Social entrepreneurial activities in nonprofit business

Social entrepreneurial activities in nonprofit business

Social entrepreneurship

It is defined as the practice of combining innovation, resourcefulness and opportunity to address critical and social challenges. Social entrepreneurs aim at transforming practices and systems that are believed to be the real cause of marginalization, poverty and environmental degradation ((Austin, et al 2012). Actually, social entrepreneurship is a field in which entrepreneurs perform their activities tied up to the sole objective of creating a social value. Entrepreneurs are those individuals that are busy in the field looking for business opportunities for investment purposes. However, a number of economists have argued and differed on exact activities of an entrepreneur. This has led to understanding of entrepreneurship from different perspectives. For instance, Schumpeter argued that an entrepreneur is an innovator who brings changes within market. Secondly, MacCllerand defined an entrepreneur as a person with high need of achievement and finally, Kirzner has researched and defined an entrepreneur as that person who recognizes and acts upon market opportunity. All these suggestions have made an entrepreneurship being termed as a crucial factor in development and well-being of societies. Social entrepreneurial process is closely tied to success. What happens, the entrepreneurs observe world in different ways, identifies opportunities in them, and seize those opportunities.

Social entrepreneurship and non-profit factor organization

Non-profit organizations are best believed to provide necessities to the society in significant ways. However, their real contribution to government and specifically through economic development is questionable. Statistical data hold the fact that there is over 1.4 million active effortlessly competing for a few dollars (Austin, et al 2012). There is always a suggestion that non-profit organizations need to seek new ways to avoid low profit making. There comes the need for social responsibility to curb the long existing problems by devising new methods, procedure and guidelines to correct the problem. In this case, application of social entrepreneurship can improve sustainability of the business model of nonprofit organizations while at the same time boosting management capacity and enhancing mission. Although funders are showing their efforts to support social entrepreneurial ideas, a big number of nonprofit organizations have lagged behind when it comes to thinking outside this box to make their organizations sustainable.

The reasons behind nonprofit organizations being reluctant for sustainability is that they fear that the idea of connecting to social enterprise activities will add to their financial obligations and constraints(Austin, et al 2012) . Secondly, nonprofit institutions fear that embracing new models will encourage many ethical dilemmas or result to what is known as the mission drift. Some of the strategies that may be used to sustain nonprofit organizations in the future includes; incorporating commercial strategies and activities, embracing a fee-for-service approach, strategically selling goods and services and finally, providing new types of revenue streams.

Most of nonprofit organizations perform important functions such as working for social justice or even caring about the youth. They are sometimes referred to as the umbrellas that serve the public good. Significantly, most of the charitable works they perform is in accordance with government tax provisions. Most of the civic organizations, social organizations and employees’ associations are tax-exempt but donations to them are not tax –deductible. In Section 501(c) (3) category of American culture, it is a requirement for organizations to serve at least one or more religious, charitable or literary group.

Charitable organizations are not always set up for private or individual interest and therefore they are considered as non-recognizable. Nonprofit sector is one of the most important sectors of the USA economy. Truth has it that, in 2010 the average amount of nonprofit organizations’ value in percentage was 9.2%. In addition, this value amounted to 5.5% into the Gross Domestic Product of USA (Austin, et al 2012). Charitable work that includes private foundation and public charities recorded a substantial of $ 25 trillion in tax in 2014. This marked a dramatic increase of 2225 for the tax year 1985 (Austin, et al 2012). USA experienced a slight explosion in the number of nonprofit organizations between 1985 and 2004.

The rise of social entrepreneurship

Statistics show that show entrepreneurship traces its roots from economic and political backdrop together with information and technology revolution. It began when many factors such as better health, higher literacy rates and access to higher education among others came together in the second half of 20^th century ((Austin, et al 2012). However, globalization and other wider challenges that face the world are the exact game changers. Social entrepreneurship is a modern global movement that governments are using to fight long existing challenges today. These challenges include poverty, hunger and social injustice all over the world. How it works, the social entrepreneurs are driven and focused in such a way that they will react by hindering or disrupting the unjust systems in the society. Their work is actually to identify the unjust systems in the society and plan for innovation and sustainable solutions.

Most of the social entrepreneurs that we have today are the CEOs of the major world mission- related organizations. The objective of these organizations is benefit or social good. Social entrepreneurs server as leaders in these organizations because they are transformative and their innovation solutions can be measured and scaled. The major force of social entrepreneurs joining non-profit sector is due to laxity of the government in taking the initiative of solving the problems of our world. This has led to emergence of over 1.4 million active nonprofits in the USA competing for fewer and fewer donor dollars (Austin, et al 2012). There are various viable models that nonprofit organization need to consider to generate additional revenue streams and achieved a more sustainable business model. These include; increasing the selling of branded merchandise, employing a fee-for-service approach, setting up a separate commercial for profit entrepreneurship, constructing a hybrid social enterprise or transforming their business operations from non-profit to profit businesses. These among other factors will help to revive the current non-profit to profit organizations.

Social entrepreneurship versus regular entrepreneurship

There are differences between social entrepreneurship and regular entrepreneurship also known as commercial entrepreneurship. These differences are brought by the kind of the entrepreneurs involved in each case. The first difference between the social entrepreneurship and regular entrepreneurship is that social entrepreneurs are likely to be more educated as compared to regular entrepreneurs. Entrepreneurial knowledge is increased by educational advancement. Secondly, social entrepreneurs are likely to be young as compared to commercial entrepreneurs. A large scale survey research worldwide shows that for the large of men and women involved in entrepreneurship consist of young people in social as compared to commercial entrepreneurship.

Social entrepreneurs are significantly less confident about the required capabilities for one to start a business as compared to regular entrepreneur. This means that social entrepreneurs will lack the required knowledge in business management as compared to commercial entrepreneurs. Finally, social entrepreneurs are more likely to adopt full time self-employment as compared to regular entrepreneurs (Nicholls, 2008). This means that the share of labor market inactive individuals involved in entrepreneurial activity for social entrepreneurs is higher than that of commercial entrepreneurs.

Entrepreneurship

Social enterprises does not use similar business models compared to commercial enterprises. Social entrepreneurs usually focus on creating both the social and economic values in order to favor beneficiaries and society at large. This is achieved through different entrepreneurial opportunities and approaches. Some scholars went ahead and categorized social enterprises according to three different types of business models.  The three models of social entrepreneurs are; embedded, integrated and external.

Embedded Social Enterprise Model

To analyze each of the three models, embedded model would be the first one. To reach at the inner core of the pyramid markets, entrepreneurs would need to match their business models with lives of customers. This will make them capture customer’s attention and draw them to the business for the better of the company. Business people who operate international business or impoverished regions of the word are said to face quandary (Nicholls, 2008). Even if the need for their products are quite enormous, they still face the same challenge as the other business of bringing their products and services to the market. Without access to mass to mass media or any other relevant mass media communications available, entrepreneurs may have no established channels through which they use to reach all potential customers of their products. Few of the available customers who consume their products are still on the market looking for better products which may be good than the one they are currently consuming.

It operates under a strategy which enterprise and social program are one and the same thing. Here, the business is created with only one mission of serving all clients and that remains to the core mission of the business. The non-profits usually creates embedded social enterprises mainly for programmatic reasons. The organization activities are embedded into the organization’s operations and social programs which are central to its mission. Every social program is self-financed through enterprise activities (Nicholls, 2008). Therefore, embedded social enterprise are also said to function as a sustainable program strategy. The business relationship activities and its social programs are comprehensive meaning that financial and social benefits are both achieved simultaneously. They are usually said to be mission- centric meaning that, business activities are central to organization’s mission. The embedded social enterprises are mostly evidenced in operational business models where; both social and economic activities are unified, social mission is the main purpose of the business operations and lastly the target population which is clients is the integral to the model as the direct recipients of the social services who are in other words the beneficiaries and either the market who are customers, owner of the business or the business employees.

The following are the operational models which takes the form of the embedded social business enterprise; entrepreneur support model, market intermediary model, employment model, fee for service model, cooperative model and market linked model. Using US equal exchange as an example of embedded social enterprise, it is a fair trade coffee company which is legally structured as an employee- owned cooperative (Nicholls, 2008). It purchases cocoa and coffee beans from small scale cooperative farmers in developing countries at fair trade prices regardless of the market price fluctuation. The embedded nature of the equal exchange is evidenced at these activities; Market strategy where the company in question makes use of the educational marketing campaigns in raising awareness of positive social impact in purchasing fair trade coffee. The next business activity would be distribution channels where the retail outlets and the related products are sold through interfaith and non- profit organizations (Nicholls, 2008). They educate their people on the fair trade coffee and retain the required margin on each sale in supporting their social activities. The next business activity would be product quality. The equal exchange helps farmers who has sustainable techniques in promoting the ecological- friendly cultivation of the coffee.

External Social Enterprise Model

In this model, social programs are quite different from business activities. The non- profit organizations creates an external social enterprise to look for money they can use to fund their social services and operating costs. The said enterprise activities are external from the operations of the organization but they offer support to its social programs through supplementary financing. They do not generally benefit from leveraging, cost sharing or any program synergies. To serve their main purpose, they must be profitable organization (“External Social Enterprises | The Four Lenses Strategic Framework”, 2016). External social enterprise may be structured within the main organization as a profit center or may be structured separately as a profit subsidiary or as a non- profit. Legal status is a function of the regulatory surrounding where the external social enterprise operates or are needed to access capital in form of loans or investment equity. Any external social enterprise which is registered as profit entity is subjected to laws of taxation.

The existential relationship that is evident in business activities and any social program is supportive. Therefore, providing unrestricted funding to the non- profit parent organizations. These organizations are usually unrelated to their organizational mission. None of their business activities is desirable to advance organizations missions rather than by generating income which is required for its social programs or overhead (“External Social Enterprises | The Four Lenses Strategic Framework”, 2016). Any external social enterprise usually generates economic value to give support to social value creation. External social enterprise are usually evident in operational models where; both economic and social activities are linked through non-profit ownership and funding relationship, motivation for economic activities is another funding mechanism used in social activities and the last on is the target population who are the clients, the direct beneficiary of any income earned from social enterprises through financing the parent business activities , but are rarely involved in business operations of an organization.

An example of external social enterprise which is council of community clinics would be used. This is non- profit son Diego- based membership organizations which is comprised of community clinics serving poor people. The poor is mainly from Mexico and Central American regions. The main mission of the council of community clinics is to serve the growing number of uninsured by reducing the cost, improving their quality of life and strengthening the community health centers to improve health of the community (“External Social Enterprises | The Four Lenses Strategic Framework”, 2016). This mission is usually accomplished through these three linked but separate entities which is comprised of two non- profit and one non- profit subsidiary external social enterprise.

The external nature of the equal exchange is evidenced at these activities; market where at the beginning, the purchasing business group sold their products to council community clinics members which was relatively a few community clinics in California state. Later, the council realized the need of tapping the untapped market and increase its profit through increased market share. The next business activity would be financial viability. It clearly shows how council’s income climbed steadily after making connections (“External Social Enterprises | The Four Lenses Strategic Framework”, 2016). The next one would be social impact where council connection is believed to have contributed god amount of money to the council through its social programs. Comparing the two models, the embedded social enterprise would be most effective. This has been evidenced by its ability to operate as non- profit organization. Its support for people in the community gives it a higher.

References

Austin, J., Stevenson, H., & Wei-Skillern, J. (2012). Social and commercial entrepreneurship:        same, different, or both?. Revista de Administração (São Paulo), 47(3), 370-384.

External Social Enterprises | the Four Lenses Strategic Framework. (2016). 4lenses.org.    Retrieved 11 September 2016, from http://www.4lenses.org/setypology/cse

Nicholls, A. (Ed.). (2008). Social entrepreneurship: New models of sustainable social change.       OUP Oxford.