Will Social Entrepreneurs Build a Sustainable Future?

Michael Lenox September 19, 2017
Social entrepreneurship is a hot topic these days. Last week, I was in a meeting discussing the University of Virginia’s efforts in educating students about the concept. As these conversations often do, it quickly devolved into a debate about “what exactly is social entrepreneurship?”

A colleague of mine from the College of Arts and Sciences passionately argued that social entrepreneurship is about creating societal value, in contrast to traditional for-profit businesses that merely capture private value. He continued by editorializing on the evils of business, the failures of capitalism, and the promise of social entrepreneurism to correct these ills.

This argument does not hold up to scrutiny. Traditional for-profit ventures, with nary a “social” bent, benefit society. They deliver products and services that improve consumer welfare, they create jobs, they advance economic growth by purchasing goods and services, and they generate capital that may be invested in other productive activities. Facebook and General Electric create societal value, just as non-profit organizations do. And, just as some for-profit ventures violate their social contract and ultimately destroy value, some non-profits are inefficient, wasteful, or even duplicitous.

Yet, social entrepreneurs are different. They appear to be motivated by a different set of factors than other entrepreneurs. My colleague, Jeff York, and I have found that social norms around environmentalism have a larger impact on the entry rates of entrepreneurs into subsectors of cleantech than on the entry rates of incumbent firms diversifying into the subsector. Many questions remain: Do environmentally-motivated entrepreneurs remain in business longer than purely profit-motivated entrepreneurs? Are environmentally-motivated entrepreneurs more or less efficient? Are they more or less innovative? Are they more or less successful?

What is becoming evident is that the legal structure of a venture matters less than we thought. The important question may not be “for-profit” versus “non-profit”, but what is the mission of the enterprise? There are many interesting efforts in social entrepreneurship that are organized as for-profit ventures with an explicit social objective. As but one example, Husk Power Systems (incubated at the University of Virgina) is a for-profit venture dedicated to rural electrification in poor regions of the world with sustainable technology.

In recent years, I’ve become intrigued with the notion that entrepreneurs can be effective agents for addressing our sustainability challenges – perhaps even more effective than established businesses. Scholars have long focused their attention on the incentives for established businesses to reduce their environmental impact – how to internalize their negative externalities, in economics parlance. The promise of entrepreneurship is that these incentives may create market opportunities that are captured, not by those who created the problems in the first place, but by enterprising entrepreneurs, unburdened by history, who can devise new sustainable technologies and business models. Does the motivation of these environmental entrepreneurs matter – whether to simply make money or to save the world?

Mission is the corporate expression of that motivation. Mission and values define an enterprise’s opportunities and often constrain the actions the enterprise is willing to undertake. Patagonia founder Yvon Chouinard is an example of a for-profit entrepreneur who has chosen to pursue sustainability objectives; these shape his actions just as they would if he were leading a nonprofit. The mission is important because I suspect that narrow private economic incentives are not currently sufficient to motivate entrepreneurs on a scale necessary to address our sustainability challenges. It will likely take entrepreneurs who are motivated by more than just the bottom line.

My aforementioned colleague from the College of Arts and Sciences, in the heat of our exchange, argued that business is amoral. I actually could not agree more – not immoral, but amoral. It’s not that businesses have no moral standards, but that the moral standards may differ across businesses. Social entrepreneurs may simply be entrepreneurs of another name, yet their existence highlights the role that values play in creating sustainable ventures.

Michael Lenox is the Samuel L. Slover Professor of Business at the University of Virginia’s Darden School of Business where he serves as Associate Dean and Executive Director of the Batten Institute for Entrepreneurship and Innovation. He also is a founder and President for the multiple-university Alliance for Research on Corporate Sustainability.