Social Entrepreneurship Armenia

Social entrepreneurship to reduce poverty. Photo credits: (c) Ayb School, Mediamax, Children of Armenia Foundation (UN Armenia, 2016)

This article is brought to you thanks to the strategic cooperation of The European Sting with the World Economic Forum.

Author: Kyle Zimmer, President and Chief Executive Officer, First Book & Kristine Pearson, Founder and CEO, Lifeline Energy

Social entrepreneurs around the world have been unparalleled catalysts for social change. They use market-driven strategies to tackle critical social issues in brand new ways. Through non-profit, for-profit and hybrid enterprises, social entrepreneurs have promoted a broad range of solutions focused on sustainable development, decades before they were called ‘SDGs’.

The real power of social entrepreneurs is their talent for identifying market failures that are holding humanity back, and their skill in tailoring and implementing solutions. These include providing clean water, access to renewable energy, financial inclusion, high-quality educational resources and critical information that allows life-giving agriculture to flourish.

As the field has matured, so too has the complexity and depth of the social issues at stake. We are confronted by a rising tide of crises – teetering democracies, racial injustice, gender and LGTBQ discrimination, environmental catastrophe, population growth, food instability, nationalism and technological advances that require new skills and workforce training. Not to mention the alarming rise of displaced populations caused by natural disasters or conflict.

Now entering its fourth decade, the field of social entrepreneurship is at a crossroads. Enterprises are not growing at a sufficient pace to meet the escalating problems. Our sector has excelled at launching initiatives. But it has neglected the underlying systems for scaling successful, mature models. We are in danger of backsliding on the groundbreaking social accomplishments we have achieved. We also risk losing the expertise of experienced, yet often discouraged social entrepreneurs, at the very time when the social sector is needed most.

Candid, peer-to-peer analysis

Clearly, there are market failures in the social sector. Our task is urgent. As social entrepreneurs, we need to do what we do best: examine our field and identify the challenges holding us back, then develop and implement solutions to propel our collective work forward.

While universities, think tanks and other groups study and support social enterprise, the missing link has been candid and authentic engagement from those of us in the field. It is one thing to study social entrepreneurs; it is quite another to worry about meeting payroll, ensure your organization is continuously innovating its models and aligning staff expertise to increase impact, while often putting your health, family, relationships and even lives on the line in your quest to deliver systemic change.

What’s stopping us?

Here are six of the many obstacles hindering progress in the social sector.

1. The structure of the sector does not promote innovation

Social entrepreneurship, like every other sector, needs to encourage experimentation and risk. The value of this and its impact on innovation is visible in nearly every field from health to education to the agricultural and industrial sectors.

However, because funding almost exclusively favours positive results and conservative impact metrics, experimentation in the social sector is not incentivized. While deliverable metrics are one goal, the greatest gains in any field are usually delivered by strategies that are experimental. The results of these speculative strategies are, by definition, speculative. The social sector’s dependence on metrics-based funding reduces its ability to experiment, develop learnings and re-innovate.

In the corporate world, experimentation is called fail fast and fail often. In the social sector, it’s simply called failure.

A snapshot of social entrepreneurship in the UK

2. The sector does not have consistent access to capital

While capital is limited for early-stage social enterprises, it is greatly diminished for proven social enterprises working to scale. There are advances in impact investment, and the field is trying to gain traction. But there are also significant doubts about the viability of a capital market that presumes that investors will be satisfied with below market financial returns. In addition, there are persistent doubts about whether an enterprise that must deliver significant returns can be free to pursue and prioritize social change.

In addition, cultural barriers can significantly limit access to capital for women, minority and indigenous social entrepreneurs around the world.

3. Complex agendas

In the private sector, if you design a better product, venture capitalists come to you with cash, and expectations for returns on that capital.

In the social sector, investors come to a social entrepreneur and say: “we love what you have built, but here are our priorities that must be included in your business execution”. Social entrepreneurs are then tasked with bending their models to serve the needs of the funding community over the needs of those it is their mission to serve. This misalignment is distracting to the scaling efforts of social enterprise and does not allow the entrepreneur to direct growth in the most efficient and effective manner to meet social needs.

4. Non-transparent reporting

Because the social sector is starved for funding, there is often a push to report the best findings possible in order to maximize the likelihood of the next round of funding. It is not that anyone misrepresents their results (ok, some do) but the link between positive findings and future survival funding is perilous. Again, this dynamic undercuts experimentation and innovation.

Similarly, funders generally reward positive results. They are less likely to fund social entrepreneurs who report setbacks, let alone failures – even when those experiments can lead to better strategies for the field.

5. The media loves new non-profits

The media is fascinated with large businesses, but not with large social enterprises. Media stories tend to focus on small or new enterprises that feature a narrative of human compassion, a new technology or a new use of a technology. The social sector is an elephant graveyard for such short-term stories.

The field’s voice and storytelling ability must be expanded to reflect the full spectrum of social institutions, if we are to drive unprecedented large-scale change. As a sector, we also need to promote examples of systemic change organizations so that the field can learn from itself.

6. Social sector leaders struggle with burnout

There is growing concern that social entrepreneurs, who deal with the chronic stress of maintaining and growing their organizations, are suffering from depression and burnout. This may be a different experience from that of a typical entrepreneur, who might not have the same emotional investment in those they exist to serve. Donors, boards and investors need to acknowledge better the realities of long-term exhaustion, and provide resources to support social sector leaders.

In addition to burnout, the egos of passionate social sector leaders may at times impede their business judgment. For example, one option for scaling may be merging two social enterprises, but the concepts of mergers and acquisitions as a business strategy are rarely discussed.

The social sector also suffers from the same issues of inequality that have been reported in other sectors. While social enterprises led by women, people of colour, indigenous people or youth may be contributing significantly to social change, issues such as sexual harassment and assault, racism, sexism, ageism and related issues can negatively impact funding and growth opportunities for their organizations, further contributing to burnout.

We know these six obstacles are only the start. There is certainly a longer and more complex list of issues that need to be acknowledged and addressed.

In a series of blog posts, confidential interviews, surveys and other forms of engagement, we will be joined by social entrepreneurs from around the globe. Collectively, we will identify and tackle the challenges both hindering progress in the social sector and also creating change for those we serve. Forthright and unvarnished dialogue and evaluation is critical to addressing what is wrong with the field, learning how social entrepreneurs fail the sector and providing what is needed to support significant scaling, continued innovation and impact around the world.