Echoing Green shares insights into the types of investment readiness support and financing needed from early stage social entrepreneurs.
Four Gaps in Social Entrepreneurship
Authored by 2009 Echoing Green Fellow David del Ser and Ignacio Mas.
The increasing attention around social enterprises is powered by a number of mutually reinforcing global socioeconomic trends. Something big and coherent may be brewing, but equally this energy could end up dissipating into myriad unconnected efforts. This begs two questions:
What are the gaps that the social enterprise movement will need to bridge?
What are the catalysts that can channel the energy in a most constructive, consistent and impactful way?
Here we share our thoughts on four key gaps we have identified, focusing on social entrepreneurship in developing countries. They relate to awareness, skills, credibility and money.
Geographic and Cultural Gap. Social entrepreneurship, like all early stage investment activity, has to be fundamentally home-grown. There is a risk that the social entrepreneurship label—and hence the funding that comes from a new investment class associated with the label—comes to be dominated by an over-achieving, highly educated, globally mobile jet set that have the capability to network between them and command the new social media tools. They can play a critical role in catalyzing interest and demonstrating attitudes and skills, but the opportunity is much larger.
Many enterprises that are locally owned and managed would be considered social if only they were aware of the label. Equally, many successful businessmen in developing countries are ready to contribute smart money to the socioeconomic development of their countries, if only they find good ways of investing responsibly in their own countries. Social entrepreneurship needs to be a platform for indigenous action, grafted with ideas, skills and practices brought from outside—not the other way around. So gap #1 is about pipeline: How can social investors find the hundreds of local enterprises that already look and feel like a social enterprise?
Age and Experience Gap. Social enterprises seem to be populated with young people, for whom innovation and disruption seems more natural. It’s also the demographic with the biggest reserves of idealism, fearlessness and energy—a combination which, if channeled property, produces passion. But youth lack experience: their passion can lead them to misread market needs, underestimate the challenge of taking good products to market, and expect and drive change in too many ways. Running social enterprises has all the challenges of running purely commercial enterprises, plus the added complexity of operating a second bottom line—especially when that second bottom line is not articulated around a set of observable metrics.
So where’s the grey hair? Where are the older, experienced people who can temper younger entrepreneurs’ plans without sapping their passion? The new generation is not being supported by the old. So gap #2 is generational: how can social enterprises tap a bigger pool of experienced managers and businesspeople who, in their middle age comfort, may be interested in contributing their time and expertise rather than necessarily their money?
Expectations and Communications Gap. Movements require a narrative that speaks to a higher purpose, and that is often built out of over-simplified stories. That helps the cause, but there is the risk that the narrative becomes dissociated with reality on the ground. The current batch of social entrepreneur "early adopters" tend to be an optimistic, self-confident and driven lot, and they can easily create over-hype. We’ve seen that happen with microcredit. Now we can marvel at how so many people used to think that putting poor people through continuous debt cycles was a well-trodden path out of poverty. For social entrepreneurship the risk of over-promising is also there: it’s hard to keep the rhetoric in check when there is such strong feel-good air about it, there are no clear definitions or boundaries around the notion of the social enterprise, there are no consistent metrics for impact.
Advocacy and branding are now recognized as key tools for change and development impact. But they need to support action and results rather than developing its own story. So gap #3 relates to communications: how to keep the conversation honest, not confusing the goodness of people and ideas with actual on-the-ground impact.
Funding and Risk Gap. Social capital is most critical to help prove not so much that an idea is socially worthwhile, but that it is sustainable and/or scalable. Developing an idea is fairly cheap, and one is generally able to tap the goodwill of family, friends and socially-minded angels to build some kind of working prototype and do very early market testing of the idea. And once the operational model is proven, normal commercial funding sources become available.
But what about the middle stage, when you can readily convince anyone that you have a good idea but can’t quite prove that you can take it to market efficiently? That’s where social capital is most needed: to propel socially relevant ideas into socially impactful ones. But despite the good intentions, the questions on risk and the expectations of returns posed by social investors seem to be quite similar to those expressed by purely commercial funds. Persistent lack of funding can frustrate the great expectations of social entrepreneurs, and the sector can move from over-hype to over-disillusionment. So gap #4 is about risk-taking: in what ways do social investors propose to absorb enterprise risk in the post-seed but pre-commercial stage of social enterprises?
The social enterprise sector has set a tall agenda for itself. We need social enterprises to help create livelihood opportunities for disadvantaged communities, address health or environmental challenges faced by vulnerable communities, foster universal access to quality education and information-based services, build business connections between the informal and formal sectors, or provide tools and platforms to help microenterprises to flourish.
What do you think are the greatest gaps in social entrepreneurship? Leave your thoughts in the comments below.
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