Entrepreneurs: balancing value appropriation with value creation

This post was written by Pamela Hartigan

There’s been a lot of talk recently around the halls of Saïd about the future of business and what role entrepreneurs – especially those with a social bottom line – will play.  Along the way, some interesting questions have arisen. In particular,  where do we draw the line between commericial and social entrepreneurs – especially if both are having a social “impact”?  So here’s my two cents.

Entrepreneurs, whether primarily commercial or “social” in orientation, are cut from the same cloth.  In that sense, the term “social entrepreneur” has done entrepreneurs-so-designated a disservice, as people tend to classify them alongside “charities” and “do-gooders”. So it seems appropriate to highlight the essence of entrepreneurial activity in general, and then distinguish those who are primarily driven by value appropriation and from those primarily driven by social value creation, keeping in mind that all entrepreneurs must do both – but in each case, the emphasis is different.

In any situation, business-as-usual -or the status quo- implies the existence of an equilibrium which, even if unsatisfactory and inefficient, is at that time the only option that exists. Thus people simply put up with the current shortcomings.  The entrepreneur focuses on addressing that dissatisfactory equilibrium by providing an innovative solution – be it a new product, service or process.

For example, commercial entrepreneurs Sergey Brin and Larry Page identified an unsatisfactory equilibrium in the slowness of existing search engines. So they exploited the opportunity by improving on search engine speed, among other things, and in so doing created Google, raising the bar for all search engines. Likewise, social entrepreneur Jimmy Wales sought to provide a free open-content encyclopedia and today Wikipedia is available in the world’s leading ten languages.

Thus, all entrepreneurs are driven by a perceived opportunity which they relentlessly pursue.  Neither is propelled primarily by money. But for the commercial entrepreneur, from the beginning of the venture, the perceived opportunity lies in creating a new or improved product or service with the expectation that it will sell, generating financial profits for the entrepreneur and the investors.  As such, profit is essential to achieve massive uptake and market mainstreaming.

Social entrepreneurs, however, are driven to address market and/or government failures.  They work where business have failed to come up with innovative ways to design and deliver the goods and services needed to address social, economic and environmental  challenges because the risks are too high in relation to the financial profits.  Similarly, these are issues governments have been unable or unwilling to tackle – because of financial, political or bureaucratic constraints.  Social entrepreneurs are drawn to deal with such challenges, transforming the systems and practices that have stood in the way of pragmatic, equitable and sustainable solutions.

Our hope at the Skoll Centre– and the reason for our presence in Said Business School – is that all entrepreneurs balance value appropriation and social value creation goals from the outset as they pursue their innovative approaches.  And it is that spirit that we are keen to interface with the business leaders of tomorrow, including “social” and commercial entrepreneurs, and their investors.