Good Works -- With A Business Plan

B-schools are now fostering ventures with a social mission

By Laura D'Andrea Tyson

Corporate scandals and excessive compensation packages for rapacious CEOs have dominated business news during the past three years. Profiles of visionary corporate heroes have given way to cautionary tales about greedy villains, and public trust in business has plummeted. At the same time, however, a new kind of business hero, the social entrepreneur, has been gaining media attention and capturing the public's imagination. Even students and faculty in the world's top-ranked business schools -- a typically jaded and hard-headed group -- are becoming inspired.

Just a decade ago, there were virtually no B-school courses or student projects on social entrepreneurship. Today most top business schools have both. Stanford University has introduced the Stanford Social Innovation Review and the Global Entrepreneurship Monitor, a worldwide consortium of academic institutions, chaired by London Business School and Babson College, has just inaugurated a survey to measure social entrepreneurship around the world.

But before such a subject can be taught, analyzed, measured, or revered, it must be defined. At the broadest level, a social entrepreneur is one driven by a social mission, a desire to find innovative ways to solve social problems that are not being or cannot be addressed by either the market or the public sector. A fascinating book, How to Change the World: Social Entrepreneurs and the Power of New Ideas by David Bornstein, adopts this broad definition. Well-documented cases of grassroots entrepreneurial activities to tackle such diverse social problems as child abuse, disability, illiteracy, and environmental degradation give life to it.

BORNSTEIN EXPLAINS HOW AND WHY social entrepreneurs often rely on ordinary citizens, "barefoot teachers, bankers, and nurses," in lieu of expensive professionals to provide medical and social services to poor communities. Bornstein does not, however, attempt to distinguish between social enterprises that are financed by foundation and government funds and those that finance themselves at least partially through revenues generated from their own activities. The majority of social enterprises remains in the former category, while self-sustaining endeavors have attracted the greatest attention within business-school and venture-capital communities. They were the focus of the Global Social Venture Competition (GSVC) held in London recently.

The GSVC originated at the University of California at Berkeley Haas School of Business and is now a partnership that includes Columbia Business School, London Business School, and the Goldman Sachs Foundation. Its mission is to promote entrepreneurial businesses that satisfy two criteria: They have clear and quantifiable social objectives; and they are financially sustainable, in the sense that they are profitable or self-supporting through revenue generation.

The GSVC brings together academic and practitioner judges from around the world to evaluate student proposals for businesses that satisfy these criteria. Such businesses have a dual or "blended" bottom line that encompasses both a financial rate of return and a social rate of return. This year, 129 proposals were submitted to the GSVC panel of judges from teams that comprised 225 MBA students from 55 business schools representing 11 countries and four continents. Winning plans included proposals for manufacturing organic fertilizer with high water content for poor farmers in arid countries and improving schools in low-income urban areas.

The major challenge confronting social entrepreneurship is the lack of adequate financing. Foundations and governments are the primary source of funding, according to Bill Drayton, the founder of Ashoka, a nonprofit that has given funding, advice, and support to 1,400 social entrepreneurs in 46 countries during the past 20 years. But they provide mostly short-term grants. Social entrepreneurs need medium- to long-term funds, which is why business models that simultaneously generate sound financial returns and demonstrable social returns are enticing socially minded business-school students and investors.

The search for financing has also sparked a wave of entrepreneurship within the field of social investment itself, including venture-capital firms dedicated to investing in portfolios of businesses that deliver commercial solutions to social problems. Let's hope that in the process they help restore the public's trust in the business community.

Laura D'Andrea Tyson is dean of London Business School.

    Before it's here, it's on the Bloomberg Terminal.