In order to understand better the trends shaping the current era and the tools available to create change, we first need to define some terms.

Just what is a social enterprise? What role do social ventures play in the financial marketplace and to shape the future of investing?

What is a social entrepreneur?

Whether for-profit, nonprofit, public or a hybrid of the three, the social entrepreneur puts societal benefit ahead of their personal gain and uses any “profits” realized to expand the reach of his or her mission.

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What Is Social Entrepreneurship?

Bill Drayton, the founder of the social enterprise philanthropic organization Ashoka, is widely credited with coining the term “social entrepreneurship” in the 1980s.

Jill Kickul and Thomas Lyons, the authors of Understanding Social Entrepreneurship, point out in attempting to define the “social” portion of social entrepreneurship that it “has to do with anything that pertains to a community or society. By definition, it puts society ahead of the individual.”

They go on to point out that people have a tendency to think that the social aspect of life is distinct from the economic, a viewpoint that has helped U.S.-based capitalism embrace a belief that the government should keep its hands off private economic pursuits (laissez-faire) and that it is society’s responsibility to protect itself from unscrupulous business practices (caveat emptor).

Kickul and Lyons suggest that defining “social entrepreneurship,” then, is trickier still, for not only is it a concept that continues to change and grow and many niche experts have different visions, but they broadly suggest that a social entrepreneur is an “innovator who adds value to people’s lives by pursuing a social mission, using the processes, tools and techniques of business entrepreneurship.”

Whether for-profit, nonprofit, public or a hybrid of the three, the social entrepreneur puts societal benefit ahead of his or her personal gain and uses any “profits” realized to expand the reach of his or her mission.

 

How Social Entrepreneurship Revitalizes Communities

Let me add to their definition by sharing a story of social entrepreneurship in action. From 1994 until 2004, an enormous sixteen-story art deco building formerly owned by the Sears Company sat vacant, its glory faded, sections of it exposed to the harsh Minneapolis winters. Its slow deterioration was repeated in many of the businesses and homes of the surrounding neighborhoods.

The original part of the building bordering Elliot Avenue and Lake Street in Midtown dated back to 1928. The building underwent numerous expansions, until it ballooned to 1.2 million square feet, much of its massive space devoted to a warehouse in addition to a flagship department store and office space.

Capital markets are now poised to demand that for-profit entities become social minded.

We all know the story of Sears, a company once synonymous with American retail, now reduced to a shadow of its former self and struggling to emerge from its 2018 bankruptcy filing. Vacant and in disrepair, the building was seen by some as an eyesore.

Others saw in it an opportunity. These competing perspectives often extended to the surrounding neighborhoods of south Minneapolis, which had increasingly become home to populations of immigrants and their descendants, especially those arriving from Latin America and Somalia. The building is located in the Phillips neighborhood, one of the poorest in the city and one of the most ethnically diverse census tracts in the country.

After numerous failed development proposals, the city of Minneapolis acquired the site in 2001. Neighbors and local business owners helped convince city officials that the historical building should be saved and reimagined to reflect the ethnic diversity of the neighborhood and the entrepreneurial energy of the businesses on Lake Street. Neighborhood Development Center, Latino Economic Development Center, Community Reinvestment Fund and other organizations were working with small businesses on Lake Street to fill empty storefronts by providing training and loans.

In 2004 much of the building was redeveloped as the Midtown Exchange, a mix of apartments, retail and office space, including the corporate headquarters of Allina Health. The redevelopment project includes the Midtown Global Market, which occupies the former Sears retail store and is home to a variety of small, independently owned restaurants, cafés and specialty grocers. The market hosts community programs including music, dance and children’s activities.

The Midtown Exchange and the Midtown Global Market took shape through the extraordinary efforts of a wide range of people: entrepreneurs, three community development fund institutions, other community organizations, local corporations, the city of Minneapolis, countless donors, lenders and tax credit investors.

Working together, they made this rebirth of decaying infrastructure a success. The small businesses that make up Midtown Global Market offer a rich example of what can occur through public, private and nonprofit alliances. Opening for business in 2006, eighteen of the original businesses are still present. They have contributed to making Midtown Global Market a vibrant economic and cultural center where the community gathers.

It’s now home to 45 businesses spanning 22 cultures and provides a global experience to its visitors with an extraordinary variety of tastes, art and crafts. In fact, over 1.5 million patrons visit Midtown Global Market per year.

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Entrenched Challenges Need Specialized Solutions 

By nature and design, social enterprises involve stakeholders far beyond the “owners.” As I noted when I turned to definitions of the term “social entrepreneurship,” social enterprises can be financial investment by nonprofit entities or by for-profit companies, including those that are public benefit corporations that have explicit requirements for creating a benefit to those beyond their owners. The expansive vision of a project like the Midtown Exchange is illustrative of a trend in capitalism and an explicit safe harbor against the Milton Friedman dictum.

Social enterprises are often initiated by CDFIs, community coalitions and community foundations, particularly those focused on providing financial services to low-income communities. Many of the A New Capitalism book coverfoundations and nonprofit organizations that germinate the grassroots for larger social enterprise investment are the definition of philanthropy that Milton Friedman suggested had no meaningful role in a marketplace. These kinds of social enterprises offer a counterbalance to financial markets that have, time and again, failed to solve pressing social problems.

Social enterprises take on all sorts of problems and take on different forms. I am confident that the financial world has evolved to a point where it understands the pressing need to embrace the approaches and philosophies developed by CRF and other CDFIs and move the products and services they offer from the margins to the mainstream. Capital markets are now poised to demand that for-profit entities become social minded.

Social enterprises can be an extremely effective means of creating multistakeholder solutions to what have been entrenched problems. Their kryptonite: applying their abilities at sufficient scale. Entrenched challenges need specialized solutions that can rarely be extrapolated to many other entrenched challenges. Scale is not limited by the problems social enterprises set out to solve, but by the resources and efforts necessary for each unique solution. In a financial sense, the primary mechanism for trying to meet that challenge the best we can arrives in an understanding of risk that is distinct from most traditional financial institutions.

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