www.elsevier.com/locate/bushor

Social entrepreneurship: Creating new businessmodels to serve the poor

Christian Seelosa, Johanna Mairb,*

aSustainable Strategies Consulting Group, C/ Topazi 5B, 08012 Barcelona, SpainbIESE Business School, Avda. Pearson 21, 08034 Barcelona, Spain

0007-6813/$ - see front matter D 200doi:10.1016/j.bushor.2004.11.006

* Corresponding author.E-mail addresses: cseelos@sscg.org

jmair@iese.edu (J. Mair).

KEYWORDSSocial

entrepreneurship;Sustainability;Business model;Corporate social

responsibility

Abstract The term bsocial entrepreneurshipQ (SE) is used to refer to the rapidlygrowing number of organizations that have created models for efficiently catering tobasic human needs that existing markets and institutions have failed to satisfy. Socialentrepreneurship combines the resourcefulness of traditional entrepreneurship witha mission to change society. One social entrepreneur, Ibrahim Abouleish, recentlyreceived the bAlternative Nobel PrizeQ for his Sekem initiative; in 2004, e-Bayfounder Jeff Skoll donated 4.4 million pounds to set up a social entrepreneurshipresearch center; and many social entrepreneurs have mingled with their businesscounterparts at the World Economic Forum in Davos. Social entrepreneurship offersinsights that may stimulate ideas for more socially acceptable and sustainablebusiness strategies and organizational forms. Because it contributes directly tointernationally recognized sustainable development (SD) goals, social entrepreneur-ship may also encourage established corporations to take on greater socialresponsibility.D 2004 Kelley School of Business, Indiana University. All rights reserved.

1. Services are failing the poor

Human needs and wants are fundamental driversof companies’ decisions as to which products orservices to produce. Yet, despite the seeminglyunlimited nature of human needs, companiesstruggle to find new markets and value proposi-tions, and for large corporations the quest forgrowth has become a holy grail. Two fundamentalrules seem to apply. First, in industrialized

4 Kelley School of Business, In

(C. Seelos)8

countries, many people are unwilling to payenough for certain products and services theywant. This is a fact that became painfully clear tosome bdotcomQ startups in the nineties: While thefree services they offered were used by millions,they found it impossible to implement fees fortheir services when venture capital dried up.Second, the very basic needs of millions of peoplein non-industrialized countries remain unmet,mainly because these potential customers arewilling but unable to pay for products andservices that would satisfy their needs. However,that is not the only reason why those unsatisfiedneeds have failed to attract the business com-

Business Horizons (2005) 48, 241—246

diana University. All rights reserved.

C. Seelos, J. Mair242

munity in search of new markets. The World Bank(2003) maintains that services to satisfy basichuman needs, particularly those that contributeto health and education, are failing poor peoplein terms of access, quality, and affordability. Themain reason for this failure appears to be the factthat public spending does not reach the poor and,if it does, service provision is often inefficientand of poor quality.

Increasingly, corporations are expected to takeresponsibility for meeting social and environ-mental challenges more proactively, so as toachieve a more sustainable pattern of develop-ment. The most widely used definition of sus-tainable development (SD) is one put forwardby the World Commission on Environment andDevelopment (1987), which says that SD is:bDevelopment that meets the needs of thepresent without compromising the ability offuture generations to meet their own needs.Q Tooperationalize this definition, the United Nationsdefined a set of Millennium Development Goals(MDGs), based on a resolution adopted by theGeneral Assembly in September 2000. TheseMDGs comprise eight specific, quantifiable andmonitorable goals (with 18 targets and 48specific indicators) for development and povertyeradication by 2015. Goals include human rights,health, education, and environmental issues. Theefficiencies of markets, combined with theresources and managerial expertise of largemultinationals, are considered crucial successfactors in achieving these goals. As Margolis andWalsh (2003) point out, bManifest human miseryand undeniable corporate ingenuity shouldremind us that our central challenge may lie inblending the two.Q United Nations Secretary-General Kofi Annan, in his address to the WorldEconomic Forum on January 31, 1999, called onglobal business leaders to embrace a set ofshared values and principles in the areas ofhuman rights, labor standards, and environmentalpractices. Kell and Levin (2002) describe theformation of a Global Compact network consist-ing of several hundred companies, dozens ofNGOs, major international labor federations,and several UN agencies to collaborate in creat-ing a more stable, equitable, and inclusive globalmarket by making shared values and principles anintegral part of business activity everywhere.Likewise, the European Commission (2002) hascalled for more direct corporate social responsi-bility (CSR) as a business contribution to sustain-able development. Despite these welcomecommitments, the United Nations DevelopmentProgramme Human Development Report (2003)

provides evidence that, for many people on thisplanet, life remains grim, and hope for improvingtheir situation is frail.

2. A new phenomenon: Socialentrepreneurship (SE)

A growing number of initiatives all over the globeseem to be defying the obstacles that haveprevented businesses from providing services tothe poor. Collectively, those initiatives constitutea phenomenon that has been dubbed bsocialentrepreneurshipQ. Employing novel types ofresources and combining them in new ways, SEis a rich field for the discovery of inspired modelsof value creation. The following three caseexamples set the stage for an attempt to providea perspective on the field:

2.1. Case 1: The Institute for OneWorldHealth (USA)

Victoria Hale, a research scientist with Genen-tech and former reviewer of New Drug Applica-tions for the Food and Drug Administration, wasaware of the economic and logistical barriersthat prevented pharmaceutical companies fromdeveloping drugs for Third World countries. Toovercome these barriers, she founded OneWorldHealth as the first US non-profit pharmaceuticalcompany. OneWorld Health has adopted anentrepreneurial business model to deliver medi-cines to those most in need in developingcountries. It aims to redesign the whole valuechain of drug delivery, and so challenges tradi-tional profitability thinking, which seems incom-patible with developing the much needed cures.

Large philanthropic organizations and govern-ments provide much of the initial funding. Beinga non-profit company is an enabling structure forsocial value creation, as OneWorld Health canaccess capital that business entrepreneurs usuallycannot. OneWorld Health has established a newset of partnerships aimed at creating value foreveryone involved. Biotechnology companies findan attractive outlet for intellectual property thatmight otherwise remain idle because it does notmeet their criteria for financial returns to bring-ing the medicines to market. Compassionateresearch and development efforts attract scien-tists and volunteers willing to donate time,effort, and knowledge to the project. Companiesstrive to utilize and integrate the scientific andmanufacturing capacity of the developing worldto deliver affordable, effective, and appropriatenew medicines where they are most needed.

Social entrepreneurship: Creating new business models to serve the poor 243

2.2. Case 2: Sekem (Egypt)

Founded by Ibrahim Abouleish in 1977 on a piece ofdesert land north of Cairo, Sekem, has grown fromthe vision of a single individual to a multi-businessfirm that not only creates economic, social, andcultural value, but also has a significant impact onEgyptian society. Profits from Sekem’s businessesfund institutions such as schools, an adult educa-tion center, and a medical center. Sekem also plansto open a university for holistic education in thesecond half of 2004. These institutions caterdirectly to basic human needs; furthermore, Sekemfills an institutional void in Egypt by providingstructures that people trust and that help them toescape the poverty trap and gain control over theirlives. On the environmental front, Sekem haspioneered biodynamic agriculture in Egypt. It hasdeployed a new system of plant protection forcotton, which has led to a ban on crop dustingthroughout Egypt. By 2000, pesticide use in Egyp-tian cotton fields had fallen by more than 90%. In2003, Ibrahim Abouleish received the Right Live-lihood Award in recognition of his achievements inintegrating commercial success with social andcultural development. The jury saw in Sekem abblueprint for the healthy corporation of the 21stcentury.Q Founded in 1980, the Right LivelihoodAwards are presented annually in the SwedishParliament and are often referred to as thebAlternative Nobel Prizes.Q Their purpose is tostrengthen positive social forces, and to honorand support those offering practical and exemplaryanswers to the most urgent challenges facing theworld today.

2.3. Case 3: Grameen Bank (Bangladesh)

Muhammad Yunus, an economics professor,believes that the poor have skills that remain un-or under-utilized, mainly because existing institu-tions and policies fail to offer the support thesepeople require. He founded the Grameen Bank in1976 to supply credit to those who would notqualify as customers of established banks. Today,Grameen operates 1191 branches, serving over 3million poor people in 43,459 villages in Bangla-desh. Grameen Bank grants unsecured loans to thepoor in rural Bangladesh. It differs from otherlending institutions on three counts. First, priorityis given to designing the system so that the loanscan be repaid, and on time. Second, only thepoorest villagers, the landless, are eligible. Third,the bank makes efforts to lend primarily to women,who are not only economically but also sociallyimpoverished.

The loan disbursal design is unique. To qualify fora loan, a villager must demonstrate that her familyassets are below a certain threshold. She is notrequired to put up collateral; instead, she must joina five-member group and a forty-member center,and attend a weekly meeting. She must also shareresponsibility for the loans granted to the othermembers of her group; it is the group, not thebank, which initially evaluates loan requests.Defaulters would spoil things for everybody, sogroup members must choose their partners wisely.The Grameen Bank has been profitable from theoutset, and has inspired a global micro-creditmovement that has spread to 65 developingcountries, reaching 17 million borrowers.

3. What does it all mean?

What these examples and many other entrepre-neurial initiatives all over the globe have incommon is that they challenge the status quo andour conventional thinking about what is feasible.Often, the complexity, scale, and scope of theworld’s environmental and social problems andchallenges seem overwhelming, tempting us toresign ourselves and doubt the capabilities of ourinstitutions to improve things. Nevertheless,inspired entrepreneurs have shown us new pathsand solutions, basing their designs on local needsrather than on the centralized assumptions of largeinstitutions about what needs to be done. SE hasthus attracted the attention of academia, interna-tional organizations, charities, and corporations, inefforts to better understand the phenomenon andto replicate and scale some of the new models andprocesses for value creation. However, the lack of atheory of SE may be a barrier to the full recognitionand more focused support that might be needed toenable these initiatives to grow to a scale wherethey can make a substantial contribution to erad-icating poverty in all its forms.

What seems to be a common feature of SE is itsprimarily social mission. The greatest challenge inunderstanding SE, though, lies in defining theboundaries of what we mean by bsocial.Q First ofall, there is no such thing as bnon-socialQ entrepre-neurship; in fact, Reynolds, Bygrave, Autio, Cox,and Hay (2002) report that traditional entrepre-neurship creates the majority of jobs in developedcountries—certainly an important social function.Based on our research, we offer the followingdefinition of SE:

Social entrepreneurship creates new models forthe provision of products and services that cater

C. Seelos, J. Mair244

directly to basic human needs that remain unsa-tisfied by current economic or social institutions.

Like business entrepreneurship, SE recognizesand acts upon what others miss: opportunities toimprove systems, create solutions, and invent newapproaches. Venkataraman (1997), studying tradi-tional entrepreneurship, sees the creation of socialwealth as a by-product of economic value createdby entrepreneurs. In SE, by contrast, social valuecreation appears to be the primary objective, whileeconomic value creation is often a by-product thatallows the organization to achieve sustainabilityand self-sufficiency. In fact, for SE, economic valuecreation, in the sense of being able to capture partof the created value in financial terms, is oftenlimited, mainly because the bcustomersQ SE servesmay be willing but are often unable to pay for evena small part of the products and services provided.

While SE traditionally has been studied in the US,many initiatives operate in developing countriesthat have no structures or resources to enable orsupport traditional entrepreneurship. Accordingly,SE creates novel business models, organizationalstructures, and strategies for brokering betweenvery limited and disparate resources to createsocial value. It therefore relies on individuals whoare exceptionally skilled at mustering and mobiliz-ing resources: human, financial, and political.

4. Social entrepreneurship in support ofsustainable development goals

The issue is further complicated by the fact thatthe term bsocialQ means very different things todifferent people, depending on their personal andcultural backgrounds. Which bsocial needsQ shouldhave priority? Without an overarching objective, itis impossible to decide whether using resources tohelp the homeless in Paris creates as much socialvalue as feeding hungry children in Kabul. Unlesswe set boundaries to the scope of SE, it may beimpossible to define the unique characteristics thatdifferentiate it from traditional or business entre-preneurship. We can overcome this ambiguity bystudying SE through the lens of a widely recognizedand global goal that integrates social needs towhich many institutions and businesses have com-mitted themselves: the goal of achieving sustain-able development (Seelos & Mair, 2004).

In this perspective, extending our earlier defi-nition, we define SE as entrepreneurship thatcreates new models for the provision of productsand services that cater directly to the social needsunderlying sustainable development goals such as

the MDGs. SE often creates tremendous value whencatering to very basic humanitarian needs such asproviding medicines or food, which can be a matterof life or death for those who receive them. TheInstitute of OneWorldHealth is an example of this.Often, SE initiatives act as trusted institutionsorchestrating the fair distribution of scarce resour-ces, as in the case of the Grameen Bank. They alsosafeguard the needs of future generations byinstituting more environmentally friendly practi-ces. Sekem, for instance, has changed the waycotton is produced in Egypt, avoiding the applica-tion of thousands of tons of pesticides. Apart fromthe many initiatives in industrialized countries(particularly in the US), clusters of SE exist in LatinAmerica (Brazil, Ecuador), and especially in South-east Asia (Bangladesh and India), where SE plays animportant role in society, providing vital publicinfrastructures and services. For example, BRAC(the world’s largest NGO, established in Bangladeshin 1972) uses a holistic concept to alleviate povertyand empower the poor. Its multifaceted develop-ment organization is made up of companies andinstitutions engaged in such diverse activities aspoultry farming, land and housing, banking, andeducation.

To make a significant contribution to SD, socialentrepreneurship must reach a critical mass ofinitiatives around the globe. The scale and scope ofSE ultimately depends on the number of individualswho choose to become entrepreneurs with aprimarily social mission. It has been suggested thatSE depends on very specific and scarce individualcharacteristics. Attempts to define the character-istics of the typical social entrepreneur tend toportray a social hero with bentrepreneurial talent.QBill Drayton (2002), the founder of Ashoka, consid-ers SE the result of very special personal traitsshared by only a small percentage of the popula-tion; traits that go beyond altruistic motivation andreflect a determination to change the whole ofsociety. The lack of empirical data makes itdifficult to assess whether these personal charac-teristics stand in the way of achieving scale. Thefollowing observations support the view that thenumber of potential social entrepreneurs may belarger than suspected. Most social entrepreneurs donot even know they are one until they receive anaward or are recognized by organizations such asAshoka or the Schwab Foundation. They thereforedo no perceive themselves as being different fromother entrepreneurs. From our experience ofteaching SE at a leading European business schooland conversations with students and faculty fromother schools, it would appear that MBAs increas-ingly see their professional activity in terms of

Social entrepreneurship: Creating new business models to serve the poor 245

personal values and making a contribution tosociety. Students feel that SE would allow them touse their management and business knowledge, butin a social context. SE may thus support a widerange of motivations, including the opportunity tomake financial profit, as in the case of both Sekemand the Grameen Bank. As stated previously, SE is astructure that allows individuals to strike their ownbalance between the desire to make a socialcontribution and the personal need to capture aneconomic return from professional activity, across awide range of possible ratios (Seelos & Mair, 2004).

5. Social entrepreneurship: New partnersfor corporations and institutions?

Social entrepreneurship, seen as a field of exper-imentation and innovation, has the potential tocontribute new insights to the discipline of entre-preneurship, and also to the wider social sector.The interfaces between SE, CSR efforts, and publicinstitutions offer great potential for discoveringnew forms of collaborative value creation insupport of sustainable development.

5.1. Public institutions and socialentrepreneurship

Increasingly, we see examples of overlap andcollaboration between SE and international organ-izations, NGOs, and development institutions. ThebDevelopment MarketplaceQ is aWorld Bank programpromoting innovative development ideas by meansof early-stage seed funding. The World Bank bringssocial entrepreneurs with poverty-fighting ideasinto contact with partners that have the resourcesto help them implement their vision. In 2003, WorldBank President James Wolfensohn awarded morethan US$6 million in seed money to be shared among47 small-scale, innovative development projects in27 countries. In his opening remarks, he said:

bWhat we recognize very acutely here in the Bank isthat there is no way that we as an institution can bethe effective transmitter of all the ideas to peoplein poverty and people that need assistance. And,therefore, what is crucial is to have proposalswhich can be replicated and can be handled atthe field level and can, in fact, allow us to scale upwith simple ideas well executed that can be carriedfrom one place to another and one country toanother and one region to another.Q

Many organizations, such as Ashoka or theSchwab Foundation, directly support SE by provid-ing seed capital and access to crucial support

networks. SE efforts that cater to very basic humanneeds, in particular, often depend on foundations,at least initially, until their bcustomersQ can make acontribution to the value created. More research isneeded to more accurately define how the publicsector can best collaborate with and support SE,given the variety of challenges involved in achiev-ing SD goals.

5.2. An exciting opportunity for enlightenedcorporate social responsibility

Linking SE and CSR efforts could be a verypromising model in terms of impact on achievingMDGs. To date, most CSR projects have concen-trated on communities in developed countries,where achieving MDGs is much less of a criticalissue. This is due to the notion of corporatecitizenship and the fact that most corporationsoperate principally in developed countries. In lessdeveloped countries, implementation of CSRefforts may be facilitated, and may gain credi-bility and effectiveness, through collaborationwith local forms of SE. This is particularly truefor foreign companies that either wish to contrib-ute to SD, or have an interest in developing afuture market for their own products and serv-ices. A smart way for corporations to think aboutCSR is in terms of competing for topic ownership;for example, a corporation may pick an MDGwhereby, with its particular resources and capa-bilities, the corporation can make a significantcontribution. By building partnerships with localentrepreneurs, the company may then engage inreal projects that match specific, relevant needsto corporate resources. Hart and Christensen(2002) highlight how some companies have startedto tap into the market of social needs. However,individual entrepreneurs are usually much betterthan companies at scanning for opportunities andbuilding up grassroots efforts from very limitedcapital. By using corporate funding instead ofpurely philanthropic sources of capital, entrepre-neurs could tap into an additional pool ofcorporate knowledge, managerial skills, and capa-bilities to implement SE efforts. This type ofrelationship between social entrepreneurs andcorporations would use CSR budgets to invest indeveloping new markets by turning people withbasic needs into customers and building thenecessary trust needed to acquire an operationslicense. Since entrepreneurs are very good atstarting new initiatives, but not necessarily atmanaging organizations or projects once theyreach a certain size, companies could, at somestage, take ownership of the projects and free up

C. Seelos, J. Mair246

the entrepreneurs to start new ventures. Thiswould allow them to become serial social entre-preneurs, and so boost the scale and scope of SEuntil it reaches a critical mass.

Social entrepreneurship paves the way to afuture that may allow coming generations to satisfytheir needs better than we are able to satisfy eventhe basic needs of today’s population. It gives themanagers of global corporations a unique oppor-tunity to learn and create new collaborative effortsthat are in the corporations’ own economic inter-est, while at the same time creating social value forthose who need it most.

Acknowledgements

The authors are grateful for the support of thebAnselmo Rubiralta Center for Globalization andStrategyQ and the bCenter of Business in SocietyQboth at IESE Business School, University of Navarra.

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