Why does social entrepreneurship make good sense?

Discussions About the Nonprofit Sector and Social Entrepreneurs

A Social or Nonprofit Entrepreneur uses established, proven entrepreneurial management practices primarily in the public and nonprofit sectors to solve a range of social problems in the areas of health, safety, environmental protection, and community involvement.

Social entrepreneurs create and manage not-for-profit projects, events, organizations, and programs that are measured by means other than bottom-line profits. The nonprofit sector they lead comprises 7 percent of U.S. gross domestic product—a number that grows even larger when health care and public education are included. There are more than a million nonprofit organizations in the U.S. and their start-up rate exceeds that of private businesses. They employ approximately 8.6 million people and mobilize another 7.2 million unpaid volunteers, which together constitute 14 percent of the labor force. Worldwide, the sector makes up almost 5 percent of the GDP.

The philanthropic capital markets are also significant. In 2002, charitable giving by individuals, foundations, and corporations was over $240 billion in the U.S. Over the next fifty years there will be an estimated six trillion dollars of intergenerational wealth transfer that will be flowing into this sector. Additionally, most corporations are involved with social issues and nonprofit organizations.

Increasingly, consumers, investors, business partners, employees and other stakeholders are choosing to deal with progressive companies that not only product and deliver the goods and services but have acceptable, even exceptional, corporate values. Local communities now expect from companies a place of productive and healthful employment in the community. The communities also expect participation of company officials in community affairs, provision of regular employment, fair play, reasonable purchases made in the local community, interest in and support of local government, support of cultural and charitable projects.

Research shows that stakeholders prefer to do business with companies that integrate social initiatives and causes whether health-related, environmental, civic or even political, into their corporate business strategy. Two thirds of American consumers report having a greater degree of trust in companies aligned with a social issue. Sixty percent would buy first from a company that backs a cause they support and eighty-six percent are more likely to buy a product associated with a cause or issue. And, according to a Points of Light Foundation survey, U.S. businesses know that volunteering is good for the community, companies and employees. Eighty-five percent of the companies surveyed said volunteering helps create healthier communities, 74 percent say it helps improve a company’s image and 54 percent agree that it helps employee morale.

With funding for nonprofits shrinking and global markets more competitive, business and social sectors are both confronting an increasingly challenging future. Many organizations are searching for innovative strategies that will counter the mounting pressures felt by communities and corporations alike. Forward-looking businesses and social sector organizations (both nonprofit and government) can solve many of their problems by working together-while serving the common good in the process.

The spectacular late-1990s run-up in the stock market created a generation of newly super-rich executives and entrepreneurs worth hundreds of millions, if not billions, of dollars. Even after the sharp decline in the market, the ranks of the very wealthy have never been stronger—and many are now working almost as hard at giving their fortunes away as they did at amassing them. BusinessWeek reported that since 1990, charitable donations by individuals have grown by half, from $110 billion to $164 billion in 2001. This new philanthropy displays an impatient disdain for the cautious and unimaginative check-writing that dominated charitable giving for decades.

Changes in today’s philanthropy include:

 – It’s more ambitious. Today’s philanthropists are tackling giant issues, from remaking American education to curing cancer.

 – It’s more strategic. Donors are taking the same systematic approach they used to compete in business, creating detailed business plans that get at the heart of systemic problems, not just symptoms.

 – It’s more global. Just as business does not stop at national borders, neither does charitable giving. Donors from William H. Gates III to George Soros have sweeping global agendas.

 – It demands results. The new philanthropists attach a lot of strings. Recipients are often required to meet milestone goals, to invite foundation members onto their boards, and to produce measurable results–or risk losing their funding.

The start of this new era can be traced to late September, 1997, when cable-TV mogul Ted Turner put together an historic $1 billion pledge to the U.N.–and challenged wealthy “skinflints” to do likewise. Recently, the nation’s underachieving billionaires got an even bigger prodding later when the world’s richest man, Bill Gates, promised to pump a staggering $30 some billion into his foundation to help pay for a campaign to improve health care for the world’s poor. Gates and his wife Melinda have since poured a total of $25.6 billion–some 60 percent of their current net worth–into their foundation, making it the world’s largest. Their mission to bring vaccines to poor children in Africa and India is as strategic and sweeping as Andrew Carnegie’s promise to build a library in every American town.

Bill Gates: Business Builder and Global Humanitarian
In 2006 Bill Gates received the Global Humanitarian award at the Tech Museum of Innovation in San Jose, California. From Microsoft’s early days, to the founding of the Bill & Melinda Gates Foundation, Bill Gates has consistently made philanthropy a priority, and demonstrated that technology can be applied not just to business problems, but for the benefit of humankind.

“We are delighted to honor Bill Gates with this award, and to celebrate his humanitarian contributions with the next generation of innovators who can take great inspiration from his example,” said The Tech Museum’s president, Peter Friess. Over the years, Gates’ philanthropic contributions have come in two stages. The first was creating a culture of giving at Microsoft. In 1983 he initiated a United Way giving campaign for his 476 employees; 30 years later the company has 68,000 employees and contributes $61 million, 60,000 of hours of volunteer work, and $273 million in software and services across 95 countries. Today, Microsoft employees consistently lead the nation in per capita contributions to philanthropic causes.

The second phase began in 1994, when Bill created the William H. Gates Foundation. Three years later, he and Melinda created the Gates Library Foundation, which worked to bring public-access computers with Internet connections to public libraries in the U.S. The two groups merged in 2000 to form the Bill & Melinda Gates Foundation. At the end of 2005, the Bill & Melinda Gates Foundation endowment totaled $29.1 billion. The foundation has made $10.5 billion in grant commitments since its inception, and in 2005 it made grant payments of $1.36 billion.

Guided by the belief that every life has equal value, the Bill & Melinda Gates Foundation works to reduce inequities and improve lives around the world. In developing countries, it focuses on improving health, reducing extreme poverty, and increasing access to technology in public libraries. In the United States, the foundation seeks to ensure that all people have access to a great education and to technology in public libraries.

The Problem in Today’s Nonprofits
Donors, meanwhile, face problems of efficiency and scale that the corporate world has long since overcome. If philanthropy were an industry, it would be a highly fragmented, remarkably inefficient array of enterprises. On the giving side, tens of millions of donors and foundations give a total of more than $212 billion a year to charitable causes.

“There’s a lot of money just sloshing around out there,” says Melissa A. Berman, CEO of Rockefeller Philanthropy Advisors, which assists wealthy individuals in developing and managing their charitable giving. “Half of all the giving is not used optimally.” And most foundations dole out only the required minimum of 5 percent of their assets annually, preferring to perpetuate their own organizations rather than put more muscle behind their stated cause.

On the receiving side are the nearly one million public charities, 40 percent of them with annual budgets of less than $100,000. Generally, they are vastly undercapitalized, understaffed, and poorly managed. Most nonprofits use their limited resources to market themselves to the same donors and foundations year after year. There is little if any investment in business management, organizational infrastructure, or staff development. “Compared to the for-profit sector, the nonprofit world is back in the late 1970s and early 1980s, when Japan was beating up American businesses,” says Jeffrey L. Bradach, managing partner at Bridgespan Group Advisors Inc., a consultant to nonprofits and philanthropists. “It’s only beginning to understand that if you want good outcomes, you have to invest in building strong organizations.”

In a survey by Cynthia Massarsky and Samantha Beinhacker from the Yale School of Management—The Goldman Sachs Foundation Partnership on Nonprofit Ventures, they identify the need for support as critical. They explain that, “Although some nonprofits have the potential to plan, create, and manage profitable business ventures, most of them cannot accomplish these tasks on their own.”

Social Entrepreneurs Deliver the Solution
With this said many of the new philanthropists are trying to bring badly needed business discipline and organization to the field, helping to more effectively match up the growing philanthropic capital with the most urgent social needs. Social entrepreneurs bring proven business management practices and skills to the nonprofit sector. Which has led to another critical difference in the new philanthropy: active partnering among long-established private foundations, corporate funds, and individual donors.

Following this new spirit of collaboration, Acumen Fund Inc., a leading-edge philanthropic nonprofit, recently gathered 30 of its 39 “investors” for the first of what is expected to be the equivalent of an annual shareholders’ meeting at, appropriately enough, Pocantico Conference Center, a piece of the old Rockefeller Estate in Tarrytown, N.Y. The group, which focuses on global social philanthropy, was created last year with seed funding from the Rockefeller and Cisco Foundations. Since then, W.K. Kellogg Foundation, AOL Time Warner Foundation, and 36 individual philanthropists have each ponied up from $50,000 to $500,000 apiece as founding partners. “We’re learning how to bring to the same table philanthropists, corporations, the big foundations, and the government,” says Acumen Fund founder Jacqueline Novogratz, who had led workshops for new philanthropists at the Rockefeller Foundation. “You’re going to get better results.”

Other case histories include Home Depot and KaBOOM! (building playgrounds), Microsoft and the American Library Association (adding computers and Internet services to libraries in low-income areas), Denny’s and Save the Children (raising money for poor children), BankBoston and City Year (sponsoring volunteers in community work), Ridgeview, Inc. and Newton-Conover Public Schools (creating better public schools and better parent involvement from employees with children), and Boeing and Pioneer Human Services (creating airplane parts by employing those with disadvantaged backgrounds).

It is evident that alliances between for-profit and the not-for-profit industries yield enormous benefits for both. Businesses can boost their bottom line by leveraging a nonprofit partnership to enhance their image, reach new markets, increase consumer loyalty, and build a positive reputation with current and prospective employees. The upside is just as powerful for nonprofits, because an alliance with a corporation can provide crucial funds and visibility while helping to attract new volunteers and donors.

SOURCE: Roadmap To Entrepreneurial Success