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September 17, 2007

Social Entrepreneurship: Ten Questions with David Bornstein

howtochangebook.jpg David Bornstein is the author of How to Change the World: Social Entrepreneurs and the Power of New Ideas. He recently updated this book, and it’s now available for the first time in paperback. No less than Nelson Mandela said the book is “wonderfully hopeful and enlightening.” David is also the author of The Price of a Dream: The Story of the Grameen Bank, which chronicles the worldwide growth of the anti-poverty strategy “micro-credit.” The Price of a Dream, which drew on ten months of research in villages in Bangladesh, won second prize in the Harry Chapin Media Awards, was a finalist for the Helen Bernstein New York Public Library Book Award for Excellence in Journalism, and was selected by the San Francisco Chronicle as one of the best business books of 1996.

Bornstein’s articles have appeared in The Atlantic Monthly, The New York Times, New York Newsday, Il Mundo (Italy), Defis Sud (Belgium) and other publications. He co-wrote the two-hour PBS documentary series “To Our Credit,” which focuses on “micro-credit” programs in five countries. Bornstein received a Bachelor of Commerce degree from McGill University in Montreal and a Masters of Arts from New York University.

  1. Question: Are there fundamental differences between a social and for-profit founders?

    Answer: Depends what you mean by fundamental. In terms of temperament, skills, drive, the way they ask questions and think about problems—social and business founders are very much the same creatures. Increasingly we see more and more social founders who are using a business format to achieve their objectives. So a social founder doesn’t have to run a nonprofit, and in the future you will see a lot more for-profit social entrepreneurship as well as a lot of blending of legal formats.

    The difference is really in terms of what the founder seeks to maximize. What is the primary motivation behind building your organization—whatever form it takes? Are you trying to develop drugs for diseases that afflict large numbers of poor people in the developing world as Victoria Hale is doing with One World Health or are you trying to dominate the world market for sneakers or fashionable jockey shorts? For-profit entrepreneurs build all kinds of things. Social entrepreneurs are primarily motivated by an ethical imperative. They seek to respond to urgent needs. The question of why is paramount.

  2. Question: Are there fundamental differences in the people who go to work for a social versus not-for-profit startup?

    Answer: The big difference is that the folks who go work for a start up focusing on creating a social change are less motivated to make a lot of money since that usually isn’t the “upside.” If you are phenomenally successful, you don’t get rich—you change the world. That difference must somehow relate to the hierarchy of values that govern that person’s decisions—and what they feel they “need” to accomplish to be happy and feel good about themselves or, alternatively, whose esteem and admiration they are seeking.

  3. Question: In the for-profit world, you keep score with sales revenue—how do you keep score in the not-for-profit world?

    Answer: It is very tough since it is all apples and oranges and plums. In business you can compare the financial performance of companies whether they sell coffee or cars. How do you compare the success of an organization that helps disabled people to live more independent and dignified lives with an organization that provides after school enrichment to low-income children? There is no single yardstick that is comparable to revenues or profits in business, but within “sub-industries”—say college access or health care access or environmental advocacy—there are clearly some organizations that achieve more impact per dollar spent than other organizations.

    It isn’t as simple as putting the data on a spreadsheet and doing a calculation. But by combining some well-thought-through metrics or proxies, which relate to impact with other forms of non-numeric evidence or analysis, it is possible to make reasoned, reliable judgments about which organizations are doing the best work and which ones should, accordingly, have greater access at a lower cost to growth capital.

    In the end, it’s really not that different from what many investors and rating agencies do intuitively in business. Investors look at many intangibles—the team, the enthusiasm, the quality of the problem solving, the drive, the goodwill, the potential for growth—when they make decisions. You can do the same with social entrepreneurs.

  4. Question: How can social entrepreneurs attract talent when there aren’t high salaries and options?

    Answer: By offering people employment opportunities that align with their talents, interests, and values. By inspiring them with a vision of changing the world, of being part of something bigger than themselves. We have to think about an assumption behind this question—namely the notion that people seek to maximize how much money they make. Certainly, we all care about making money. But choices that people make every day—becoming teachers, having children, giving money to charity—indicate that we are complex creatures motivated by many different things.

    We are also at an interesting point in America’s history. With all our wealth and freedom of choice, we seem to be obsessed with finding happiness. Everyday it seems another book is published focusing on how we can make ourselves happy. Most Americans today are phenomenally wealthy compared to their grandparents, yet many studies show we are no happier, and we actually may be less so. At the very top of the list of things that make people feel happy and fulfilled are doing work that you find challenging and deeply meaningful with colleagues whom you respect and care for. Social entrepreneurship offers this.

  5. Question: Is this why many prominent business people move into social entrepreneurship?

    Answer: Business people are moving into social entrepreneurship for the same reasons that so many other people across society are moving into this field: They see new opportunities to solve problems in creative ways; as individuals, they have far more power to understand and address problems at scale than in the past; they see enormous needs to solve problems that aren’t being addressed by traditional institutions, whether businesses, governments or nonprofits; they have lived through what may be described as the “failure of success”—the extraordinary accumulation of wealth and possessions over the past fifty years that has left people feeling dissatisfied and often empty.

    When Bill Gates announced that he would be stepping down from Microsoft to run his foundation, he made it clear that he was not retiring, but rather “reordering” his priorities. Why? It was through his research trips in the developing world that he came face to face with people suffering and dying—and he couldn’t shake it. He saw that he could be more valuable to the world helping to develop AIDS or malaria vaccines, or expanding access to health care systems, than helping to create more software tools, as valuable as those tools may be. Lots of people are coming to similar conclusions. It is like a global awakening.

  6. Question: People celebrate when a corporate mogul ditches the big bucks and goes to work for a not-for-profit, but has the opposite occurred too?

    Answer: What we’re seeing today is much more interflow between business and social entrepreneurship. It’s increasingly common to find people who have been working on social or enviromental issues for many years who discover a business opportunity that will augment their impact.

    The surge of entrepreneurship in CleanTech is a perfect example. It’s driven by many people who cut their teeth working in the environmental field who see business as a powerful engine to achieve their environmental goals. In the health arena, we are beginning to see more health professionals or people from public health careers starting businesses that are aimed at solving problems well suited to a business model. More and more people are growing sector agnostic; they are seeking impact and looking for the best tools to do the job. This trend looks likely to continue.

  7. Question: What makes some people take action and others to just cogitate?

    Answer: It’s hard to say. Why do people who are procrastinating for months suddenly kick in gear and get their taxes done on April 14? At a certain point the pain of not acting—getting hit with a penalty—overtakes the pain of actually doing your taxes. The same may apply to other aspects of life. There is emotional pain associated with inaction, especially if we care about something. So to the degree that we help people gain more and more exposures to problems in ways that make it more difficult to emotionally accept those problems, we will see more action.

    On the other hand, there is the upside of action—the anticipated pleasure and satisfaction. So, to take the tax example again, if you know you’re in for a big refund, you may be motivated to get your taxes done in January—so you can collect as soon as possible. The upside of taking action—the pleasure of collaboration, the feeling of satisfaction and thrill of making a change happen, the joy in giving—are all potentially great motivators. But often we forget to talk about these aspect of change.

    The bottom line is that we focus on the “doing good” aspects, on the sacrifice, and ethical components, but we often forget to mention how wonderful it feels to take meaningful action in line with your core beliefs. Finally people often delay because they just don’t know where to go, what to do, or how to take the first step. So there is a big need for tools that help people find their place in the field of social entrepreneurship and social innovation. That is actually the subject of the current book I am working on.

  8. Question: What are the things that keep potential social entrepreneurs from succeeding to fulfilling their potential?

    Answer: The major blockages are lack of rationally allocated growth funding that would allow people to build world class institutions. Most of our major businesses are able to raise hundreds of millions of dollars in capital markets—through debt or by issuing stock. But social entrepreneurs, who typically run nonprofit organizations, usually have to raise considerable grant funding from foundations, which usually comes in small, short term installments. Because the funding is so fragmented, social entrepreneurs end up spending 80% of their time fundraising, rather than spending 80% of their time focusing on running their organizations.

    This is a huge bottleneck. Social entrepreneurs who run “social enterprises” have a similar problem—which is the difficulty in finding patient growth capital targeted at businesses that seek to maximize social, environmental and economic returns at once. A corollary of this problem is the difficulty in recruiting and retaining highly talented people. Another blockage are the lack of two-way bridges between social entrepreneurs and both business entrepreneurs and governments.

  9. Question: Then what could government or society do to encourage more social entrepreneurship?

    Answer: There are many levels at which social entrepreneurship can and should be encouraged. At its essence, the goal is to help build a society in which many, many people have the confidence, skill and desire to solve problems they see around them. The most important qualities in social entrepreneurship are empathy, the ability to collaborate well with others and the stubborn belief that it’s possible to make a difference—which motivates and stimulates people to act.

    There are many ways to improve the education system so that young people have experiences that build these qualities, and give them a sense of agency, a sense of their own power connected to an ethical framework. I would argue that this should be one of the fundamental goals of education. Once a child has had this experience, that child will never go back to being a passive actor in society. She will always be asking the question—Why don’t we fix this problem?—and causing waves of creative destruction wherever she goes.

    We could build into the curriculum of every school and college such experiences. We could use our powerful media to make the field of social entrepreneurship more visible. At more advanced levels, social entrepreneurs need a variety of financial and structural supports—new laws, less fragmented and more rational capital markets and stronger bridges with governments, business and academia. Lots of work for anyone who has some creativity and likes to be a positive deviant.

  10. Question: Who is the “Steve Jobs” of social entrepreneurship?

    Answer: The most famous social entrepreneur would be Muhammad Yunus, the founder of the Grameen Bank. Like Jobs, Yunus took a product—“credit”—that was once an exclusive item (like the early PCs) and brought it to a mass audience. In so doing, his bank helped to democratize access to capital in a way that is similar to the way that Apple Computer democratized access to information. The effect is similar: more choice and self-determination in the hands of more people globally.

  11. Question: Is the entrepreneur in the middle of Africa who gets a micro-loan and supports his or her family much different from Bill Gates or Steve Jobs?

    Answer: Yes and no. In terms of vision and aspiration, the Bill Gates and Steve Jobs of the world are pretty rare. Forget about Africa, there are many people born into the heart of privilege, with the best education, broad exposures, lots of confidence, and they don’t become entrepreneurs. It’s just not what draws them. Entrepreneurs are most excited by making their visions real. Other people derive their greatest satisfaction from different things—interpersonal relations, perhaps, or teaching or healing or making beautiful music.

    There is not much difference between leading business entrepreneurs like Bill Gates and Steve Jobs, and leading social entrepreneurs like Jim Grant, Muhammad Yunus, Fazle Abed, or Bill Drayton. But clearly not everyone has the temperament and desire to be a for-profit entrepreneur—thank goodness!

    There are also entrepreneurs at many different levels. Some people build small organizations, some build medium ones, some build large ones. The difference is what’s most important to them in life, how big they allow themselves to dream and where they come to rest along the way. Without a doubt, millions of micro-entrepreneurs in Africa and Bangladesh and all around the developing world have massive pools of untapped and underutilized potential.

    Given the right structural supports and exposures, including capital, many of them would go on to build very successful companies or social organizations; a subset of them would go on to build world-class firms, just like in the United States. But, lest we overemphasize the role of entrepreneurs, it’s important to realize that they are only one ingredient in the change process.

    Entrepreneurs are successful only to the degree that they can bring together other people with different talents and abilities who can, as a team, build things they could never do apart. Entrepreneurs are hubs or magnets: organizing forces. It takes many hands working together to produce any significant change.

If you'd like to read more about people doing good, please check out Good.alltop.com.

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Comments

Thank you for your thoroughly thought-provoking blog. I'd like to comment on your first question: “Are there fundamental differences between a social and for-profit founders?”

I am the co founder and CEO of Everyclick.com, a search engine that lets you search the web and benefit the charity of your choice. We are a for-profit enterprise with a social objective - giving 50% of its gross revenue to charity.

It’s a challenging business model to run but, like you say, with our ethical imperative the primary motivation, the late nights and early starts make it all worthwhile.

What's more, the bigger we get the more money we raise and the more secure this sustainable way to fundraise for any charity becomes. So our growth helps smaller organisations grow - and everyone wins.

Greetings Guy,

I am a former US Peace Corps volunteer http://www.peacecorps.gov/ and hold a Masters degree in International Development from http://www.clarku.edu/departments/idce/default.cfm Clark University . While doing a google search for information on Social Entrepreneurship I came across your website. For some time now I have been planning to develop a humanitarian aid group/foundation that will be housed and based primarily on the web. The general idea being that if you remove expensive corporate offices and large administrative budgets most of the funds can be directed towards those who need it most.

The mission of the organization will be to promote awareness and provide support and aid relief for displaced persons and refugees (specifically orphan children) who live in areas where genocide is occurring or, who have been uprooted due to military conflict (e.g. Sudan, Chad, etc). My online goals are to show “average” people that one person can make an impact even when certain global conflicts seem unpromising. Also, I would like to demonstrate that the average citizen doesn’t have to be apathetic toward global conflicts situations that are having horrific consequences. Rather, they can be proactive and really do something to positive to assist.

With the aid of Wordpress, Drupal, or Joomla I believe that I can create most of the site myself but I am searching for a developer who can assist with some end user functionality. Because I am not interested in making one penny from this work and have already put out about $300 for hosting and domain registration I am searching for an individual, or web company that is willing to assist in return for exceptional PR (e.g. helping a startup NGO), possible payment after initial launch, and just overall good karma. If you think that you might you know of someone willing to assist, or know of certain developers who donate time, could you please forward this note along? Or, I know you have a lot of people reading your blog…maybe you could move this and add it as a post?

Kind regards, and I sincerely thank you for your time.

Mark
ps. more info about me here: http://www.mytropicalescape.com/61/

The more I hear from armchair economists, the more I believe that, to quote Oliver Wendell Holmes: Economists know the price of everything and the value of nothing.

Guy, many thanks, very interesting interview which I will discuss on my blog at www.business4good.org. I enjoyed reading Bornstein's How to Change the World very much, the interview was a great 'refresher' and I am looking forward to the updated edition of the book.

Regarding dichotomoy or not-dichotomy I find this graph of a 'hybrid-spectrum' between mission and profit organizations very useful: www.business4good.org/search?q=CSR+and+Social+Enterprises

Let's keep pushing for positive change!
Juergen

An important point to be raised, however there is indeed a dichotomy between the social and for-profit entrepreneurial ventures.

It is true that any "economics 101" class will teach you that Adam Smith's invisible hand wil align private good with public good. This is precisely true, when a specific set of assumptions are adhered to including: perfect information,uniform goods, large(approaching infinite) numbers of firms and consumers, and no exclusive or competitive goods. Clearly in the real world, these strict assumptions are often, if not always, violated.

If you took anything past first-year economics, you would quickly learn that our society is full of public goods (parks, roadways, clean air, safe neighborhoods, trust, etc.), which by definition are underprovided in a market economy.

Thank you for the wonderful interview.

My view of social entrepreneurship is slightly different.

We can properly contribute if we focus on what we are good at. Those "for profit" entrepreneurs need to be socially responsible and contribute to the organization that is making all the changes. We believe you can only contribute once you have something you can contribute.

As Maslow's Hierarchy of Needs states, human needs to meet a basic need before they can seek successively 'higher needs' like self actualization.

This is one reason Bill Gates is ideal to contribute back to society as this is his next challenge in life.

I saw David speak at the University of Toronto three years ago - his stories were very inspiring and I highly recommend his "How to change the world" book. But a collaboration between & Bornstein is true genius.
Excellent read.

Beautiful interview. Great question, and answer: number 6. I see that motivation often in Clean Tech, as David mentions, and in many science-based ventures.

This is what stands out for me:

"Entrepreneurs are successful only to the degree that they can bring together other people with different talents and abilities who can, as a team, build things they could never do apart."

In the end it is all about spreading your enthusiasm... infecting others with the same virus you have.

The interview made me wonder what I would be,.... a social or a for-profit entrepeneur. Probably both as it makes me feel just as good to know we´re creating jobs as it is to make a lot of money. Growing the business however is the real fun part though. Just like doing research and implementing new services. If it would stop growing, I'm sure I'd get bored after a while... :)

An insightful post to say the least, but I must object to the implied dichotomy.

As board president of our local center for independent living, I found this post compelling. I'm actually preparing for a meeting tomorrow.

Our ED does a stat page of actual vs. goal of many non-monetary measures. We might just place too much emphasis on the treasurer's report and not enough on the non-monetary stats. I will be asking more questions now!

“Mother Teresa acts out of egoistic motives as well. She helps the poor in order to ease her conscience. If she didn’t help, she would simply be less happy.” These words are taken from the movie Nell, and reflect Adam Smith's "invisible hand". Indeed, once you start thinking about this way of reasoning, it becomes more and more compelling. So, are social entrepreneurs really as egoistic as anybody else? Is there anything else than the pursuit of self-interest after all?

Guy,

What a fantastic interview. I don't know which books of David's to start with :-)

Then there are very successful for-profit businesses who start social organizations such as what happened with netspend and mpowerlabs (mpowerlabs.com). The success of Netspend spurred the founders to create investments and partnerships with entrepreneurs who are trying to help the underserved.

In this case, they are still successful business people and not moving away from business to social entrepreneurship, just using their continued success to have more of an impact. Also, more and more corporations are using their resources to support social initiatives. I hope the trend stays hot, and that shareholders of major companies lean more and more toward advancing social initiatives within or outside of their companies whether it be environmental based or other, with the hopes that in the long run, it will make their companies more profitable and attractive.

Guy:

Thanks for cheerleading the need for companies to invest in alternative markets and cultures. Success should not always be measure by the size of one's money vault! Social innovation and entrepreneurial pursuits have other rewards that can't be purchased at any cost. This type of interview is right on target for my audience at the Innovators Network. I cross-posted on your piece, along with a few comments of my own, at http://blog.innovators-network.org The Innovators Network is a non-profit dedicated to bringing technology to startups, small businesses, non-profits, venture capitalists and intellectual property experts. Please visit us and help grown our community!

Best wishes for continued success,

Anthony Kuhn
Innovators Network

Great interview and laudable ideas. I wish the venture capital community would become more visible in this area, other than funding the latest cleantech deal.

Fantastic interview, Guy, and one more book added to my 'to read' list.

This bit spoke directly to me:

"Because the funding is so fragmented, social entrepreneurs end up spending 80% of their time fundraising, rather than spending 80% of their time focusing on running their organizations."

Having just finished my annual 24 hour Heart Kids Blogathon on Saturday and raised enough to fund 6 or 7 surgeries, I'm struck by how much more is needed to hit my target figure of 100 operations a year.

The 80-20 rule apparently works even in this arena.

Thanks again for sharing such an inspiring and informative interview.

All success
Dr.Mani

Great article.

As a person who has been "sweating it out" for the past 26 months on a eco-project (www.laneo.org), it certainly underlines the difficulties behind this type of initiative.

This said, I'm sure the author, Guy and the readers will acknowledge one other point; too much credit is given to the "cool" initiatives, backed by individualists (VC's, BA's...) looking to boost their ego's on the very trendy social - humanitarian - ecological platform (SHE).

SHE projects aren't "cool", and shouldn't be - there's a lot more at stake.

Until we see an increase in not only funding but also supplying networking and mentoring services to SHE start-ups, we're going to miss out on a lot of power to solve some of the world's toughest problems.

Thanks again for all the wonderful articles.

Sincerely,

Andrew Paterson
Founder / President / Triathlete / Eco-Enthusiast
Laneo
Paris, France
(Mobile) +33 614 553 576
(Office) +33 170 375 354
(Skype) aespaterson
(Linkedin) http://www.linkedin.com/pub/1/308/1b9
(Xing) http://www.xing.com/go/invite/3182253.d32960

(Web) http://www.laneo.org
(Blog) http://blog.laneo.org

"Donate your Opinions, Save the Planet" - Join Laneo today !

Good article, Guy. This fits in well with your theme of how to change the world. May I suggest an article about how to start a non-profit? How is it different legally and financially in starting? Could we make a check list so people thinking of starting a for-profit might see that a non-profit option may actually work for their concept?

An insightful post to say the least, but I must object to the implied dichotomy.

'Social entrepreneurs' are explicitly out to do good and so we praise there compassion and contribtion, where-as for profit is seen as selfish/self interested and therefore not as good if not outright bad. This distinction is false.

Any economics 101 class presents Adam Smith's 'invisible hand', which describes that people out to 'help themselves' contribute most to society. So though they are not explicitly out to feed the poor or clothe the masses, the long run effects of their actions are just that. Not counting the current sexappeal of social entrepreneurship the true social good is the crazy dreamer struggling to put a business together.

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