The Five Stages of Social Entrepreneurship. What is a broadly applicable framework?

Inhaltsverzeichnis

Abstract

Introduction

1. Theoretical Framework
1.1 Debate on Definitions
1.2 Debate on Approaches
1.3 Debate on Perspectives
1.4 Debate on Theory of Change (ToC)

2. The Five Stages of Social Entrepreneurship
2.1 Definitions of the Five Stages
2.2 Case Studies
2.3 Results

Conclusions

Acknowledgments

References

Endnotes

Introduction

It would be safe to say that the third sector, i.e., the citizen sector, is very young compared to the first sector or the second sector. The third sector is approximately 40 years old in 2016 because it began in the mid-1970s (Defourny, 2001). It is commonly noted that the third sector is less powerful than the first sector, which has its political power backed by laws, or the second sector, which has economic power. Very recently, the third sector's capability to have empathy for marginalized people for social inclusion and to provide creativity to solve social problems has been noticed. However, the third sector is still very weak; for example, this is due to unsophisticated management skills, little job creation capacity, and mistrust from people in the first sector and the second sector.

How could the third sector be stronger? If the third sector attains professional management skills and is good at using market forces to solve social problems, the sustainability of nonprofits would improve; the third sector would be more trustworthy from the first sector and the second sector. This is why social enterprise is expected to be a factor to strengthen and improve the third sector.

On the other hand, economic inequality is growing globally (Piketty, 2014). Therefore, human security is in peril. For example, poverty and social exclusion spread because of welfare cuts or refugee crises in many parts of the world. In view of this situation, people in the first sector and the second sector feel deeply at a loss; now, expectations for the third sector are growing rapidly.

Social entrepreneurship (SE) as a field of research is a relatively recent phenomenon (Mair, Robinson, and Hockerts, 2006). Although SE is continuously spreading among practitioners and researchers around the world, the stages of SE are not sufficiently researched. This is why researchers and practitioners are not sure how to build a capacity of social enterprise methodologically.

It is true that some successful social enterprises, such as Grameen Bank, achieve systemic change and contribute to human security through empowering disadvantaged people. Teach For America (TFA) is a notably successful case in the social sector. TFA defines its systemic problem as the education gap. TFA recruits excellent graduates from top universities in the US. Then, the TFA teachers empower many students in public schools or charter schools in low-income areas. Some students are able to enter the best colleges or universities in the US. After their graduation, young people whose role models are the TFA teachers hope to return to their poor communities to tackle the education gap by becoming new TFA teachers. TFA has a Theory of Change (ToC) to lead TFA staff members and supporters that shows its social impact qualitatively and quantitatively. However, unlike TFA, many other social enterprises demonstrate little results and have financial difficulties on a self-employed scale. The current management status of many ordinary social enterprises is not good. Some of them have a high risk of closing down soon. They have a weakness for building capacity and difficulty spreading empathy for their organization. Why does the gap between successful social enterprises, such as TFA or Grameen Bank, and many other weak social enterprises exist? How can we practitioners and researchers fill the gap?

What is currently lacking is a capacity-building methodology of SE for practitioners to achieve systemic change and for researchers to analyze that change. Therefore, a capacity-building methodology of social enterprises is crucial. This methodology also works for social investors to make social investment more effective to pursue a sustainable society.

The research question is to define the five stages of social entrepreneurship and to research their effects on social entrepreneurship development.

This paper is structured as follows. In Theoretical framework (1), we see debates on Definitions (1.1), Approaches (1.2), Perspectives (1.3), and Theory of Change (1.4); we find that current definitions and stages of SE are lacking the element of "systemic change" and Theory of Change. In the Five Stages of Social Entrepreneurship (2), we propose the Definitions of the stages (2.1), their application to sampling seven cases (2.2), and the Results (2.3). If we embed the systemic problem, Theory of Change, capacity building, and systemic change to the stages of SE, we find that the current debates can be reframed. We hope this article will inspire practitioners and researchers to classify and generalize. Finally, we summarize the findings and room for future research in the Conclusions.

1. Theoretical Framework

1.1 Debate on Definitions

The concept of social entrepreneurship means different things to different people (Dees, 1998). Practitioners and researchers created many definitions of SE, and it was welcomed at first (Mair, Robinson, and Hockerts, 2006). However, many scholars continue to discuss these definitions and summarize the terms related to SE. Huybrechts and Nicholls (2012) state that social entrepreneurship is the dynamic process through which a specific type of individual, deserving the name of "social entrepreneur," creates and develops an organization that may be defined as a "social enterprise." In Table 1, we share definitions of social entrepreneurship that Mair and Marti (2004) summarized.

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Here, we do not find definitions of SE that include a "systemic problem." What is a systemic problem? We define it as a problem derived from the overall social system, the root cause of inequality, human insecurity, or a crisis of global sustainability. Why is the systemic problem significant to practitioners and researchers of SE? It helps us to think big to grasp and tackle social problems effectively. "As our world continues to change rapidly and become more complex, systems thinking will help us manage, adapt, and see the wide range of choices we have before us. It is a way of thinking that gives us the freedom to identify root causes of problems and see new opportunities" (Meadows, 2008). Thanks to the systemic problem, we can question not only viewable phenomena but also the root cause. The systemic problem is the starting point of a social enterprise.

We define social entrepreneurship as a process from a systemic problem to systemic change by utilizing market forces and building capacity through social innovation.

1.2 Debate on Approaches

Europe and the US have contextual differences regarding social entrepreneurship. There are two schools of thought in social entrepreneurship research: the "social innovation" school and the "social enterprise" school (Defourny and Nyssens, 2010; Huybrechts and Deffourny, 2010). Dees and Anderson (2006) define the "social innovation" school as follows: "The use of the term 'social entrepreneurs' to describe innovators pursuing social change helped to reinforce the idea that social entrepreneurship needs not to be framed in terms of income. It could be more about outcomes, about social change." On the other hand, the "social enterprise" school focuses on nonprofit organizations increasingly looking for new resources from the market and seeking to adopt more efficient and market-oriented behaviors (Huybrechts and Deffourny, 2010).

However, we do not find a definition that includes a "systemic problem" in either school of thought. We should respect contextual differences between Europe and the US, but we assume that social innovation or social enterprise commonly is generated from the systemic problem. Therefore, despite the differences in the historical landscapes between Europe and the US, we believe that the systemic problem contributes to reframing the controversy and converging the two schools of thought.

1.3 Debate on Perspectives

We reviewed the literature of entrepreneurship processes from a nonprofit perspective and from a commercial entrepreneurial perspective. From a nonprofit perspective, the stages of social entrepreneurship were defined as follows: Mission Statement & Opportunity -> Innovation -> Product/Services & Relations -> Business Model Definition -> Social Outcomes -> Social Transformation (Perrini and Vurro, 2006) or Opportunity identification -> Opportunity Evaluation & Exploration -> Opportunity pursuit (Robinson, 2006). On the other hand, from a commercial entrepreneurial perspective, we see the literature as follows. The "crossing the chasm" framework (Moore, 1991) suggests a technology adoption lifecycle, which is expanded from Diffusion of Innovations theory (Rogers, 1962). Lewis & Churchill (1983) identify "The Five Stages of Small Business Growth:" (1) Existence, (2) Survival, (3) Success, (4) Take-off, and (5) Resource Maturity. Eckhardt and Shane (2003) clarified the role of opportunities in the entrepreneurial process. Moroz and Hindle (2012) tried to discover generic and distinct insights about entrepreneurship as a process, but these have not been adequately addressed within their entrepreneurship research.

These frameworks of the entrepreneurship process look useful for practitioners and researchers of SE, but we still cannot find an element of the systemic problem in any of them. The utilization and generalization of the above frameworks for the SE area is limited.

1.4 Debate on Theory of Change (ToC)

The Theory of Change (ToC) became popularized by the Aspen Institute.[1] Weiss (1995) states that "tracing developments in mini-steps, from one phase to the next, helps to ensure that the evaluation is focusing on real effects of the real program and that the often-unspoken assumptions hidden within the program are surfaced and tested." Taplin, et al. (2013) define ToC as follows: "At its heart, Theory of Change spells out an initiative or program logic. It defines long-term goals and then maps backward to identify changes that need to happen earlier (preconditions). The identified changes are mapped graphically in causal pathways of outcomes, showing each outcome in logical relationship to all the others. Interventions, which are activities and outputs of any sort, are mapped to the outcomes pathway to show what stakeholders think it will take to effect the changes, and when." We assume that ToC would be compared to a "backbone" in a human body. If we lack a "backbone," we will be an "octopus." However, many social enterprises or nonprofits still lack ToC in their organization currently. On the other hand, leading social enterprises, such as Teach For America, define a ToC and share it internally and externally. They utilize the ToC as their roadmap, share an understanding of their systemic problem, and spread empathy among their multistakeholders. We can say ToC is working as their "backbone."

ToC requires "backwards mapping" from the "Ultimate Outcome" and the "Vision/Long-Term Outcome" (Taplin, et al., 2013)(Table 2). We assume the "Ultimate Outcome” is equivalent to the "Massive Transformative Purpose (MTP)" of exponential organizations that Ismail et al. (2014) define. Then, ToC is effective not only to summarize the many outcomes and interventions related to a social enterprise and to share organization direction with members internally but also to ask outside stakeholders to collaborate with the social enterprise. ToC is a communication tool because in the ToC diagram, stakeholders can find many boxes (i.e., outcomes) and reasons to join the social enterprise's project. With ToC, social entrepreneurs and multistakeholders can face their systemic problem and tackle it collectively.

Table 2. Theory of Change Diagram

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The ToC and Logic Model (LM) have similarities because both aim to summarize social enterprises’ projects and pursue outcomes. Carman (2009) criticizes the LM as having four flaws: (1) unstandardized treatment, (2) confusion among targets, (3) coverage, and (4) intensity. In contrast, Forti (2012) warns of six pitfalls of ToC: (1) confusing accountability with hope, (2) creating a mirror instead of a target, (3) failing to take the external context into account, (4) not confirming the plausibility of your theory, (5) creating a theory that is not measurable, and (6) assuming you have figured it all out.

Clark and Anderson (2004) state that ToC and LM are different tools, and we should tell them apart. They argue that the LM of the United Way format is most widespread. A LM graphically illustrates program components and helps stakeholders clearly identify outcomes, inputs, and activities. On the other hand, ToC is less standardized but has core components. ToC links outcomes and activities to explain HOW and WHY the desired change is expected to come about.

ToC is critical for social enterprises to have a "backbone," spread empathy in society, and obtain outcomes. We should note that we have to think big to define the "Ultimate Outcome" or the "Vision / Long-Term outcomes" in creating a ToC. We should avoid creating a ToC narrowly in order to receive a subsidy from a government with small thinking, which will lead to an undesirable and ineffective ToC; we assume that action would not be a correct utilization of ToC.

2. The Five Stages of Social Entrepreneurship

2.1 Definitions of the Five Stages

Social entrepreneurship comes from a systemic problem and aims at systemic change. However, in the Theoretical framework (Sections 1.1 - 1.3), we could not find elements of a systemic problem in the literature of SE definitions, approaches, and perspectives. In Theory of Change (Section 1.4), ToC is a "backbone" and is indispensable for a social enterprise that pursues systemic change.

We propose a framework of "The Five Stages of Social Entrepreneurship" to classify and generalize many pieces of management information about social enterprise. Unlike previous researchers of the entrepreneurship process, "Defining Systemic Problem" is the beginning, and "Achieving Systemic Change" is at the end of this framework, which reframes previous research literature and practices (Table 3).

We define the five stages of SE as follows. We summarized the definitions (Table 4).

Table 3. The Five Stages of Social Entrepreneurship

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Table 4. Summary of Definitions of The Five Stages of Social Entrepreneurship

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Stage 1: Defining Systemic Problem is stating a problem derived from the overall social system, e.g., the root cause of inequality, human insecurity, or a crisis of global sustainability. A systemic problem is generated from the gap between public services, which are defined by current laws and private needs that are sometimes beyond the assumptions of current laws. Marginalized people have little opportunity to express their needs to society and fix the social system; the poor lose the most. For example, in the literature, McChesney (1990) states that family homelessness is a systemic problem. She assumes the low-income housing ratio to be the root cause of family homelessness. Or, as a typology of a social entrepreneur, Zahra et al. (2009) proposes the concept of a "Social Engineer." They address that social engineers identify systemic problems within social systems and structures and address them by bringing about revolutionary change. Implicitly or explicitly, social entrepreneurs start their social enterprises by recognizing a systemic problem. The opportunity to create a social enterprise is generated.

Stage 2: Individualizing Enterprise is an activity solely by the founder (or, co-founders) of a social enterprise. In many cases, social enterprises are established by a single social entrepreneur. She/he devotes her/his best to start and sustain the social enterprise in spite of a weak brand, low capital, or professional immaturity. We must note that a strong sense of individuality is needed for a social entrepreneur. For example, a social entrepreneur should define her/his systemic problem, advocate the vision and mission with confidence, and create a management system (e.g., developing membership programs, fundraising, and marketing). If the social entrepreneur feels that she/he does not have a strong sense of individuality and is not qualified, she/he should quit the social enterprise because it is good for both the social entrepreneur and clients/beneficiaries. If social entrepreneurs co-found their social enterprise, a strong sense of individuality is required for each co-founder, although they start as a team. On the other hand, an individual activity is very fragile. In this stage, the social entrepreneur becomes a dictator in a sense; she/he occupies all of the information in the social enterprise and sometimes will not disclose even when transparency is expected from its stakeholders. Other members feel puzzled, and sometimes this will lead to relationship trouble with the stakeholders, eventually leading to financial trouble for the social enterprise. It is difficult for a single social entrepreneur to sustain for years and grow her/his social enterprise. Therefore, after being qualified to have strong leadership and obtain appropriate management resources, the social entrepreneur should move on to the next stage.

Stage 3: Organizing Enterprise is an activity by a team of the social enterprise utilizing ToC. Through ToC, the vision and mission are shared with internal members of the social enterprise and external stakeholders. An organized team seeks to hire the right people, to lead quality development, and to spread understanding about the systemic problem and the story of the social enterprise. To organize a team, the social entrepreneur should organize information about the social enterprise; basically, all information should be shared with team members effectively by cloud software (e.g., Google Apps², Basecamp³, and Chatwork⁴ ). At this stage, dictatorship should be avoided, which we see in the stage of Individualizing Enterprise. If a dictator appears on an organized team, the team is harmed in the growth of the social enterprise. If the founder quits the social enterprise and soon the enterprise is closed even though it has many staff members, we define it as in the stage of Individualizing Enterprise; we assume that the founder actually was a dictator. Therefore, just building a team is not enough. Social entrepreneurs should utilize ToC, enthusiastically share their information internally and externally to harness empathy, create alliances, and grow their social enterprise as a team. Strong and professional teamwork is generated to tackle the systemic problem. Then, social entrepreneurs can move on to the next stage.

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