Social entrepreneurship is a concept that emerged lately all-over the world, following the rise of both entrepreneurship and social responsibility, but what qualifies as social entrepreneurship? Do normal businesses generating employment suffice? Or does it have to be an NGO? How can an NGO insure sustainability?
Different definitions came up over the years trying to define the borders of social entrepreneurship as summarized by Mair and Marti (2005) ranging between NGOs and for profit businesses, ranging between the social angle being at the core of the operations of the company to limiting it to externalities companies could generate to society. The paper proposes a definition of social entrepreneurship as “a process involving the innovative use and combination of resources to pursue opportunities to catalyze social change and/or address social needs.” I believe the definition not to have solved the boundaries problem as the definition is loose enough to encompass companies, NGOs, and social movements. It also encompasses all range of social services under which we could name generating employment, fulfilling consumers demand, facilitating business services that most companies fall under anyway. So what is the value added we require from social entrepreneurship? Once again we face an unclear definition that leads to confusion when grants or support programs are offered to “social entrepreneurs.”
The paper gives three examples of social entrepreneurship being Grameen Bank in Bangladesh, Aravind Eye Hospital in India, and Sekem in Egypt. What is interesting to see is that the three fall under the umbrella of “for profit businesses” while generating a lot of value added to society like access to micro-financing, eye surgery at a fraction of its usual cost, or selling organic food. But how can we measure the value added to society to qualify as a “social venture”? Some efforts came up trying to create some “social returns” as a measurable element to be able to rate companies in terms of grant qualification, which is a good step towards being specific to what we mean by “social entrepreneurship.” Some PE funds even got specific towards that by requiring companies they invest in, not only to generate decent financial returns to shareholders (IRR), but also to generate social returns as they define their measurement based on a certain scale encompassing environmental returns, community returns.
Another question comes up then about NGOs, how should they structure their service offering? Should they offer free services? How could they generate revenues then?
A project I conducted a couple of years ago for an NGO called Nahdet El Mahrousa, managing an incubator for social enterprises revealed that most NGOs do not have a sustainable revenue source, and rely on grants and donations for survival while they offer their social services for free. I ended up segmenting social enterprises to three different categories:
- The first category being social ventures to have their core social services, revenue generating, even if at a fraction of the cost (like the three examples given in the paper by Mair and Marti, 2005). A couple of local successes came up in my study like “Care with Love” established by Dr Magda Iskander, a company that recruited unemployed/uneducated people between the ages of 18 and 35, who received training and subsequently certificates stamped by the Ministry of Education on elderly health care including mental needs. Those trained nurses would then be employed in private homes to take care of the elderly for a fee. The beauty of this project in my opinion is that it satisfies all definitions of social entrepreneurship as it offers a major value added to the public, fulfilling a major market need, and generating revenues from their core business to insure sustainability without having to rely on grants and donations, which allows the company/NGO to focus on their core operations, rather than fundraising.
- The second category that came out of the study are NGOs raising money through some sustainable partnerships with the private sector, and relying in some portion on fundraising but not exclusively. Those entities can focus most of their time on their core service, while spending some time on fundraising. Example of that would be HelpAge in India generating some of their revenues from corporate fundraising, some from a school education program, and some from blitz activities.
- The third category where I would qualify most NGOs worldwide currently are the ones solely relying on grants and donations for income generation, and offering their services for free. The issue with this model is that the sustainability of such entities relies on their main donors continuing their support, and they end up spending most of their time doing fundraising. This model is very limiting in nature as the organization cannot take the risk growing and focusing on their service as they are subject to closure at any second if their main donors pull the plug.
It is important to note that most NGOs do not start at category 1, with the immediate ability to generate money from their core services. But it is important to insure sustainability through a stable revenue generation model, to migrate over time from category 3 to 2, to 1. An example of that would be the Consumer Protection Agency in Egypt, that currently offers its services for free, but has in mind to publish research and data for fees on their website, after the organization gains enough credibility first with the public.
Alaa is co-founder and managing director of Enmaa Financial Services, a boutique investment bank that started in Egypt mid 2007, and currently conducting transactions all over the MENA region through offices in Egypt and KSA. Alaa is currently undergoing his Doctorate of Business Administration, in the Instituto de Impresa (IE business school) in Spain.