Commercial Entrepreneurship And Social Entrepreneurship

In this session, I will discuss about the difference of commercial entrepreneurship and social entrepreneurship. Commonly, social entrepreneurs and commercial entrepreneurs are having similarity as well as differences. There will also certain issues regarding social entrepreneurship to be discussed in this session. This chapter will focus on the motivation factor of social entrepreneurship. There will also brief discussion about motivation of commercial entrepreneurship in order to shows the different motivation factor between two types of entrepreneurship.

The first definition of entrepreneurship was defined at 250 years ago. The first crucial role of the entrepreneurship was first recognized by eighteenth century businessman Richard Cantillon (1931). He described entrepreneur as “undertakers” engaged in market exchange at their own risk for the purpose of making a profit. Dave Roberts and Christine Woods (2005) has defined entrepreneurship base on two perspective which included academic and practitioner.

James & Howard &Jane (2006) stated entrepreneurship aims at creating profitable operations resulting in private gain. This contrast is, of course, overstated. Commercial entrepreneurship does benefit society in the form of new and valuable goods, services, and jobs, and can have transformative social impacts. Such transformations can even be a driving motivation for some commercial entrepreneurs.

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Kao (1993) has defined that Entrepreneurship is the process of adding something new [creativity] and something different [innovation] for the purpose of creating wealth for the individual and adding value to society. An entrepreneur has to be creative and innovative in order to have a sustainable growing business. In fact, entrepreneurs are considered as one of the main contributors to country economy growth. Entrepreneurial activity benefit community and society as it creates job opportunity, income, products and services with his creativity and innovation to us.

2.2.2 Role of Social Entrepreneurship

Nowadays, Social entrepreneurship is likely to become more important than commercial entrepreneurship as there are many social problems occurred. Seelos and Mair (2005) defined social entrepreneur create models in order to fulfill basics human needs that existing marketing have failed to satisfy. Social entrepreneurs are having the mission to change society. James & Howard & Jane (2006), stated that social entrepreneurship as innovative, social value creating activity that can occur within or across the non-profit, business, or government sectors. They have further elaborated the concept for deeper understanding for the concept by developing four variables which are market failure, mission, resource mobilization, and performance measurement. To certain extend, social enterprises correct market failure whereby a problem for the commercial entrepreneur is an opportunity for the social entrepreneur. The authors have showed that proposition that market failure will create differing entrepreneurial opportunities for social and commercial entrepreneurships. The Mission for the social entrepreneurship is aims to create social value for the public good by helping and benefits the public. Human capital for the social entrepreneurship will be a vital factor determining the success of social entrepreneurship. Usually, the economics of a social entrepreneurial venture often make it difficult to compensate staff as competitively as in commercial markets. Thus, employees who work for social enterprises often hope to receive non-financial compensation for their work. Human and financial resource mobilization will be a prevailing difference and will lead to fundamentally different approaches in managing financial and human resources. It would be difficult to measure the performance of a social enterprise just like commercial enterprise as we can measure it in terms of profitability and market share. Thus, performance measurement of social impact will remain a fundamental differentiator, complicating accountability and stakeholder relations.

My Justice, Resource mobilization, it is not about the compensation, it is about self- willingness to work for the social enterprise.

Dave and Christine (2005) have defined social entrepreneurships base on two perspective which are academic perspective and practitioner perspective. From the academic perspective, they stated that “Construction, evaluation and pursuit of opportunities for social change, while “walking anecdotes, with new ideas to address major problems, who are relentless in the pursuit of their vision, people who simply will not take no for an answer and who will not give up until they spread their ideas as far as they possibly can,” is derived from practitioner perspective. There is no single way of characterizing socially entrepreneurial ventures (Juliet and George, 2005). Heidi & Candida& & Elaine (2009) explained the landscape of social entrepreneurship which includes social purpose ventures and enterprising nonprofits. Regardless of profit orientation, social entrepreneurs identify opportunities to solve social problems, both people and society problems.

Yohanan (N.D) has differentiated two major approaches in the explanation on social entrepreneurship. Both major approaches stress on the social desirability of the initiatives studied, but there are some different aspects. The first approach by Brown and Letts (2004) is focused on intentions and outcomes. Social entrepreneurs put innovative efforts to solve persistent social problems of poverty and marginalization that, to some extent, have been successful in increasing their impact and catalyzing social transformation. Another approach which is done by Alvy and Lees (2000) is based on opportunities and needs. People who realize where there is an opportunity to satisfy some unmet need that the state welfare system will not or cannot meet and who gather together the necessary resources.

2.2.3 Social Entrepreneurship as Profit or Non-profit Organization?

In the findings done by Pomerantz (2003), he stated that social entrepreneurship as the development of innovative, mission- supporting, earned income, job creating or licensing, ventures undertaken by individual social entrepreneurs, nonprofit organizations, or nonprofits in association with for profits. From his point of view, a social enterprise can either be non profit or profit generating organization. For example, Margaret Cossette used a grant of $ 400 to turn a small public-sector into not-for profit enterprise which provides home care for rural seniors in America. When needs or demand is increased, Cossette didn’t have enough capital to cope with the situation. A NFP organization is not qualify for bank loans. Thus, Cossette turn her venture, Missouri Home Care, into the for-profit arena in order to apply for loans to expend her services. In fact, there are many more cases that clearly lie on the for-profit side of the divide but are readily serve as “social entrepreneurship” by reputable commentators. Fundamentally, social enterprise is nonprofit organization which benefits society without gaining any profit. However, Gregory (1998) states that there is increasing number of nonprofits have been seeking additional revenues by behaving more like for-profit organizations. For example, Save the Children, an international development agency, sells a line of men’s neckwear. Such ventures are for generating the cash in creative way. The profitability is linked with social entrepreneurship for certain cases, but the social ends still remain the dominant goal of these ventures.

In conclusion, a social enterprise can be either profit making or non-profit making organization. However, profit gained for social enterprise is mainly contributed for social purpose such as helping poverty and solving social problems.

2.3 Motivation for Entrepreneurship

Motivation is one of the elements in influencing the process of entrepreneurship. Shane, Locke and Collins (2003) have differentiated the motivation factors into two groups which are general factors and task-specific factors. The general motivation factors, including need for achievement, locus of control, vision, desire for independence, passion, and drive.

2.3.1 Need for Achievement

McClelland (1961) stated that individuals who have higher level in need for achievement (nAch) are will have higher desire to involve in activities or tasks that have a high degree of individual responsibility for outcomes. Entrepreneurial activity involves high responsibility and high risk. In order to have great achievement, entrepreneurs will like to take the challenge to start up and grow their business successfully. Hence, McClelland also argues that entrepreneurial roles are characterized as having greater degree of risk, skill and effort, as well as feedback on performance. From the Maslow’s hierarchy, entrepreneurs are individuals who are in the level of self-esteem or self-actualization. They desire for self-fulfillment as to be successful entrepreneurs.

2.3.2 Locus of Control

Locus of control is the belief in the degree which individuals believe their actions or personal characteristics decide the consequences. Individuals who have an external locus of control believe that the outcome of an extent is out of their control, while individual with an internal locus of control believe that their personal actions directly affect the outcome of an event (Rotter 1966). Individuals with internal locus of control will like to play entrepreneurial roles because they desire positions in which their actions have a direct impact on results.

2.3.3 Vision

An individual with the vision of creating a profitable firm can be motivated to be an entrepreneur. Vision is influenced and affected by cognitive factors such as knowledge, skills, and abilities (KSAs). The combination or integration of motivation and cognition will further create visionary action (Locke, 2000). Firstly, the entrepreneurs will need to have the knowledge regarding the sector or industry they want to invent into. Next, they will need to have the skills such as leaderships, bargaining and purchasing, market analysis, decision making, team building, planning as well as problem solving. Furthermore, the entrepreneurs need to have the abilities such as financial abilities and intelligence, too. Aligned with the KSAs, the entrepreneurs will have a realistic and achievable vision, including the strategy for the organization and manage it well.

2.3.4 Desire for Independence

Individuals choose to start up their own business because they don’t like to work for other people. They desire independence whereby they make decision by themselves, they choose their own path and life rather than living off the efforts of others. Many researchers have observed that the entrepreneurial role necessitates independence. First the entrepreneur takes responsibility for pursuing an opportunity did not exist before. Second, entrepreneurs are, in the end, responsible for results, whether achieved or not achieved. Further, individuals may pursue entrepreneurial careers because they desire independence. For example, in interviews with U.S. female firm founders, Hisrich (1985) found that one of the prime motivations for starting a business was a desire for independence.

2.3.5 Passion

Passion is a feeling of an individual which will be converted later into action in order to show they are enthusiastic people. Shane, Locke, and Collins (2003) argued that passion is a central motive rather than motive to serve their employees and society. An entrepreneur will be passion for their work, love their work and the process of establishing an organization by their efforts and make it profitable yet successful. The reason of putting so much effort by entrepreneurs on the organization is actually come from their own interest. Passion is hardly to be measured in quantitative but can be observed and come out with qualitative analysis. Baum (2001) has develop five domains for passion which are personality, situational motivation, skills, strategy and environment. Passion has a direct impact in firm growth.

2.3.6 Drive

Shane, Locke, and Collins (2003) stated that there is some relation between drive and Need for Achievement. However, the term drive is referring to broader aspect than Need for Achievement. The authors have further explained the variables for drive which includes ambition, goals, energy and stamina, and persistence. Ambition affects the level of desire for entrepreneurs to create something great, eventful and meaningful. An entrepreneur is the one with great ambition such as to be successful in life, to be the one who have great influence on others, to create something new and others. Ambition will drive entrepreneurs to set high goals for one and others. Better performance will be driven by high goals comparing to the result of low goals. When a goal is being persuading consistently, we can say it is the persistence of the entrepreneur to realize their dream.

Motivation factor for individual to start up a business can be categorized into two aspects which are internal factor and external factor. Internal factor is related to individual factor such as need for achievement, locus of control, desire for independence, cognitive development and drive. External factor will be including environment factor such as market demand, economic status and peer influence. External factor will indirectly become the driver of individual to develop own passion to become an entrepreneurs.

2.4 Motivation for Social Entrepreneurship

2.4.1 Altruism

An entrepreneur who is altruistic will likely to start up social enterprise. This phenomenon is due to the willingness of the entrepreneurs to contribute and sacrifice one-self in order to benefit other. According to Williams, Wee Liang, and Teck Meng(2005), there are two type of social entrepreneurs in terms of the objective. The first type of social entrepreneur is having the objective to profit only society while the second type will be profit society and himself. The first type of social entrepreneur is obviously more altruistic than second. The first type of social entrepreneur will have even more altruistic if he is willing to accept personal loss. Below are the social entrepreneurs with six descending level of altruism:

“(1) The person who attempts to innovatively profit society alone, in a way that involves that society, at risk of personal loss.

(2) The person who attempts to innovatively profit society alone, in a way that involves that society, at risk of foregoing personal profit.

(3) The person who attempts to innovatively profit society by profiting himself, in a way that involves that society, at risk of incurring personal loss.

(4) The person who attempts to innovatively profit society by profiting himself, in a way that involves that society, at risk of forgoing personal profit.

(5) The person who attempts to innovatively profit himself by profiting society, in a way that involves that society, at risk of personal loss.

(6) The person who attempts to innovatively profit himself by profiting society, in a way that involves that society, at risk of foregoing personal profit. “

By Williams, Wee Liang, Teck Meng (pg, 359, 2005)

The decreasing degree of altruistic in social entrepreneurship is differing in terms of risk and innovation.

2.4.2 Traits and Skills

Thompson, Alvy (2000) suggest that vision and fortitude are necessary traits to implement a social venture. Boschee (1998) consider candor, passion, clarity of purpose, courage, commitment, values, customer focus, willingness to plan, ability to think like a business, strategy, and flexibility, required in social entrepreneurs as critical success factor to successfully embark on social entrepreneurial activities. Social entrepreneurs who share the same traits may differ in the social impact of their initiatives. Drayton (2002) stated that “entrepreneurial quality” (pg.124) is the key to distinguish the impact. Entrepreneurial quality is a very special and scarce trait. It is much more than altruistic motivation and other previously mentioned traits. It is the vital motivation to change the whole society shared by only a very small percentage of the population.

2.4.3 Behavior

There are few behavioral attributes which have been associated with social entrepreneurship : courage to accept social criticism, less failure-anxiety, receptivity to others’ feelings, perseverance, communication skills, ability to appear trustworthy, creativity, ability to satisfy customers’ needs, foal oriented, and working capacity (McLeod, 1997; Prabhu, 1999). After all, these behavior can be applied to commercial entrepreneurial behavior as well. However, there is one exception which is the difference between commercial entrepreneurial behavior and social entrepreneurial behavior which is receptivity to others’ feeling, or in a simple word, empathy. Referring to the Webster’s dictionary, empathy is defined as the ability to share in another’s emotions or feelings. A social entrepreneur is caring and helpful. Mair and Noboa(2003) found that empathy can be considered as a trait (dispositional empathy) or a behavior(situational empathy). The authors then consider empathy as a cognitive and emotional antecedent.

2.4.4 Context and background

In addition to traits and behaviors, context and background are also important aspects to understand entrepreneurs and their initiatives (Bird, 1988). The background and living of social entrepreneurs is having great impact on enabling the desirability for them to start up social enterprise (Prabhu, 1999). “My parents raise me with the spirit of charity and giving”, “I felt uneasy about the problems of the poor” and “I am sensitive to other people’s feeling” are common response of social entrepreneurs. Mair and Noboa (2003) argued that background and context explain a large part of social entrepreneurs’ enhanced level of loyalty to their values and philosophy, which is typically associated with an elevated level of moral judgment.

A model of social entrepreneurial intentionsmodel of SE intentions.png

Mair and Noboa (2003) have developed a model of social entrepreneurial intentions. They defined their independent variables as emotional: empathy (behavior), cognitive: moral judgment (Background and Context effect). These variables will then enable individual to have perceived desirability to develop behavioral intention such as receptivity for other’s feeling. When they have the behavior, they will have the social entrepreneurial behavior and they decide to start up social enterprise. There is another enabling factor such as self-efficacy and social support which will further develop perceived feasibility. After that, individual with perceived feasibility will enter the same routine as perceived desirability. Empathy and moral judgment are positively linked with perceived social venture desirability, while self efficacy beliefs and social support are positively linked with perceived social venture feasibility.

2.4.5 Opportunity Perception and Recognition

Krueger, Kickul, Gundry, Verma, and Wilson, (2007) stated that mental models is the element that provide a set of attributes or characteristics that define what is considered as an opportunity. Perception of opportunity is categorized with two critical antecedents: (1) is the action expected to yield a net positive consequences or effects and (2) is the action actually within or beyond our control. Prevalence of needs in human society if often indentified as a major reason for the existence of social opportunity. According to Human Development report (2007,2005), there are nearly 3 billion people live below the poverty line, earning less than $2 per day. This phenomenon will bring a lot of negative effects such as starvation, increased criminal rate, and violence. For example, there are 50,000 deaths per day which are linked to poverty-related causes. (World Health Organization, 1999). The problem of poverty are observable and it creates many opportunity for social entrepreneurs. Behavioural Theory stated that entrepreneurs aspiring to improve the quality of life are likely to identify and tackle the most prevalent problems because these problems are most sensitive to them.

2.4.6 Personal values

Hemingway (2005) found that values operate at different levels and personal values act as one of the drivers of behavior. He also stated that qualitative research would be suitable in getting deeper level of understanding that how personal values may be driving social responsibility.

“To say that a person has a value is to say that he has an enduring prescriptive or proscriptive belief that a specific mode of behavior or end-stat of existence is preferred to an opposite mode of behavior or end-state. This belief transcends attitudes toward objective and toward situations; it is a standard that guides and determines action, attitudes toward objectives and situations, ideology, presentations of self to other, evaluations, judgments, justifications, comparisons of self with others, and attempts to influence other. Values serve as adjective, ego-defensive, knowledge and self-actualizing functions.” (Rockeach, 1973, pg.25). Moreover, values is linked with ideology, which Wright stated that values will be one’s guidance on differentiating what is right or wrong and finally lead to positive goals in life. (Wright, 1971). Personal Values are indentified in different levels such as individual, organizational, institutional, societal and global values (Agle and Caldwell, 1999). But in my studies, I will focus on individual or personal level of values.