Social Entrepreneurship

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Social Entrepreneurship

Data suggests that social entrepreneurships in Mexico have a slightly longer life expectancy than traditional businesses, staying in business one year longer. Data from 2017 in the UK indicated the opposite: government research found that in the past year, 93% of social enterprise employers made a profit, while only 76% of SMEs reported the same. A 2015 study in the Stanford Social Innovation Review, indicated there hadn't been any specific studies done on the failure rate specific to social entrepreneurships. However, Eric Nee, the author of the article, indicated that the failure rate for social enterprises was unlikely to be much different from that for traditional enterprises. His position as the managing editor of a magazine aimed at social change positions him as an expert in the field. All this data combined indicates there is not a consensus on how the success rate of social enterprises varies from traditional enterprises. Below we outline our research strategy and provide our findings in detail. Lack of funding is a common reason for failure of a social entity.

Methodology

We began our research looking for statistics related to the success and/or failure rates for both traditional entrepreneurships and social entrepreneurships. This included looking through consulting sites such as Deloitte and Accenture, economic sites such as the World Economic Forum and Financial Times, media sites such as Forbes and Social Enterprise, and government sites including the Bureau of Economic Analysis and the Small Business Administration. While we did find information on the success rate for traditional small businesses, we did not locate any U.S. based data on social enterprises.

We expanded our search to global because of the lack of available data for the U.S. This allowed us to find additional details which have been included below.

Success/Failure Rates

There is no consensus, either by experts or based on data, on whether social entrepreneurs have a higher or lower success rate than traditional entrepreneurs. The available data from Mexico, the UK, and the U.S. provided conflicting information. Those details follow.

  • Of all small business started in 2014 in the United States, 56% were still operating in 2018. The number of businesses still in operation declined each year as 80% made it to 2015, 70% made it to 2016, and 62% made it to 2017. These statistics would translate to traditional entrepreneurs.
  • A study of 115 social enterprises in Mexico that had failed indicated that social enterprises had a life expectancy that was one year longer than that of a traditional business. Although this data is not specific to the U.S., it is likely that there are similarities for other countries outside of Mexico. Eighty four percent (45.2% + 38.3% = 83.5%) of the social enterprises in the study were operational for 3 years or fewer. Only 5.2% survived longer than 10 years.
  • A large study by the government of the UK indicated that in 2017, 93% of social enterprise employers made a profit, while only 76% of SMEs reported the same.
  • A 2015 article by Eric Nees, the Managing Editor of the Stanford Social Innovation Review, has him indicating that there is likely no difference between the failure rates of social enterprises as compared to traditional enterprise. His position as editor of a magazine dedicated to covering social change, positions him as an expert in the field and his judgment carries weight. Although the article is from 2015, he remains the Managing Editor and there was no more recent data available.

Differences Between Social and Traditional Enterprises

In the course of our research, we found some helpful information on entrepreneurship in general, and some details on the similarities and differences between the two types of entrepreneurs. The table in the attached google document provides an excellent summary of the findings. One of the points made in the article was that even though a social entrepreneur has different motivations and goals than a traditional entrepreneur, the skills necessary to launch and run a successful business are the same. This would seem to support the idea that the success or failure of a business has less to do with its focus and more to do with how it is run.

Why Social Entrpreneurships Fail

Lack of funding is a common reason for failure of a social enterprise. This is often because the entrepreneurs don't have the financial skills necessary to obtain the funding they need. This may be a lack of knowledge about how to get funded, the inability to approach people to ask for funding, or some other financial lack that leads to the business not succeeding.

Two experts in the area of social entrepreneurship are Kyle Zimmer, the CEO of First Book, and Christine Pearson, the CEO of Lifeline Energy. Both these companies are successful social enterprises. They co-wrote an article for the World Economic Forum that discussed several reasons why social entrepreneurs are being held back. These include:
  • Lack of innovation
  • Lack of capital
  • Non-transparency
  • Burnout

Another reason for failure of social enterprises is resistance to doing business with them. Some corporations and people believe that they are doing business with these companies to support the cause but that it comes at the expense of an inferior product. This perception needs to change for many of these companies to truly thrive.

Additional U.S. Based Statistics

A 2016 study with results reported in 2017, found that the U.S. was the best place to be a social entrepreneur out of 45 countries. This was based on criteria such as funding, momentum, availability of skilled staff, favorable conditions, ease of selling, and public understanding of social entrepreneurship. The U.S. ranked high in most of these areas but was 12th in public understanding. This shows that there is a great deal of growth needed in helping Americans understand what social enterprises are and why they exist.

A 2017 study by a consortium of companies including Deloitte, WeWork, and Sage Communications surveyed over 400 social entrepreneurs in the U.S. and used the results to rank cities based on where has the strongest ecosystem to support social entrepreneurs. The top five were:
  • Boston, MA
  • San Francisco, CA
  • Washington, D.C.
  • New York, NY
  • Chicago, IL
Sources
Sources

Quotes
  • "A third of small businesses get started with less than $5,000 and 58 percent got started with less than $25,000."
  • "40 percent of small businesses are profitable, 30 percent break even and 30 percent are continually losing money."
  • "Consider, founders of a previously successful business have a 30 percent chance of success with their next venture, founders who have failed at a prior business have a 20 percent chance of succeeding versus an 18 percent chance of success for first time entrepreneurs."
Quotes
  • "The real power of social entrepreneurs is their talent for identifying market failures that are holding humanity back, and their skill in tailoring and implementing solutions. These include providing clean water, access to renewable energy, financial inclusion, high-quality educational resources and critical information that allows life-giving agriculture to flourish."
  • "Now entering its fourth decade, the field of social entrepreneurship is at a crossroads. Enterprises are not growing at a sufficient pace to meet the escalating problems. Our sector has excelled at launching initiatives. But it has neglected the underlying systems for scaling successful, mature models."
  • "While universities, think tanks and other groups study and support social enterprise, the missing link has been candid and authentic engagement from those of us in the field. It is one thing to study social entrepreneurs; it is quite another to worry about meeting payroll, ensure your organization is continuously innovating its models and aligning staff expertise to increase impact, while often putting your health, family, relationships and even lives on the line in your quest to deliver systemic change."
Quotes
  • "In fact, roughly half of all new businesses are gone after five years. I don’t know of any studies of the failure rate of social enterprises specifically, but it’s likely to be similar. Capitalism is an amazingly creative system for providing goods and services, but it can also be cold-hearted, weeding out enterprises that aren’t efficient users of capital, ideas, and labor, in favor of those that are, regardless of a company’s social mission."
Quotes
  • "Entrepreneurs have a powerful ability to change the way a society survives and runs. If successful, their innovations might enhance our standards of living. In short, an entrepreneur not only creates wealth and generates profits from the business venture, but also they also create jobs and the conditions for a developing society."
  • "The social entrepreneurs truly possess entrepreneurial traits, but with a completely different mindset and skill sets. They are the ones who are wholly and solely involved in activities benefiting the society and focus on its well-being. They mainly emphasize on impacting the social, economic, and cultural environment of the nation in a positive and constructive manner."
  • "Now entering its fourth decade, the field of social entrepreneurship is at a crossroads. Enterprises are not growing at a sufficient pace to meet the escalating problems. Our sector has excelled at launching initiatives. But it has neglected the underlying systems for scaling successful, mature models."
Quotes
  • "But Mona Shah, co-founder of chocolatier Harry Specters, says social enterprises still face wariness from the broader business community. Shah and her husband set up the company, which employs people on the autistic spectrum to make chocolates, after worrying about career opportunities for their son Ash."