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1896 family photo -Texas by oldmantravels.

Rod Schwartz from ClearlySo started up a great conversation on SocialEdge about a week ago.   The conversation revolves around the double-edged phenomenon of charismatic social entrepreneurs (here for Max Weber’s definition of charismatic authority).  In addition to providing great commentary himself, Rod references a series of fantastic blog posts from Jessica Shortall on the topic of succession in social enterprises, which I found particularly compelling.

Here are some highlights:

The transition from entrepreneur to second-generation leadership is fraught with difficulty in any sector. Charismatic, passionate entrepreneurs are by their very nature difficult to replace overnight. They usually have a few things going in this respect:

  • Deep knowledge of the organisation and its networks
  • Loyalty from and personal ties to staff and stakeholders
  • Credibility (sometimes even awe) from all those years of hard slog in the start-up phase

However, across the board, it’s often true that the entrepreneur type is not the right (wo)man for the job in the later growth and maturity phases of the venture – this is a CEO’s job, and requires a different skill set.

The first few sentences here remind me of research I did several years ago on the relationship between socio-cultural norms and economic development.  The research at the time commonly cited China as evidence that cultures emphasizing strong intra-familial ties and values (i.e., Confucianism) tend to develop more slowly in economic terms.

Part of the reason, according to this theory, is that strong intra-familial ties are associated with lower levels of trust in individuals outside one’s family.  This increases transaction costs in general business dealings and, from an entpreneurship standpoint, makes successful founders less likely to pass on their growing businesses to professional management outside the family.  The result is an inability to scale over the generations.  Companies start to get big then fizzle out as less adept family members take over the business.

In fact, there is some evidence that China has traditionally struggled with this.  I challenge you, for example, to list three major global brands that are based in China.  It’s not easy, despite the fact that China has the fastest-growing economy in the world.

They also have an expression in China that, thought it varies from region to region, goes something like this:  “Rags to rags in three generations.”  The idea, again, is that the founder builds the company from scratch and hands it over to the son, who grew up working his tail off in the family business.  The third generation, however, raised in the lap of luxury, develops an interest in more leisurely pursuits and/or lacks the skills needed to continue building the enterprise.  Without a logical successor within the family, the company dies.

It’s a fascinating concept.  And guess what… an almost identical expression has long-existed in the English language.  “Shirt sleeves to shirt sleeves” or “Clogs to clogs in three generations.”  The proverb is so ubiquitous in the West, in fact, that we can only conclude that this has been a universal problem within budding industries and societies.  Wrestling a successful enterprise from the clutches of its founder is no easy task.

So what to do about it?

Well, for one, we need to acknowledge that that entrepreneurs play a critical role and can be, under the right circumstances, good CEOs.  Marc Andreesen, former founder of Netscape, confirms this in his outline for the vision of his new VC firm:

Above all else, we are looking for the brilliant and motivated entrepreneur or entrepreneurial team with a clear vision of what they want to build and how they will create or attack a big market. We cannot substitute for entrepreneurial vision and drive, but we can help such entrepreneurs build great companies around their ideas.

We are hugely in favor of the founder who intends to be CEO. Not all founders can become great CEOs, but most of the great companies in our industry were run by a founder for a long period of time, often decades, and we believe that pattern will continue. We cannot guarantee that a founder can be a great CEO, but we can help that founder develop the skills necessary to reach his or her full CEO potential.

Ok, now what?  We need to learn from companies who have solved this problem.  The ClearlySo blog posts mentioned earlier have some ideas.  Here are a few more:

  1. Institutionalize leadership development and succession planning programs early on. This can and should be driven by a Board of Directors in order to set the expectation that leadership of the organization will transition and to start to prepare individuals for those roles.
  2. Give the founders something else to do. I don’t mean this disparagingly. Certainly, entrepreneurs are some times dedicated to a single idea, which makes moving on incredibly difficult.  But just as often they are motivated by a general desire to impact the world around them and explore and implement revolutionary ideas.  If board members and investors can nurture these ideas, they can better leverage a founder’s native skills and help her weather the identity crisis that will accompany handing over the reins.
  3. Set a date for transition several years in advance. It sounds arbitrary but, like a couple thinking about having their first baby, we need to recognize that there will never be a perfect time.

Regardless of how you make it work, just be sure to never lose sight of how critical this issue is.  If we want social enterprises to succeed, this is yet another nut we’ll have to crack.

Many years ago, I was driving through downtown Minneapolis with several younger cousins from Dallas, Texas.  As we pulled up to a major intersection, we noticed a homeless man standing on the side of the road. He looked sad and desperate, wearing filthy clothes and holding a sign soliciting money from the passing vehicles.

As we passed the man, one of my cousins, who was perhaps six or seven years old at the time, leaned out the window and yelled, “Get a job!”

Undoubtedly, the United States is a “pick-yourself-up-by-your-bootstraps” society.  We honor back-breaking work and private enterprise.  When in trouble, we prefer to look to friends and neighbors, rather than ask the government for handouts and support.

We tend to have a love-hate relationship with this fact as a society. On the one hand, we hold dearly these values, which have been lauded by social thinkers like Max Weber and Alexis de Tocqueville as reason for America’s rich civil society and strong culture of entrepreneurship.  At the same time, our “bootstrapping” belief system and the associated American Dream often engender selfish behavior and harmful prejudices that none of us should be proud of.  We evade taxes to protect our hard-earned money.  We accept the inadequacy of our social safety net.  And, like my cousin once did, we categorically blame the poor and homeless for their plight.

The random confluence of two interesting stories got me thinking about this topic last week, and how it has shaped our attitudes toward development.

One story was the outrage over Kiva’s decision to begin offering micro-financing to entrepreneurs in the United States.  (More on that here, here, and here.)

The second was a report I caught on Minnesota Public Radio on the 27 year old Loaves and Fishes program.  The program was established as a temporary measure to feed the homeless and the poor after the Reagan administration cut back on welfare programs in the early eighties.

The Loaves and Fishes story represents how we have traditionally approached development within our own country.  Development is all about job creation and entrepreneurship.  It’s about creating policies and institutions that stimulate private investment and create sustainable private sector employment.  The role of aid and charity then (which are also largely private in the U.S.) has been to temporarily prop up those who are transitionally poor or  provide longer-term support to those perfectly incapable of supporting themselves.  It’s a “tough love” approach to development that places emphasis on individual motivation, capacity, and dignity.

The Kiva story, on the other hand, places the “tough love” approach to development that we have applied within the U.S. in stark contrast to how we’ve approached development in the rest of the world.  The American international aid establishment and American attitudes toward aid abroad have traditionally revolved around charity first, enterprise second.  I don’t know why this is.  It’s an utterly mind-boggling contradiction.  But it was readily apparent in the Kiva story, where individuals who were staunch supporters of “interest-free” loans to entrepreneurs in other countries lashed out against the idea of providing the same kind of  “charity” to poorer individuals at home.  It’s as though we believe people in the U.S. can and should be able to make it on their own, just like we did, while families abroad need our help and charity to get ahead.  It’s American Exceptionalism at it’s finest.

This double-standard has failed us for too long. Which makes it that much more exciting to see how our attitudes toward development both at home and abroad are evolving.  The role of poverty-focused non-profits in the U.S. can’t simply be to plug holes in the social safety net.  We’re learning this.  And the emphasis placed on entrepreneurship in international development efforts needs to be significantly greater.  Every day, we’re seeing more and more of this.

It’s an exciting time to be in this field.  I don’t know about you, but (in typical American fashion) I’m optimistic for the future.

Social innovators tend to think big.  We want our organizations/companies to change the world.  Not just impact one community, but thousands; not just a million people but billions.  And we want to do it through awesome, disruptive innovations.

Here’s the catch.  Broad reach and large-scale impact don’t get along well with big-time innovation.

You probably think I’m nuts.  Every noteworthy idea in existence somehow reached scale.  I’d say you’re guilty of selection bias.  For every one idea that makes it big, there are 1,000 others that die on the vine.  When innovation and impact work together, what you’re seeing is the exception, not the rule.

Charles Leadbetter, in minutes 6:45-8:10 of this fantastic TED Talk, does a wonderful job of articulating one reason why.  

(Click here to watch only that section of the talk or watch the full talk below… WordPress doesn’t allow you to designate a starting point)

Organizations with the greatest reach and the resources to generate massive impact are also those with the most limited capacity to support disruptive innovation.  This is almost a foregone conclusion.  Some huge companies like Google, Apple, Cisco, etc. have cracked this nut.  Most others “innovate” through acquisition or simply fail to innovate and fall into the dark depths of irrelevance over time.

There are numerous lessons for social entrepreneurs here:

1. Your best bet is probably to start from scratch.  Don’t expect that a larger, existing org will be able/willing to support your big new idea.  According to Paul Light, in his recent SSIR article, you probably already know or suspect this: 

“Funders seem to prefer new organizations as platforms for change. At best, they dismiss old organizations as incapable of change. At worst, they view them as protectors of the status quo. Yet I find considerable evidence that old organizations can produce change, especially if they are able to rejuvenate themselves. In short, socially entrepreneurial organizations do not have to be new.”

While Paul is right that big, old organizations can produce change, I would challenge you to think about whether yours will. The organization and its executives have to be willing to take big risks and put significant organizational resources behind something that is relatively unproven. Then, they need to be willing to see it through despite painful resistance, failures and setbacks.  BP, with its “Beyond Petroleum” campaign is a good example of half-hearted commitment to change (listen also here). 

2. Scale is something that will have to be achieved the hard way.  Big organizations have big networks and numerous channels through which new products can often be funneled.  If the channels don’t exist, they can be created.  So reaching scale is much easier within the confines of a big company or org.  But, since your small business won’t enjoy the same privileges, scale will have to be achieved slowly, over time, through a huge amount of effort.  So… is your stomach as big as your eyes?

3. The bigger you get, the more you become one of “them.” Don’t fool yourself into thinking that your big, new idea will always be relevant.  It won’t.  And don’t assume you’ll always be on the leading edge of change.  You won’t. If you achieve scale and don’t find ways to enable innovation, you will become one of your former worst enemies.

There is one other lesson here for all of us.  That is the importance of building institutions to support ventures from start-up through to “big.”  What we’re seeing right now in the sector, it seems to me, is an abundance of orgs and structures targeted at supporting brand new ventures.  But the successful among these ventures will, at some point, need access to much larger pools of capital in order to grow.  Not thousands of dollars but millions.  If they can’t get that from traditional financial institutions, because they are generating below-market returns, for example, then we need to figure out how to provide it to them.  Is anyone working on that now?

A classic TED Talk on making your ideas spread.

Certainly, there are no shortage of great ideas and inventions out there, but rather a shortage of great execution. That includes not only getting the right people on your bus, not only designing products and services with your customers and their needs, habits, tendencies, circumstances, etc. in mind, but also getting in front of customers, investors, and colleagues in a way that will compel them to get on board.

If you haven’t already read it, the Heath Brothers’s Made to Stick” is another fabulous “how to” along these lines.


I have been pondering this blog post over the last several days, only to find that I’ve been beaten to the punch by Nathaniel Whittemore at and Theresa at the subjectverbobject blog.  (And, much to my pleasure, Nathaniel’s post was prompted by a fantastic Fast Company article titled, “Rwanda Rising” – check it out.)

Here is Nathaniel’s quote that is sparking interest and debate:

1. The difference between “social entrepreneurship” and “entrepreneurship” can break down quickly. When we’re talking about African students building new web applications to make it easier to send money to families back home, what should we designate that? Entrepreneurship or Social Entrepreneurship? Or does it not matter? Should it perhaps make us wonder if we should instead be holding up that type of work to argue that real entrepreneurship is about the creation of all types of value – not just about financial wealth. In other words, maybe our view should be about the inseparability of “social” from “entrepreneurship,” and perhaps that’s easier to understand in the emerging market context.


To add a bit of my own perspective… I became aware of the concept of social entrepreneurship back in 2005, while carrying out research in Colombia. Disheartened by the limited amount of management expertise within the NGO community and the lack of clear accountability in how aid dollars were being spent, I found myself strangely gravitating toward for-profit, purpose-driven enterprises.

Really, the change was weird for me.  I had spent most of my college days being suspicious of corporations of any size and disgusted by economics and its profit-maximization principles.  I questioned economic globalization and modern-day capitalism. Yet, as I grew increasingly disillusioned with life inside non-profits (NOTE: I do recognize that there are many outstanding, well-managed non-profits out there!), I began to truly appreciate the incentive systems that exist in the free market and within for-profit organizations.

In fact, an unwieldy and mildly disturbing appreciation for the concept of “profit” itself began to bubble up from deep within me.  I realized that profit, despite its sullied reputation, plays a hugely meaningful role in the life of corporations.

Profit is, for most companies, a measure of the overall health of the organization.  It is the final word on 1) whether you are producing products and services that people value enough to actually pay for and 2) whether the organization is being managed effectively and resources stewarded efficiently. In this sense it truly is the “bottom line.”  And of course profit and, more specifically, free cash flow are also the forces that enable growth.  Conversely, lack of profit resulting from mismanagement and/or creative destruction eventually leads to the dissolution of the corporation and allocation of resources to where they can be put to better use.  Generally speaking, all good things.

But once we recognize that profit is not inherently evil or something to be minimized, the concept of “social entrepreneurship” starts to break down a bit.  What makes an enterprise “social” if not some aversion to profit or, at least, strict prioritization of doing social good over making money?  It can’t simply be the desire to bring about change or have a positive social impact.  By those standards, some corporate behemoths might even be (or once have been) considered social enterprises.

Take Google and Ford as examples.

Sergey Brin and Larry Page were HUGELY suspicious of traditional corporations when they started tinkering with the PageRank Algorithm. Google was born in part out of their disgust with content portals like Yahoo, who gave the best real estate to the highest bidders, and search engines that were centered around paid-for results.  Since day one, they have aspired to make readily available the entire world of information to anyone and everyone who might care enough to look for it.  They dreamed of democratizing knowledge and, indirectly, knowledge-creation, and that’s exactly what they’ve done.  In the process, they’ve made billions of dollars and grown at an incredible rate.

Ford, on the other hand, had a dream to make an automobile that the average working American could afford. Before the Model-T, automobiles were toys for the rich and famous.  In addition to being superior modes of transport, they were conspicuous signs of wealth and privilege.  In a sense, the success of Ford democratized movement.  And his foresight in understanding that employees can be customers also led him to offer unprecedentedly high wages to Ford assembly-line employees.

So are/were Google and Ford social enterprises?  If they once were but are no longer, at what point did they cross over to the dark side?  Where do we draw the line between social entrepreneurship and plain-old entrepreneurship.  Should we even attempt to define that line?

To the last question,  I say “no,” and for two reasons.  First, who’s who will be self-evident the majority of the time. Secondly, and more importantly, trying to carve out a world for social enterprises vs. “other” enterprises will only serve to reinforce what is a false dichotomy and feed our aversion to valuable ideas like “profit.”

Rather than looking for better ways to categorize and attach labels, let us strive to create a world in which enterprises in general serve the needs of society while behaving responsibly.

Georges Doriot, the purported father of the venture capital industry, firmly believed that there was no shortage of good ideas out there, but rather a shortage of individuals capable of carrying them out.

My own conversations with modern-day venture capitalists confirms that one of biggest challenges for VC firms continues to be predicting the capacity of the entrepreneur to successfully startup and manage the business.

Startable blog has a great post, complete with advice, echoing these sentiments here:

YOU are the problem: the reason why so many startups don’t get venture funding | Startable.


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