Silicon Insider: Social Entrepreneurs

A lot of big tech and business news is going to burst on the scene over the next 12 months — yet I'm pretty confident in predicting that when historians look back on next year, they will see 2004 as the Year of the Social Entrepreneur.

You likely have not yet heard of this term. But try Googling it: you'll be surprised. One of the best ways to detect an emerging phenomenon in modern life is to track the trajectory of the number of its appearances on the Web. "Social entrepreneurship" as a term first appears in a handful of places four years ago — today the number of links is in the tens of thousands … and probably doubling every month.

It is an idea whose idea has come.

To understand social entrepreneurship, you first need to appreciate the momentum behind it. Hidden behind events ranging from Davos to the anti-war marchers in London, from the international AIDS conference in South Africa to Second Harvest Food Bank program in your company's lobby is a revolution in nonprofit organizations.

Driven by technology, legislation, a growing global middle class and a host of other social forces, the number of nonprofits, charities and nongovernmental organizations around the world has grown exponentially over the last decade.

This alone is a stunning development — in vast regions of the world nonprofits are the fast-growing employment sector. But that's only the beginning: Any culture force as great as this one is bound to create equally extraordinary secondary institutions. And, indeed, nonprofit revolution has done just that: created social entrepreneurship.

There are some stunning examples of social entrepreneurship that can already be spotted around the world: Approtech and its low-cost manual water pumps that have already changed the agricultural economy of Kenya, Train Platform Schools and its innovative teaching program for orphans in India, and Rugmark, with its carpet labeling program used to fight child debt bondage.

These are decidedly not your old-time charities.

Tracing an Entrepreneurial Map

OK, then, so what is this "social" entrepreneurship? There is a simple answer, now, but it has taken the leading thinkers in the field a decade to refine their way down to it.

Put simply: A social entrepreneur is an individual who brings the techniques, tools, and most of all, the spirit, of commercial entrepreneurship to the nonprofit world. Social entrepreneurship is as old as Florence Nightingale and Jane Addams, but only in the last decade has it been recognized as a distinct discipline with its own processes and standards.

It's a simple definition, but it raises as many questions as it answers. In particular, the world of commercial entrepreneuring, as we know well here in Silicon Valley, has become quite systematized.

It begins with a startup, a business plan, and usually a prototype product. Then, as the startup company grows, it goes through several rounds of investment, ending (with luck) in a "liquidation event", i.e., going public with an initial public offering. The private startup company is now a publicly owned corporation.

The question that has vexed the best thinkers in the social enterpreneurship world is this: How much of the commercial entrepreneurship experience maps over into social entrepreneurship? That is, how many of the experiences of a Santa Clara semiconductor be used in the creation and growth of an Indian micro-loan bank or an Angolan sunflower oil consortium?

The answer, amazingly enough, is almost all of them.

Parallels in Conception, Funding

It was Bill Drayton, MacArthur genius fellow and head of Ashoka, one of the largest foundations dedicated to supporting social entrepreneurs, who first noticed this correspondence.

The modern social entrepreneur, like his or her commercial counterpart, begins with an idea, for a product or service, and from the start works to build an enterprise with the largest possible impact.

For the social entrepreneur, this means systemic change in society — not a soup kitchen, for example, but a way to build a thousand, self-supporting soup kitchens in 25 countries.

This kind of ambition requires more than just a good heart. It also takes a very astute and forward-looking business plan, a strong startup team, and good business discipline — the same thing investors look for in commercial startups.

Then, in building this social enterprise, the social entrepreneur typically looks for sources of funding. Here, too, the analogy to commercial startups grows stronger by the day as a growing number of foundations have begun to specialize in what might be called seed-round, secondary-round and mezzanine philanthropy.

By this point, its initial vision largely fulfilled, the little social enterprise, now grown large, has become a major force on its surrounding society.

Yet There’s No ’Going Public’ Day

But now we get to the sticking point.

Commercial startups, if successful, eventually reach what is called a "liquidation" event — that is, they are either bought or they go public with an initial offering of stock — through which the founding investors and employees are rewarded for their risk.

By definition, there is no such event in the nonprofit world. And this would seem to be the break point between commercial entrepreneurs and their social counterparts.

And yet, even here, there may be an analogy. "Going public" for social enterprises may indeed be just that: the moment when they transition from being supported by foundations to being supported by donations from the general public.

Intuitively, this seems correct. After all, the biggest nonprofits — the Red Cross, Boy Scouts, the United Way — are largely supported by individuals and the private sector, not foundations. Thus, they are the Fortune 500 of the nonprofit world.

But that too raises more questions than it answers. For example, there is no comparable to the Going Public Day experienced by corporations. There is no stock exchange for nonprofits, where a market is made on its changing perceived value.

In fact, there is no standardized audit available that can accurately measure the real worth of a social enterprise — one that would take into account such intangible assets as societal impact and good will.

Thus the great wave of social entrepreneurship appears to crash against the shoals of valuation. Until the nonprofit world can get past the valuation paradox, it will likely never be able to completely unleash the power of social entrepreneurship.

That brings us to 2004.

Building the Ranks of Social Entrepeneurs

If you are a longtime reader of this column, you may know that each year at this time I visit the Said Business School at Oxford University and put on round tables for students, and bring along Silicon Valley leaders to teach master classes.

But this year was different. I went with Jeff Skoll, eBay's first president and now one of the leading lights of social entrepreneurship and its greatest innovator. The occasion was an award by the Skoll Foundation of $7 million to the business school to create a program to train the first generation of MBA social entrepreneurs.

The grant money goes to create a curriculum, hire instructors, and most important, create five Skoll Scholars each year to be the equivalent of Oxford's legendary Rhodes Scholars. From these ranks will come the social entrepreneurs who will lead this movement into the 21st century … and, with luck, solve its biggest challenges.

That's just part of the story. The end of March, also at Oxford and also sponsored by Skoll, will see the world's first social entrepreneurship summit — the Social Entrepreneurship Forum — which will bring together the greatest leaders of nonprofits and foundations from around the globe to discuss the issues facing the field, establish links, and share best practices.

Finally, next autumn, PBS will premiere a new four-part miniseries profiling a dozen great social entrepreneurs. Once again, Skoll is the underwriter, though the stories will range across the grantees from Ashoka, the Schwab Foundation and other giant foundations.

The series is called The New Heroes. I know about it because I'm an executive producer. Recently we sent the teams of producers and camera crews off to Pakistan, Brazil and Zambia.

Meanwhile, in universities around the world, academics in the growing field of intellectual capital continue their decades-long work in learning how to best measure intangible assets. They've made great strides — not enough to produce a full intellectual capital balance sheet on a nonprofit, but maybe enough to make a market.

Is all of this enough to turn social entrepreneurship into a full-blown counterpart of commercial entrepreneurship? No, not yet. But it is enough to make a start, to establish some standards, and to attract some topnotch talent. And that, I think, is enough to spark a boom. And that boom will, memorably, begin in 2004.