Description
During this such a information pertaining to social entrepreneurial ventures different values so different process of creation, no.
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Journal of Developmental Entrepreneurship 1
Vol. 11, No. 4 (2006) 1–24
© World Scienti?c Publishing Company 3
SOCIAL ENTREPRENEURIAL VENTURES: DIFFERENT VALUES
SO DIFFERENT PROCESS OF CREATION, NO? 5
SILVIA DORADO
College of Business Administration 7
Ballentine Hall 7 Lippitt Rd.
University of Rhode Island 9
Kingston, RI 02881, USA
[email protected] 11
Received November 2005
Revised July 2006 13
Entrepreneurship scholars have identi?ed factors that frame the entrepreneurial process, such as the
gender, race, ethnicity and wealth of entrepreneurs, the technological nature of the products or services 15
offered, or the geographic location of ventures. Ventures bridging pro?t and service goals in new
and creative ways are mushrooming. Building on a review of current research, the author speculates 17
that “bridging pro?t and service” should be added to the list of factors that de?ne the entrepreneurial
process. In doing so, she calls for caution when extending to social entrepreneurial ventures’ ?ndings 19
on research regarding business ventures, and for more research exploring the impact of this factor on
the entrepreneurial process. 21
Keywords: Entrepreneurship; social entrepreneurship; social ventures; double bottomline organizations.
1. Introduction 23
Ventures bridging pro?t and service goals in new and creative ways are mushrooming
(Eakin, 2003). Called social enterprises, social ventures or double bottomline organizations, 25
their hybrid nature makes them quite appealing: for-pro?t organizations that do good while
doing well ?nancially; or non-pro?t organizations that self-?nance their do-good operations. 27
Organizations bridging service and pro?t goals are not a new phenomenon. Hospitals and
educational institutions have been doing it for years. What is new is that these ventures are 29
spreading into non-traditional areas such as ?nancial intermediation (e.g., Grameen Bank),
personnel staf?ng (e.g., NewSource Staf?ng, Inc.), retailing (e.g., One Thousand Villages) 31
and software development (e.g., Ripple Effects).
Academic research on social ventures is still in its infancy, and considering the current 33
emphasis on their entrepreneurial nature, it is rather tempting to incorporate ?ndings from
the entrepreneurial literature to understand these organizations. This should come as no 35
surprise considering the increased maturity of entrepreneurship research (Eckhardt and
Shane, 2003; Aldrich, 2005). Researchers understand better than ever what entrepreneurs 37
look like (Shane and Venkataraman, 2000; Thornton, 1999; Stevenson and Gumpert, 1985),
1
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2 S. Dorado
howthe process of opportunity identi?cation progresses (Eckhardt and Shane, 2003; Shane, 1
2000; Klepper, 2001; Drucker, 1985; Kirzner, 1997; Shane and Venkataraman, 2000) and
what challenges are involved in launching new ventures (Aldrich and Fiol, 1994; Aldrich, 3
1999; Bhave, 1994; Katz and Gartner, 1988).
Current research on entrepreneurship has moved away from considering differences 5
among entrepreneurs (Shane and Venkataraman, 2000; Aldrich, 2005). Nonetheless,
scholars still appreciate and study differences in the entrepreneurial process deriving from 7
the geographic location of businesses (Sorenson and Audia, 2000), or the race (Bates,
1997; Bradford, 2003), ethnicity (Portes et al., 2002; Saxenian, 2001), family background 9
(Aldrich et al., 1998) or gender (Brush, 1992) of entrepreneurs. In addition, scholars have
acknowledged that there might be differences deriving from whether entrepreneurs work 11
within the industrial chain of production or outside of it — as in the case of university or
research laboratories (Klevorick et al., 1995; Eckardt and Shane, 2003). This study follows 13
this line of inquiry and explores the applicability of ?ndings from research on the creation
of regular business entrepreneurial ventures (EVs) to understanding the creation of social 15
entrepreneurial ventures (SEVs) (see also Austin, Stevenson and Wei-Skillern, 2006).
The study concludes that caution should be exercised when translating ?ndings from 17
research on the creation of one pro?le of organizations (EVs) onto the creation of another
type (SEVs). For example, one well-substantiated empirical ?nding in the entrepreneurial 19
literature is that there is a connection between the business opportunity identi?ed by
entrepreneurs and their backgrounds. Interpreted broadly, this would mean that familiarity 21
with a social problem (e.g., unemployment) might provide entrepreneurs with an advanta-
geous position to identify a business opportunity connected to the solution of this problem. 23
It is rather unclear whether this is true. Still, there is growing pressure on non-pro?t orga-
nizations to do just that (identify a cash, generating idea building on their background in 25
a speci?c social problem). Second, the study suggests that it is vital for entrepreneurship
scholars to address whether the values to be served with the creation of a new venture (e.g., 27
“bridging pro?t and service”) are a crucial factor de?ning the process of venture creation.
Speci?cally, the study suggests that we need research directed to understandingwhether dif- 29
ferent values result in more or less challenges to gathering resources, attracting employees
and/or building strong organizations. 31
2. Research Domain
First introducedby Schumpeter (1912), the term“entrepreneurship”has had different mean- 33
ings over the years (Aldrich, 2005). It has been used as a way to distinguish innovative from
non-innovative traditional organizations and/or to emphasize risk/change-friendly orien- 35
tations of managers. In the entrepreneurship ?eld, scholars prefer to reserve the term to
describe a speci?c set of activities related to the introduction of new products and services 37
into the marketplace. However, there is disagreement on what this set of activities actually
involves. 39
One perspective considers entrepreneurial activities as those leading to the discovery,
evaluation and exploitation of opportunities to create future goods and services 41
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Social Entrepreneurial Ventures: Different Values — Different Process of Creation? 3
(Venkataraman, 1997; Shane and Venkataraman, 2000). The de?ning characteristic of this 1
perspective is an emphasis on the centrality of opportunity identi?cation (Eckhardt and
Shane, 2003; Shane and Venkataraman, 2000) and the realization that entrepreneurship 3
should be studied as a process (Eckhard and Shane, 2003). Crucial in this perspective is that
the process of discovery, evaluation and the resources the entrepreneur controls do not limit 5
pursuit of opportunities. The entrepreneur also mobilizes the resources of others (Stevenson
and Gumpert, 1985). Researchers fromthis perspective also have chosen to consider organi- 7
zation launching as a distinct set of activities independent from the entrepreneurial process
itself (Eckhardt and Shane, 2003). 9
The other perspective decenters opportunity and de?nes entrepreneurship as the process
of creating new organizations (Gartner, 1988; Katz and Gartner, 1988), which occurs as a 11
context-dependent, social and economic process (Aldrich, 2005; Low and Abrahamson,
1997; Reynolds, 1991; Thornton, 1999, p. 20). These scholars emphasize the linkage 13
between entrepreneurship and organization creation. This study incorporates the second
perspective. Crucial to the essence of SEVs is their mixing of pro?t and social goals, and 15
the organizational dimensions of this “bridging” are critical to understanding the speci?c
challenges faced by social entrepreneurs. 17
2.1. Social entrepreneurial ventures
Fast Company, the Wall Street Journal and MIT’s Technology Review are among publi- 19
cations that, in recent years, have recognized and rewarded organizations that blend busi-
ness principles and social goals in new and creative ways. Business schools have begun 21
to notice and open research centers devoted to the topic, such as the Research Initia-
tive on Social Entrepreneurship at Columbia, the Social Enterprise Initiative at Harvard, 23
the Center for Social Innovation at Stanford, the Center for the Advancement of Social
Entrepreneurship at the Fuqua School of Business at Duke University, or the Skoll Center 25
for Social Entrepreneurship at the Said Business School at Oxford University.
The academic literature on social entrepreneurship is limited and there is disagree- 27
ment among scholars on what they even mean by social entrepreneurship. This study maps
the concept focusing on the entrepreneurial agent (see also Hockerts, 2006) and suggests 29
that SEVs may be of three types. They are non-pro?t organizations entering into business
to ?nance their social service operations (Boschee, 1995; Leadbeater, 1997; Mort et al., 31
2003). They can also be for-pro?t ventures that de?ne their mission as having a dou-
ble bottom line (Dees, 1998b; Pomerantz, 2003). Finally, they can be cross-sector SEVs, 33
collaborative initiatives engaging non-pro?t, for-pro?t and/or public organizations to solve
particularly challenging social problems (Bornstein, 1998; Kanter, 1999; Waddock and 35
Post, 1991).
This categorization emphasizes the governance form of SEVs and is consistent with 37
current conceptualizations that acknowledge the impact of institutional differences in the
entrepreneurial process (Eckhardt and Shane, 2003; Klevorick et al., 1995). Moreover, this 39
emphasis is important because it permits us to consider questions of major concern for
observers of SEVS, such as whether the risk of abandoning their original social goals is less 41
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when organizations embrace business management principles (Tuckman and Chang, 2004) 1
than when they actually adopt for-pro?t governance structures (see Christen, 2001; Rhyne,
2005). 3
This section reviews our understanding of these three types of SEVs (non-pro?t, for-
pro?t, cross-sector). It is important to note ?rst that social entrepreneurship is different from 5
both public entrepreneurship (Doig and Hargrove, 1987; Lewis, 1980; King and Roberts,
1987) and corporate social responsibility (Carroll, 1979; Hillman and Keim, 2001; Jones, 7
1995; Orlitzky et al., 2003; Waddock and Graves, 1997). The term public entrepreneurship
has been used to describe the action of individuals who create or profoundly transform a 9
public organization (Lewis, 1980). Social entrepreneurs may or may not be public sector of?-
cials; and their de?ning characteristic is not whether they create or change a public agency, 11
but the blend of business and social principles they bring to it. The termsocial entrepreneur-
ship has also been used to describe what has been traditionally labeled “socially responsible 13
corporate behavior.” The use of the term is incorrect. Socially responsible companies are
those whose primary goal is pro?t; and, for most of them, their socially responsible behavior 15
is motivated by the belief that it will improve the bottom line. In contrast, SEVs emphasize
social value and economic value creation is seen as a necessary condition to ensure ?nancial 17
viability (Mair and Marti, 2006).
2.1.1. Non-pro?t SEVs: Non-pro?t organizations adopting business models 19
A growing number of scholars regard SEVs as those entrepreneurial ventures initiated
by organizations in the non-pro?t and public sectors (Boschee, 1995; Leadbeater, 1997; 21
Froelich, 1998; Lewis, 1998; Thompson et al., 2000; Bryson et al., 2001; Mort et al., 2003).
Scholars adopting this view usually consider the for-pro?t elements of these ventures as 23
a means to further the social mission of the organizations (Boschee, 1995; Dees, 1998a;
Dees et al., 2001a, b; Drucker, 1989; Sagawa and Segal, 2000; SSE, 2002; Warwick, 25
1997; Zietlow, 2001). From this perspective, social entrepreneurship is a strategy to limit
dependency on donations and government subsidies and to become self-suf?cient (Froelich, 27
1999; Boschee, 1995; Frumkin, 2002). It is also a way of having access to a wider pool of
resources as public ?nancing continues to shrink (McLeod, 1997). 29
Non-pro?t SEVs are entrepreneurial because founders have traits and adopt behaviors
identi?ed with entrepreneurs. For example, according to Leadbeater (1997), the founders of 31
these ventures are driven, ambitious leaders, with great skills in communicating a mission
and inspiring staff, users and partners; and they are capable of creating impressive schemes 33
with virtually no resources. According to Catford (1998, p. 96),
they “combine street pragmatism with professional skills, visionary 35
insights with pragmatism, an ethical ?ber with tactical thrust. They
see opportunities where others only see empty buildings, unemployable 37
people and unvalued resources...Radical thinking is what makes social
entrepreneurs different from simply ‘good’ people. They make markets 39
work for people, not the other way around, and gain strength from a
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Social Entrepreneurial Ventures: Different Values — Different Process of Creation? 5
wide network of alliances. They can ‘boundary-ride’ between the various 1
political rhetoric and social paradigms to enthuse all sectors of society”
(as cited by Johnson, 2000, p. 10). 3
The fundamental difference between non-pro?t SEVs and EVs is, of course, their gov-
ernance form, which de?nes that they do not have owners, distribute dividends or pay 5
taxes. It is quite relevant because, as explained later, this difference correlates with factors
that affect the opportunities they are likely to pursue, their access to ?nancial sources and 7
their ability to build resilient organizations (see Tuckman and Chang, 2004; Jegen, 1998).
Table 1 includes a brief description of four examples of non-pro?t SEVs. Ten Thousand 9
villages is a chain of about 100 retail stores in the United States. It sells handicrafts bought
for a “fair price” from artisans who would otherwise be unemployed or underemployed. 11
College Summit offers workshops to students and teachers. Its goal is to increase college
enrolment among low-income students. It has a budget of about $2.1 million and is ?nan- 13
cially self-suf?cient. KaBOOM! builds playgrounds in low-income areas. It has a budget
of about $5.6 million. Finally, Benetch is a technology organization that has, for exam- 15
ple, developed a software program designed to help humanrights workers safely document
abuses. 17
Table 1. Non-pro?t SEVs.
Company Opportunity De?nition Leverage of Resources Organization Building
Ten Thousand Villages
is a non-pro?t program
of The Mennonite
Central Committee
(MCC). Established in
1946, it sells handicrafts
from developing
countries. It pays fair
salaries to artisans who
would otherwise be
unemployed or
underemployed. It has
100 retail stores
Founded by MCC worker
Edna Ruth Byler. She had the
idea when visiting MCC
volunteers. She started the
project in her basement and
developed the concept over
time
Bootstrapping: It took
more than 25 years before
Byler’s project moved out
of her basement Over the
years, it has grown to be a
self-suf?cient entity and
acquired and built up
equity of $8.3 million
Management: CEO
and fair trade expert
Paul Myers is
supported by COO
Celina Man. She is
responsible for the
day-to-day
management
including marketing,
sales, IT and human
resources
Hiring: It has always
relied on volunteer
workers
.
College Summit
was founded in 1993. It
works with low-income
students to increase
college enrolment. It
offers workshops to
students and teachers.
Budget: $2.1 million. It
is self-suf?cient
Founded by J.B. Schramm.
As a freshman advisor at
Harvard, he realized that
low-income students often do
not go to college. Years later
he rediscovered it while
working at the Teen Center
SEV- VC funds: New
Pro?t, Inc.; Ashoka; The
Genesis Group; The John
S. and James L. Knight
Foundation; The Samberg
Family Foundation More
than 50 companies,
foundations and public
funds have supported it as
donors or partners
Management:
Managers with
experience in both the
corporate and
non-pro?t sectors
build the executive
team
Hiring: Schramm says
that “to get the right
people is their biggest
challenge”
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Table 1. (Continued)
Company Opportunity De?nition Leverage of Resources Organization Building
KaBOOM! was
founded in 1995. It
builds safe and clean
playgrounds in low-
income neighborhoods.
It also has a second
objective: to bring
neighborhoods together
by involving them in the
playground design
process. Budget $5.6
million
Founded by Darrell
Hammond. His vision derives
from his wish to help social
workers. (They had raised
him.) He has been a leader in
community programs for over
12 years
It has about 40 sponsors
and funding partners (e.g.,
Ben & Jerry’s, Home
Depot and Motorola). It
receives donations from
individuals and sells
merchandise through its
website
Management: Run by
Hammond and 6
executive managers.
12 project managers
are responsible for
project tasks
Hiring: Many of its
full-time staff joined
in as volunteer
workers
Benetech was founded
in 2000. It is a
technology organization
and currently runs
several projects
including Martus, a
software program that
helps humanrights
workers safely
document abuses
Founded by Jim Fruchterman.
He was CEO and founder of
Arkenstone, a non-pro?t
organization that made
reading machines for the
blind
Personal savings: $3
million deriving from the
sale of Arkenstone to
Freedom Scienti?c
In 2002, the company
brought in about $500,000
in fees and royalties but it
spent $2.2 million
Management:
High-tech experts
with experience in
both the non-pro?t
and for-pro?t sectors
build the executive
team
Hiring: Its staff
includes the former
Arkenstone
engineering team
Source: See Appendix.
2.1.2. For-pro?t SEVs: For-pro?t initiatives for whom social goals are 1
central to their business model
For-pro?t SEVs are those ventures that blend business and social goals. Scholars have 3
referred to them as “double bottom line organizations” (Dees, 1998; Pomerantz, 2003);
and, most recently, as “bottom of the pyramid ventures” (Prahalad and Hart, 2002). While 5
popular in the daily press, academics have done little research on these ventures and once
again, their attention has been centered on the entrepreneurial qualities of founders. The 7
descriptions provided of them are similar to those offered by scholars studying non-pro?t
SEVS. According to Dees (1998), founders of for-pro?t social ventures recognize and relent- 9
lessly pursue opportunities to serve this mission. They also act boldly without being limited
by the resources inhand. Similarly, Pomerantz (2003) argues that social entrepreneurship 11
requires a “business-like” and innovative approach to ful?ll the social mission. In turn, Reis
and Clohesy (1999) ?nd that many social entrepreneurs believe that sustainability of social 13
change requires support of both philanthropic and earned income. However, in contrast to
most entrepreneurs, these individuals exhibit “a heightened sense of accountability to the 15
constituencies served and for the outcomes created” (Dees, 1998, p. 3).
In contrast to non-pro?t SEVS, for-pro?t SEVs share the same governance form as tra- 17
ditional EVs. As in the case of non-pro?t SEVS, scholars studying advanced examples of
for-pro?t SEVs — such as commercial micro?nance organizations (Christen, 2001; Rhyne, 19
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Social Entrepreneurial Ventures: Different Values — Different Process of Creation? 7
2004) — have also expressed concern regarding the long-term sustainability of their social
1
goals. Many would agree with these fears and point to examples, such as Ben and Jerry’s
or the Body Shop, as organizations that initially were for-pro?t SEVs but have increasingly
3
deemphasized the centrality of their social goals. Table 2 includes four examples of for-pro?t
SEVs. BancoSol is a commercial bank devoted to the provision of ?nancial services for the
5
poor. Located in Bolivia, the bank was founded building on international donations; but it has
been operating at a pro?t since its foundationin 1992. AgraQuest produces and commercial-
7
izes pesticide products from naturally occurring organisms. Citysoft is a software company
that sells “community enterprise,” an integrated web-based platformdesigned for non-pro?t
9
and for-pro?t, socially responsible organizations. Finally, Ripple Effects is also a software
company. It produces software designed to enable people to learn effectively.
11
2.1.3. Cross-sector SEVs: Inter-organizational arrangements created to solve
complex social problems
13
Some scholars have used the termSEVs to describe initiatives launched to deal with complex
social problems (Kanter, 1999; Henton et al., 1997; Waddock and Post, 1991). These SEVs
15
are characterized by their spanning across for-pro?t and non-pro?t organizations.
Table 2. For-pro?t SEVs.
Company Opportunity De?nition Leverage of Resources Organization Building
BancoSol was funded in 1992
in Bolivia. It is considered the
?rst commercial bank in the
Western Hemisphere created
to serve the ?nancial needs of
the poor. In 2002, it had 34
branches and gave 51,000
loans. Pro?table since its
foundation
Founded by PRODEM,
the ?rst NGO providing
micro?nance services in
Bolivia. PRODEM had
been founded by
Fernando Romero (local
business man) and Acción
International (expert on
micro?nance)
Fernando Romero led
efforts to leverage
start-up funds from
international
development
organizations such as
The Inter-American
Development
Corporation. It also
received investment
from local private
investors of members of
PRODEM’s board of
directors
Initial management
included Mr. Otero, a
charismatic leader with
little experience in
banking. Middle
management included
individuals from
PRODEM and new
hires with banking
experience
Initially, all employees
came from PRODEM
AgraQuest was founded in
1995. It searches for and
produces pesticide products
from naturally occurring
microorganisms
Founded by Pamela G.
Marrone. She has a Ph.D.
in entomology and has
worked for Monsanto and
Nordisk where she led
research on alternatives
for chemical pesticides
Initially, savings, family
and friends (total:
$500,000)
Later, SEV investors
(over $17 million)
such as Burrill &
Company; Otter
Capital, L.L.C.;
Rockefeller & Co.;
BioAsia Investments,
L.L.C.; JSS
Management
Management: Pamela
G. Marrone, founder
leads the management
team
Hiring: The ?rst
employees came from
Marrone’s last
employer Novo
Nordisk. The company
hires mostly scientists.
It gets up to 200
resumes for every job
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Table 2. (Continued)
Company Opportunity De?nition Leverage of
Resources
Organization Building
Citysoft was founded in 1997.
It sells Community
Enterprise, an integrated
web-based platform,
especially developed for
non-pro?t and for-pro?t
socially responsible
organizations
Founded by Nick
Gleason. He had started 4
ventures successfully and
had experience in the
private, public and
non-pro?t sectors
Family, friends and 2
private investors
SEV investors ($1.7
million): Sustainable
Jobs Fund; Calvert
Small Equities Fund;
NYCom. Investment
Corp; Coastal
Enterprises of Maine
Management: N.
Gleason, CEO, R.
Rivera, CFO (Price-
waterhouseCoopers)
and A. Magno, Doctor
of Operations
expertise in web tech.
and design
Hiring: N.I.
Ripple Effects was founded in
1997. It provides interactive
software that enables people
to learn effectively and
individually. The company
reported revenues of
$110,000 in the ?rst quarter
of 2001
Founded by Alice Ray
(expert in social learning)
and Sarah Berg. It is the
result of 18 years of
research. Ms. Berg had
the experience and
knowledge in large scale
multimedia projects
SEV investors: Paci?c
Community Ventures;
GuruWizard Fund
LLC
Awards: The Wall
Street Journal;
National Social
Venture Business Plan
competition (2nd
place); Emerging
Growth Scholarship
Management: Alice
Ray (CEO) and Sarah
Berg (COO).
Supported by VP Mr.
Brentano, software
expert and former VP
at McAfee.com
Hiring: 35% had been
minority youth
coming out of
opportunity programs
Source: See Appendix.
Scholars have labeled these initiatives as entrepreneurial, realizing — as their counter-
1
parts interested in non-pro?t and for-pro?t SEVs — that founders use strategies tradition-
ally identi?ed with entrepreneurs. Waddock and Post’s (1991) article on catalytic change 3
is central to this perspective. Using as examples the leaders of Partnership for a Drug-Free
America and Hands Across America, they argue that social entrepreneurs are individuals 5
with signi?cant personal credibility. They mobilize private sector resources to raise public
awareness and help alleviate multi-faceted social problems. Their efforts produce a catalytic 7
effect, permitting a short term “alliance of organizations and their members to deal with an
important problem in such a way as to foster long term change” (Waddock and Post, 1991, 9
p. 394). As business entrepreneurs, these individuals are expected to create an enterprise
that will span several organizations (Kanter, 1999). Henton et al. (1997) state that so-called 11
“civic entrepreneurs” are a new generation of leaders, both acting in and linking with busi-
ness, government, educationXS and community. Finally, Bornstein (1998) speaks of social 13
entrepreneurs as visionary and creative “path breakers” who are “totally possessed” by their
social vision. 15
According to current descriptions, cross-sector SEVs differ fromnon-pro?t or for-pro?t
ones in that they are likely to be rather short-lived. The motivation for entrepreneurs is not 17
the creation of a new organization, but the creation of a path de?ned so participants can
alleviate a complex social problem; whether or not the initiative derives a pro?t is irrelevant. 19
Table 3 includes three notable examples of cross-sector SEVs. Hands Across America was
a bene?t event staged on 25 May 1986. Over 6 million Americans held hands for 15 minutes 21
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Social Entrepreneurial Ventures: Different Values — Different Process of Creation? 9
along a path stretching 4,125 miles long across the continental U.S. Participants paid $10–35 1
to reserve their place in line; the pro?ts were donated to local homeless charities. Live Aid
consisted of a rock concert held in 1985. More than one billion people worldwide watched 3
the mammoth concert. The event raised about $100 million to battle famine in Africa and
became the prototype for live charity events. Finally, Partnership for a Drug-Free America 5
(PDFA) is a non-pro?t coalition of professionals from the advertising and communications
industry committed to limiting drug addiction in the United States. In 2002, PDFA reported 7
$19 million in income and, since 1987, the U.S. media has donated over $3 billion to the
topic in time and space. 9
In short, scholars have studied non-pro?t, for-pro?t and cross-sector SEVs and argued
that all these ventures are social because they aimto address a problemthe private sector has 11
not adequately addressed. In turn, they have described themas entrepreneurial because their
founders have qualities identi?ed with entrepreneurs. None of these ventures, however, ?t the 13
standard governance formimplicit inmost entrepreneurial research. Theyare not supposed to
maximize pro?t (see Dees, 1998). Theymay be rather fragile since the legal formadopted can 15
eventually push them to abandon the reason that originally inspired founders to create them
(see Tuckman and Chang, 2004; Rhyne, 2004). Finally, they may also be rather unstable, 17
as they may not need a resilient organization to serve their purposes (see Westley, 1991).
Next, the paper compares the process of creation for EVs and SEVs and explores whether 19
?ndings fromresearch on EVs canbe extended tounderstand the process of creationof SEVs.
3. Entrepreneurial Ventures vs. Social Entrepreneurial Ventures 21
The entrepreneurial process involves numerous activities, such as identifying a business
opportunity, researching its potential market, ?ling for a patent and/or attracting investors 23
(see Bhave, 1994; Gartner, 1985; Vesper, 1980). For the purpose of this paper, we cluster
these tasks around three analytically distinct processes: opportunity de?nition, leverage of 25
?nancial resources and organizational building. These three processes, of course, do not
follow each other linearly but overlap and feed on one another. For example, even when 27
entrepreneurs initially develop a concept for their ventures and then gather resources to
develop this concept, it is likely that the negotiations involved in the process of leveraging 29
resources will produce the re?nement of the opportunity.
Clustering the activities involved in the entrepreneurial process into these three pro- 31
cesses facilitates the identi?cation of crucial differences between EVs: EVs can be valued
exclusively in ?nancial terms, while SEVs cannot. Considering SEVs strictly in ?nancial 33
terms would imply that they are not different from socially responsible ventures (Waddock
and Graves, 1997) when, in fact, fundamental to the nature of SEVs (whether non-pro?t, 35
for-pro?t or cross-sector) is that they serve a social mission that is not overshadowed by
pro?t maximization (Mair and Marti, 2006). 37
The process of opportunity identi?cation is inherently cognitive. Entrepreneurs inten-
tionally (Katz and Gartner, 1988) identify a solution to a speci?c problem or need because 39
of diverse motivations, building on the information available to them(Shane, 2000) through
their backgrounds (Shane and Khurana, 2003; Jones, 2001) and/or their networks of relations 41
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Table 3. Cross-sector SEVs.
Company Opportunity De?nition Leverage of
Resources
Organization Building
Hands Across America was a
bene?t event staged on 25
May 1986. Over 6 million
Americans held hands for 15
minutes along a 4,125 miles
long path across the
continental U.S. Participants
paid $10–35 to reserve places
in line. The pro?ts were
donated to local homeless
charities
Ken Kragen had the idea
for the event and the
vision to raise the
awareness of America
about the issues of hunger
and homelessness. He
gathered the ?nancial
resources and brought
together the right people
to make it possible
Participants: $10–35
participation fee
(total: about $20
million); for many
participants, fees were
waived to attract more
people Corporations
(total: $30 million):
Coca-Cola ($5
million); Citibank ($3
million)
Hands Across
America was a unique
one-time event.
Live Aid consisted of two
rock concerts held in 1985.
More than a billion people
worldwide watched the
mammoth concert
The event raised about $100
million to battle famine in
Africa and became the
prototype for live charity
events
With a BBC documentary
on the famine in Ethopia
in mind, Bob Geldof
wrote “Do They Know
It’s Christmas? / Feed The
World.” Thereafter
Geldof, lead singer of the
Boomtown Rats, took a
trip to Africa. What he
saw there shocked him
and he decided to raise
more money with this
gigantic rock concert
Donations: Donations
by phone (call centers
in 30 countries); many
companies donated
goods and services
Earned income:
Merchandise is still
generating income
Live Aid was a unique
one-time event. Bob
Geldof used his
personal contacts as a
songwriter and artist
to form partnerships
with famous artists
and the music industry
Partnership for a Drug-Free
America was founded in
1987. It is a non-pro?t
coalition of professionals
from the advertising and
communications industry
PDFA reported $19 million in
income in 2002. Since 1987,
U.S. media donated over $3
billion in time and space
Phillip Joanous, chairman
of the Los Angeles
advertising agency Dailey
& Associates, looked at
drug abuse as an industry.
He convinced Louis
Hagopian, chairman of
the American Association
of Advertising Agencies,
and 200 ad agencies to
create a national anti-drug
campaign
Private sector funding:
American Association
of Advertising
Agencies (funded ?rst
project); Robert Wood
Johnson Foundation
(lead support);
support from more
than 200 foundations
and companies
Management: In
2002, Stephen J.
Pasierb followed
retired Richard D.
Bonnette as President
and CEO of PDFA
It has a relatively
small staff but it
works with hundreds
of volunteers
Source: See Appendix.
(Eckhardt and Shane, 2003; Aldrich, 1999, 2005). Financial gain is certainly a motivator for 1
entrepreneurs at this stage, but many do not conduct cost-bene?t calculations when deciding
to launch a new venture (Aldrich, 2005). Therefore, whether entrepreneurs are expected to 3
produce a bene?t or alleviate a social problem, valuation, may have, in principle, little
differentiating impact on the process of opportunity identi?cation in EVs and SEVs. 5
Leverage of ?nancial resources clusters all activities connected with the mobilization of
?nancial support. Research relates that most entrepreneurs launch new ventures using their 7
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Social Entrepreneurial Ventures: Different Values — Different Process of Creation? 11
own funds (Aldrich, 2005). In this scenario, one expects to see little difference between EVs 1
and SEVs. However, most entrepreneurs are likely to use outside resources eventually —
whether friends and family, credit card ?nancing or specialized investors. As soon as the 3
entrepreneur uses external resources, substantial differences between EVs andSEVs emerge.
These differences derive from the need to justify the ?nancial sustainability of the venture; 5
and, when dealing with non-pro?t sources, the need to measure and/or prove the venture’s
potential social impact. 7
Finally, organization building involves those tasks usually attached to organization
founding, such as obtaining permits, incorporating, etc. (Katz and Gartner, 1988; Gartner, 9
1985). Frequently, it may simply involve including business income on the entrepreneurs’
tax returns. However, the process might be rather complex and involve permits and ?l- 11
ings with multiple government bodies (De Soto, 1989). Most interestingly, the process may
involve identifying and engaging individuals as organization members. Entrepreneurship 13
scholars, however, have frequently clustered together the engagement of individuals and
the leverage of ?nancial resources (Sahlman, 1996). It is helpful, however, to distinguish 15
between these two processes. Financiers and organizational members will behave differ-
ently as their engagement with founders is also likely to be different. Financiers provide 17
money to the venture, while organization members join the entrepreneur in his efforts to
realize the opportunity. Financiers, then, would consider the ?nancial returns of a venture 19
in a different light than organization members.
Next, building on published research, the paper identi?es fruitful areas of empirical 21
research and areas in which caution is appropriate when extending research on EVs.
3.1. De?nition of opportunities 23
Entrepreneurial opportunities (EOs) are those “situations in which new goods, services,
raw materials, markets and organizing methods can be introduced through the formation 25
of new means, ends, means-ends relationships” (Casson, 1982; Shane and Venkataraman,
2000; Eckhard and Shane, 2003, p. 145). The distinctive quality of social entrepreneurial 27
opportunities (SEOs) is that each is an EOthat solves a social problem. But is this distinction
relevant? 29
Since the process of opportunity identi?cation is purely cognitive, in principle the dis-
tinction is irrelevant. All opportunities are idiosyncratic; and most opportunities, social 31
or not, provide some kind of social bene?t. Moreover, as previously mentioned, the pro-
cess of opportunity de?nition is frequently disconnected from a true cost-bene?t analysis 33
(Hamilton, 2000; Aldrich, 2005). Some entrepreneurs begin newventures because they want
independence; others followopportunities for which the ?nancial rewards are not clear; still 35
others see a source of riches they may not be able to attain otherwise. It might be best, then,
to consider the social bene?t of ventures as a quality that organizations may value in higher 37
or lesser degree instead of a yes or no condition (see Dees, 1998b).
There might be substantive differences in the processes of identi?cation of EOs and 39
SEOs. Mounting empirical evidence connects the discovery of, and decision to, exploit
EOs with entrepreneurs’ prior knowledge (Freeman, 1982; Romanelli, 1989; Shane and 41
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Venkataraman, 2000; Romanelli and Schoonhoven, 2001; Shane and Khurana, 2003). 1
Shane (2000) examines eight cases of entrepreneurial opportunities around the same
technology and ?nds a close connection between opportunity and background. Romanelli 3
and Schoonhoven(2001) compare the opportunities and backgrounds of 17 founders identi-
?ed in the Inc. 500 listing of high-growth companies between 1982 and 1999. They also ?nd 5
a close association between the expertise and experience of founders and the organizations
they create. Finally, Shane and Khurana (2003) showthat prior experience affects founders’ 7
expectations regarding the liability of newness and their consequent decision on whether or
not to exploit an opportunity. 9
Research on EVs also suggests that some social locations provide easier access to
entrepreneurial opportunities. These locations are characterized by the amount of either 11
diverse or privileged informationentrepreneurs can access. Diversity provides fertile ground
for the development of newideas and hence, for opportunity discovery (Aldrich and Zimmer, 13
1986). Scholars have identi?ed these locations amidst India and China nationals with con-
nections to Silicon Valley entrepreneurs (Saxenian, 2001). These locations are most likely to 15
result in pro?table ventures when they function as structural holes (Burt, 1992) —i.e., when
they permit entrepreneurs to link with individuals otherwise not likely to be connected to 17
one another (Aldrich, 1999). Privileged access to information also provides a good platform
to identify entrepreneurial opportunities. Particularly interesting in this respect is research 19
on entrepreneurial spin-offs from technological advances (e.g., Klepper, 2001).
The same kind of systematic analysis about the process of identi?cation of SEOs is 21
lacking (Hockerts, 2006). But the available literature invites caution regarding the exten-
sion of ?ndings on the identi?cation of EOs. Observers of non-pro?t and for-pro?t SEVs 23
suggest that social entrepreneurs de?ne SEOs motivated by their realization of a market
failure — an area where markets do not do a good job of valuing social improvements, pub- 25
lic goods and bene?ts for people who cannot afford to pay (Dees, 1998a). College Summit,
for example, a non-pro?t SEV, is dedicated to increasing college enrolment of low-income 27
students. Founder J.B. Schramm identi?ed this opportunity; because of his experience as a
freshman advisor at Harvard, and his later work at a teen center (see Table 1). AgraQuest is 29
a for-pro?t SEV that develops pesticide products fromnaturally occurring microorganisms.
Pamela G. Marrone identi?ed this opportunity; building from her educational background 31
and experience with biological pesticides, Ms. Marrone knew that there were environmen-
tally friendly alternatives to chemical pesticides (see Table 2). In addition, observers of 33
cross-sector SEVs have argued that their founders are driven by a sense that the particular
problem(e.g., world hunger) has reached crisis status (Waddock and Post, 1991). For exam- 35
ple, Bob Geldof raised $100 million in a mammoth rock concert to ?ght famine in Ethiopia.
His background as a songwriter and artist led him to de?ne a “mammoth rock concert” as 37
an opportunity; his connections with rock stars and other members of the music industry
helped him to exploit it (see Table 3). 39
In short, research on EOs establishes a connection between entrepreneurs’ backgrounds
and the opportunities they identify. This research, however, does not specify whether 41
entrepreneurs with backgrounds in a particular problemarea versus those with backgrounds
in a particular industry have a differential advantage when identifying and exploiting an 43
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Social Entrepreneurial Ventures: Different Values — Different Process of Creation? 13
entrepreneurial opportunity. This distinction, however, may be quite relevant for SEVs — 1
particularly non-pro?ts. Many non-pro?t organizations are being encouraged to adopt
entrepreneurial approaches, with little consideration of whether expertise on a particular 3
social problem translates into expertise on de?ning an income-generating solution. For
example, the author was contacted by an agency whose mission is to provide training to 5
welfare mothers to help them become more marketable workers. This agency was con-
sidering expanding its work by creating a placement agency for temporary workers. In 7
accordance with research on EOs, the agency had a strong background in the area and
hence, an advantageous position to identify an income-generating venture. But, all things 9
equal, would this position give the organization an advantage to compete with established
placement agencies? This is, of course, an empirical question. But it is also cautionary in 11
terms of the dangers inherent in translating research from one pro?le of organization (EVs)
to another (SEVs). 13
Second, in a recent paper, Hockerts (2006) provides a pioneering analysis of SEOs.
He argues that most of the SEOs currently being pursued are connected to one of three 15
sources: (i) they may feed on an undercurrent of activism that fuels demand for products
such as fair-traded coffee or environmentally friendly products; (ii) they may emerge froma 17
reframing, which encourages seeing people in need as clients instead of bene?ciaries. This
is the origin, for example, of micro?nance which grewout of the realization that the poor can 19
not only pay the full cost of loans, but also bene?t from having access to such loans. After
all, regardless of size, for a business that needs ?nancing, “the most expensive loan is the 21
one that never arrives.”
1
Finally, (iii) SEOs may emerge following the growth in the number
of “socially conscious” investors willing to derive a lesser ?nancial return. Rubicon Bakery 23
and Rubicon Lanscape in the Bay Area of California (Moore, 1999) are examples of SEVs
created thanks to this pro?le of investor. Both businesses compete with traditional ?rms 25
while providing jobs and training for disabled or homeless people (Hockerts, 2006. p. 12).
Entrepreneurship research has long acknowledged a connection between entrepreneurial 27
opportunities and emerging social trends (Timmons, 1990). In fact, perhaps the most inter-
esting question deriving from these ?ndings in the context of SEOs is whether these trends 29
(activism, seeing the poor as clients, and socially conscious investment) that have provided a
breeding ground for SEVs may also be generative of EVs. And, perhaps even more relevant 31
for SEVs, could there be a replacement of SEVs by EVs over time? In fact, the likelihood of
replacement is an important concern among observers of micro?nance, perhaps one of the 33
most developed forms of SEVs (see Christen, 2001; Rhyne, 2004). This concern follows
developments in countries such as Paraguay where consumer lenders (i.e., purely for-pro?t 35
ventures) have, in fact, pushed SEVs out of the market through aggressive (bordering on
misleading) marketing techniques (Rhyne, 2004). 37
In short, there is much to learn from comparing what is known about the process of
identifying EOs and SEOs. Most signi?cantly, the comparison suggests a need to continue 39
research on the connection between the backgrounds of entrepreneurs and their ability
1
Comment by Francisco Otero, ?rst General Manager of BancoSol, the ?rst commercial bank created to provide
?nancial services to the poor.
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14 S. Dorado
to de?ne cash-generating ventures. Particularly, there is a need to qualify what types of 1
backgrounds provide the greatest competitive advantage to a potential entrepreneur. All
things being equal, if it is experience in a problem area, SEVs (e.g. NGO’s providing 3
?nancial services to the poor) may have an advantage. But, if the background is in the
provision of a service for-pro?t, EVs (e.g., ?nancial institutions providing consumer loans) 5
may have the advantage — whether they identify the opportunity ?rst or, as happened in
Paraguay, they outcompete the SEVs that initially identi?ed it. 7
3.2. Leverage of ?nancial resources
Research on EVs regards opportunity de?nition as central. The assumption is that given 9
the right opportunity, resources will follow (Kirzner, 1997; Stevenson and Gumpert, 1985).
This assumption is supported by a substantial body of empirical evidence, which shows that 11
most new business ventures begin without much capital and that most of the initial funds
used in the creation of new ventures derive from entrepreneurs’ own savings (Aldrich, 13
2005). Growth start-ups, however, are likely to require large amounts of upfront capital;
and, therefore, entrepreneurs are forced to look for outside ?nancing. For example, research 15
on start-ups in Silicon Valley has shown that technology-driven start-ups began operations
with funds of about $2.5 million (Burton, 1995). 17
Researchers have shown that, regardless of whether it is savings or outside funds, consid-
erations of traditional creditworthiness do not really apply to the ?nancing of these ventures. 19
In theory, the crucial aspect of the ?nancing backing of a project is the monetary valuation
of opportunities; but, in practice, the valuation of ventures is extremely dif?cult. In fact, 21
researchers have shown that ?nancing decisions frequently depend less on ?nancial merits
and more on factors such as the reputation of founders as effective, their success in pre- 23
vious ventures, their network of relations and their skills to frame a project in ways that
encourage others to share their vision (Aldrich and Fiol, 1994; Aldrich, 1999; Lounsbury 25
and Glynn, 2001). Finally, comparative studies have also shown that founders’ access to
?nancial resources is, in fact, largely dependent on the availability of local ?nancial infras- 27
tructure. Studies have argued that their geographical location de?nes venture access to social
capital (Stuart and Sorenson, 2003; Westlund and Bolton, 2003), venture capital (Manigart 29
et al., 2002; Mason and Harrison, 2000; Manigart, 1994), and general ?nancial resources
(Mason and Harrison, 1995). For example, ventures located in Silicon Valley are more likely 31
to have access to venture capital than those located in most other cities in the United States.
Research on SEVs suggests that these ventures are as likely to require outside ?nancing 33
as high growth EVs. Researchers on non-pro?t SEVs have argued that non-pro?ts are fre-
quently cash- or asset-poor and hence lack the ability to accumulate money to seed commer- 35
cial ventures, particularly those non-pro?ts that consistently run de?cits and rely on external
donations to ?nance their operations (Tuckman and Chang, 2004). Observers of for-pro?t 37
SEVs have also argued that outside sources of ?nancing are more central to the process of
realizing SEVs than they are for EVs (Dees and Dolby, 1991, p. 2). Finally, observers of 39
cross-sector SEVs agree with those studying EVs and, in fact, they have focused most of
their research on the talents of their promoters as mobilizers of resources (Waddock and 41
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Social Entrepreneurial Ventures: Different Values — Different Process of Creation? 15
Post, 1991; Leadbeater, 1997). They have suggested that these individuals have a vision 1
and are skillful at presenting this vision in a way that helps them leverage the resources
necessary to make it possible (Waddock and Post, 1991; Thompson et al., 2000). This is not 3
that surprising since, while most founders of EVs can launch a venture without being very
innovative, founders of cross-sector SEVs are frequently radical innovators (Kanter, 1999; 5
Leadbeater, 1997) and are likely to require outside funds. The cases included in Table 3 illus-
trate this conclusion. In the Live Aid project, for example, Bob Geldof bypassed traditional 7
structures and brought together unrelated artists and music companies, convinced corpora-
tions to donate goods and services and sold the international media rights for millions of 9
dollars. His concept became the prototype for live charity events.
Regarding the connection between access to resources and location, studies lack the same 11
kind of systematic analysis regarding the ?nancial needs of SEVs. It is interesting though
that research points to a direct connection between funding availability and the creation of 13
SEVs. Scholars interested in non-pro?t SEVs have identi?ed frustration with rigid and slow
access to funds fromtraditional non-pro?t sources (donations or government contracts), and 15
suggest it is a crucial motivation for the growth of non-pro?t SEVs (Young and Salamon,
2002). In fact, non-pro?t SEVs may use sources of ?nancingother thanthe traditional donors. 17
For example, Benetech secured the initial funds to launch their venture fromthe proceeds its
founder derived fromthe sale of a previous business; College Summit fromfunds specialized 19
in social ventures; KaBOOM! from private sponsors; and Ten Thousand Villages followed
a typically entrepreneurial pattern, deriving funds froma typical bootstrapping strategy (see 21
Table 1).
Finally, as previously discussed, the emergence of new philanthropic investors willing 23
to fund ventures that serve social goals has been an encouragement for launching SEVs
(Hockerts, 2006). In recent years, there has been notable growth in organizations specialized 25
in ?nancing SEVs. Some of the non-pro?t and for-pro?t SEVs identi?ed in this article have
been funded by these funds. For example, College Summit received investment from New 27
Pro?t, Inc. and Ashoka; Citysoft received it fromthe Sustainable Jobs Fund and the Calvert
Small Equities Fund; and Paci?c Community Ventures and GuruWizard Fund LLC funded 29
Ripple Effects (see Tables 1 and 2). The behavior and evolution of these and other investing
organizations is an important area worth a careful look. Jegen (1998), Clark and Gaillard 31
(2003), and Rubin and colleagues (Rubin, 2004; Benjamin, Rubin and Zielenbach, 2004;
Bates, Bradford and Rubin, 2006) providing pioneering research in this area. 33
In short, the comparative analysis of the process of leverage of resources in EVs and
SEVs indicates, ?rst of all, that there is a need to conduct the same kind of rigorous research 35
on the process of resource mobilization for SEVs that has been done for EVs. More research
is also needed regarding the development of organizations specialized in ?nancing SEVs. 37
More interestingly, though, the analysis shows a drastic difference in emphasis. In con-
trast to researchers on EVs who place resource mobilization as secondary to opportunity 39
identi?cation, observers of SEVs see it as central. There needs to be further exploration
of this different prioritization, with systematic studies designed to investigate whether this 41
difference derives from the speci?c nature of SEVs or is the result of the lack of systematic
empirical evidence. Finally, as recent entrepreneurial research suggests, scholars also need 43
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to consider whether a process in which leverage of resources follows opportunity identi- 1
?cation may actually be the exception instead of the rule, not only among SEVs but also
among EVs (see Nelson and Baker, 2005; Baker, Miner and Eesley, 2003; Ruef, Aldrich 3
and Carter, 2003).
3.3. Organizational building 5
When studying organization building, one needs to consider both the formal aspects con-
nected to the process as well as those related to the recruitment of employees and the 7
development of an organizational culture (Aldrich, 1999). As a formal process, organi-
zation building involves all aspects connected to the creation of a legal persona through 9
bureaucratic steps, which can be more or less cumbersome (De Soto, 1989). From this
perspective, the crucial difference between EVs and SEVs is that founders of SEVs may 11
actually have more choices.
EVs are likely to be constrained to formpro?t ?rms while founders of SEVs can choose to 13
register with the IRSas tax-exempted organizations. This is important because the choice of a
speci?c legal formhas multiple consequences. Most straightforwardly, regardless of activity, 15
the founding of a non-pro?t organization requires the creation of a board of directors. This
makes the process more cumbersome and potentially more constraining of entrepreneurs’ 17
managerial freedom. For-pro?t organizations, even when required by law to have a board,
can have the entrepreneur as its only member while non-pro?ts are required to have at least 19
three independent directors. Second, the choice of a speci?c legal form also has impor-
tant consequences regarding access to ?nancial resources. As previously discussed, there 21
is a betterestablished infrastructure to ?nance for-pro?t than non-pro?t organizations. For
example, SBA guaranteed loans are earmarked for for-pro?t ventures. This difference in 23
access may actually encourage entrepreneurs who would have otherwise decided for a non-
pro?t form to launch a for-pro?t business; such was the reasoning followed, for example, 25
by Hilda Romero, the founder and director of Ritmos, a small dance program for chil-
dren in Worcester, Massachusetts. She chose to open Ritmos as a for-pro?t corporation 27
after realizing that, maintaining the same values, she could get easier access to funds and
maintain more managerial independence as a corporation than as a tax-exempted non-pro?t 29
organization.
Finally, scholars have argued that the decision of a non-pro?t SEV to engage in income- 31
generating activities may, over time, cause the organization to alter its behavior and drift
away from its mission (Tuckman and Chang, 2004; Frumkin, 2002). We can speculate 33
that this might even be more likely in the case of organizations when founders choose
a for-pro?t SEV form of governance. For example, discussing the case of micro?nance 35
organizations, Rhyne (2004) warns of the risks of engaging private investors. She argues
that private investors may fail to understand the business of micro?nance and run it badly. 37
They may also gradually move away from the low-end of the market, serving only the
“easiest” clients. Finally, some commercially-dominated institutions may actually exploit 39
clients through unscrupulous practices.
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Social Entrepreneurial Ventures: Different Values — Different Process of Creation? 17
Regarding hiring and organizational development policies, research is only beginning 1
in the entrepreneurship ?eld (see Burton, 1995, 2001; Baron et al., 1999a, b, 2001; Aldrich,
1999) and is almost absent in the social entrepreneurial one (see Bryson, Gibbons and Shaye, 3
2001 for a pioneering effort). Researchers have conceptualized organization building as a
dual process which includes, ?rst, hiring and training; and second, the development of an 5
organizational community of practice — “patterned social interaction between members
that sustains organizational knowledge and facilitates its reproduction” (Aldrich, 1999, 7
p. 41).
Hiring is dif?cult for all start-ups. Founders have to compete with established corpo- 9
rations that can offer potential employees more secure career prospects (Williamson et
al., 2002). Accordingly, start-ups have dif?culty attracting experienced managers and are 11
then likely to hire less experienced staff members. Managers’ ability to attract quality
individuals depends on their ability to spot and attract talented young individuals will- 13
ing to trade security for the excitement and potential for knowledge and wealth of work-
ing in a start-up. In the case of SEVs, the social mission of the ventures may actually 15
increase their attractiveness toward potential hires. That was the opinion, for example, of
the founder and CEOof Voxiva (Global Social Venture Competition Symposium, Columbia 17
Business School, 10 October 2003). Voxiva builds phone and web solutions that help iso-
lated communities (e.g., post-con?ict Iraq) access computers throughtouch-tone telephones. 19
It also helps detect outbreaks of disease, monitor patients and track critical healthcare
supplies. 21
Second, hiring individuals who already have things in common facilitates the develop-
ment of a coherent organizational community of practice and hence supports the endurance 23
of organizations (Stasser et al., 1989). Considering the dif?culties in hiring faced by all start-
ups, SEVs are more likely to face dif?culties than EVs simply because they are more likely 25
to include individuals with diverse backgrounds (see Cooney, 2003; Kapur and Weisbrod,
2000). In addition, in the particular case of cross-sector SEVs, there is also some evidence 27
that suggests that the biggest threats to their survival are the dif?culties of balancingfor-pro?t
and non-pro?t principles and cultures (see Rubin and Stankiewicz, 2001). 29
In short, organization building is an area of major concern among observers of SEVs,
considering the potential risk of “mission drift” and the dif?culties in building organizations 31
whose aim is to bridge principles and practices frequently considered incompatible. This
is also an area in which the entrepreneurship literature currently has little to offer. Our 33
understandingof both EVs and SEVs will bene?t largely frommore attention given to issues
connected to founders’ choice of legal formand the challenges in recruiting individuals and 35
building strong organizational cultures.
4. Summary and Implications for Research and Practice 37
This study has explored whether differences between SEVs and EVs are worth speci?c
research attention by entrepreneurial scholars. The answer is that the need for speci?c 39
research is pressing (see also Austin, Stevenson and Wei-Skillern, 2006). There are suf-
?cient areas in which SEVs are distinct and thus deserve speci?c attention. Speci?c 41
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implications and research suggestions can be organized around the three clusters of 1
entrepreneurial tasks identi?ed: opportunity de?nition, leverage of resources and organi-
zational building. 3
Mounting evidence shows a connection between the background of entrepreneurs and
the opportunities they identify and exploit. The speci?c nature of SEVs calls attention to 5
the relevance of this knowledge. Much of the SEV literature suggests that it is familiar-
ity with the problem area that is important. The EV literature, however, does not make 7
the same distinction. Entrepreneurs can be either experienced in a problem (see Shane,
2000) or they can be experienced in an industry (Klepper, 2001). The distinction, how- 9
ever, is rather relevant to non-pro?t managers who are being “encouraged” to identify
income-generating ventures, building on their knowledge of a social problem, whether 11
because sources of ?nancing for their activities are drying up or from general discontent
with more traditional approaches. From a research perspective, a cross-sectional study ask- 13
ing entrepreneurs about their backgrounds and the origin of their ventures may be ade-
quate. Such a study should include both successful and failed ventures and acknowl- 15
edge that whether an entrepreneur has experience with a problem or an industry may
result in relevant ?ndings regarding current understanding of how entrepreneurs identify 17
opportunities.
A review of the literature indicates a difference in the priorities of EVs and SEVs 19
regarding the process of leverage of resources. Given a good opportunity and a competent
team, money would followis the adagio found in most entrepreneurship research (Stevenson 21
and Jarillo, 1990; Stevenson et al., 1999). Observers of SEVs, however, place mobilization
of ?nancial resources as a central concern for social entrepreneurship. Lack of resources is 23
the motivator of non-pro?ts to consider creating SEVs. The need and talent of the promoters
of cross-sector initiatives to mobilize resources is the fundamental reason why scholars have 25
labeled these initiatives as entrepreneurial. Finally, the fact that one can address a social
problemwithout using government or donation funds is behind the buzz of for-pro?t SEVs. 27
It would then be quite interesting to pursue research questions that address the centrality
of resources to the identi?cation of opportunities and whether it is truly speci?c to SEVs. 29
In fact, some of the recent internet and real estate “bubbles” provide good examples of
entrepreneurs following the money. 31
Regarding organization building, the paper suggests that the choice of governance form
is a central aspect to the formation of SEVs. Most notably, it can de?ne their ability to remain 33
loyal to their social goals. It is thus fundamental to consider it in future studies addressing
SEVs. In addition, the study suggests that there are many similarities between EVs and 35
SEVs in terms of hiring and developing capabilities; but it also suggests that social ventures
are more likely to be unstable since they are more likely to include individuals with diverse 37
backgrounds.
For practitioners, this paper is fundamentally cautionary. Managers usually know that 39
most research in management builds on research in very large corporations and may not be
applicable to small businesses and start-ups. Founders of SEVs should know that most of 41
what we knowabout entrepreneurship builds on research on EVs and may not be applicable
to their non-pro?t, for-pro?t or cross-sector SEVs.
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Social Entrepreneurial Ventures: Different Values — Different Process of Creation? 19
5. Acknowledgments 1
A previous version of this paper was presented at the Academy of Management Conference
in New Orleans, 2004. I acknowledge the helpful research and writing assistance of Holger 3
Haettich in previous versions of this manuscript.
Appendix. References Used to Build Tables 1, 2 and 3 5
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Appendix. (Continued)
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doc_827458705.pdf
During this such a information pertaining to social entrepreneurial ventures different values so different process of creation, no.
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Journal of Developmental Entrepreneurship 1
Vol. 11, No. 4 (2006) 1–24
© World Scienti?c Publishing Company 3
SOCIAL ENTREPRENEURIAL VENTURES: DIFFERENT VALUES
SO DIFFERENT PROCESS OF CREATION, NO? 5
SILVIA DORADO
College of Business Administration 7
Ballentine Hall 7 Lippitt Rd.
University of Rhode Island 9
Kingston, RI 02881, USA
[email protected] 11
Received November 2005
Revised July 2006 13
Entrepreneurship scholars have identi?ed factors that frame the entrepreneurial process, such as the
gender, race, ethnicity and wealth of entrepreneurs, the technological nature of the products or services 15
offered, or the geographic location of ventures. Ventures bridging pro?t and service goals in new
and creative ways are mushrooming. Building on a review of current research, the author speculates 17
that “bridging pro?t and service” should be added to the list of factors that de?ne the entrepreneurial
process. In doing so, she calls for caution when extending to social entrepreneurial ventures’ ?ndings 19
on research regarding business ventures, and for more research exploring the impact of this factor on
the entrepreneurial process. 21
Keywords: Entrepreneurship; social entrepreneurship; social ventures; double bottomline organizations.
1. Introduction 23
Ventures bridging pro?t and service goals in new and creative ways are mushrooming
(Eakin, 2003). Called social enterprises, social ventures or double bottomline organizations, 25
their hybrid nature makes them quite appealing: for-pro?t organizations that do good while
doing well ?nancially; or non-pro?t organizations that self-?nance their do-good operations. 27
Organizations bridging service and pro?t goals are not a new phenomenon. Hospitals and
educational institutions have been doing it for years. What is new is that these ventures are 29
spreading into non-traditional areas such as ?nancial intermediation (e.g., Grameen Bank),
personnel staf?ng (e.g., NewSource Staf?ng, Inc.), retailing (e.g., One Thousand Villages) 31
and software development (e.g., Ripple Effects).
Academic research on social ventures is still in its infancy, and considering the current 33
emphasis on their entrepreneurial nature, it is rather tempting to incorporate ?ndings from
the entrepreneurial literature to understand these organizations. This should come as no 35
surprise considering the increased maturity of entrepreneurship research (Eckhardt and
Shane, 2003; Aldrich, 2005). Researchers understand better than ever what entrepreneurs 37
look like (Shane and Venkataraman, 2000; Thornton, 1999; Stevenson and Gumpert, 1985),
1
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2 S. Dorado
howthe process of opportunity identi?cation progresses (Eckhardt and Shane, 2003; Shane, 1
2000; Klepper, 2001; Drucker, 1985; Kirzner, 1997; Shane and Venkataraman, 2000) and
what challenges are involved in launching new ventures (Aldrich and Fiol, 1994; Aldrich, 3
1999; Bhave, 1994; Katz and Gartner, 1988).
Current research on entrepreneurship has moved away from considering differences 5
among entrepreneurs (Shane and Venkataraman, 2000; Aldrich, 2005). Nonetheless,
scholars still appreciate and study differences in the entrepreneurial process deriving from 7
the geographic location of businesses (Sorenson and Audia, 2000), or the race (Bates,
1997; Bradford, 2003), ethnicity (Portes et al., 2002; Saxenian, 2001), family background 9
(Aldrich et al., 1998) or gender (Brush, 1992) of entrepreneurs. In addition, scholars have
acknowledged that there might be differences deriving from whether entrepreneurs work 11
within the industrial chain of production or outside of it — as in the case of university or
research laboratories (Klevorick et al., 1995; Eckardt and Shane, 2003). This study follows 13
this line of inquiry and explores the applicability of ?ndings from research on the creation
of regular business entrepreneurial ventures (EVs) to understanding the creation of social 15
entrepreneurial ventures (SEVs) (see also Austin, Stevenson and Wei-Skillern, 2006).
The study concludes that caution should be exercised when translating ?ndings from 17
research on the creation of one pro?le of organizations (EVs) onto the creation of another
type (SEVs). For example, one well-substantiated empirical ?nding in the entrepreneurial 19
literature is that there is a connection between the business opportunity identi?ed by
entrepreneurs and their backgrounds. Interpreted broadly, this would mean that familiarity 21
with a social problem (e.g., unemployment) might provide entrepreneurs with an advanta-
geous position to identify a business opportunity connected to the solution of this problem. 23
It is rather unclear whether this is true. Still, there is growing pressure on non-pro?t orga-
nizations to do just that (identify a cash, generating idea building on their background in 25
a speci?c social problem). Second, the study suggests that it is vital for entrepreneurship
scholars to address whether the values to be served with the creation of a new venture (e.g., 27
“bridging pro?t and service”) are a crucial factor de?ning the process of venture creation.
Speci?cally, the study suggests that we need research directed to understandingwhether dif- 29
ferent values result in more or less challenges to gathering resources, attracting employees
and/or building strong organizations. 31
2. Research Domain
First introducedby Schumpeter (1912), the term“entrepreneurship”has had different mean- 33
ings over the years (Aldrich, 2005). It has been used as a way to distinguish innovative from
non-innovative traditional organizations and/or to emphasize risk/change-friendly orien- 35
tations of managers. In the entrepreneurship ?eld, scholars prefer to reserve the term to
describe a speci?c set of activities related to the introduction of new products and services 37
into the marketplace. However, there is disagreement on what this set of activities actually
involves. 39
One perspective considers entrepreneurial activities as those leading to the discovery,
evaluation and exploitation of opportunities to create future goods and services 41
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Social Entrepreneurial Ventures: Different Values — Different Process of Creation? 3
(Venkataraman, 1997; Shane and Venkataraman, 2000). The de?ning characteristic of this 1
perspective is an emphasis on the centrality of opportunity identi?cation (Eckhardt and
Shane, 2003; Shane and Venkataraman, 2000) and the realization that entrepreneurship 3
should be studied as a process (Eckhard and Shane, 2003). Crucial in this perspective is that
the process of discovery, evaluation and the resources the entrepreneur controls do not limit 5
pursuit of opportunities. The entrepreneur also mobilizes the resources of others (Stevenson
and Gumpert, 1985). Researchers fromthis perspective also have chosen to consider organi- 7
zation launching as a distinct set of activities independent from the entrepreneurial process
itself (Eckhardt and Shane, 2003). 9
The other perspective decenters opportunity and de?nes entrepreneurship as the process
of creating new organizations (Gartner, 1988; Katz and Gartner, 1988), which occurs as a 11
context-dependent, social and economic process (Aldrich, 2005; Low and Abrahamson,
1997; Reynolds, 1991; Thornton, 1999, p. 20). These scholars emphasize the linkage 13
between entrepreneurship and organization creation. This study incorporates the second
perspective. Crucial to the essence of SEVs is their mixing of pro?t and social goals, and 15
the organizational dimensions of this “bridging” are critical to understanding the speci?c
challenges faced by social entrepreneurs. 17
2.1. Social entrepreneurial ventures
Fast Company, the Wall Street Journal and MIT’s Technology Review are among publi- 19
cations that, in recent years, have recognized and rewarded organizations that blend busi-
ness principles and social goals in new and creative ways. Business schools have begun 21
to notice and open research centers devoted to the topic, such as the Research Initia-
tive on Social Entrepreneurship at Columbia, the Social Enterprise Initiative at Harvard, 23
the Center for Social Innovation at Stanford, the Center for the Advancement of Social
Entrepreneurship at the Fuqua School of Business at Duke University, or the Skoll Center 25
for Social Entrepreneurship at the Said Business School at Oxford University.
The academic literature on social entrepreneurship is limited and there is disagree- 27
ment among scholars on what they even mean by social entrepreneurship. This study maps
the concept focusing on the entrepreneurial agent (see also Hockerts, 2006) and suggests 29
that SEVs may be of three types. They are non-pro?t organizations entering into business
to ?nance their social service operations (Boschee, 1995; Leadbeater, 1997; Mort et al., 31
2003). They can also be for-pro?t ventures that de?ne their mission as having a dou-
ble bottom line (Dees, 1998b; Pomerantz, 2003). Finally, they can be cross-sector SEVs, 33
collaborative initiatives engaging non-pro?t, for-pro?t and/or public organizations to solve
particularly challenging social problems (Bornstein, 1998; Kanter, 1999; Waddock and 35
Post, 1991).
This categorization emphasizes the governance form of SEVs and is consistent with 37
current conceptualizations that acknowledge the impact of institutional differences in the
entrepreneurial process (Eckhardt and Shane, 2003; Klevorick et al., 1995). Moreover, this 39
emphasis is important because it permits us to consider questions of major concern for
observers of SEVS, such as whether the risk of abandoning their original social goals is less 41
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4 S. Dorado
when organizations embrace business management principles (Tuckman and Chang, 2004) 1
than when they actually adopt for-pro?t governance structures (see Christen, 2001; Rhyne,
2005). 3
This section reviews our understanding of these three types of SEVs (non-pro?t, for-
pro?t, cross-sector). It is important to note ?rst that social entrepreneurship is different from 5
both public entrepreneurship (Doig and Hargrove, 1987; Lewis, 1980; King and Roberts,
1987) and corporate social responsibility (Carroll, 1979; Hillman and Keim, 2001; Jones, 7
1995; Orlitzky et al., 2003; Waddock and Graves, 1997). The term public entrepreneurship
has been used to describe the action of individuals who create or profoundly transform a 9
public organization (Lewis, 1980). Social entrepreneurs may or may not be public sector of?-
cials; and their de?ning characteristic is not whether they create or change a public agency, 11
but the blend of business and social principles they bring to it. The termsocial entrepreneur-
ship has also been used to describe what has been traditionally labeled “socially responsible 13
corporate behavior.” The use of the term is incorrect. Socially responsible companies are
those whose primary goal is pro?t; and, for most of them, their socially responsible behavior 15
is motivated by the belief that it will improve the bottom line. In contrast, SEVs emphasize
social value and economic value creation is seen as a necessary condition to ensure ?nancial 17
viability (Mair and Marti, 2006).
2.1.1. Non-pro?t SEVs: Non-pro?t organizations adopting business models 19
A growing number of scholars regard SEVs as those entrepreneurial ventures initiated
by organizations in the non-pro?t and public sectors (Boschee, 1995; Leadbeater, 1997; 21
Froelich, 1998; Lewis, 1998; Thompson et al., 2000; Bryson et al., 2001; Mort et al., 2003).
Scholars adopting this view usually consider the for-pro?t elements of these ventures as 23
a means to further the social mission of the organizations (Boschee, 1995; Dees, 1998a;
Dees et al., 2001a, b; Drucker, 1989; Sagawa and Segal, 2000; SSE, 2002; Warwick, 25
1997; Zietlow, 2001). From this perspective, social entrepreneurship is a strategy to limit
dependency on donations and government subsidies and to become self-suf?cient (Froelich, 27
1999; Boschee, 1995; Frumkin, 2002). It is also a way of having access to a wider pool of
resources as public ?nancing continues to shrink (McLeod, 1997). 29
Non-pro?t SEVs are entrepreneurial because founders have traits and adopt behaviors
identi?ed with entrepreneurs. For example, according to Leadbeater (1997), the founders of 31
these ventures are driven, ambitious leaders, with great skills in communicating a mission
and inspiring staff, users and partners; and they are capable of creating impressive schemes 33
with virtually no resources. According to Catford (1998, p. 96),
they “combine street pragmatism with professional skills, visionary 35
insights with pragmatism, an ethical ?ber with tactical thrust. They
see opportunities where others only see empty buildings, unemployable 37
people and unvalued resources...Radical thinking is what makes social
entrepreneurs different from simply ‘good’ people. They make markets 39
work for people, not the other way around, and gain strength from a
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Social Entrepreneurial Ventures: Different Values — Different Process of Creation? 5
wide network of alliances. They can ‘boundary-ride’ between the various 1
political rhetoric and social paradigms to enthuse all sectors of society”
(as cited by Johnson, 2000, p. 10). 3
The fundamental difference between non-pro?t SEVs and EVs is, of course, their gov-
ernance form, which de?nes that they do not have owners, distribute dividends or pay 5
taxes. It is quite relevant because, as explained later, this difference correlates with factors
that affect the opportunities they are likely to pursue, their access to ?nancial sources and 7
their ability to build resilient organizations (see Tuckman and Chang, 2004; Jegen, 1998).
Table 1 includes a brief description of four examples of non-pro?t SEVs. Ten Thousand 9
villages is a chain of about 100 retail stores in the United States. It sells handicrafts bought
for a “fair price” from artisans who would otherwise be unemployed or underemployed. 11
College Summit offers workshops to students and teachers. Its goal is to increase college
enrolment among low-income students. It has a budget of about $2.1 million and is ?nan- 13
cially self-suf?cient. KaBOOM! builds playgrounds in low-income areas. It has a budget
of about $5.6 million. Finally, Benetch is a technology organization that has, for exam- 15
ple, developed a software program designed to help humanrights workers safely document
abuses. 17
Table 1. Non-pro?t SEVs.
Company Opportunity De?nition Leverage of Resources Organization Building
Ten Thousand Villages
is a non-pro?t program
of The Mennonite
Central Committee
(MCC). Established in
1946, it sells handicrafts
from developing
countries. It pays fair
salaries to artisans who
would otherwise be
unemployed or
underemployed. It has
100 retail stores
Founded by MCC worker
Edna Ruth Byler. She had the
idea when visiting MCC
volunteers. She started the
project in her basement and
developed the concept over
time
Bootstrapping: It took
more than 25 years before
Byler’s project moved out
of her basement Over the
years, it has grown to be a
self-suf?cient entity and
acquired and built up
equity of $8.3 million
Management: CEO
and fair trade expert
Paul Myers is
supported by COO
Celina Man. She is
responsible for the
day-to-day
management
including marketing,
sales, IT and human
resources
Hiring: It has always
relied on volunteer
workers
.
College Summit
was founded in 1993. It
works with low-income
students to increase
college enrolment. It
offers workshops to
students and teachers.
Budget: $2.1 million. It
is self-suf?cient
Founded by J.B. Schramm.
As a freshman advisor at
Harvard, he realized that
low-income students often do
not go to college. Years later
he rediscovered it while
working at the Teen Center
SEV- VC funds: New
Pro?t, Inc.; Ashoka; The
Genesis Group; The John
S. and James L. Knight
Foundation; The Samberg
Family Foundation More
than 50 companies,
foundations and public
funds have supported it as
donors or partners
Management:
Managers with
experience in both the
corporate and
non-pro?t sectors
build the executive
team
Hiring: Schramm says
that “to get the right
people is their biggest
challenge”
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Table 1. (Continued)
Company Opportunity De?nition Leverage of Resources Organization Building
KaBOOM! was
founded in 1995. It
builds safe and clean
playgrounds in low-
income neighborhoods.
It also has a second
objective: to bring
neighborhoods together
by involving them in the
playground design
process. Budget $5.6
million
Founded by Darrell
Hammond. His vision derives
from his wish to help social
workers. (They had raised
him.) He has been a leader in
community programs for over
12 years
It has about 40 sponsors
and funding partners (e.g.,
Ben & Jerry’s, Home
Depot and Motorola). It
receives donations from
individuals and sells
merchandise through its
website
Management: Run by
Hammond and 6
executive managers.
12 project managers
are responsible for
project tasks
Hiring: Many of its
full-time staff joined
in as volunteer
workers
Benetech was founded
in 2000. It is a
technology organization
and currently runs
several projects
including Martus, a
software program that
helps humanrights
workers safely
document abuses
Founded by Jim Fruchterman.
He was CEO and founder of
Arkenstone, a non-pro?t
organization that made
reading machines for the
blind
Personal savings: $3
million deriving from the
sale of Arkenstone to
Freedom Scienti?c
In 2002, the company
brought in about $500,000
in fees and royalties but it
spent $2.2 million
Management:
High-tech experts
with experience in
both the non-pro?t
and for-pro?t sectors
build the executive
team
Hiring: Its staff
includes the former
Arkenstone
engineering team
Source: See Appendix.
2.1.2. For-pro?t SEVs: For-pro?t initiatives for whom social goals are 1
central to their business model
For-pro?t SEVs are those ventures that blend business and social goals. Scholars have 3
referred to them as “double bottom line organizations” (Dees, 1998; Pomerantz, 2003);
and, most recently, as “bottom of the pyramid ventures” (Prahalad and Hart, 2002). While 5
popular in the daily press, academics have done little research on these ventures and once
again, their attention has been centered on the entrepreneurial qualities of founders. The 7
descriptions provided of them are similar to those offered by scholars studying non-pro?t
SEVS. According to Dees (1998), founders of for-pro?t social ventures recognize and relent- 9
lessly pursue opportunities to serve this mission. They also act boldly without being limited
by the resources inhand. Similarly, Pomerantz (2003) argues that social entrepreneurship 11
requires a “business-like” and innovative approach to ful?ll the social mission. In turn, Reis
and Clohesy (1999) ?nd that many social entrepreneurs believe that sustainability of social 13
change requires support of both philanthropic and earned income. However, in contrast to
most entrepreneurs, these individuals exhibit “a heightened sense of accountability to the 15
constituencies served and for the outcomes created” (Dees, 1998, p. 3).
In contrast to non-pro?t SEVS, for-pro?t SEVs share the same governance form as tra- 17
ditional EVs. As in the case of non-pro?t SEVS, scholars studying advanced examples of
for-pro?t SEVs — such as commercial micro?nance organizations (Christen, 2001; Rhyne, 19
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Social Entrepreneurial Ventures: Different Values — Different Process of Creation? 7
2004) — have also expressed concern regarding the long-term sustainability of their social
1
goals. Many would agree with these fears and point to examples, such as Ben and Jerry’s
or the Body Shop, as organizations that initially were for-pro?t SEVs but have increasingly
3
deemphasized the centrality of their social goals. Table 2 includes four examples of for-pro?t
SEVs. BancoSol is a commercial bank devoted to the provision of ?nancial services for the
5
poor. Located in Bolivia, the bank was founded building on international donations; but it has
been operating at a pro?t since its foundationin 1992. AgraQuest produces and commercial-
7
izes pesticide products from naturally occurring organisms. Citysoft is a software company
that sells “community enterprise,” an integrated web-based platformdesigned for non-pro?t
9
and for-pro?t, socially responsible organizations. Finally, Ripple Effects is also a software
company. It produces software designed to enable people to learn effectively.
11
2.1.3. Cross-sector SEVs: Inter-organizational arrangements created to solve
complex social problems
13
Some scholars have used the termSEVs to describe initiatives launched to deal with complex
social problems (Kanter, 1999; Henton et al., 1997; Waddock and Post, 1991). These SEVs
15
are characterized by their spanning across for-pro?t and non-pro?t organizations.
Table 2. For-pro?t SEVs.
Company Opportunity De?nition Leverage of Resources Organization Building
BancoSol was funded in 1992
in Bolivia. It is considered the
?rst commercial bank in the
Western Hemisphere created
to serve the ?nancial needs of
the poor. In 2002, it had 34
branches and gave 51,000
loans. Pro?table since its
foundation
Founded by PRODEM,
the ?rst NGO providing
micro?nance services in
Bolivia. PRODEM had
been founded by
Fernando Romero (local
business man) and Acción
International (expert on
micro?nance)
Fernando Romero led
efforts to leverage
start-up funds from
international
development
organizations such as
The Inter-American
Development
Corporation. It also
received investment
from local private
investors of members of
PRODEM’s board of
directors
Initial management
included Mr. Otero, a
charismatic leader with
little experience in
banking. Middle
management included
individuals from
PRODEM and new
hires with banking
experience
Initially, all employees
came from PRODEM
AgraQuest was founded in
1995. It searches for and
produces pesticide products
from naturally occurring
microorganisms
Founded by Pamela G.
Marrone. She has a Ph.D.
in entomology and has
worked for Monsanto and
Nordisk where she led
research on alternatives
for chemical pesticides
Initially, savings, family
and friends (total:
$500,000)
Later, SEV investors
(over $17 million)
such as Burrill &
Company; Otter
Capital, L.L.C.;
Rockefeller & Co.;
BioAsia Investments,
L.L.C.; JSS
Management
Management: Pamela
G. Marrone, founder
leads the management
team
Hiring: The ?rst
employees came from
Marrone’s last
employer Novo
Nordisk. The company
hires mostly scientists.
It gets up to 200
resumes for every job
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Table 2. (Continued)
Company Opportunity De?nition Leverage of
Resources
Organization Building
Citysoft was founded in 1997.
It sells Community
Enterprise, an integrated
web-based platform,
especially developed for
non-pro?t and for-pro?t
socially responsible
organizations
Founded by Nick
Gleason. He had started 4
ventures successfully and
had experience in the
private, public and
non-pro?t sectors
Family, friends and 2
private investors
SEV investors ($1.7
million): Sustainable
Jobs Fund; Calvert
Small Equities Fund;
NYCom. Investment
Corp; Coastal
Enterprises of Maine
Management: N.
Gleason, CEO, R.
Rivera, CFO (Price-
waterhouseCoopers)
and A. Magno, Doctor
of Operations
expertise in web tech.
and design
Hiring: N.I.
Ripple Effects was founded in
1997. It provides interactive
software that enables people
to learn effectively and
individually. The company
reported revenues of
$110,000 in the ?rst quarter
of 2001
Founded by Alice Ray
(expert in social learning)
and Sarah Berg. It is the
result of 18 years of
research. Ms. Berg had
the experience and
knowledge in large scale
multimedia projects
SEV investors: Paci?c
Community Ventures;
GuruWizard Fund
LLC
Awards: The Wall
Street Journal;
National Social
Venture Business Plan
competition (2nd
place); Emerging
Growth Scholarship
Management: Alice
Ray (CEO) and Sarah
Berg (COO).
Supported by VP Mr.
Brentano, software
expert and former VP
at McAfee.com
Hiring: 35% had been
minority youth
coming out of
opportunity programs
Source: See Appendix.
Scholars have labeled these initiatives as entrepreneurial, realizing — as their counter-
1
parts interested in non-pro?t and for-pro?t SEVs — that founders use strategies tradition-
ally identi?ed with entrepreneurs. Waddock and Post’s (1991) article on catalytic change 3
is central to this perspective. Using as examples the leaders of Partnership for a Drug-Free
America and Hands Across America, they argue that social entrepreneurs are individuals 5
with signi?cant personal credibility. They mobilize private sector resources to raise public
awareness and help alleviate multi-faceted social problems. Their efforts produce a catalytic 7
effect, permitting a short term “alliance of organizations and their members to deal with an
important problem in such a way as to foster long term change” (Waddock and Post, 1991, 9
p. 394). As business entrepreneurs, these individuals are expected to create an enterprise
that will span several organizations (Kanter, 1999). Henton et al. (1997) state that so-called 11
“civic entrepreneurs” are a new generation of leaders, both acting in and linking with busi-
ness, government, educationXS and community. Finally, Bornstein (1998) speaks of social 13
entrepreneurs as visionary and creative “path breakers” who are “totally possessed” by their
social vision. 15
According to current descriptions, cross-sector SEVs differ fromnon-pro?t or for-pro?t
ones in that they are likely to be rather short-lived. The motivation for entrepreneurs is not 17
the creation of a new organization, but the creation of a path de?ned so participants can
alleviate a complex social problem; whether or not the initiative derives a pro?t is irrelevant. 19
Table 3 includes three notable examples of cross-sector SEVs. Hands Across America was
a bene?t event staged on 25 May 1986. Over 6 million Americans held hands for 15 minutes 21
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Social Entrepreneurial Ventures: Different Values — Different Process of Creation? 9
along a path stretching 4,125 miles long across the continental U.S. Participants paid $10–35 1
to reserve their place in line; the pro?ts were donated to local homeless charities. Live Aid
consisted of a rock concert held in 1985. More than one billion people worldwide watched 3
the mammoth concert. The event raised about $100 million to battle famine in Africa and
became the prototype for live charity events. Finally, Partnership for a Drug-Free America 5
(PDFA) is a non-pro?t coalition of professionals from the advertising and communications
industry committed to limiting drug addiction in the United States. In 2002, PDFA reported 7
$19 million in income and, since 1987, the U.S. media has donated over $3 billion to the
topic in time and space. 9
In short, scholars have studied non-pro?t, for-pro?t and cross-sector SEVs and argued
that all these ventures are social because they aimto address a problemthe private sector has 11
not adequately addressed. In turn, they have described themas entrepreneurial because their
founders have qualities identi?ed with entrepreneurs. None of these ventures, however, ?t the 13
standard governance formimplicit inmost entrepreneurial research. Theyare not supposed to
maximize pro?t (see Dees, 1998). Theymay be rather fragile since the legal formadopted can 15
eventually push them to abandon the reason that originally inspired founders to create them
(see Tuckman and Chang, 2004; Rhyne, 2004). Finally, they may also be rather unstable, 17
as they may not need a resilient organization to serve their purposes (see Westley, 1991).
Next, the paper compares the process of creation for EVs and SEVs and explores whether 19
?ndings fromresearch on EVs canbe extended tounderstand the process of creationof SEVs.
3. Entrepreneurial Ventures vs. Social Entrepreneurial Ventures 21
The entrepreneurial process involves numerous activities, such as identifying a business
opportunity, researching its potential market, ?ling for a patent and/or attracting investors 23
(see Bhave, 1994; Gartner, 1985; Vesper, 1980). For the purpose of this paper, we cluster
these tasks around three analytically distinct processes: opportunity de?nition, leverage of 25
?nancial resources and organizational building. These three processes, of course, do not
follow each other linearly but overlap and feed on one another. For example, even when 27
entrepreneurs initially develop a concept for their ventures and then gather resources to
develop this concept, it is likely that the negotiations involved in the process of leveraging 29
resources will produce the re?nement of the opportunity.
Clustering the activities involved in the entrepreneurial process into these three pro- 31
cesses facilitates the identi?cation of crucial differences between EVs: EVs can be valued
exclusively in ?nancial terms, while SEVs cannot. Considering SEVs strictly in ?nancial 33
terms would imply that they are not different from socially responsible ventures (Waddock
and Graves, 1997) when, in fact, fundamental to the nature of SEVs (whether non-pro?t, 35
for-pro?t or cross-sector) is that they serve a social mission that is not overshadowed by
pro?t maximization (Mair and Marti, 2006). 37
The process of opportunity identi?cation is inherently cognitive. Entrepreneurs inten-
tionally (Katz and Gartner, 1988) identify a solution to a speci?c problem or need because 39
of diverse motivations, building on the information available to them(Shane, 2000) through
their backgrounds (Shane and Khurana, 2003; Jones, 2001) and/or their networks of relations 41
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10 S. Dorado
Table 3. Cross-sector SEVs.
Company Opportunity De?nition Leverage of
Resources
Organization Building
Hands Across America was a
bene?t event staged on 25
May 1986. Over 6 million
Americans held hands for 15
minutes along a 4,125 miles
long path across the
continental U.S. Participants
paid $10–35 to reserve places
in line. The pro?ts were
donated to local homeless
charities
Ken Kragen had the idea
for the event and the
vision to raise the
awareness of America
about the issues of hunger
and homelessness. He
gathered the ?nancial
resources and brought
together the right people
to make it possible
Participants: $10–35
participation fee
(total: about $20
million); for many
participants, fees were
waived to attract more
people Corporations
(total: $30 million):
Coca-Cola ($5
million); Citibank ($3
million)
Hands Across
America was a unique
one-time event.
Live Aid consisted of two
rock concerts held in 1985.
More than a billion people
worldwide watched the
mammoth concert
The event raised about $100
million to battle famine in
Africa and became the
prototype for live charity
events
With a BBC documentary
on the famine in Ethopia
in mind, Bob Geldof
wrote “Do They Know
It’s Christmas? / Feed The
World.” Thereafter
Geldof, lead singer of the
Boomtown Rats, took a
trip to Africa. What he
saw there shocked him
and he decided to raise
more money with this
gigantic rock concert
Donations: Donations
by phone (call centers
in 30 countries); many
companies donated
goods and services
Earned income:
Merchandise is still
generating income
Live Aid was a unique
one-time event. Bob
Geldof used his
personal contacts as a
songwriter and artist
to form partnerships
with famous artists
and the music industry
Partnership for a Drug-Free
America was founded in
1987. It is a non-pro?t
coalition of professionals
from the advertising and
communications industry
PDFA reported $19 million in
income in 2002. Since 1987,
U.S. media donated over $3
billion in time and space
Phillip Joanous, chairman
of the Los Angeles
advertising agency Dailey
& Associates, looked at
drug abuse as an industry.
He convinced Louis
Hagopian, chairman of
the American Association
of Advertising Agencies,
and 200 ad agencies to
create a national anti-drug
campaign
Private sector funding:
American Association
of Advertising
Agencies (funded ?rst
project); Robert Wood
Johnson Foundation
(lead support);
support from more
than 200 foundations
and companies
Management: In
2002, Stephen J.
Pasierb followed
retired Richard D.
Bonnette as President
and CEO of PDFA
It has a relatively
small staff but it
works with hundreds
of volunteers
Source: See Appendix.
(Eckhardt and Shane, 2003; Aldrich, 1999, 2005). Financial gain is certainly a motivator for 1
entrepreneurs at this stage, but many do not conduct cost-bene?t calculations when deciding
to launch a new venture (Aldrich, 2005). Therefore, whether entrepreneurs are expected to 3
produce a bene?t or alleviate a social problem, valuation, may have, in principle, little
differentiating impact on the process of opportunity identi?cation in EVs and SEVs. 5
Leverage of ?nancial resources clusters all activities connected with the mobilization of
?nancial support. Research relates that most entrepreneurs launch new ventures using their 7
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Social Entrepreneurial Ventures: Different Values — Different Process of Creation? 11
own funds (Aldrich, 2005). In this scenario, one expects to see little difference between EVs 1
and SEVs. However, most entrepreneurs are likely to use outside resources eventually —
whether friends and family, credit card ?nancing or specialized investors. As soon as the 3
entrepreneur uses external resources, substantial differences between EVs andSEVs emerge.
These differences derive from the need to justify the ?nancial sustainability of the venture; 5
and, when dealing with non-pro?t sources, the need to measure and/or prove the venture’s
potential social impact. 7
Finally, organization building involves those tasks usually attached to organization
founding, such as obtaining permits, incorporating, etc. (Katz and Gartner, 1988; Gartner, 9
1985). Frequently, it may simply involve including business income on the entrepreneurs’
tax returns. However, the process might be rather complex and involve permits and ?l- 11
ings with multiple government bodies (De Soto, 1989). Most interestingly, the process may
involve identifying and engaging individuals as organization members. Entrepreneurship 13
scholars, however, have frequently clustered together the engagement of individuals and
the leverage of ?nancial resources (Sahlman, 1996). It is helpful, however, to distinguish 15
between these two processes. Financiers and organizational members will behave differ-
ently as their engagement with founders is also likely to be different. Financiers provide 17
money to the venture, while organization members join the entrepreneur in his efforts to
realize the opportunity. Financiers, then, would consider the ?nancial returns of a venture 19
in a different light than organization members.
Next, building on published research, the paper identi?es fruitful areas of empirical 21
research and areas in which caution is appropriate when extending research on EVs.
3.1. De?nition of opportunities 23
Entrepreneurial opportunities (EOs) are those “situations in which new goods, services,
raw materials, markets and organizing methods can be introduced through the formation 25
of new means, ends, means-ends relationships” (Casson, 1982; Shane and Venkataraman,
2000; Eckhard and Shane, 2003, p. 145). The distinctive quality of social entrepreneurial 27
opportunities (SEOs) is that each is an EOthat solves a social problem. But is this distinction
relevant? 29
Since the process of opportunity identi?cation is purely cognitive, in principle the dis-
tinction is irrelevant. All opportunities are idiosyncratic; and most opportunities, social 31
or not, provide some kind of social bene?t. Moreover, as previously mentioned, the pro-
cess of opportunity de?nition is frequently disconnected from a true cost-bene?t analysis 33
(Hamilton, 2000; Aldrich, 2005). Some entrepreneurs begin newventures because they want
independence; others followopportunities for which the ?nancial rewards are not clear; still 35
others see a source of riches they may not be able to attain otherwise. It might be best, then,
to consider the social bene?t of ventures as a quality that organizations may value in higher 37
or lesser degree instead of a yes or no condition (see Dees, 1998b).
There might be substantive differences in the processes of identi?cation of EOs and 39
SEOs. Mounting empirical evidence connects the discovery of, and decision to, exploit
EOs with entrepreneurs’ prior knowledge (Freeman, 1982; Romanelli, 1989; Shane and 41
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12 S. Dorado
Venkataraman, 2000; Romanelli and Schoonhoven, 2001; Shane and Khurana, 2003). 1
Shane (2000) examines eight cases of entrepreneurial opportunities around the same
technology and ?nds a close connection between opportunity and background. Romanelli 3
and Schoonhoven(2001) compare the opportunities and backgrounds of 17 founders identi-
?ed in the Inc. 500 listing of high-growth companies between 1982 and 1999. They also ?nd 5
a close association between the expertise and experience of founders and the organizations
they create. Finally, Shane and Khurana (2003) showthat prior experience affects founders’ 7
expectations regarding the liability of newness and their consequent decision on whether or
not to exploit an opportunity. 9
Research on EVs also suggests that some social locations provide easier access to
entrepreneurial opportunities. These locations are characterized by the amount of either 11
diverse or privileged informationentrepreneurs can access. Diversity provides fertile ground
for the development of newideas and hence, for opportunity discovery (Aldrich and Zimmer, 13
1986). Scholars have identi?ed these locations amidst India and China nationals with con-
nections to Silicon Valley entrepreneurs (Saxenian, 2001). These locations are most likely to 15
result in pro?table ventures when they function as structural holes (Burt, 1992) —i.e., when
they permit entrepreneurs to link with individuals otherwise not likely to be connected to 17
one another (Aldrich, 1999). Privileged access to information also provides a good platform
to identify entrepreneurial opportunities. Particularly interesting in this respect is research 19
on entrepreneurial spin-offs from technological advances (e.g., Klepper, 2001).
The same kind of systematic analysis about the process of identi?cation of SEOs is 21
lacking (Hockerts, 2006). But the available literature invites caution regarding the exten-
sion of ?ndings on the identi?cation of EOs. Observers of non-pro?t and for-pro?t SEVs 23
suggest that social entrepreneurs de?ne SEOs motivated by their realization of a market
failure — an area where markets do not do a good job of valuing social improvements, pub- 25
lic goods and bene?ts for people who cannot afford to pay (Dees, 1998a). College Summit,
for example, a non-pro?t SEV, is dedicated to increasing college enrolment of low-income 27
students. Founder J.B. Schramm identi?ed this opportunity; because of his experience as a
freshman advisor at Harvard, and his later work at a teen center (see Table 1). AgraQuest is 29
a for-pro?t SEV that develops pesticide products fromnaturally occurring microorganisms.
Pamela G. Marrone identi?ed this opportunity; building from her educational background 31
and experience with biological pesticides, Ms. Marrone knew that there were environmen-
tally friendly alternatives to chemical pesticides (see Table 2). In addition, observers of 33
cross-sector SEVs have argued that their founders are driven by a sense that the particular
problem(e.g., world hunger) has reached crisis status (Waddock and Post, 1991). For exam- 35
ple, Bob Geldof raised $100 million in a mammoth rock concert to ?ght famine in Ethiopia.
His background as a songwriter and artist led him to de?ne a “mammoth rock concert” as 37
an opportunity; his connections with rock stars and other members of the music industry
helped him to exploit it (see Table 3). 39
In short, research on EOs establishes a connection between entrepreneurs’ backgrounds
and the opportunities they identify. This research, however, does not specify whether 41
entrepreneurs with backgrounds in a particular problemarea versus those with backgrounds
in a particular industry have a differential advantage when identifying and exploiting an 43
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Social Entrepreneurial Ventures: Different Values — Different Process of Creation? 13
entrepreneurial opportunity. This distinction, however, may be quite relevant for SEVs — 1
particularly non-pro?ts. Many non-pro?t organizations are being encouraged to adopt
entrepreneurial approaches, with little consideration of whether expertise on a particular 3
social problem translates into expertise on de?ning an income-generating solution. For
example, the author was contacted by an agency whose mission is to provide training to 5
welfare mothers to help them become more marketable workers. This agency was con-
sidering expanding its work by creating a placement agency for temporary workers. In 7
accordance with research on EOs, the agency had a strong background in the area and
hence, an advantageous position to identify an income-generating venture. But, all things 9
equal, would this position give the organization an advantage to compete with established
placement agencies? This is, of course, an empirical question. But it is also cautionary in 11
terms of the dangers inherent in translating research from one pro?le of organization (EVs)
to another (SEVs). 13
Second, in a recent paper, Hockerts (2006) provides a pioneering analysis of SEOs.
He argues that most of the SEOs currently being pursued are connected to one of three 15
sources: (i) they may feed on an undercurrent of activism that fuels demand for products
such as fair-traded coffee or environmentally friendly products; (ii) they may emerge froma 17
reframing, which encourages seeing people in need as clients instead of bene?ciaries. This
is the origin, for example, of micro?nance which grewout of the realization that the poor can 19
not only pay the full cost of loans, but also bene?t from having access to such loans. After
all, regardless of size, for a business that needs ?nancing, “the most expensive loan is the 21
one that never arrives.”
1
Finally, (iii) SEOs may emerge following the growth in the number
of “socially conscious” investors willing to derive a lesser ?nancial return. Rubicon Bakery 23
and Rubicon Lanscape in the Bay Area of California (Moore, 1999) are examples of SEVs
created thanks to this pro?le of investor. Both businesses compete with traditional ?rms 25
while providing jobs and training for disabled or homeless people (Hockerts, 2006. p. 12).
Entrepreneurship research has long acknowledged a connection between entrepreneurial 27
opportunities and emerging social trends (Timmons, 1990). In fact, perhaps the most inter-
esting question deriving from these ?ndings in the context of SEOs is whether these trends 29
(activism, seeing the poor as clients, and socially conscious investment) that have provided a
breeding ground for SEVs may also be generative of EVs. And, perhaps even more relevant 31
for SEVs, could there be a replacement of SEVs by EVs over time? In fact, the likelihood of
replacement is an important concern among observers of micro?nance, perhaps one of the 33
most developed forms of SEVs (see Christen, 2001; Rhyne, 2004). This concern follows
developments in countries such as Paraguay where consumer lenders (i.e., purely for-pro?t 35
ventures) have, in fact, pushed SEVs out of the market through aggressive (bordering on
misleading) marketing techniques (Rhyne, 2004). 37
In short, there is much to learn from comparing what is known about the process of
identifying EOs and SEOs. Most signi?cantly, the comparison suggests a need to continue 39
research on the connection between the backgrounds of entrepreneurs and their ability
1
Comment by Francisco Otero, ?rst General Manager of BancoSol, the ?rst commercial bank created to provide
?nancial services to the poor.
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14 S. Dorado
to de?ne cash-generating ventures. Particularly, there is a need to qualify what types of 1
backgrounds provide the greatest competitive advantage to a potential entrepreneur. All
things being equal, if it is experience in a problem area, SEVs (e.g. NGO’s providing 3
?nancial services to the poor) may have an advantage. But, if the background is in the
provision of a service for-pro?t, EVs (e.g., ?nancial institutions providing consumer loans) 5
may have the advantage — whether they identify the opportunity ?rst or, as happened in
Paraguay, they outcompete the SEVs that initially identi?ed it. 7
3.2. Leverage of ?nancial resources
Research on EVs regards opportunity de?nition as central. The assumption is that given 9
the right opportunity, resources will follow (Kirzner, 1997; Stevenson and Gumpert, 1985).
This assumption is supported by a substantial body of empirical evidence, which shows that 11
most new business ventures begin without much capital and that most of the initial funds
used in the creation of new ventures derive from entrepreneurs’ own savings (Aldrich, 13
2005). Growth start-ups, however, are likely to require large amounts of upfront capital;
and, therefore, entrepreneurs are forced to look for outside ?nancing. For example, research 15
on start-ups in Silicon Valley has shown that technology-driven start-ups began operations
with funds of about $2.5 million (Burton, 1995). 17
Researchers have shown that, regardless of whether it is savings or outside funds, consid-
erations of traditional creditworthiness do not really apply to the ?nancing of these ventures. 19
In theory, the crucial aspect of the ?nancing backing of a project is the monetary valuation
of opportunities; but, in practice, the valuation of ventures is extremely dif?cult. In fact, 21
researchers have shown that ?nancing decisions frequently depend less on ?nancial merits
and more on factors such as the reputation of founders as effective, their success in pre- 23
vious ventures, their network of relations and their skills to frame a project in ways that
encourage others to share their vision (Aldrich and Fiol, 1994; Aldrich, 1999; Lounsbury 25
and Glynn, 2001). Finally, comparative studies have also shown that founders’ access to
?nancial resources is, in fact, largely dependent on the availability of local ?nancial infras- 27
tructure. Studies have argued that their geographical location de?nes venture access to social
capital (Stuart and Sorenson, 2003; Westlund and Bolton, 2003), venture capital (Manigart 29
et al., 2002; Mason and Harrison, 2000; Manigart, 1994), and general ?nancial resources
(Mason and Harrison, 1995). For example, ventures located in Silicon Valley are more likely 31
to have access to venture capital than those located in most other cities in the United States.
Research on SEVs suggests that these ventures are as likely to require outside ?nancing 33
as high growth EVs. Researchers on non-pro?t SEVs have argued that non-pro?ts are fre-
quently cash- or asset-poor and hence lack the ability to accumulate money to seed commer- 35
cial ventures, particularly those non-pro?ts that consistently run de?cits and rely on external
donations to ?nance their operations (Tuckman and Chang, 2004). Observers of for-pro?t 37
SEVs have also argued that outside sources of ?nancing are more central to the process of
realizing SEVs than they are for EVs (Dees and Dolby, 1991, p. 2). Finally, observers of 39
cross-sector SEVs agree with those studying EVs and, in fact, they have focused most of
their research on the talents of their promoters as mobilizers of resources (Waddock and 41
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Social Entrepreneurial Ventures: Different Values — Different Process of Creation? 15
Post, 1991; Leadbeater, 1997). They have suggested that these individuals have a vision 1
and are skillful at presenting this vision in a way that helps them leverage the resources
necessary to make it possible (Waddock and Post, 1991; Thompson et al., 2000). This is not 3
that surprising since, while most founders of EVs can launch a venture without being very
innovative, founders of cross-sector SEVs are frequently radical innovators (Kanter, 1999; 5
Leadbeater, 1997) and are likely to require outside funds. The cases included in Table 3 illus-
trate this conclusion. In the Live Aid project, for example, Bob Geldof bypassed traditional 7
structures and brought together unrelated artists and music companies, convinced corpora-
tions to donate goods and services and sold the international media rights for millions of 9
dollars. His concept became the prototype for live charity events.
Regarding the connection between access to resources and location, studies lack the same 11
kind of systematic analysis regarding the ?nancial needs of SEVs. It is interesting though
that research points to a direct connection between funding availability and the creation of 13
SEVs. Scholars interested in non-pro?t SEVs have identi?ed frustration with rigid and slow
access to funds fromtraditional non-pro?t sources (donations or government contracts), and 15
suggest it is a crucial motivation for the growth of non-pro?t SEVs (Young and Salamon,
2002). In fact, non-pro?t SEVs may use sources of ?nancingother thanthe traditional donors. 17
For example, Benetech secured the initial funds to launch their venture fromthe proceeds its
founder derived fromthe sale of a previous business; College Summit fromfunds specialized 19
in social ventures; KaBOOM! from private sponsors; and Ten Thousand Villages followed
a typically entrepreneurial pattern, deriving funds froma typical bootstrapping strategy (see 21
Table 1).
Finally, as previously discussed, the emergence of new philanthropic investors willing 23
to fund ventures that serve social goals has been an encouragement for launching SEVs
(Hockerts, 2006). In recent years, there has been notable growth in organizations specialized 25
in ?nancing SEVs. Some of the non-pro?t and for-pro?t SEVs identi?ed in this article have
been funded by these funds. For example, College Summit received investment from New 27
Pro?t, Inc. and Ashoka; Citysoft received it fromthe Sustainable Jobs Fund and the Calvert
Small Equities Fund; and Paci?c Community Ventures and GuruWizard Fund LLC funded 29
Ripple Effects (see Tables 1 and 2). The behavior and evolution of these and other investing
organizations is an important area worth a careful look. Jegen (1998), Clark and Gaillard 31
(2003), and Rubin and colleagues (Rubin, 2004; Benjamin, Rubin and Zielenbach, 2004;
Bates, Bradford and Rubin, 2006) providing pioneering research in this area. 33
In short, the comparative analysis of the process of leverage of resources in EVs and
SEVs indicates, ?rst of all, that there is a need to conduct the same kind of rigorous research 35
on the process of resource mobilization for SEVs that has been done for EVs. More research
is also needed regarding the development of organizations specialized in ?nancing SEVs. 37
More interestingly, though, the analysis shows a drastic difference in emphasis. In con-
trast to researchers on EVs who place resource mobilization as secondary to opportunity 39
identi?cation, observers of SEVs see it as central. There needs to be further exploration
of this different prioritization, with systematic studies designed to investigate whether this 41
difference derives from the speci?c nature of SEVs or is the result of the lack of systematic
empirical evidence. Finally, as recent entrepreneurial research suggests, scholars also need 43
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to consider whether a process in which leverage of resources follows opportunity identi- 1
?cation may actually be the exception instead of the rule, not only among SEVs but also
among EVs (see Nelson and Baker, 2005; Baker, Miner and Eesley, 2003; Ruef, Aldrich 3
and Carter, 2003).
3.3. Organizational building 5
When studying organization building, one needs to consider both the formal aspects con-
nected to the process as well as those related to the recruitment of employees and the 7
development of an organizational culture (Aldrich, 1999). As a formal process, organi-
zation building involves all aspects connected to the creation of a legal persona through 9
bureaucratic steps, which can be more or less cumbersome (De Soto, 1989). From this
perspective, the crucial difference between EVs and SEVs is that founders of SEVs may 11
actually have more choices.
EVs are likely to be constrained to formpro?t ?rms while founders of SEVs can choose to 13
register with the IRSas tax-exempted organizations. This is important because the choice of a
speci?c legal formhas multiple consequences. Most straightforwardly, regardless of activity, 15
the founding of a non-pro?t organization requires the creation of a board of directors. This
makes the process more cumbersome and potentially more constraining of entrepreneurs’ 17
managerial freedom. For-pro?t organizations, even when required by law to have a board,
can have the entrepreneur as its only member while non-pro?ts are required to have at least 19
three independent directors. Second, the choice of a speci?c legal form also has impor-
tant consequences regarding access to ?nancial resources. As previously discussed, there 21
is a betterestablished infrastructure to ?nance for-pro?t than non-pro?t organizations. For
example, SBA guaranteed loans are earmarked for for-pro?t ventures. This difference in 23
access may actually encourage entrepreneurs who would have otherwise decided for a non-
pro?t form to launch a for-pro?t business; such was the reasoning followed, for example, 25
by Hilda Romero, the founder and director of Ritmos, a small dance program for chil-
dren in Worcester, Massachusetts. She chose to open Ritmos as a for-pro?t corporation 27
after realizing that, maintaining the same values, she could get easier access to funds and
maintain more managerial independence as a corporation than as a tax-exempted non-pro?t 29
organization.
Finally, scholars have argued that the decision of a non-pro?t SEV to engage in income- 31
generating activities may, over time, cause the organization to alter its behavior and drift
away from its mission (Tuckman and Chang, 2004; Frumkin, 2002). We can speculate 33
that this might even be more likely in the case of organizations when founders choose
a for-pro?t SEV form of governance. For example, discussing the case of micro?nance 35
organizations, Rhyne (2004) warns of the risks of engaging private investors. She argues
that private investors may fail to understand the business of micro?nance and run it badly. 37
They may also gradually move away from the low-end of the market, serving only the
“easiest” clients. Finally, some commercially-dominated institutions may actually exploit 39
clients through unscrupulous practices.
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Social Entrepreneurial Ventures: Different Values — Different Process of Creation? 17
Regarding hiring and organizational development policies, research is only beginning 1
in the entrepreneurship ?eld (see Burton, 1995, 2001; Baron et al., 1999a, b, 2001; Aldrich,
1999) and is almost absent in the social entrepreneurial one (see Bryson, Gibbons and Shaye, 3
2001 for a pioneering effort). Researchers have conceptualized organization building as a
dual process which includes, ?rst, hiring and training; and second, the development of an 5
organizational community of practice — “patterned social interaction between members
that sustains organizational knowledge and facilitates its reproduction” (Aldrich, 1999, 7
p. 41).
Hiring is dif?cult for all start-ups. Founders have to compete with established corpo- 9
rations that can offer potential employees more secure career prospects (Williamson et
al., 2002). Accordingly, start-ups have dif?culty attracting experienced managers and are 11
then likely to hire less experienced staff members. Managers’ ability to attract quality
individuals depends on their ability to spot and attract talented young individuals will- 13
ing to trade security for the excitement and potential for knowledge and wealth of work-
ing in a start-up. In the case of SEVs, the social mission of the ventures may actually 15
increase their attractiveness toward potential hires. That was the opinion, for example, of
the founder and CEOof Voxiva (Global Social Venture Competition Symposium, Columbia 17
Business School, 10 October 2003). Voxiva builds phone and web solutions that help iso-
lated communities (e.g., post-con?ict Iraq) access computers throughtouch-tone telephones. 19
It also helps detect outbreaks of disease, monitor patients and track critical healthcare
supplies. 21
Second, hiring individuals who already have things in common facilitates the develop-
ment of a coherent organizational community of practice and hence supports the endurance 23
of organizations (Stasser et al., 1989). Considering the dif?culties in hiring faced by all start-
ups, SEVs are more likely to face dif?culties than EVs simply because they are more likely 25
to include individuals with diverse backgrounds (see Cooney, 2003; Kapur and Weisbrod,
2000). In addition, in the particular case of cross-sector SEVs, there is also some evidence 27
that suggests that the biggest threats to their survival are the dif?culties of balancingfor-pro?t
and non-pro?t principles and cultures (see Rubin and Stankiewicz, 2001). 29
In short, organization building is an area of major concern among observers of SEVs,
considering the potential risk of “mission drift” and the dif?culties in building organizations 31
whose aim is to bridge principles and practices frequently considered incompatible. This
is also an area in which the entrepreneurship literature currently has little to offer. Our 33
understandingof both EVs and SEVs will bene?t largely frommore attention given to issues
connected to founders’ choice of legal formand the challenges in recruiting individuals and 35
building strong organizational cultures.
4. Summary and Implications for Research and Practice 37
This study has explored whether differences between SEVs and EVs are worth speci?c
research attention by entrepreneurial scholars. The answer is that the need for speci?c 39
research is pressing (see also Austin, Stevenson and Wei-Skillern, 2006). There are suf-
?cient areas in which SEVs are distinct and thus deserve speci?c attention. Speci?c 41
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18 S. Dorado
implications and research suggestions can be organized around the three clusters of 1
entrepreneurial tasks identi?ed: opportunity de?nition, leverage of resources and organi-
zational building. 3
Mounting evidence shows a connection between the background of entrepreneurs and
the opportunities they identify and exploit. The speci?c nature of SEVs calls attention to 5
the relevance of this knowledge. Much of the SEV literature suggests that it is familiar-
ity with the problem area that is important. The EV literature, however, does not make 7
the same distinction. Entrepreneurs can be either experienced in a problem (see Shane,
2000) or they can be experienced in an industry (Klepper, 2001). The distinction, how- 9
ever, is rather relevant to non-pro?t managers who are being “encouraged” to identify
income-generating ventures, building on their knowledge of a social problem, whether 11
because sources of ?nancing for their activities are drying up or from general discontent
with more traditional approaches. From a research perspective, a cross-sectional study ask- 13
ing entrepreneurs about their backgrounds and the origin of their ventures may be ade-
quate. Such a study should include both successful and failed ventures and acknowl- 15
edge that whether an entrepreneur has experience with a problem or an industry may
result in relevant ?ndings regarding current understanding of how entrepreneurs identify 17
opportunities.
A review of the literature indicates a difference in the priorities of EVs and SEVs 19
regarding the process of leverage of resources. Given a good opportunity and a competent
team, money would followis the adagio found in most entrepreneurship research (Stevenson 21
and Jarillo, 1990; Stevenson et al., 1999). Observers of SEVs, however, place mobilization
of ?nancial resources as a central concern for social entrepreneurship. Lack of resources is 23
the motivator of non-pro?ts to consider creating SEVs. The need and talent of the promoters
of cross-sector initiatives to mobilize resources is the fundamental reason why scholars have 25
labeled these initiatives as entrepreneurial. Finally, the fact that one can address a social
problemwithout using government or donation funds is behind the buzz of for-pro?t SEVs. 27
It would then be quite interesting to pursue research questions that address the centrality
of resources to the identi?cation of opportunities and whether it is truly speci?c to SEVs. 29
In fact, some of the recent internet and real estate “bubbles” provide good examples of
entrepreneurs following the money. 31
Regarding organization building, the paper suggests that the choice of governance form
is a central aspect to the formation of SEVs. Most notably, it can de?ne their ability to remain 33
loyal to their social goals. It is thus fundamental to consider it in future studies addressing
SEVs. In addition, the study suggests that there are many similarities between EVs and 35
SEVs in terms of hiring and developing capabilities; but it also suggests that social ventures
are more likely to be unstable since they are more likely to include individuals with diverse 37
backgrounds.
For practitioners, this paper is fundamentally cautionary. Managers usually know that 39
most research in management builds on research in very large corporations and may not be
applicable to small businesses and start-ups. Founders of SEVs should know that most of 41
what we knowabout entrepreneurship builds on research on EVs and may not be applicable
to their non-pro?t, for-pro?t or cross-sector SEVs.
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Social Entrepreneurial Ventures: Different Values — Different Process of Creation? 19
5. Acknowledgments 1
A previous version of this paper was presented at the Academy of Management Conference
in New Orleans, 2004. I acknowledge the helpful research and writing assistance of Holger 3
Haettich in previous versions of this manuscript.
Appendix. References Used to Build Tables 1, 2 and 3 5
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Benetech Benetech (2004). Company Website.http://www.benetech.org/ [15 March 2004].
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Appendix. (Continued)
Case References
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a Drug-Free
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