J. Gregory Dees (Presenter) and Beth Battle Anderson

Blurring Sector Boundaries: Serving Social Purposes Through For-Profit Structures

"As traditional sector boundaries continue to break down, there will be a rise in the number of social entrepreneurs who want to combine a social purpose with a for-profit organizational structure." In this paper Dr. Dees asks, is the wealth-creation imperative inherent in for-profit organizations really compatible with optimal social impact? The target audience is social entrepreneurs who create enterprises that intend to serve society and make a profit at the same time.

Dr. Dees begins by defining for-profit social ventures as legally incorporated for-profit entities explicitly designed to serve a social purpose. The paper distinguishes for-profit social ventures from not-for-profit business ventures, socially responsible businesses, and purely profit-motivated firms operating in the social sector.

In the following section, Dr. Dees utilizes Michael Porter's "value chain" concept as a tool for analyzing potential sources of competitive advantage for a firm. The simplified value chain, which includes Procurement, Employment, Production, Product or Service, and Marketing, is used to highlight major activities through which a business can create social value.

Dr. Dees then describes potential benefits and challenges of combining social purpose with a profit motive. Potential benefits of for-profit social ventures include:1) promoting efficiency and innovation, 2) leveraging scarce public and philanthropic resources, 3) responding quickly to demand, and 4) improving access to skilled personnel. The challenges facing for-profit social ventures include: 1) complexity of combining two very different kinds of objectives, 2) market pressures to compromise on social value creation, and 3) social and political pressures to compromise on financial performance.

Finally, the paper provides strategies for meeting the challenges facing for-profit social purpose ventures:

1. Be clear and open about the venture's mission, including both social and economic objectives.
2. Articulate a comprehensive venture model that integrates a plausible social impact theory with a viable business model.
3. Be creative in measuring performance and ruthless in testing the assumptions behind the venture model.
4. Start with sympathetic investors and retain control in the hands of those who are committed to the dual mission.
5. Invest time and energy in hiring and developing the right people.
6. Anticipate resistance and develop a strategy for dealing with it.
7. Develop a brand reputation for quality and performance.
8. Recognize the limits of what can be done for profit and use not-for-profit partners or affiliates to provide complementary services.

Dr. Dees concludes that "as long as they are clear about their social and economic goals, measure their performance rigorously, maintain control of the venture in the hands of the best stewards, and invest in hiring and developing the right people, for-profit social entrepreneurs should have the time and opportunity to identify where economic and social value can and cannot be aligned successfully, what strategies are most effective for overcoming criticism and political adversaries, and what complementary activities might best be accomplished by a nonprofit partner."

Summary of Questions & Answers and Suggestions for Modifications/Enhancements

Ms. Downing first asked how we can measure social impact, social change, and social value and who is currently doing a good job of it. Dr. Dees responded that the inherent problem with measuring social impact is that it is intangible and often has long lag effects. Some researchers have begun to identify surrogate measures that are indicators of long-term success. He believes that the people at Roberts Enterprise Development Fund have pushed measurement of social impact the farthest.

Dr. Hentschke asked Dr. Dees to clarify the distinction between a social venture versus a non-social venture in education. For example, how would Sylvan be classified? Dr. Dees responded that he defines a for-profit social venture as having an intentional objective to create a social impact using a for-profit structure. He admits that there is a lot of ambiguity encased in this definition, and one must know how internal decisions are made to truly classify a venture.

Mr. Slavkin asked if K-12 education was a viable sector to apply this notion of "socially beneficial for-profit enterprise." He wondered if it is not viable or if the cases to date just haven't applied the lessons described in Dr. Dees's paper. Dr. Dees responds that he thinks it is still too early to tell what is possible in the K-12 sector. He believes that for-profit social ventures have to find niches in which there really is a viable profit business model as well as a social impact model that can work.

Dr. Kent asked if for-profit social ventures can really be successful in a competitive market or if they have to find a monopoly position to succeed. Dr. Dees agreed that a for-profit social venture would have an easier time succeeding if it had a quasi-monopoly or monopoly-like advantage, citing Shorebank and Grameen Bank as examples. Time will tell if they can also be successful in a competitive market.

Mr. Kolderie suggested an example for Dr. Dees to look at General Mills at the time when Jim McFarland was CEO, Jim Summer was Vice Chair, and Vern Johnson was the Director of Strategic Planning. They developed private dwellings with the service characteristics of a nursing Main.

Dr. Kent asked a second question: Have there been any really good studies done on the comparisons between the rates of return for profits which have a social purpose and those that claim to have no social purpose? Dr. Dees responded that he had not seen any study of that sort, but provided the example of Shorebank, which was able to make a profit, but one that was not as large as the profits made by comparable for-profit banks without a social objective.