CASE
Corner
 Greg Dees
Entrepreneurship
in Philanthropy
By Professor J. Gregory Dees, Faculty Director,
Duke's Fuqua School of Business Center for the Advancement of Social
Entrepreneurship (CASE)
Entrepreneurship occurs in all spheres of productive human endeavor,
including philanthropy. It is the major force for progress. In this
article, I will address what it means to be an entrepreneur in philanthropy
and outline a range of entrepreneurial strategies in philanthropy.
What does it mean to be an entrepreneur in the field of philanthropy?
Entrepreneurship
in the field of philanthropy involves finding new and better
ways for mobilizing and deploying resources to make the world
a better place. |
The best place to turn to understand entrepreneurship is to Austrian
economist Joseph Schumpeter. In Capitalism, Socialism, &
Democracy, he pointed out that the function of entrepreneurs
is to “reform or revolutionize the pattern of production”
in a given field or market. In his earlier work, The Theory
of Economic Development, he referred to this process in more
modest terms by saying that entrepreneurs create “new combinations.”
Entrepreneurs change the pattern of production by combining elements
in new ways. They are, in this sense, innovators.
Of course, changing patterns of production could be a bad thing
if the new patterns are not superior to the old patterns, at least
for some markets. Successful entrepreneurs not only change the pattern
of production, they improve it. They create value, often for themselves,
but also for society. As French economist Jean Baptiste Say put
it in A Treatise on Political Economy, when successful,
the entrepreneur “shifts economic resources out of an area
of lower and into an area of higher productivity and yield.”
The new pattern of production that an entrepreneur creates should
be superior to the old pattern. Thus, put simply, entrepreneurs
implement new and better ways of doing things.
So what does it mean to be an entrepreneur in philanthropy? It
means successfully implementing new and better ways of engaging
in philanthropy. But what is philanthropy? Many of us associate
philanthropy with the giving away of money, with its roots in alms-giving
to the poor. However, the literal meaning is much broader. The English
term comes from the Greek—meaning simply “love of humankind.”
Using this definition, any act or expression of this love could
be an instance of philanthropy. Yet given the modern understanding
of the term, this definition seems too broad. For purposes of this
discussion, I propose using a definition that is broader than giving
money, but narrower than any expression of love for humankind. Specifically,
I suggest we define philanthropy as mobilizing and deploying private
resources, including money, time, social capital, and expertise,
to improve the world in which we live.
Thus, we can define philanthropic entrepreneurship as the productive
efforts of an individual, team, or organization that reform or revolutionize
the patterns by which private resources and relationships are mobilized
and deployed to effect social change.
What strategies can philanthropic entrepreneurs use?
This definition makes the process sound rather dramatic, but entrepreneurship,
even in Schumpeter’s sense, happens all the time. In The
Theory of Economic Development, he identifies five ways in
which entrepreneurs create new combinations, thus reforming or revolutionizing
the pattern of production. These categories are not meant to be
mutually exclusive, and many innovations fall into more than one.
However, they can help stimulate our thinking about different opportunities
for entrepreneurship in philanthropy.
To paraphrase Schumpeter, entrepreneurs make new combinations in
the following ways:
- Introducing a new good or quality of a good. Think
of the advent of the cell phone or the introduction of the hybrid
automobile. Every product or service to which we are now accustomed
was once newly introduced by an entrepreneurial individual, team,
or organization. In philanthropy, consider the introduction of
“program related investments.” Endowed foundations
found that some nonprofit organizations were in a position to
benefit from low-interest or no-interest loans and, thus, did
not need grants. The foundation decided to make these loans out
of their investment corpus to serve the foundation’s philanthropic
objectives.
- Utilizing a new method of production or distribution.
The assembly line was a major innovation in production
that allowed the entrepreneurs embracing it to lower costs and
improve productivity. Cable television represented a new method
of distribution for broadcast programming and movies. The rise
of “venture philanthropy” exemplifies this kind of
innovation. Venture philanthropists adopt methods inspired by
venture capitalists in assessing potential grant recipients, making
large grants over longer periods of time, and working intensely
with a smaller number of grantees than do program officers in
more traditional foundations.
- Taking existing products into new markets. Entrepreneurs
often move goods into new geographic or demographic markets. This
is one of the engines of globalization as entrepreneurs see the
success of a product or service in one market and simply create
a similar product or service in a market that is not currently
served, providing access to a new group of consumers. It also
happens when specialized products migrate to more of a mass market.
Personal computers, the Internet, and e-mail services have all
been brought to mass markets, at least in developed countries.
Of course, serving new markets well may require modifying the
product or service for the new market. Regardless, bringing any
form of philanthropy into a region or country in which it previously
did not exist is an example of this kind of philanthropy. For
instance, the Bertelsmann Foundation brought community foundations,
a well-established form of philanthropy in the United States,
to Germany.
- Drawing on a new source of supply.
Entrepreneurs can create value by tapping into new and better
(lower cost or higher quality) sources of labor, capital, land,
raw materials, or equipment. For instance, a new airline in the
United States, Jet Blue, uses a network of housewives working
from their homes in Utah to handle all of its telephone reservations
business. Several innovations in philanthropy involve tapping
into new or underutilized resource pools. For example, the advent
of workplace giving campaigns, such as the United Way, allowed
smaller community-based nonprofits to tap into a new source of
supply for funding, namely the employees of local corporations.
- Creating a new form of organization or industry
structure. Many strategic alliances, partnerships,
or licensing agreements foster new organizational forms and industry
structures that are beneficial. The advent of franchising, as
a vehicle for expansion of retail businesses that allows local
ownership but assures consistent quality and a common brand name,
would be an example of this kind of innovation in business. In
philanthropy, the rise of the large, professionally managed, endowed
foundations, such as Ford and Rockefeller, represents a new organizational
form that significantly affected the structure of an industry.
Similarly, the community foundation is an organizational innovation
that was developed in Cleveland, Ohio in 1914 and has had a major
impact on the philanthropic industry structure, particularly in
the U.S. More recently, the rise of charitable giving funds managed
by financial service companies, such as Fidelity, is another example
of this kind of entrepreneurship in philanthropy.
Of course, many business and philanthropic entrepreneurs create
new combinations that fall into more than one of these categories.
Consider Social Venture
Partners (SVP), originally developed in Seattle,
Washington, operating in some 23 locations as of February 2005.
SVP tapped into a new source of supply, increasingly affluent young
professionals with limited experience in philanthropy. It offered
them a new product of sorts, an opportunity to work with other young
professionals to contribute time, expertise, and money to select
local nonprofits while working with other young professionals in
the process. SVP developed a distinctive method for assessing and
making grants using its “partners” in the process and
adopting some of the elements of venture philanthropy. It offered
a new product to the grantees that involved access to valuable business
expertise as well as money. When viewed as a whole, the SVP model
amounts to an organizational innovation similar to the creation
of the community foundation.
Conclusion
Entrepreneurship in the field of philanthropy involves finding
new and better ways for mobilizing and deploying resources to make
the world a better place. As Peter Drucker has argued in Innovation
and Entrepreneurship, entrepreneurial innovation can be pursued
in a thoughtful, systematic way. Schumpeter’s categories for
creating new combinations offer would-be philanthropic entrepreneurs
a framework for contemplating a variety of paths for reforming or
revolutionizing the pattern of production.
As in any field, it is important to continue to look for innovative
solutions, but in the absence of an appropriately aligned form of
market discipline, it is particularly important that philanthropic
entrepreneurs and their supporters critically and consistently assess
these innovations in terms of the new resources attracted, efficiency,
and ultimate impact. In closing, I encourage readers to consider
the following questions:
- What can we learn from past entrepreneurial efforts in philanthropy?
- What are the most promising current innovations in philanthropy?
- How can we be sure that these innovations are effective and
that they are shifting resources from areas of lower to areas
of higher productivity?
- Where are the needs for innovation in philanthropy the greatest?
- What are the barriers facing philanthropic entrepreneurs?
- How can we help philanthropic entrepreneurs overcome the barriers?
NOTE: This article by CASE Faculty Director J. Gregory Dees
is based on his remarks at the International Foundation Management
Symposium sponsored by the Bertelsmann Foundation on March 13-15,
2005.
Recommended Readings:
“Cultivating
Change in Philanthropy: A working paper on how to create a better
future,” by Katherine Fulton and Andrew Blau, Monitor
Institute, 2005.
“The
21st Century Foundation: Building Upon the Past, Creating for
the Future,” by Jed Emerson, BlendedValue.org, 2004.
"High-Engagement
Philanthropy: A Bridge to a More Effective Social Sector,"
published jointly by Venture Philanthropy Partners and Community
Wealth Ventures, June 2004.
“Note
on Innovations in Philanthropy,” by Karen Jacobson and
J. Gregory Dees with Beth Anderson, SI-05, Stanford Graduate School
of Business, 2000.
“Virtuous
Capital,” by Christine Letts, William Ryan, and Allen
Grossman, Harvard Business Review, March-April 1997.
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