05/07/2011 01:06 pm ET | Updated Jul 07, 2011

The Schwab Foundation for Social Entrepreneurship on the Evolution and Future of Social Enterprise

As part of an ongoing series on social innovation, I recently interviewed Mirjam Schöning, head of the Schwab Foundation for Social Entrepreneurship. We discussed the evolution of social entrepreneurship and the work of the Schwab Foundation, the intersection of innovation and development, becoming a social entrepreneur, and much more.

Mirjam Schöning has headed the Schwab Foundation for Social Entrepreneurship since 2008. She joined the Foundation at its inception in August 2000. She has shaped the strategy and activities of the Foundation as a pioneer in the field of social entrepreneurship.

The Foundation's mission is to raise awareness on social entrepreneurship. With partners across the world, the Foundation identifies and selects the world's leading social entrepreneurs, in a wide range of fields, and provides a platform to highlight and disseminate their sustainable innovations. The Foundation works closely with its sister organization, the World Economic Forum, to advance the cooperation between social entrepreneurs and the corporate sector. 

Rahim Kanani: What does the phrase "social entrepreneur" mean at the Schwab Foundation for Social Entrepreneurship, and why should the world focus their attention on social entrepreneurs?

Mirjam Schöning: The anthropologist Margaret Meed said "Never doubt that a small group of citizens can change the world. In fact it is the only thing that ever has." Social entrepreneurs are these citizens that can change the world. Klaus Schwab, the Founder of the World Economic Forum, and his wife Hilde recognized the need in the late 1990s to systematically identify these "emerging leaders" and enable them to interact with the established leaders to catalyze and spread change even faster.

The Schwab Foundation was set up in 2000 to identify social entrepreneurs defined as follows:

A social entrepreneur is a leader or pragmatic visionary who:

  • Achieves large scale, systemic and sustainable social change through a new invention, a different approach, a more rigorous application of known technologies or strategies, or a combination of these.
  • Focuses first and foremost on the social and/or ecological value creation and tries to optimize the financial value creation.
  • Builds strong and sustainable organizations, which can be set up as not-for-profit or for-profit companies.

The definition of a social entrepreneur used at the Schwab Foundation is very similar to that of other major organizations in this space such as Ashoka and the Skoll Foundation. You will therefore also see a certain overlap in social entrepreneurs that belong to these networks.

However, we place a particular emphasis on advanced or later stage social entrepreneurs whose impact has already achieved a significant reach and scope. The aim of the Schwab Foundation is to support social entrepreneurs to scale their impact even further. Hence, replicability of the innovation and theory of change are important as well.

Probably more than other organizations, we place emphasis on the financial sustainability of the social enterprise. When we analyzed the entrepreneurs in our network over time, we noticed that the for-profit enterprises, or those with an earned revenue stream, grew, on average, three times faster than those purely focused on donations. We therefore search for those models that are able to sustain part or all of their budget through earned income. This income should be directly raised through the core activities of the organization, not a business that is unconnected to the core strategy of the organization and purely set up for funding purposes.

We see social entrepreneurs covering a large segment on the spectrum between traditional for-profit and nonprofit/government organizations. Five years ago, we started to subdivide the spectrum into three different categories, which refer to the financial and organizational model of the social enterprises:

1)    Leveraged nonprofit ventures
The entrepreneur sets up a non-profit organization to drive the adoption of an innovation by engaging a cross section of society, including private and public organizations. Leveraged non-profit ventures continuously depend on outside philanthropic funding, but their longer term sustainability is often enhanced given that the partners have a vested interest in the continuation of the venture.

2)    Hybrid nonprofit ventures
The entrepreneur sets up a non-profit organization but the model includes some degree of cost-recovery through the sale of goods and services to a cross section of institutions, public and private, as well as to target population groups. Often, the entrepreneur sets up several legal entities to accommodate the earning of an income and the charitable expenditures in an optimal structure. To be able to sustain the transformation activities in full and address the needs of clients, who are often poor or marginalized from society, the entrepreneur must mobilize other sources of funding from the public and/or philanthropic sectors. Such funds can be in the form of grants or loans, and even quasi-equity.

3)    Social business ventures
The entrepreneur sets up a for-profit entity or business to provide a social or ecological product or service. While reasonable profits are ideally generated, the main aim is not to maximize financial returns for shareholders but to grow the social venture and reach more people in need. Wealth accumulation is not a priority and profits are reinvested in the enterprise to fund expansion. The entrepreneur of a social business venture seeks investors who are interested in combining financial and social returns on their investments

The leveraged nonprofits currently make up 20 percent of the social enterprises in the Schwab network, hybrid nonprofits 50 percent and social businesses 30 percent. This categorization has helped reduce confusion around the social entrepreneur definition and allows investors and philanthropists to identify the organizations they are most likely to finance.

Rahim Kanani: What have been some of the milestone achievements of the Schwab Foundation in recent past?

Mirjam Schöning: Our impact is indirect through the dialogue and networking platforms we offer. The milestones we achieve are results of the main four activities we pursue.

The first is the selection of world leading social entrepreneurs through the "Social Entrepreneur of the Year" competitions in 15 countries and 5 continents (Latin America, Africa, Middle East, Asia, Europe). With our partners BCG, Ernst & Young, and others, we screen 1000 applicants each year and select 20-25 for a five year term in the Schwab Foundation community.

The community currently has close to 200 social entrepreneurs, but will slightly decrease to 150 to enable us to closely work with each member. Newly selected social entrepreneurs are highlighted during a key plenary session of a World Economic Forum regional event. As an example, the Latin American entrepreneurs were presented with the Presidents of Brazil, Colombia, Guatemala and Panama on stage. Quite often, the Presidents exchanged mobile phones numbers along with handshakes. This recognition and credibility has enabled social entrepreneurs to open previously closed doors when they go back home.

The second activity focuses around connecting social entrepreneurs to corporate, political, academic, media and other leaders. The Foundation supports the active participation of its selected social entrepreneurs at the regional and global meetings of the World Economic Forum. Events like the Annual Meeting in Davos provide a unique opportunity to discuss issues such as water, education or climate change with the CEOs of the largest companies and to showcase what the entrepreneur is doing in these fields. We shape sessions at Forum events on topics such as Social Innovation, Base of the Pyramid, Financial Inclusion, Measuring Social Impact and IdeasLabs with Social Entrepreneurs. During the last Annual Meeting. 30 social entrepreneurs each managed to meet at least 4 of their top 5 "wish list contacts" and we are always very curious to see which major partnerships follow a few months down the line. In the past, Mel Young has been able to build a major partnership between his Homeless World Cup and Nike. We learn of about 5-10 such major connections after each event. The more immediate results are a series of articles and TV contributions focusing on the contributions of individual social entrepreneurs.

We see accelerated scaling and regional expansion of social enterprises as a result of the connections made at our meetings. On average, an organization grew three times faster in terms of beneficiaries reached (and budget size). In the early years, we were frustrated to see rather slow growth, but it takes many pieces to fall in place before a social entrepreneur can expand, ranging from finances, human resources to the right partners in the expansion countries. As the opportunities have expanded, members of our community have drastically increased their impact. Endeavor, for example, attributes its expansion to Jordan, Egypt, Lebanon and now a series of other countries in the Middle East to connections made with business leaders at a World Economic Forum Middle East summit four years ago. Likewise, Fundacion Paraguaya has been able to make crucial entry points for expanding to 9 countries in Latin America and Africa.

Social Entrepreneurs, in return, have inspired many business, political and media leaders at Forum events. Business leaders have set up social venture funds, started social entrepreneurship activities within their corporations or expanded social innovation programs. Governments have passed legislation in support of social enterprises.

The third activity builds on the previous one, but goes beyond the participation at events. The World Economic Forum runs around 30 initiatives which are driven by particular industries on issues such as health distribution systems, entrepreneurship education, new visions for agriculture and sustainability (sustainable consumption, energy, water - to name a few in this cluster). At the highest level, these conversations have typically happened between CEOs, policy makers and possible some experts and academics. We aim to systematically include the voice of social entrepreneurs and their practical grassroots perspective. This also pushes social entrepreneurs to think beyond their concrete organization and more in terms of the contribution they make to a particular issue. For example, Harish Hande, Founder of SELCO in India, has taken on the role of an advocate for providing energy access to the poor. Thanks to his efforts, alternative energy solutions for the poor are now on the agenda of the Global Agenda Council, international climate change negotiations and the latest report on "Low Carbon Infrastructure Investments."

The fourth activity we focus on, is building the community of social entrepreneurs. The 200 leading entrepreneurs in the Schwab Foundation community come from more than 50 countries around the globe and work in more than 20 sectors. Nevertheless, they share many challenges. The Foundation fosters the peer-to-peer exchange and the replication of their methodologies in both real meetings and through a virtual platform. As a result, social entrepreneurs have often been the best consultants to each other and have spread their models to other members in the network. We just completed a three year project with the Lemelson Foundation. Through a « Leapfrog Fund » we provided funding to social entrepreneurs bringing their methodologies to other countries. Thus, the Aravind eye care model made its way to Paraguay and the Gram Vikas sanitation model was taken to other states in India through the Center for Rural Health Projects. It was very encouraging to see that even social entrepreneurs whose proposals were not selected for financing from the Leapfrog Fund found other means to work together.

Our major milestones of the first ten years of the Foundation from 2000-2010, primarily centered around creating awareness on leading models of social entrepreneurship. We placed a lot of emphasis on the selection process, the first activity outlined above. Going forward, we will particularly focus on forging partnerships and shaping industry and policy dialogues (activities 3 and 4).

Rahim Kanani: Since joining the Schwab Foundation at its inception in August 2000, how would you characterize both the trend of social entrepreneurship as a sector, and also your own learning over the same period?

Mirjam Schöning: In just a decade, social entrepreneurship has established itself as a sector in society. I will publicly admit that fifteen years ago, as an MBA and former management consultant, I did not even know the term NGO, let alone social entrepreneur. At the Harvard Kennedy School I quickly learned the ropes around the NGO sector, but was more fascinated by what I learned at the business school in one of the very first courses on social entrepreneurship taught by Jim Austen and set up by Greg Dees. Most of my graduating class 10 years ago was never exposed to social entrepreneurship.

Today I'm amazed and heartened to see that for my younger colleagues this simply sounds unreal. They had the privilege of studying case studies on social innovation by companies or social entrepreneurs throughout different subjects. Social entrepreneurs who were unknown ten years ago, are key note speakers and the "rock stars" of major student and other conferences.

In the year 2000, when the Schwab Foundation started its operations, we were the first institution in Europe to focus on social entrepreneurship. It was a totally unknown concept in continental Europe. Most of our time was spent trying to explain what a social entrepreneur is (and how to distinguish one from a party-loving entrepreneur).

We spent the first year looking for the Muhammad Yunus' out there. First we did not know how many models and entrepreneurs we would find that already had a proven track record and were ripe for exposure to the world's decision makers at World Economic Forum meetings. We were amazed to find many more than we expected and brought a first group of 40 social entrepreneurs to the Annual Meeting in January 2002. We proudly wanted to present these in a dedicated session on "Meeting the Social Entrepreneurs." It was sobering when basically no one came to the session to meet them!

If we fast forward to the year 2011, we faced a vastly different situation. Social entrepreneurs are recognized as experts and actively sought out by heads of international organizations and CEOs. Just to give one example from the last Annual Meeting in Davos: Harish Hande, Founder of SELCO, which provides energy solutions for the poor, sat in a session on technology and energy. He asked one of the panelist about how the proposed solution could be expanded to poorer population groups. The panelist's response was "The person that could give you the best answer on this is a guy called Harish Hande - you should really talk to him."

I consider it a rare privilege to have been able to witness and partially shape more than a decade in a rapidly evolving sector with the Schwab Foundation for Social Entrepreneurship. Recently, a journalist wanted to know if the financial crisis posed an existential threat to social entrepreneurship. I think we have safely passed that marked and established the field as a sector. One that is evolving, but definitely here to stay.

Rahim Kanani: How would you characterize the intersection of innovation and development, and the emergence of social entrepreneurship as a widely studied, taught, and advancing discipline?

Mirjam Schöning: Social entrepreneurship emerged as a discipline out of the realization that just as entrepreneurs are often the drivers of innovation in the business sector, we equally need entrepreneurs as drivers of innovation in the social sector.

Business schools have taken up the subject very early on, fuelled by a large student interest in combining business and meaning. Today, virtually all leading business schools incorporate social entrepreneurship into their teaching or research. This as much true for the US as for the UK, Germany, France, India or South Africa. The notion that business skills are quite essential also for social enterprises is now universally accepted.

But to really propel the intersection of innovation and development to the next level, it would be helpful if social entrepreneurship is taken up across multiple disciplines. Public policy schools have been somewhat slower in studying the subject. Law schools are not yet incorporating social entrepreneurship in their curricula. This despite the fact that we urgently need to address the question of legal forms for social enterprises, which today often have quite adventurous hybrid structures. L3Cs , B-Corps and CIC are a beginning in this direction.

Traditionally, technical universities and natural sciences are seen as drivers of innovation. We are only beginning to see the potential that could be unleashed if engineering departments would systematically take up the challenge of innovating for the poor. Several companies are already rethinking how they can redesign their products to suit « base of the pyramid » markets.

There are a vast number of technologies and scientific innovations that wait to be explored by social entrepreneurs for the benefit of society. Richard Jefferson, Founder of CAMBIA, is developing a system that will allow entrepreneurs to search through patents in a user-friendly way. With the support of other disciplines, social entrepreneurs will be able to put cutting edge innovation to a much wider use.

Rahim Kanani: How will social entrepreneurship shape the next decade of international development, and what role do you envision the Schwab Foundation playing in that regard?

Mirjam Schöning: Social entrepreneurship will play an increasingly important role in international development in the next decade. While more traditional charity models will always remain the only viable solution in certain sectors and circumstances, the social entrepreneur model of employing business methods and looking at financial self-sustainability is setting a standard for the next decade of international development. Already in the last three years, we have seen a large increase in the number of organizations in our applicant pools that are addressing social problems or poor population groups with commercial approaches. These social businesses have a large potential to be the most cost-effective, innovative and efficient means to alleviate poverty.

However, we are also entering a markedly different phase. For the past ten years, the focus has been primarily on the individual entrepreneur. It has been important to highlight them in order to provide role models for the next generations and encourage them to become social entrepreneurs. At the India Economic Summit in November 2010, we announced the Indian "Social Entrepreneur of the Year" and placed him in the opening plenary session of the summit, along with the co-chairs of the meeting, where he addressed 800 people. Shortly afterwards, the journalists who were lining up to get an interview asked him what he thought of the "glorification of social entrepreneurs". To me, this was a dangerous warning signal. Heroes are quickly made and even more quickly destroyed by the media. The past months have shown the political risks of being too exposed as an individual.

The focus needs to return to the beneficiaries and the actual impact created. It will be an important decade to build the ecosystem - to use a very popular word - for social entrepreneurship to thrive. While innovation continues to be important, the unsolved conundrum for the most part has been scaling the successful innovations. We have recognized that this cannot be done without the support of many other actors. These actors include investors, foundations and increasingly international organizations, corporations and governments.

This is where the Schwab Foundation hopes to deliver a significant contribution in close collaboration with the World Economic Forum. The World Economic Forum already brings together these different stakeholders with the purpose of engaging political, business, academic and other leaders of society to "improve the state of the world". We have been able to establish social entrepreneurs as a recognized group in this multi-stakeholder context. They have gained recognition for combining market forces and social/environmental impact. They are seen as pioneers of "frugal innovation" particularly in sectors such as energy and health. Corporations are attracted to learn from or cooperate with social entrepreneurs. We are directly working with companies like HP and Intel, which have also established very impressive internal divisions, which could be seen as "corporate social entrepreneurship." The potential for other industries to either support, collaborate with or emulate social entrepreneurs is still largely untapped.

Two other important actors are governments and international organizations. Governments truly have the ability to take social innovations to scale. Some countries are already working on financing mechanisms such as, for example, the Social Impact Bonds and the Big Society Bank in the UK. At our upcoming Europe Summit in June, we look forward to hosting a session where policy makers across Europe and Central Asia can share lessons learned in this respect. It will still take several further rounds of conversations and analyses to identify which regulations will provide an optimal support for social innovation.

Rahim Kanani: For those of us interested in becoming social entrepreneurs, whether we already have ideas and action plans or are in the midst of developing them, what advice would you give hopefuls in the context of turning their thoughts into reality?

Mirjam Schöning: First of all, I'd warmly encourage everyone who feels the calling to become a social entrepreneur! We still don't have enough, because the road is undoubtedly rough. But the support systems are also vastly better than only a few years ago. At every step of becoming a social entrepreneur and growing a venture, you now find financing opportunities, peer exchanges and professional advice.

Second, consider the below when looking into starting your social enterprise. These are conclusions I've drawn after having the privilege of working with some of the world's most successful social entrepreneurs in the past ten years:

1)    Follow your passion -- it's the most important ingredient and it is the one thing that will keep you going when the going gets tough. What were you dreaming of achieving when you were 14-17-years-old ?  Those are often the years where we become conscious of our own self.

2)    Balance passion with rationale -- Are you truly addressing a real need? Can this be backed with facts and figures?

3)    Generate 1000 ideas -- bounce them around, refine them, don't be afraid of dismissing them and letting new ones emerge.

4)    Carefully choose your business model -- clearly articulate your vision, mission and how this will translate into impact. Try to achieve revenues from day 1. Build evaluation and measurement into your processes from the beginning.

5)    Study approaches that lead to the same impact you are trying to achieve -- Is your approach really as unique as you think it is? Are there more proven methods to achieve the same outcome from which you can learn? This seems to go against the grain of most social entrepreneurs. Few really take the time to look at the competitive landscape. We are always rather shocked at how little the candidates to the Schwab network seem to know about similar approaches of other organizations. We, and other organizations, provide simple search tools to help identify some of the leading approaches for each sector and region.

6)    Consider a social franchise -- What we arguably need most today, are entrepreneurial people that take up a brilliant model from one part of the world and implement and adapt it in another.

7)    Give yourself a minimum of 36 months -- I say 36 months because it sounds shorter than 3 years. Invariably, this seems to be the time it takes to get a social enterprise off the ground and stear it into calmer waters. This is also true for those that have truly innovative and exciting models that might receive a lot of media attention early on. When we consider social entrepreneurs for the Schwab Foundation network, we therefore established the requirement that the venture has to be minimum 3 years old.

Rahim Kanani: If your work at the Schwab Foundation rests upon one core philosophy about the way in which the world works, what is that philosophy?

Mirjam Schöning: At the beginning of this interview, I referred to the Margaret Meed quote to highlight why the Foundation places an emphasis on social entrepreneurs as the change makers in this world. They are the individuals that over the past decades have been the main, albeit mostly silent, pioneers of social transformation and innovation.

However, our core philosophy has never rested on the belief that social entrepreneurs can do it alone. On the contrary, our activities have been geared towards making key policy makers, corporate and media leaders aware of the potential of social enterprises. We have brought social entrepreneurs to a powerful platform where all sectors of society can work together to tackle the major challenges of our century. We are not elevating social entrepreneurs above other sectors, we are merely providing them a seat at the grown up table. It is our deep assumption that we need a multi-stakeholder approach to tackle global, interconnected, large-scale challenges.

Previous interviews on social innovation include Bill Drayton of Ashoka, Sally Osberg of the Skoll Foundation, Eric Nee of the Stanford Social Innovation Review, Judith Rodin of the Rockefeller Foundation, Aleem Walji of the World Bank Institute, and many more.

Cross-posted with World Affairs Commentary