Business Schools Face New Challenges from Social Enterprise

Colleges and universities across the U.S. are recognizing the need for academic offerings that cater to aspiring social entrepreneurs. Paul Tracey and Nelson Phillips point out that there are an “increasing number of social entrepreneurs entering business schools in order to learn the skills and competencies required to build sustainable business, as well as a growing proportion of mainstream businesses incorporating a social dimension in their activities.” Programs like the Center for the Advancement of Social Entrepreneurs in the Fuqua School of Business at Duke University and the Program on Social Enterprise at Yale University’s School of Management offer programs tailored specifically to social entrepreneurs.

Nevertheless, many institutions for higher education have been slow to adapt to the variety of challenges that arise from the distinct nature of social enterprise. “Entrepreneurship instructors currently face a variety of challenges linked to the diversification of the entrepreneurship student demographic,” observe Matthew M. Mars and Sharon Garrison of the University of Arizona. New pedagogical approaches must be developed to teach students who seek to use business skills to tackle social problems.

In order to drive investment, entrepreneurs must be able to calculate expected returns and communicate this information to potential investors. A social enterprise, however, defines its returns differently than a traditional business – social returns are often more important than economic returns for social entrepreneurs. Unfortunately, social returns are difficult to calculate because they are inherently subjective – how do you put a price on social goods?

This difficulty in calculation does not imply that social entrepreneurs cannot find investment. As economics professor Munir Quddus points out, “Although average investors seek high returns, that’s not the case for social investors, who typically are willing to receive a smaller return for the chance of doing good in the world.” Thus, the challenge for professors is to teach social entrepreneurs how to appeal to social investors by effectively communicating more subjective but perhaps more meaningful social returns on investment. For a fair trade organization like World of Good, the return might be the increased wages and working conditions for economically disadvantaged populations, while for a health care program like Urgent Care Social Enterprise, the return might be decreased public spending due to a drop in emergency room visits.

Moreover, social enterprises are fundamentally distinct from traditional ventures in that they balance accountability to investors and accountability to the population they serve. Tracey and Phillips assert that “by taking on a social mission on behalf of a particular constituency, social entrepreneurs create an additional key stakeholder, which they must take into account and communicate with when building the venture and developing strategy.” In order to gain legitimacy, a social enterprise must be able to demonstrate a meaningful and cooperative relationship with the constituency they serve. Professors teaching social entrepreneurs need to focus on how new business owners can incorporate constituencies into an overall business strategy without alienating investors.

Ultimately, as students increasingly seek to address social issues through entrepreneurship, business schools must recognize that teaching social entrepreneurship requires distinct pedagogical approaches. Greg Dees, who is director of the aforementioned Center for the Advancement of Social Entrepreneurs points out, points out that, “Business schools still view social entrepreneurship as a practice, not a discipline; it is the same difficulty that entrepreneurship was faced with when it began.” While social entrepreneurs still need to gain traditional business knowledge (how to generate revenue through markets, how to effectively lead an organization, how to calculate equity based on assets and liabilities, and so on), they must also acquire an additional set of skills specific to the operation of a sustainable social enterprise. It is time for business schools to meet these requirements.