Commercial and social entrepreneurship

Entrepreneurship has been the engine propelling much of the growth of the business sector
as well as a driving force behind the rapid expansion of the social sector. This article offers
a comparative analysis of commercial and social entrepreneurship using a prevailing analytical
model from commercial entrepreneurship. The analysis highlights key similarities and
differences between these two forms of entrepreneurship and presents a framework on how
to approach the social entrepreneurial process more systematically and effectively. We
explore the implications of this analysis of social entrepreneurship for both practitioners
and researchers.
Social entrepreneurship, or entrepreneurial activity with an embedded social
purpose, has been on the rise in recent decades. Apartial indicator of this surge is revealed
by the growth in the number of nonprofit organizations, which increased 31% between
1987 and 1997 to 1.2 million, exceeding the 26% rate of new business formation (The
New Nonprofit Almanac and Desk Reference, 2002). However, the dynamic is even more
robust, as other forms of social entrepreneurship, beyond that occurring within the nonprofit
sector, have also flourished in recent years. The recent boom in social entrepreneurial
activity makes a comparative analysis between commercial and social
entrepreneurship timely. Social entrepreneurship is still emerging as an area for academic
inquiry. Its theoretical underpinnings have not been adequately explored, and the
need for contributions to theory and practice are pressing. This article aims to open up
some avenues of exploration for social entrepreneurship theory development and practice
by presenting an exploratory comparative analysis of the extent to which elements
applicable to business entrepreneurship, which has been more extensively studied, are
transferable to social entrepreneurship. To a lesser degree, we will also explore the reverse
applicability or the ways in which insights from social entrepreneurship can contribute
to a deeper understanding of business entrepreneurship. We offer a comparative analysis
Social and Commercial
Same, Different,
or Both?
James Austin
Howard Stevenson
Jane Wei-Skillern
© 2006 by
Baylor University
Please send correspondence to: Jim Austin, tel.: 617–495–6497, e-mail: [email protected], to Howard
Stevenson, tel.: 617–495–6339, e-mail: h[email protected], and to Jane Wei-Skillern, tel.: 617–495–6190,
e-mail: [email protected], at Harvard Business School, Soldiers Field Road, Boston, MA 02163.
All of the authors contributed equally to this research; authors’ names are listed alphabetically.
that identifies common and differentiating features between commercial and social
entrepreneurship. This exploration develops new insights about social entrepreneurship
and points to opportunities for further elaboration by researchers, as well as to practical
implications for social entrepreneurs and funders on how to approach social entrepreneurship
more systematically and effectively.
In the next section, we discuss some of the key distinctions between social and commercial
entrepreneurship as a modest step toward the development of a body of theory
on social entrepreneurship. To analyze these theoretical propositions in depth and to draw
out lessons for managers, we will then set forth one prevailing model used to examine
commercial entrepreneurship and to explore new ideas that emerge when it is applied to
social entrepreneurship. The article concludes by presenting implications for social enterpreneurial
practice and research.
Theoretical Considerations
Definitions of social entrepreneurship range from broad to narrow. In the former, social
entrepreneurship refers to innovative activity with a social objective in either the for-profit
sector, such as in social-purpose commercial ventures (e.g., Dees & Anderson, 2003;
Emerson & Twersky, 1996) or in corporate social entrepreneurship (e.g., Austin, Leonard,
Reficco, & Wei-Skillern, 2004); or in the nonprofit sector, or across sectors, such as hybrid
structural forms which mix for-profit and nonprofit approaches (Dees, 1998). Under the
narrow definition, social entrepreneurship typically refers to the phenomenon of applying
business expertise and market-based skills in the nonprofit sector such as when nonprofit
organizations develop innovative approaches to earn income (Reis, 1999; Thompson,
2002). Common across all definitions of social entrepreneurship is the fact that the
underlying drive for social entrepreneurship is to create social value, rather than personal
and shareholder wealth (e.g., Zadek & Thake, 1997), and that the activity is characterized
by innovation, or the creation of something new rather than simply the replication of existing
enterprises or practices. The central driver for social entrepreneurship is the social
problem being addressed, and the particular organizational form a social enterprise takes
should be a decision based on which format would most effectively mobilize the resources
needed to address that problem. Thus, social entrepreneurship is not defined by legal form,
as it can be pursued through various vehicles. Indeed, examples of social entrepreneurship
can be found within or can span the nonprofit, business, or governmental sectors.
We will use this broader conceptualization of social entrepreneurship here to offer a
comparative analysis with commercial entrepreneurship. We define social entrepreneurship
as innovative, social value creating activity that can occur within or across the
nonprofit, business, or government sectors. However, most definitions of social entrepreneurship
in popular discourse, as well as in the academic literature, focus primarily
on social entrepreneurship within and across the nonprofit and business sectors. To build
on previous work and for the purposes of this article, we will limit our discussion to these
two sectors as well.
To approach the comparative analysis more specifically, we offer the following series
of theoretical propositions focusing on four different variables to guide the comparison:
• Market failure. One theory behind the existence of social-purpose organizations
is that they emerge when there is social-market failure, i.e., commercial market forces
do not meet a social need, such as in public goods (Weisbrod, 1975, 1977) or in contract
failure (Nelson & Krashinsky, 1973). This is often due to the inability of those needing
the services to pay for them.1 A problem for the commercial entrepreneur is an opportunity
for the social entrepreneur. Our proposition here is: Market failure will create differing
entrepreneurial opportunities for social and commercial entrepreneurship.
• Mission. The fundamental purpose of social entrepreneurship is creating social
value for the public good, whereas commercial entrepreneurship aims at creating profitable
operations resulting in private gain. This contrast is, of course, overstated. Commercial
entrepreneurship does benefit society in the form of new and valuable goods,
services, and jobs, and can have transformative social impacts. Such transformations can
even be a driving motivation for some commercial entrepreneurs. Nonetheless, the differences
in purpose and reward are useful for our comparative analysis. Our proposition
is: Differences in mission will be a fundamental distinguishing feature between social
and commercial entrepreneurship that will manifest itself in multiple areas of enterprise
management and personnel motivation. Commercial and social dimensions within the
enterprise may be a source of tension.
• Resource mobilization. The nondistributive restriction on surpluses generated by
nonprofit organizations and the embedded social purpose of for-profit or hybrid forms of
social enterprise limits social entrepreneurs from tapping into the same capital markets
as commercial entrepreneurs. Additionally, the economics of a social entrepreneurial
venture often make it difficult to compensate staff as competitively as in commercial
markets. In fact, many employees in social entrepreneurial organizations place considerable
value on nonpecuniary compensation from their work. Our proposition is: Human
and financial resource mobilization will be a prevailing difference and will lead to fundamentally
different approaches in managing financial and human resources.
• Performance measurement. The social purpose of the social entrepreneur creates
greater challenges for measuring performance than the commercial entrepreneur who can
rely on relatively tangible and quantifiable measures of performance such as financial
indicators, market share, customer satisfaction, and quality. Additionally, the various
financial and nonfinancial stakeholders to which a social entrepreneurial organization are
readily accountable to are greater in number and more varied, resulting in greater complexity
in managing these relationships (Kanter & Summers, 1987). The challenge of
measuring social change is great due to nonquantifiability, multicausality, temporal
dimensions, and perceptive differences of the social impact created. Our proposition is:
Performance measurement of social impact will remain a fundamental differentiator,
complicating accountability and stakeholder relations.
Note that the distinction between social and commercial entrepreneurship is not dichotomous,
but rather more accurately conceptualized as a continuum ranging from purely
social to purely economic. Even at the extremes, however, there are still elements of both.
That is, charitable activity must still reflect economic realities, while economic activity
must still generate social value. Although social entrepreneurship is distinguished primarily
by its social purpose and occurs through multiple and varied organizational forms,
there is still significant heterogeneity in the types of activity that can fall under the social
entrepreneurship rubric. Thus, while these four propositions can be distinguishing factors
between commercial and social entrepreneurship, the degree to which they delineate the
differences can vary. For example, a social-purpose commercial enterprise may differ less
on these dimensions from its commercial counterparts than a social enterprise that does
not have any commercial aspect to its operations. The four propositions are not meant to
January, 2006 3
1. The existence of externalities is another cause of social or public intervention.
be definitive, nor exhaustive, but rather provide us with a theoretical frame with which
to engage in the subsequent comparative analysis.

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