It is easy to claim that a business has a social mission aside of its profit-generating operation. We have what is called corporate social responsibility (CSR) that may reflect the contribution of a business to the community. Yet, is it enough for a business to be called a social entrepreneurship by doing so? Even if a business is committed to solving a social issue, some people, even entrepreneurs, still believe that there is no distinction between the two because a social problem solution is merely another kind of good that may be offered for sale by a company. So how can we bridge the discussion about the difference between social entrepreneurship and commercial entrepreneurship?
While those view points are not entirely incorrect, they may oversimplifies the complexities of social entrepreneurship. Social entrepreneurship and commercial entrepreneurship share some similarities for sure, but they diverge significantly in their objectives, values, and impacts on society. In this article, we will explore the distinctions between these two approaches to entrepreneurship and emphasize why being a social entrepreneur is more than just selling a solution to a social problem.
It is clear that both terms use the word “entrepreneurship”, which is quite clear in its meaning. This is where all the similarities between the two comes from. Both, social and commercial entrepreneurship, utilize the behaviors, traits, skills, tools, processes, and techniques that are common to entrepreneurs (Dees, 1998). Both are trying to create value by answering to the needs of the customers by the means of innovation. Both seek for effectiveness and efficiency of their operations while also managing opportunities and risks.
In simple terms, both social entrepreneurship and commercial entrepreneurship are using the same entrepreneurship. Both social entrepreneurs and commercial entrepreneurs are the same entrepreneurs. And it is quite obvious.
The Differences between Social Entrepreneurship and Commercial Entrepreneurship
Purpose-Driven vs. Profit-Driven
The fundamental difference between social entrepreneurship and commercial entrepreneurship lies in their primary goals. Commercial entrepreneurship is primarily profit-driven, aiming to generate financial returns for the business owners and stakeholders. These entrepreneurs identify market opportunities and develop products or services to meet consumer needs, with the ultimate goal of maximizing profits. Even if these businesses have social programs, they are not the main goal.
On the other hand, social entrepreneurship is purpose-driven. Social entrepreneurs are passionate about addressing pressing social or environmental issues. Their mission goes beyond making money; it’s about creating a positive impact on society. They channel their entrepreneurial spirit and innovative thinking into solving these problems, often reinvesting any profits back into their mission rather than maximizing personal wealth.
Measuring Success: Impact vs. Profit, Stakeholder vs Shareholder
Another key distinction between social and commercial entrepreneurship is how success is measured. In commercial entrepreneurship, success is predominantly assessed through financial metrics like revenue, profit margins, and return on investment. The more money a business makes, the more successful it is considered.
Commercial entrepreneurship primarily serves the interests of shareholders. In this context, shareholders are individuals or entities that have invested capital in the business with the expectation of financial returns. The primary goal is to maximize profits for these investors, and decisions are typically driven by financial metrics that directly benefit them, such as dividends and capital appreciation.
Social entrepreneurship, however, measures success through the impact it creates. Social entrepreneurs gauge their effectiveness by evaluating the positive changes they bring to society or the environment. Metrics may include the number of lives improved, reduction in environmental harm, or enhanced social well-being. Financial sustainability is still crucial, but it serves the purpose of sustaining the mission rather than accumulating personal wealth.
Social entrepreneurs operate with a broader perspective, focusing on serving the interests of a wide range of stakeholders. These stakeholders include not only investors but also the communities they aim to impact, employees, beneficiaries of their social mission, and the environment. This approach often involves a more inclusive decision-making process, where the well-being of all stakeholders is considered.
This divergence in the focus of interests underscores the essential contrast between social entrepreneurship, which seeks to balance the needs and concerns of a broader community, and commercial entrepreneurship, which revolves around delivering financial returns to those who have invested in the business.
Also read about Questions About Business Ethics and Sustainability
Not-so Differences between social entrepreneurship and commercial entrepreneurship
While those two above are the main differences between the two, there are several other differences that is outlined in some studies. For instance, there are studies which outlined that compared to commercial entrepreneurs, social entrepreneurs typically have more democratic or participatory decision-making procedures (Perrini and Vurro, 2004). There are also studies that suggests that social entrepreneurs are better than profit-oriented one in establishing support network (Prabhu, 1999). Other studies suggested that social entrepreneurs are determined to change the existing state due to their dissatisfaction of the situation (Mair and Noboa, 2003).
These studies may contain insights, but they are yet to have a widely-tested scientific evidence. Participatory decision-making techniques are increasingly employed by many for-profit firms. A lot of commercial business base their operations on opportunities that result from a lack of satisfaction with a particular feature of the existing situation. Many business owners have gotten better at establishing networks due to the high competitiveness that the market requires.
Kickull and Lyons (2020) stated that many of the differences between social and commercial entrepreneurs appear to be degree-based rather than being absolute. This is where I think the discussion of social entrepreneurship and commercial entrepreneurship becomes unproductive. As the discussion progresses, the difference between social entrepreneurship and commercial entrepreneurship is becoming clearer.
Social entrepreneurship are not just “commercial entrepreneurship that sells social change” (Kickull and Lyons, 2020). Social entrepreneurs are distinctive due to their dual nature between the business and social sector, which both have strikingly different language and different thought processes. These two fields are combined to create social entrepreneurship, which contributes value to society in the most effective, efficient, fair, and long-lasting ways possible.
References Dees, J.G. (1998). The meaning of “social entrepreneurship.” Palo Alto, CA: Graduate School of Business, Stanford University. https://www.academia.edu/download/6558752/themeaningofsocialentrepreneurship.pdf Kickul, J., & Lyons, T. S. (2020). Understanding social entrepreneurship: The Relentless Pursuit of Mission in an Ever Changing World (3rd ed.). Routledge. https://doi.org/10.4324/9780429270406 Mair, J., & Noboa, E. (2003). Social entrepreneurship: How intentions to create a social enterprise get formed. Working Paper No. 521. Barcelona: IESE Business School, University of Navarra https://dx.doi.org/10.2139/ssrn.462283 Perrini, F., & Vurro, C. (2004). Social entrepreneurship: Innovation and social change across theory and practice. In J. Mair , J. Robinson , & K. Hockerts (Eds.). Social entrepreneurship (pp. 57–86). New York: Palgrave Macmillan. https://doi.org/10.1057/9780230625655_5 Prabhu, G.N. (1999). Social entrepreneurial leadership. Career Development International, 4(3), 140-145. https://doi.org/10.1108/13620439910262796