Reshaping Social Entrepreneurship, 4651.
78 Bhawe et al., Te Entrepreneurship o the Good Samaritan,http://ssrn.com/abstract=902685.
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Social Entrepreneurship and Government 21
inexpensive strategy. Look at the way nearly 600,000 volunteers were lever-
aged to complete intensely needed work in the year ater Hurricane Katrina
in a way we never could have paid or.79
Predictable revenue sources
Predictable revenue sources are long-term, repeat, and perormance-based
unding sourcesoundation, individual, government, corporate, and ee-
basedthat will provide predictable unding, despite conditions o market
ailure. Which type o predictable revenue sources a nancial sustainability
model contains will depend on the organizations approach to market ailure,
as well as the social problem being addressed. No-market approaches will
look or long-term, repeat, and perormance-based unding sources, and may
also develop an earned-income venture to build into the model an alternativeto receiving income rom the direct beneciary. Limited-market approaches
will ocus on the same unding sources as no-market approaches, in addition
to collecting a portion o their costs rom the beneciaries o their product
or service. Low-prot-market approaches will ask the beneciary to pay, and
look or patient capital rom socially motivated investors who are willing to
accept below-market returns, or wait or prots while the market is devel-
oped, in exchange or social impact.able 6.1 provides a summary o how the three components o social entre-
preneurship appear in each o the three major approaches to market ailure.
Case Studies o Social-Entrepreneurial Approaches to SolvingSocial Problems
Resolve to Stop the Violence Program (RSVP):
A No-Market Approach to Reducing Recidivism
Market Failure
Te United States has one o the highest incarceration rates in the world.
According to a 2005 BBC report, U.S. recidivism rates are also highat
about 60 percent throughout the nation.80 While reducing these rates would
produce signicant societal benets in terms o reducing the overall prison
79 David Eisner (CEO, Corporation or National and Community Service), interview with the author,April 30, 2007.
80 Wikipedia, Recidivism, http://en.wikipedia.org/wiki/Recidivism.
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22 Social Entrepreneurship and Government
population, cutting down on incarceration costs, and ultimately ending up
with more productive citizens, there is little hope o a market-based solutionto meeting this need.
Delivering rehabilitation programs to prisoners does not provide an
opportunity to generate prot.
RSVP, a San Francisco-based government initiative housed in the citys
sheris department, provides an example o a social-entrepreneurial initiative
addressing a no-market opportunity. Te prisoners who are the beneciaries
o its intensive rehabilitation program have no ability to pay or it.ransormative Innovation
Table 6.1 Social-entrepreneurial Approaches to Solving Social Problems
Approach tomarket ailure
No market
Target benefciariesare unable orunwilling to pay.
Limited market
Target benefciaries arewilling and able to paypartial costs.
Low-proft market
Target benefciaries arewilling and able to pay imarkets are developed.
Innovation Innovation occurs in a variety of forms throughout the market-failure continuum,including starting new organizations; oering new products or services; anddeveloping new or adaptive technologies, supply sources, nancing methods,distribution outlets, or methods of production.
Strategies orfnancial sustainability
Full subsidy
Makes use ofnonfnancialresources: skilled orunskilled volunteersand one-time orrecurring in-kinddonations.
Focuses onpredictable undingsources.
May build analternative toreceiving incomerom a targetbenefciary intothe model oraddressing the
problem.
Partial subsidy
Makes use of nonnancialresources: skilled orunskilled volunteers andone-time or recurring in-kind donations.
Asks benefciaries to pay
partial costs to generateearned income whileaddressing the socialproblem.
Focuses on predictablefunding sources.
May build an additionalincome source into themodel to supplementincome rom a targetbeneciary.
Patient or below-market
investment
Oten makes use ononfnancial resources:skilled or unskilledvolunteers and one-time orrecurring in-kind donations.
Creates a market withsupport o patient capitalrom socially motivatedinvestors who are willingto accept below-marketreturns and/or wait orprofts in exchange orsocial impact.
Once mature, relies onbenefciary payments and/or revenues generated
while addressing thesocial problem.
Likely organizationalorm
Governmentagenciesor nonproftorganizations.
Nonprot organizations. For-proft companies ornonprot organizations.
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Social Entrepreneurship and Government 23
When Sunny Schwartz decided to start the rst correctional program in the
country to adopt a restorative-justice approach to reducing recidivism, she
was already working with violent oenders at a San Francisco County prison
and had grown dissatised with traditional approaches to prisoner rehabilita-
tion: It was clear that we werent reaching most people in any kind o sus-
tained, pro-social way. With the support o San Francisco Sheri Michael
Hennessey, Schwartz put together a diverse planning committee o ormer
oenders, crime victims, and community leaders to participate in the develop-
ment o the RSVP model: We had victims rights advocates. We had ormerly
abusive men and gang members. We had orthodox rabbis, Baptist ministers,
atheists. We had deputy sheris rom line sta to upper echelon. And then we
had the usual stakeholdersprobation and people on the bench.81
Te resulting program diers rom the usual approaches, which tend to
ocus either on punishment or the crime or rehabilitation o the oender,
by encouraging and teaching oenders to take responsibility or their crimes.
While some elements o RSVP programming resemble what might be
ound in typical rehabilitation programsEnglish and GED classes, parent-
ing programs, and substance abuse treatmentthe program also includes a
class that teaches oenders to experience empathy or those who have been
harmed by violence. Victims o crimes work with ormer oenders, commu-nity members, business organizations, and other stakeholders to develop the
curriculum used or these classes, and to participate as trainers. When oend-
ers are released rom prison, many participate in an internship program and
receive employment training while perorming restorative acts in the commu-
nity. Tose who are successul eventually return to the prison as acilitators o
RSVP sessions. Additionally, some o the victims o the RSVP participants
also become advocates and work with RSVP.Te results that RSVPs innovative programming has generated thus ar
indicate that the organization is on its way to developing a rehabilitation
method or violent oenders that has the potential to transorm current prac-
tices in U.S. prisons and change belies about what is possible when working
with prisoners. An independent, quantitative evaluation o RSVP ound that
the average annual incidence rate or ghts and other orms o in-prison vio-
lence or their program participants is essentially zero, compared with 28 ina traditional lock-up prison settingeven though the participants sleep in
81 Sunny Schwartz, (program administrator, RSVP), interview with the author, April 17, 2007.
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24 Social Entrepreneurship and Government
open dorms. Further, oenders who participated in the program or at least
eight weeks had a 46 percent lower rate o re-arrest or violent crime than
those who served their time in a traditional jail. Tis dierence increased to
83 percent or those who completed at least 16 weeks o the program.82
Te organization is currently looking or ways to take its methods to
other parts o the country. o date, jurisdictions in Austin, exas, and
Westchester County, New Yorkin addition to several local high schools
have approached RSVP or advice on replicating the program; organizations
rom New Zealand, Poland, and Mexico have begun to replicate the RSVP
model as well.
Financial Sustainability
For no-market approaches like that o RSVP, achieving nancial sustain-ability requires ull subsidies in order to start and maintain the initiative. One
option in no-market conditions is to work within the government, where
public unding is available. RSVP, whose sta is made up entirely o public
employees, provides an example o this. Based on its results, the program was
able to secure predictable unding in the orm o a line item in the City o
San Franciscos budget.
Triangle Resident Options or Substance Abusers Inc.(TROSA): A Limited-Market Approach to Long-termSubstance-Abuse Treatment
Market Failure
A major gap exists in the United States between the needs o low-income
people suering rom substance abuse and the treatment programs available
to them. While addiction is a problem that people can suer rom or years
or even decades, ew public programs oer more than 30 days o treatment.
Since this population has little ability to pay even or short-term treat-
ment, markets have let the need or long-term care or substance abusers
unaddressed.
Te North Carolinabased nonprot ROSA takes a limited-market
approach to addressing this problem. Te organization has developed a
82 Gilligan and Lee, Te Resolve to Stop the Violence Project: Reducing Violence through a Jail-BasedInitiative.
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Social Entrepreneurship and Government 25
model that makes it possible or its beneciaries to help cover a portion o
the costs o the services they receive.
ransormative Innovation
ROSA provides a two-year residential treatment program, which includes
counseling, education, and what Founder Keith Artin calls vocational ther-
apy: everything rom someone learning a very specic tradelike getting a
truck licenseto basic on-the-job work ethics.83 While the programming
alone is a highly innovative approach to substance abuse treatment, equally
innovative is ROSAs model or delivering this program to its residents at
no nancial cost. Residents pay or the services they receive by working in
either the operations o the program itselhelping with ood preparation,
transportation, and administrationor in one o the organizations manybusinesses, including ROSA Moving, ROSA Lawn Care, and ROSA
Furniture and Frame Shop.
Financial Sustainability
As with many limited-market opportunities, the challenge is making this
program nancially sustainable, as the vast majority o those in need o long-
term treatment or substance abuse have little ability to pay or such services.ROSAs model addressed this challenge by using revenues earned rom
their business ventures to cover more than two-thirds o ROSAs operat-
ing needs. Te organization lls the remaining gap with support rom other
predictable unding sources.
Outside the Classroom: Identiying a Low-Proft Marketor Drug and Alcohol Awareness on College Campuses
Market Failure
Each year, 1,700 college students in the United States die rom alcohol-
related causes. Colleges and universities have long ocused on hosting guest
speakers and alcohol-ree social events to address the problem, but the mar-
ket has ailed to produce a more eective solution.
Te or-prot organization Outside the Classroom set out to ll this need
through a low-prot-market approach. Te organization knew that a prot-able market existed or its Web-based curriculum, yet several actors limited
83 Artin, (ounder, ROSA), interview with the author, May 9, 2007.
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26 Social Entrepreneurship and Government
that market. An Internet-based curriculum designed to be administered to
the entire student population was not a product that colleges and universities
were accustomed to paying or. Additionally, all o the potential purchasers,
public and private colleges and universities, operate as nonprot organiza-
tions. While the potential or protable sales did exist, it did not promise
quick or substantial returns or early investors.
ransormative Innovation
Recognizing that drinking and drugs are commonly represented as a standard
part o the U.S. college experience in American music, movies, and advertise-
ments, Outside the Classroom Founder Brandon Busteed set out to change
that perception. Te organizations innovation is a curriculum designed to
educate entire campus populations, in order to infuence not only individualschoices but campus culture as a whole.
In six years since its rst sale o its Web-based curriculum, Outside the
Classroom has begun to change the way some colleges and universities think
about alcohol and drug abuse prevention. During the 20062007 academic
year, approximately 25 percent o rst-year college students across the nation
completed the Outside the Classrooms web training. Early results have
been promising: an independent study examining the ecacy o Outsidethe Classrooms programming ound that students who had used its online
prevention program, AlcoholEdu, experienced 50 percent ewer negative
consequences related to alcoholblackouts, hangovers, missed classes, physi-
cal ghting, unprotected sex, damaging property, and driving drunkthan
those who did not.
Financial Sustainability
Like most social-entrepreneurial initiatives with a low-prot-market
approach, Outside the Classroom aced its biggest challenge in its start-up
phase. During that period, the organization was initially turned down by
dozens o grant makers and relied on patient angel investors to cover the
signicant up-ront costs or creating a curriculum and developing a market
or it. As angel investor Ed Roberts, proessor o management o technology
at MIs Sloan School o Management, recalls, When I invested in Outside
the Classroom, I was doing it primarily as a socially good act, with little aith
that I would ever see a return on my investment. Te idea was highly specu-
lative as to whether or not it would work and have any real impact. But I
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Social Entrepreneurship and Government 27
wanted to join my riend Howard Anderson in assisting this cause in which
he strongly believed. I now see that oten times allowing underdeveloped but
potentially socially meaningul markets to grow can produce good returns,
both in regard to the original social purpose as well as rom an investors
nancial perspective.84 Te nancial backing o investors who understood
that their support had the potential o creating social benet in addition
to generating prots ultimately provided Outside the Classroom with time
to do both. oday, Outside the Classroom has captured 25 percent o the
college and university market, and some six years ater initially lending their
support, investors are now seeing their rst returns.
Summary: What is social entrepreneurship?
Each o these cases shows how social entrepreneurship takes up an opportu-nity to provide a solution to a social problem that has great potential soci-
etal benet, but little hope o generating the prots required by traditional
or-prot companies. Social entrepreneursadopting no-market, limited-
market, and low-prot-market approachesaddress these problems while
striving or what can be considered a dierent kind o prot: the generation
o new and transormative solutions to the nations most pressing social
problems. Te next section will show how social-entrepreneurial initiativesare helping government benet Americans by leveraging public and private
resources and testing and developing solutions.
How Does Social Entrepreneurship HelpGovernment to Benet Americans?
Te previous section described social entrepreneurship and its emergencebecause o trends increasingly causing the traditional roles o the private,
public, and nonprot sectors to blur. Tis section provides examples o social
entrepreneurs who, as new contributors in the realm o social problem solv-
ing, have come to serve as resources or government as it addresses social
problems to improve the lives o Americans. As Citizens Schools Co-ounder
and CEO Eric Schwarz explains, Te best social entrepreneurs have great
results. Government is looking at ways to get results at low costs. Social
84 Ed Roberts, (proessor, Massachusetts Institute o echnology), interview with the author, June 12,2007.
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28 Social Entrepreneurship and Government
entrepreneurs can help them achieve this. Tey can test new ideas and inno-
vations, and partner with government to bring successul ones to scale.85
Government leaders continually ace pressures to allocate limited tax
revenues to address pressing societal needs, and many have achieved a great
degree o success. While social entrepreneurs will never take the place o
government, conversations with social entrepreneurs and experts in the eld
suggest that social entrepreneurship is uniquely positioned to help govern-
ment ocials better address societal needs. Specically, the social entrepre-
neurs interviewed help government improve the lives o their constituents in
two primary ways: (1) leveraging public and private resources and (2) testing
and developing solutions.
Five case studies illustrate how a variety o social-entrepreneurial initia-
tives have brought about these benets.
Leveraging Public and Private Resources
Because o their ocus on nancial sustainability, social entrepreneurs identiy
and utilize new and existing resources, both nancial and nonnancial, to
help them address social problems. Oten this means that social entrepre-
neurs are able to implement solutions to social problems on a wider scale
that have previously been too costly. At times, social entrepreneurs also endup shiting costs rom public budgets to private resources, thus reeing up
government tax revenue to address other needs.
KaBOOM!
Market Failure
Swings, slides, and seesaws are the setting or many a childhood memory.
Creation o those playgrounds and outdoor play spaces or children has tra-
ditionally allen under the domain o local parks and recreation departments
o municipal governments. For many communities, however, building quality
playgrounds competes with a variety o other pressing needs or limited pub-
lic undsoten leaving children in poorer communities without access to
great places to play. Unortunately, the same places that lack public resources
or playgrounds also typically lack private ones, as the parents who live there
cannot pay or their own playground equipment.
85 Eric Schwarz, (CEO, Citizen Schools), interview with the author, April 26, 2007.
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Social Entrepreneurship and Government 29
ransormative, Financially Sustainable Innovation
KaBOOM!s innovation was to leverage private resources by identiying
an alternative revenue stream that would provide the organization with the
unds to build quality playgrounds in underserved communitiesthus adopt-
ing a no-market approach that channels new resources or playgrounds intothese communities where the beneciaries have no ability to pay. By work-
ing with major companies, including Home Depot, Sprint, and PepsiCo,
KaBOOM! has been able to oer two productscorporate team-building
and social marketingthat capture resources or playground building via
donations, service ees, and employee volunteer time. According to Founder
Darrell Hammond, Its beyond sponsorship. Its beyond partnership. Weve
really embedded ourselves into corporations and become a part o theirlong-term strategynot just their community aairs and do-good strategy,
but their business strategy as well, which means that, rom a ee side, theyre
willing to pay or it.86 Corporate volunteers gain team-building experience as
they work with neighborhood residents and one another to und, design, and
build new playgrounds. KaBOOM! also works with companies to develop
social-marketing campaigns centered on KaBOOM! projects. Te result is a
nancial model that is almost 100 percent supported by ees.
As KaBOOM! has expanded in size and reach, the organization has been
able to achieve even greater eciency in its nancial model, as a result o the
cost eciencies and benets gained rom operating at a much larger scale
than municipal parks and recreation departments ever could. By linking a
social problem without a market to a stable source o resources, KaBOOM!
has built 1,196 new playgrounds in 11 years.
Societal BenetsKaBOOM! has helped government to benet Americans by developing and
leveraging a new source o private resources that supplements public budgets,
and at times even shits costs rom public budgets to private resources. Tis
approach has helped to build playgrounds in communities that otherwise
never would have been able to build them, or that can now spend the unding
that would have been spent on the playground on other priorities.
86 Darrell Hammond, (ounder, KaBOOM!), interview with the author, April 17, 2007.
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30 Social Entrepreneurship and Government
ITNAmerica
Market Failure
oo oten, older Americans must choose between their saety and their
mobilitybetween continuing to drive as their abilities decline or remain-ing homebound and dependent on others ater giving up their cars. Prior
attempts to address this problem have ailed to ully meet the needs o their
target senior consumers. Senior transportation programs, oten government
unded, have typically relied on attempts to convince older people to ride
buses or subways; on organizing volunteers to pick up vanloads o seniors
or group trips; or oering rides to a handul o specic destinations,
such as medical appointments. Finding these options insucient, many
seniors continue to drive when they are no longer t to operate a vehicle,
or become increasingly housebound as they restrict their own driving and
become dependent on avors rom amily and riends. As INAmerica
Founder Katherine Freund explains, Depending on the private automobile
or transportation is inadequate or years beore people actually stop driv-
ing. And then people who do stop driving outlive that decision by about
ten years. Its a very big problem because o the aging o the population.
Tere are more older people. Tere are more older people living longer.
Tere are more older people outliving the ability to drive longer. You can
see i you multiply those things together you come up with a pretty big
social problem.87
ransormative, Financially Sustainable Innovation
INAmericacreated a new option or seniors: providing rides in private cars
available 365 days a year, 24 hours a day, with door-through-door serviceusing a combination o paid and volunteer drivers. aking a limited-market
approach, INAmericacharges a nominal one-time membership ee o $35
and about 50 percent o the cost o a taxi or each ride. Payments must be
made or every ride, but no money changes hands in the vehicle. Seniors
und their personal transportation accounts in advance and receive a monthly
statement in the mail.
As the organization has embarked on an ambitious ve-year growthstrategy, INAmericahas been quite ecient in leveraging private
87 Katherine Freund, (ounder, INAmerica), interview with the author, March 3, 2007.
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Social Entrepreneurship and Government 31
resources. According to Freund, We have a very fexible approach to
resources. We say money is one kind o resource, but there are other kinds
o assets that have economic value. And i we can nd a way to capture di-
erent kinds o economic value, then we can use those resources also to pay
or rides. 88 Volunteer drivers, or example, make up about 40 to 60 percent
o the driving team. Tis helps the organization keep costs manageable, and
also oers a way or seniors to subsidize the cost o their own rides. Many
o the volunteers who are over the age o 60 contribute their own volun-
teer driving time through INAmericas ransportation Social Security
program, building up credits in their personal transportation accounts or
their own uture use o the services while they are still sae and healthy
to transport others. Family members may also supply volunteer time and
make in-kind contributions o their driving credits to their relatives who
are using the service. Seniors may trade their personal vehicles when they
are no longer able to use them and apply the liquidated equity to und their
personal transportation accounts. Te donated vehicles are oten used to
deliver rides.
In addition, INAmericas sotware, INRides, plans and tracks mem-
bership accounts, rides, and distances, maximizing the eciency o routes.
Freund characterizes this system as one o the organizations most importantinnovations: One way to describe it is that we married a very grassroots
model to a very high-tech support system. So we used technology to create
eciency, and we took the unusual step o building it ourselves, instead o
purchasing o-the-shel technology, so that it would be aordable to small
organizations and communities.89
Societal Benets
INAmericahas developed a highly ecient model that ultimatelyunds
itselby capturing nominal ees rom customers and leveraging private
resources through volunteer time and community philanthropic support.
When the organization starts up an aliate program in a new city, itlimits
the amount o public unding it accepts to 50 percent or less o the capital
necessary. Moreover, no public unds may be used or day-to-day opera-
tions, because ongoing use o public unds crowds out the development o
88 Ibid.
89 Ibid.
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