Money & Finance Opinion

Social Entrepreneurship: First, Define “Entrepreneur”

February 12, 2008 5 min read
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“Social entrepreneurship is everywhere these days…. And of course it’s a big buzzword in certain education circles as well. I still don’t know what it means.”

This is the second in series addressing the questions implied by Alexander Russo’s statement.

The idea of an entrepreneurial class was coined by Irish political economist (and highly successful investor in some of the earliest “modern” corporations) Richard Cantillon – a source for such market luminaries as Adam Smith - around 1730. Cantillon borrowed the verb “entreprendre” – to undertake, from French. The past participle of the word is “entrepris;” in English – enterprise. “Entre” has roots in Latin for “between.” (So perhaps George Bush was onto something profound when at the July 2002 G-7 meeting, as Shirley Williams suggests, he told Tony Blair that “the problem with the French is they don’t have a word for entrepreneur.” ) Consistent with Cantillon’s baseline contribution to the study of entrepreneurship as a type of arbitrage – a business model that exploits price differences across two markets - an entrepreneur is “one who gets between.”
Wickipedia, where I learned all this, offers a beautifully spare definition: “One who is able to begin, sustain and when necessary, effectively and efficiently dissolve a business entity.” This captures the importance of individual initiative, responsibility and control, and it gives us a quasi-legal definition of what an entrepreneur is. But based on Cantillion’s focus on arbitrage, I would say it does not explain what an entrepreneur does, so I would add “one who organizes supply to satisfy a previously unmet demand.”

Together the two thoughts encompass the ideas that the entrepreneur assumes personal risk and applies personal creativity. Finally, they suggest the entrepreneur’s special capacity to find and fill commercial gaps left by an economy’s dominant institutions. The implicit notion of successful entrepreneurial enterprises hints that they may become the dominant institutions, opening the way for future entrepreneurs.

I could cover a great deal of economic theory post-Cantillon – Say, Smith, Schumpeter, etc., but this definition would remain fundamentally sound. I think the change between the late 1700’s and the early 21st century of greatest relevance to my discussion is a kind of bifurcation of commercial entrepreneurship.

On the one hand, there is the individual who, with their own wits and resources, fills a relatively small niche – America’s vaunted small business person – the guy or gal who sees the need for a good little hotel, neighborhood bistro, hair salon, office supply store, micro-brewery, etc. On the other, the person who sees that gap in the national economy and who will try to fill it at scale – Holiday Inn, Cosi, Hair Cuttery, Staples, Sam Adams - if he or she can convince a whole lot of people to part with their money, and a whole lot more to work for this risky venture.

Both types have been around since Cantillion, but by the late 20th Century, American capital literally commoditized - and society glamorized – the second. The internet boom, so important to the generation of the new “venture philanthropist’s” wealth, turned the second type of entrepreneurship into a kind of dream world – the 1990’s equivalent of the 1960’s “summer of love” (substitute free cash for free love) - for a whole lot of bright, idealistic and impressionable young people. (And I’m not knocking either one bit.)

I’ll apply this discussion to public education, but before we leave the commercial origins of entrepreneurship, I need to underline that both kinds of entrepreneurs generally put most of their own capital at risk to get their businesses started. For some period, even the capitalization of the second type’s business consists primarily of collateral and cash pledged by the entrepreneur.

This distinguishes the entrepreneur from everyone else associated the enterprise. All but the entrepreneur can walk away at any time without losing the bulk of their wealth. In the end, everyone else – customers, staff and creditors - depends on the entrepreneur to get value out of the business. I have never met an entrepreneur who was not prepared to lose their own money in the attempt to make their business work, but I’ve never met one who was prepared to do so without sacrificing just about everything else of value in their life first.

Moreover, as an investor managing the Education Entrepreneurs Fund, I never put money, and especially equity, into an enterprise where this was not true of the entrepreneur. And most venture capital deals are based not only on that premise, but also on the threat that much of the entrepreneur’s equity will be forfeited if business plan targets are not met. When the Fund made a loan, it was collateralized with a security interest in all the borrower’s assets. Whether for- or non-profit, we could seize everything from the receivables, to the intellectual property, to the logo. Since Cantillon’s day, these financial dynamics have been fundamental to the practice of (commercial) entrepreneurship.

Still, its not the money that’s so important here to the entrepreneur as much as what it buys and represents. If money was the entrepreneurs primary motivation, most venture investors would find it much easier to persuade founders to step down or aside. Money is required to play in the game, and the amount an entrepreneur brings to the table says a lot about the extent of her ownership of the enterprise, her options for the future, and so her control over the direction the enterprise will take - her ability to say that the game is over when she says its over. And that brings us back to the centrality of individual agency to the definition of an entrepreneur.

Next: The idea of social entrepreneurship in public education closely parallels the interest in venture philanthropy. The result has been an emphasis on entrepreneurs with supposedly scalable ideas. But whether the k-12 equivalent of our small businessperson or the would-be head of a “Starbucks for k-12” (Chris Whittle already claimed McDonalds), the social entrepreneur lacks several elements in the definition of a commercial entrepreneur. What’s missing changes the essence of the job; the differences are much more important than the similarities. And, as it happens, today’s venture philanthropies have chosen a course of operation that takes them terribly far afield from the essence of venture capital.

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