Social Entrepreneurs Challenged to Become 'Economic Entrepreneurs'

By Nicole Wallace

Carl J. Schramm, the head of one of the nation's biggest foundations, challenged the 600 charity and business leaders gathered here last week to wrestle with what it means to approach tough social problems in an entrepreneurial fashion — but also to recognize that social entrepreneurship isn't the right solution to all of the problems society faces.

The meeting, organized by the Social Enterprise Alliance, focused on ways in which nonprofit groups can diversify their sources of revenue by charging fees for the services they provide and starting businesses related to their charitable activities.

All business entrepreneurs — because they drive innovation, create jobs and wealth, and in many cases, give some of that wealth away — are social entrepreneurs, said Mr. Schramm, chief executive officer of the Ewing Marion Kauffman Foundation, in Kansas City, Mo.

"They are the bedrock on which social welfare expands," he said. "Now the question for us is whether or not every social entrepreneur can be an economic entrepreneur."

The question of scale is the biggest difference between economic entrepreneurs and social entrepreneurs, according to Mr. Schramm.

Because of the capital markets they work in, entrepreneurs starting a for-profit business strive to grow quickly above all else. But he said he's still waiting for "a true social entrepreneur" to come to his office.

'Going to Scale'

Mr. Schramm imagined how the presentation might begin.

"She shows up and says, 'I run a kitchen for hungry people in X city. Between you and me, I run my kitchen better, faster, cheaper. My food's more nutritious. It is served hotter, in a cleaner environment. The people who eat it have a sense of higher dignity, and I do it at 83 cents a unit, while the average in my city is 179 cents a unit.'"

The hypothetical social entrepreneur would be at the foundation to ask for a grant to help the organization grow, or "go to scale," he said.

"And to go to scale means I'm going to wipe out all these other deficient kitchens that are 'my competitors,'" Mr. Schramm said, speaking as the charity official.

The next part of her plan, he said, would be to move to another city, and take advantage of economies of scale to further bring down the cost of providing meals for the hungry, providing an approach that could be spread across the country.

Mr. Schramm, however, said that he doubted he'd be hearing any such proposals.

"And you know why," he told the audience. "It wouldn't be nice to compete. We don't run by metrics; we run by good intentions." If the city the social entrepreneur was working in had eight soup kitchens, he said, everyone would applaud the person who decided to start the ninth.

But there are real costs — both financial costs and in lost opportunities — that nonprofit organizations pay because they don't think in more businesslike ways, argued Mr. Schramm. And charities, he said, are facing increasing pressure to adopt entrepreneurial approaches to their mission work from donors who have started and run businesses.

Limits of Approach

At the same time, not every social problem can be solved through social entrepreneurship, said Mr. Schramm.

"The reason why there's a charitable sector in the first place is because markets are imperfect, and there is such a thing as market failure," he said. "There are wants and needs of the human community that markets cannot and will not solve"

And because not every problem has a market-based solution, said Mr. Schramm, people in the nonprofit world should not try to use the language of the market to describe what are charitable activities.

"Not every gift is an investment," he said. "This is, in a secular society, the most noble thing humans can do, and we should do nothing to diminish that pure gift by trying to analogize it to a business investment."