The Importance of Social Entrepreneurship

Why does your business exist – to serve only the shareholders or all the stakeholders?

In business and technology, definitions are often created for concepts that actually originated many years in the past. “The Cloud” is one example of technology that been around since at least the early 1990s but only today been labeled and popularized. Today, we hear a lot about social entrepreneurship —but it’s a concept that has been around for many, many years.

When I was younger, I grew up helping my parents in their optometry office. At the early age of eight, I saw the meaning of really taking care of people, helping others, and doing good by providing low-cost services. Often times, we’d give away free glasses to patients that couldn't afford them. My mother had me volunteer to help her in all the non-profits and organizations she was involved in. To me, this is the way you do business. The care my family took in helping others had a significant effect on me and my understanding of what it means to do good business.

I recall my first job in technology PR: I was miserable each day because it contrasted so heavily with my experiences as a child with helping others and truly making a difference in their lives. It was a struggle for me how the technology I represented was helping people. This is why I started my own business.

Looking back at the origination of The Cline Group, I developed a social-entrepreneurship company without even knowing the term existed. For fifteen years, I've focused on how I will help companies and positively affect people lives. How will I make these start-ups grow, exceed, and enter global markets? How can I make the economic woes disappear for those non-funded companies and become part of their teams to help them succeed? With The Cline Group and Cline Ventures, we developed social-entrepreneurship companies before the term included us. Nevertheless, it is what defines us.

So, what exactly is social entrepreneurship?

The Friedman Doctrine

In the 1960s, Milton Friedman published “Capitalism and Freedom: A Leading Economist’s View of the Proper Role of Competitive Capitalism” – a book that set the tone of business theory for decades to come. Shortly thereafter, he summarized his argument in a New York Times article (archived here):

…there is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” (emphasis added)

Essentially, Friedman stated that the only concern of a corporation’s shareholders should be for themselves. Under this system, the profit incentive would steer businesses in ways that would maximize welfare for everyone, through lower prices and high-quality goods.

But imagine if an individual acted like this. There is a word that describes people with the same attitude: sociopaths. There is also a term for organisms that continually consume and take from their environments only so that they can grow and grow: parasites.

Is your company a parasite? Of course not. But explicitly organizing your business around the combination of social good and profit maximization, rather than just the latter, can help you to avoid the pitfalls of profit tunnel-zoning that has given modern-day business such a bad reputation. When shareholders think only of themselves and their desires for more and more profits, they often forget the affects that their business practices have on a humanitarian level. Then, business activity can become unethical at best (Goldman Sachs allegedly not telling investors that the company had taken a short position on a CDO that it was pitching) or illegal at worst (Enron).

Companies are conduits that direct wealth to many different stakeholders while also generating value and profits for the shareholders. In short, companies that want to contribute actively to society need to focus more on all the stakeholders – the employees, the community, the government, and others who have a stake in whether the company succeeds – and not only on the shareholders.

In today’s globalized world, the definition of “stakeholder” now has been enlarged to include millions of people throughout the planet through social entrepreneurship.

The Rise of Social Entrepreneurship

In 1998 – at the height of the dot-com bubble just before it imploded as well – Gregory Dees wrote “The Meaning of Social Entrepreneurship” at a time when few used the term (or even knew what it meant). Dees summarizes:

Social entrepreneurs play the role of change agents in the social sector, by:

• adopting a mission to create and sustain social value (not just private value);
• recognizing and relentlessly pursuing new opportunities to serve that mission;
• engaging in a process of continuous innovation, adaptation, and learning;
• acting boldly without being limited by resources currently in hand, and
• exhibiting heightened accountability to the constituencies served and for the outcomes created…

Social entrepreneurs are one special breed of leader, and they should be recognized as such. This definition preserves their distinctive status and assures that social entrepreneurship is not treated lightly. We need social entrepreneurs to help us find new avenues toward social improvement as we enter the next century.

Today, as the world struggles in 2014 with problems including poverty, violence, climate change, education disparity, AIDS, and more, social entrepreneurship is exploding in popularity. A few examples include The Skoll Foundation, Schwab Foundation for Social Entrepreneurship, the Center for the Advancement of Social Entrepreneurship at Duke University, and the Global Social Entrepreneurship Competition at Washington University in St. Louis. PBS calls social entrepreneurs “The New Heroes.”

Here are just a few social-entrepreneur efforts:

• Paying African women to go to free HIV clinics
• Delivering grid-powered electricity to food trucks
• Educating poor girls in Africa
• Helping Central American coffee farmers to get fair prices
• Giving clean drinking water to one million people in seventeen countries
• Getting more American kids interested in science, technology, engineering, and math (STEM)

Social entrepreneurship is important because it provides a framework for businesses to find their own success in the pursuit of helping others. It’s a constant source of motivation for employees, especially for Generation Y, which is increasingly skeptical about the traditional corporate work environment.

In fact, Deloitte’s global 2014 Millennial Survey found:

While most Millennials (74 percent) believe business is having a positive impact on society by generating jobs (48 percent) and increasing prosperity (71 percent), they think business can do much more to address society’s challenges in the areas of most concern: resource scarcity (68 percent), climate change (65 percent) and income equality (64 percent). Additionally, 50 percent of Millennials surveyed want to work for a business with ethical practices…

Millennials believe the success of a business should be measured in terms of more than just its financial performance, with a focus on improving society among the most important things it should seek to achieve. Millennials are also charitable and keen to participate in ‘public life’: 63 percent of Millennials donate to charities, 43 percent actively volunteer or are a member of a community organization, and 52 percent have signed petitions.

Generation Y has a global perspective, understanding that their responsibilities extend past just the business they work for. Thus, business should aim to generate profits and help society. Millennials want no part of the stereotypical “greedy” business world—they want to be a part of a company that actively seeks to improve the world. To attract the future leaders of Generation Y, businesses leaders must become social entrepreneurs that serve altruistic purposes in addition to creating profits.

How to Become a Social Entrepreneurship Company

Pick and know your issue. What pressing problem is your company most able to address as a result of your expertise and experience? For example, high-tech companies could help put cheap laptops in the hands of poor children. Pharmaceutical businesses might want to increase access to health care.

Pick a method. How do you plan to address the issue? Companies typically choose one of four methods: donate a percentage of company profits; affiliate with a cause, community, or charity; develop a product or service that will raise money; or fund-raise directly for an issue.

Build the brand and increase awareness. Utilize the strengths of your marketing and communications staffs to increase the public’s awareness of the problem and solution. Many non-profit organizations cannot afford expensive marketing campaigns – but businesses can. Utilize the strengths of your marketing and communications staffs to increase the public’s awareness of the problem and solution.

Run it like a business. Even if the social-entrepreneurship side of a company does not generate a profit, it should be run like a business. Create a strategic plan with the goal of operating and executing as efficiently and successfully as possible.

Hire intelligent staff. Just because a person chooses to work in the non-profit sector rather than the for-profit one does not mean he or she is any less capable. Hire the best – and pay accordingly.

Be transparent and authentic. Many organizations have a high amount of overhead and pay their executives excessively-high salaries. Publicly disclose all actions and financial data with the goal of having as much funds as possible going directly to the cause.

Create smart partnerships. Other companies – perhaps even competitors! – may be working on the same issue. Explore such opportunities so that all of the companies’ efforts will converge and the whole of the work will be greater than the sum of its altruistic parts.

Use all appropriate media channels. Social media and online content have made it easier than ever to communicate with millions of people throughout the word. Aim to create viral campaigns that will spread across Facebook, Twitter, YouTube, LinkedIn, and more.

For more information on these tips, see Inc. and the Guardian.

Helping Israel’s Economy

The Cline Group was originally founded in 2008 as a social-entrepreneurship company with the goal of supporting Israel and its economy by helping Israeli start-ups to grow, obtain funding, and move into new markets. As a result, Israeli companies have expanded, created new jobs, and grown the country’s economy. Today, we use the same philosophy for all start-ups throughout the world (as we also continue to work with Israeli ones). Our goal of helping small start-ups is one reason that our retainers are generally lower.

Help the World and Yourself

No, corporations are neither sociopaths nor parasites. Businesses contribute to society – but they can and should give a lot more in ways that benefit both the world and themselves. In 2014 and beyond, the companies that succeed will be those that develop a new type of corporate social responsibility and become social entrepreneurs as well.

Now, why does your business exist?

Want to read more? An archive of my blog posts on this and other topics can be found here. Josh Cline is President and CEO of The Cline Group. Follow him on Twitter.