Below is an essay that I put together for Alex Nicholls’ Social Entrepreneurship course at Oxford’s Saïd Business School. It is verbose, thanks to an academic word count target. The nut graf, as my friend Ben has taught me to call it, is that I believe that social enterprises (businesses that hope to have a positive social impact with their work) are best sorted and supported according to the impact they would like to have. Jump to Part II to skip the literature review. - Mark
In the decades since Bill Drayton first coined the term social entrepreneurship in the 1980s, much ink has been spilled attempted to define—or argue against the definition of—a field that has attracted the attention of governments, philanthropists, and businesspeople. Most of these definitional attempts focus on the edges, using the contrast between social and “mainstream” businesses as a way to clarify what should be considered a social enterprise. This paper moves from such contrast-based efforts to define social entrepreneurship and more academically-focused frameworks, and toward a practical categorization of social enterprises starting from their relationship to their primary beneficiaries, which I call an enterprise’s impact focus. Such a categorization, rooted in the practical needs of social enterprises themselves, can help practitioners and academics of social enterprise move past questions of definition to considerations of how best to support enterprises themselves.
Defining and categorizing social entrepreneurship: A literature review
Though the phrase social entrepreneur was used as early as 1972, Ashoka founder Bill Drayton is widely attributed with coining the phrase to describe the type of organization to which his Ashoka began donating in the early 1980s. Since then, a number of authors have offered their own definitions of social entrepreneurship, in an attempt to define and often promote the field. In the first half of this paper, we will trace the evolution of those attempts to define and categorize the field, with extra attention paid to Kim Alter’s work on social enterprise operational models.
In his 1997 essay The Rise of the Social Entrepreneur, British author evangelist Charles Leadbeater describes social entrepreneurship as a reaction by private citizens to the failure of the British welfare state to keep pace with changes in social and family structures in the UK. He points to examples such as private HIV/AIDS clinics and a church-run drug treatment program. For Leadbeater, the absence of a profit motive is the primary differentiator of the : “[They] are not owned by shareholders and do not pursue profit as their main objective. Certainly [social entrepreneurs] run not-for-profit organizations.”
Writing at roughly the same time, American professor Greg Dees roots his analysis of social entrepreneurship in modern entrepreneurship literature: if an entrepreneur is an individual who reorganizes available resources in truly innovative way, then a social entrepreneur does so with an explicitly social mission, impact-driven metrics of success, and concern for all stakeholders.
In large part, this is the definition David Bornstein employs in How to Change the World, first published in 2004. Though not an academic text, the book profiles a number of the social entrepreneurs supported by the Ashoka Foundation. For Bornstein—as for Dees—the true social entrepreneur is a Schumpeterian innovator but with an underlying social motive, rather than a commercial one. Bornstein’s book marks the beginning of a wave of literature on social entrepreneurship in the late 2000s. In their 2006 article, Peredo and McLean identify two increasingly distinct camps of social entrepreneurs: first, those where social mission is the singular motive; and second, where social mission is the primary motive but profit is permitted as a secondary concern. Writing in 2008, Janelle Kerlin breaks this down by region. In the US, she notes, self-labelled social entrepreneurs are much more likely to be focused on for-profit activities that support a social mission than academics who consider non-profits to be the locus of social enterprise activity. In Western Europe, the conversation is more nuanced, in part because of the previous strength of social purpose organizations such as cooperatives.
At the same time that authors such as Bornstein, Peredo and McLean were offering various definitions of the social entrepreneur, others like Alex Nicholls pushed back against strict definitions, pointing out that in different regions of the world, social enterprises sit at different points of contact of the state, markets, and civil society and therefore differ in each region. As a result, Nicholls puts forth a simple two-sided definition of social entrepreneurship that rests on a “prime” social focus and an “innovative approach.”
The broadness and vagueness of such a definition has led other scholars to attempt to categorize social enterprises. Neck, Brush and Allen offer a four-part categorization of social enterprises based on their primary mission (social v economic) and their primary market impact (social v economic). Such a categorization highlights the weakness of the definitions of Bornstein and Dees, as pointed out by Certo and Miller and by Paul White: a focus on the entrepreneur’s motivations, which are self-reported and therefore difficult to verify. As recently as 2012, scholars such as Giovany Cajaiba-Santana have tried, and largely failed, to categorize social entrepreneurship in a useful manner.
Alter’s social enterprise models
The most complete effort to date at categorizing social enterprises has been Kim Alter’s 2006 efforts, included in Nicholls’ book Social Entrepreneurship: New Models of Sustainable Social Change. Alter lays out three ways of classifying social enterprises:
|Relationship to Mission||Mission Centric(Embedded)
|Mission Related(Integrated)||Unrelated to Mission(External)|
|Example||A productive Haitian cooperative||An American non-profit that offers high-end care to some customers to subsidize its elderly care to the poor||A British organization licenses its logo externally to unrelated companies as a revenue stream for its activities.|
Next, Alter identifies seven types of operational models. The following four are embedded models:
- Entrepreneur support, in which an organization supports entrepreneurship in a marginalized population (microfinance)
- Market intermediary, which works with small producers to connect them to markets (fair trade)
- Employment, which aims to employ marginalized groups (such as jobs that enable disabled person)
- Fee-for-service, where an organization charges fees to end users or third party payers
The next two of Alter’s seven operational models are integrated models:
- Service subsidization, where a for-profit service targeting wealthy customers subsidizes a similar service for poor customers
- Market linkage, similar to a market intermediary and which can be embedded or integrated depending on its organization
Lastly, Alter points to one external model:
- Organizational support, where unrelated business activities fund core socially beneficial activities
After laying out seven these seven core models, Alter identifies other more complex models, including complex models, mixed models, and enhancing models, (including franchise and private-not-for-profit partnership models).
Alter’s paradigm is helpful in at least three ways. First, it moves discussion away from what qualifies as a social enterprise and towards how we might categorize such enterprises. Second, Alter focuses attention on one the key tensions within the field of social entrepreneurship: namely, different structural ways to balance the dual motives of profit and social benefit. Third, it brings forward the structure of social enterprises as key identifiers, rather than depending upon the motive of individual entrepreneurs as a categorical determinant.
Alter’s categorization falls short, however, in two primary ways. Most importantly, it fails to provide insight into how we might drive appropriate resources to social enterprises, including capital, talent, technical assistance, strategic guidance, appropriate regulation, and media exposure. Second, it leaves out—or forces us to shoehorn in—some social enterprises, including: job placement agencies, cash transfer programmes, data analytics companies, companies whose products might have a trickle-down positive effect, and environmentally-focused organizations.
Toward a practical categorization of social enterprises
In the second half of this paper, I offer a practical categorization of social enterprises. It is practical in two ways: first, it stems from the author’s personal experience of having invested in twenty-five and analysed over four hundred social enterprises, and is therefore primarily a practitioner’s perspective. Second, it is practical in that its primary motive is a practical one: I hope for this categorization to help drive resources to deserving social enterprises employing appropriate models.
The rationale for a practical categorization
As interest in social enterprise and its sister field of impact investing has risen over the last ten years, the imperative has grown for practitioners to be able to effectively channel resources to enterprises. Building an ecosystem of support around social enterprises depends on that effectiveness, in a number of categories. Below we lay out six of those categories, referring to existing social enterprises whose needs differ widely enough to illustrate the necessity of practical categorization.
Funding. Social enterprises demand an array of overlapping funding types. A bank making small loans to rickshaw drivers in India may require equity capital to become operational, and then a significant amount of debt to continue lending to its participants; a technology for more effective cold-chain distribution in the same country might seek grant capital for its initial research followed by equity capital to hire initial staff and working capital to finance vehicle purchases. Such companies face a shifting landscape of funders, many of whom continue to determine their own areas of focus, investment theses, geographic focus, and balance between profit and impact. Wealthy individuals and their asset managers, on the other hand, have little clarity into the types of social businesses that exist and (critically) their risk-return profiles.
Regulation. A company in California building partially pre-fabricated homes for urban in-fill may need to work with zoning officials; a carbon-trading platform designed to fund community-level economic development projects depends on the regulatory advancement of carbon credit legislation at an international level. In large part, social enterprises fall under the same local regulatory structures as other companies. As efforts to create country-level regulation of social enterprises pick up pace, however, lack of appropriate categorization may prevent beneficially specific regulation or inspire legislation broad enough to be open to abuse.
Talent. A medical device company developing more effective birth control insertion tools may want to hire experts in FDA clinical trials; an African-based small business software-as-a-service company might build local software development and sales teams. Today, practitioners advising those interested broadly in a career in social enterprise can offer little guidance on the skills and resources necessary to build such a career—given appropriate categorization, such practitioners could quickly point potential hires to the right categories of business to begin their search.
Media exposure. A company importing fair trade Central American coffee to the US might spend its marketing dollars getting coverage in high-end American coffee blogs; a company packaging health insurance and ambulance services to rural farmers in India might seek coverage on local-language radio stations or attend community meetings. Reporters covering social enterprise lack a common language with which to report their stories to readers unfamiliar with social enterprise, and cover an impossibly wide array of companies in terms of industry, geography, and focus. And entrepreneurs looking for media exposure need access not only to audiences of social enterprise enthusiasts, but to potential customers , investors, and industry partners.
Strategic guidance and technical assistance. A farm-to-table grocer in the United States might seek out Board members who have built for-profit, commercially-focused grocery chains in the US; an East African agricultural extension company might seek out former government ministers of agriculture. Developing a proper categorization of companies would enable third-party advisers of technical assistance and consulting to develop an area of expertise and market it effectively to groups of companies who might need it, and help identify potential Board members more quickly.
Impact Measurement. A small business software company in Kenya might measure its impact by the number of jobs created at the companies where its software is implemented. A company providing classroom software to teachers in low-income schools in America, by contrast, might track teachers’ self-reported levels of satisfaction with their product or educational outcomes attributable to its implementation. Today, some social enterprise funders use the IRIS/GIIRS impact rating system, though confidence in the system is currently such that few funds use it as a determinant in their investment decision process and even fewer social entrepreneurs see it as a useful guide to their decision-making. Proper categorization can mean appropriate comparison within classes of enterprises, and appropriate focus on the metrics most important to individual companies’ impact.
Such diversity in the types of organizations adopting the label social enterprise speaks to the need for appropriate categorization, without speaking explicitly to the type of categorization that would most clarify the issues raised here. Based on the academic research listed above and the author’s own experience with early-stage social enterprises, a number of possible classifications emerge:
- Mission centrality, as argued by Alter
- Ambition to scale: Dees’ Schumpeterian, paradigm-shifting social entrepreneur versus locally-focused small businesses
- Entrepreneurial motive: Are entrepreneurs “impact first” or “financial first”?
- Geographic location
- Industry, as defined by the mainstream commercial
- Type of funding required: grants, debt, equity, or a combination
- Company growth stage: idea, pilot, growth, maturity
- Legal status:Non-profit, for-profit, or some form of hybrid (e.g. B-Corp, L3C, community interest company, flexible purpose company)
- Relationship to beneficiaries: Is the enterprise trying to impact the producers, consumers, or recipients of its product or service?
Impact Focus as a primary category
Of the categories listed above, I believe that the least-discussed and most instructive categorization of social enterprises is the enterprise’s relationship to the individuals whose lives it seeks to impact. If the enterprise is focused on social impact, are its beneficiaries its producers, consumers, or recipients? Once delineated, such a categorization can be put into conversation with other key characteristics—such as geography, ambition to scale, and industry—to determine the key resources necessary to support that enterprise’s growth. In the absence of a perfectly satisfying term, I call this an enterprise’s impact focus.
For some enterprises, the primary beneficiary is a producer. Such beneficiaries may be smallholding farmers, people with disabilities, marginalized ethnic groups, survivors of domestic abuse, former inmates, or refugees. V-Shesh trains Indians with disabilities and places them in permanent employment. Under the Mango Tree trains smallholder Indian farmers in the maintenance of beehives as an agricultural productivity tool, selling the resulting honey in high-end shops in major metros. MobileWorks hires Indians for small, simple computer tasks sourced from American companies. Mirakle Couriers employs deaf youth in Mumbai as package deliverers.
Such enterprises approach producers in one of three ways: First, the enterprise may train and place them with other employers. Second, they may source products or services from them on a contract basis; this may be the most common form of producer-focused enterprise. Third, they may employ them directly.
For other enterprises, either the ultimate beneficiary is a paying consumer of their product or the advertising revenue stream of the company is dependent upon the beneficiary’s use of the product. Such payment distinguishes them from the next category of companies, which view beneficiaries primarily as recipients. Sevamob offers rural Indians affordable health insurance and emergency medical care. Spring Health India sells subscriptions to rural water purification-services. SMV Wheels offers loans to Indian rickshaw drivers so that they own, rather than rent, their vehicles. PharmaSecure attaches scratch-off codes to pharmaceuticals so that consumers in developing countries can verify the origin of their drugs.
Consumer-focused enterprises approach their consumers in one of two ways. First, the consumer may pay for the product or service herself. Second, the consumer’s use of the product may determine the advertising revenue that the enterprise can command. In both cases, the financial success of the enterprise is dependent upon the consumer’s on-going, optional use of the product.
A third category of enterprises approaches beneficiaries in much the same way as traditional non-profits and government agencies: as recipients of donated products or services. Better World Books donates to literacy programs around the world. Who Gives a Crap sells toilet paper to raise funds for hygiene programs. Toms Shoes sells shoes in the developed world that subsidize their donations of shoes in developing countries. Teach for America trains young graduates as teachers, placing them in underserved schools. Shelterbox USA sells supply kits to those working in disaster areas.
Recipient-focused enterprises may take a buy-one-give-one model, donating a certain amount of product per product purchased by wealthy consumers. They may also operate on a percentage model, donating a percentage of revenue or profits to a particular cause. They may also sell products to non-profits that in turn donate the product. Or their customers may be government agencies who use their service with their citizens.
Impact Focus in Practice
In the table below, we examine the effect of categorization by impact focus on our ability to identify appropriate resources and guidelines for social enterprises.
|Resource Area||Impact Focus|
|Funding||Small amounts of equity or grants for initial setup, followed by significant working capital||Grants for research, followed by significant equity capital and some working capital (more for financial service providers)||Grants from foundations, corporate social responsibility offices, or marketing departments; sometimes equity|
|Regulation||Employment, import/export||Consumer protection, financial services,||Traditional regulation of charities and corporations|
|Talent||Human Resources, partnership-building, logistics||Low-income marketing, rural distribution, income-appropriate design||For-profit marketers, salespeople; non-profit management|
|Media Exposure||High-end product placement in metro areas or developed countries||Local language media, both traditional and increasingly mobile-based||Marketing to wealthy purchasers of primary product or service|
|Strategic Guidance and Technical Assistance||Rural supply chains, import/export, business process outsourcing,||Rural distribution, relationships to in-country industry partners, community organizers||Marketing of social cause, determining appropriate non-profit partners|
|Impact Measurement||Producers employed, wage improvements, worker health and safety, bargaining power||Products sold or used, combined with some research into the impact of products||Product or service distributed, with rigorous ethnographic research into the impact of products delivered|
Limits of Impact Focus as a primary category of social enterprises
Multi-categorization. Many social enterprises have more than one Impact Focus. Jack and Jake’s of New Orleans, for example, seeks both to provide healthy food to schools and hospitals, and at the same time build a stable market for south Louisiana farmers’ produce. When pushed, however, most entrepreneurs will acknowledge a primary impact focus—in Jack and Jake’s case, farmers. The categories above can be used as a guide to ordering priorities, rather than choosing an exclusive focus.
Cross-subsidization models. Outside of Bangalore, Indian hospital Narayana Hrudayalaya uses its high-end surgical offerings to subsidize the surgeries that it provides low-income Indians from across the country. Such a model sits awkwardly between the consumer-focused and recipient-focused models, depending on the nature of the enterprise’s relationship with its low-income users and its donors, if it receives grants on an on-going basis.
Models with derivative impact. Medical device companies and educational technology companies may not have an explicit impact focus, but some funders of social enterprises invest in them on the thesis that the eventual widespread adoption of the technology will have significant social impact. Examples include maternal health products or language translation software.
Other social innovations. Two of the most interesting social innovations of the last half-century are cash transfers and social impact bonds. Cash transfers are unrestricted welfare payments given to poor families, occasionally with conditions attached. They are innovative and may have a Recipient Impact Focus, but they do not employ “markets” as social enterprises often do. Social impact bonds are more complicated structures, the most common model of which involves an investor lending money to a municipality which donates the money to a non-profit for a particular intervention, paying back the investor out of future revenues.
When put in conversation with other characteristics such as geography, industry, and growth stage, I believe impact focus is the most useful categorization of social enterprises. Such a categorization can help potential funders and supporters of social enterprises direct resources more effectively by clarifying the types of resources needed. Hopefully, its practicality can also encourage conversations between academics and practitioners of social enterprise, laying the groundwork for increasingly productive conversation between the two.
 Banks, Joseph. The Sociology of Social Movements, MacMillan, 1972
 Bornstein, David. How to Change the World, Oxford University Press, 2007
 In keeping with this paper’s effort to focus attention on function rather than definition, I will not adhere strictly to existing definitions of phrases such as social innovation, social entrepreneurship, or social business. I take social innovation to include any innovative approach to pressing social or environmental issues, and social entrepreneurship to mean innovations launched within new types of organizations. I use social business interchangeably with social enterprise, ignoring Muhammad Yunus’s efforts to co-opt the phrase.
 Leadbeater, Charles. The Rise of the Social Entrepreneur, DEMOS, 1997
 Dees, J. Gregory. The Meaning of “Social Entrepreneurship.” The Kauffman Center for Entrepreneurial Leadership, 1998.
 Peredo, A.M. and McLean, M. Social Entrepreneurship: A Critical Review of the Concept, Journal of World Business, 2006
 Kerlin, Janelle. Social Enterprise in the United States and Abroad: Learning from our differences, The Urban Institute, 2008
 Nicholls, Alex et al. Social Entrepreneurship: New Models of Sustainable Social Change, Oxford University Press, 2008
 Neck, Heidi; Brush. Candida; and Allen, Elaine. The landscape of social entrepreneurship, Business Horizons, 2009
 Certo, S. Trevis; and Miller, Toyah. Social Entrepreneurship: Key issues and concepts, Business Horizons, 2008
 White, Paul. Reshaping Social Entrepreneurship, Stanford Social Innovation Review, 2006
 Cajaiba-Santana, Giovany. Social innovation: Moving the field forward. A conceptual framework, Technological Forecasting & Social Change, 2012
 Alter, Kim. Social Enterprise Models. In Nicholls, Alex et al. Social Entrepreneurship: New Models of Sustainable Social Change, Oxford University Press, 2006
 By way of disclaimer: each of the examples used in this section and throughout the rest of the paper are enterprises funded by First Light Ventures, the author’s former employer; enterprises analyzed by First Light Ventures for potential investment; or other enterprises the author has come into contact with over the course of the MBA program at Saïd Business School.
 Investors Circle is the single example of which this author is aware; they require a cumulative GIIRS rating of 80 before considering an investment.
 For an example of ineffective categorization, see IRIS’s list of social impact objectives on the IRIS website: http://iris.thegiin.org/indicator/social-impact-objectives-od6247
 This dichotomy, perhaps first used by KL Felicitas Foundation in 2007 (see link), has become part of the common parlance among angel investors in impact investment networks such as Toniic and Investors Circle. http://www.klfelicitasfoundation.org/test_EE/images/files/KLF_Pico_Bonito_Evaluator_.pdf
 The universe of environmentally enterprises has significant similarity to and overlap with that of social enterprises, such that Neck, Brush, and Allen consider environmental enterprises a subset of social enterprises. In this author’s experience, however, the entrepreneurs, funders, regulatory changes, and supporting agencies necessary to fuel the growth of environmental enterprises is so different as to merit separate categorization. Such an exercise is outside the scope of this paper.
 The difference in rigor expected here of consumer-focused and recipient-focused enterprises reflects this author’s own bias that when products are not sold directly to beneficiaries, their lack of participation in that decision places an extra burden of proof on the provider of such products to demonstrate their impact.