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DaVinci Coders
February 18th, 2013 at 12:47 pm

Startup experience doesn’t help social entrepreneurs

There is no evidence that prior founding experience is translating into superior performance for social entrepreneurs.

All of the conventional wisdom and research says entrepreneurs with prior entrepreneurial experience outperform entrepreneurs who have never launched a new enterprise.  Investors know that it’s often wiser to bet on someone who has started something before.

 

 

 

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But this may not be true for social entrepreneurs. In fact, several of my current research projects are not producing evidence that individuals with prior entrepreneurial experience have superior social performance, more commercial success, or larger online followings. And these results are consistent across three different datasets.

First, I examined the social media networks of a sample of social entrepreneurs who applied to participate in the 2010 or 2011 summer accelerator programs run by the Unreasonable Institute. The majority of these entrepreneurs reported having some prior entrepreneurial experience when they filled out their applications. By the summer of 2012, these ventures had accumulated fewer Facebook likes (an average of roughly 980 compared to more than 1,600 for the inexperienced entrepreneurs) and fewer Twitter followers (an average of roughly 900 compared to more than 1,000).

Next, I looked at early revenue and investment results in a small sample of entrepreneurs that applied to one of thirteen Village Capital accelerator programs run in 2010 and 2011. More than half of these ventures had founders who had previously started other businesses. On average, the ventures with experienced entrepreneurs earned lower revenues (roughly $102,000 versus $168,000 in the previous twelve months) and raised less capital (roughly $89,000 compared to $181,000) than those launched by inexperienced entrepreneurs.

Digging a little deeper, it doesn’t seem to matter whether these experienced founders had started nonprofit organizations or for-profit companies. In fact, those ventures that had both kinds of entrepreneurial experience on their team produce lower commercial performance.

Finally, I am working with Emory doctoral student Li-Wei Chen to analyze the social performance of a sample of B Corporations founded between 1987 and 2011. The B Impact Assessments quantify the overall company impact on workers, communities and the environment in a score that ranges from zero to 200 based on more than 200 carefully-designed metrics. According to the LinkedIn pages of named company founders, more than 15% of the companies in this sample were established with some prior entrepreneurial experience on the founding team. The average B Rating of these ventures — roughly 109 — was virtually identical to the 108-point average for B Corps established by inexperienced entrepreneurial teams.

If these early tabulations are any indication, there is no systematic evidence that prior founding experience is translating into superior performance for social entrepreneurs. Their ventures don’t have larger on-line followings, superior early-stage commercial performance, or greater social impact.

Instead, we are seeing just as many good things from inexperienced social entrepreneurs. Take the example of Co2 Bambu, an innovative venture that supports post-disaster reconstruction efforts and addresses housing deficits in Latin America and Haiti. Its stellar social performance is reflected in a current B Rating of 161. Although the founding team was clearly experienced in a number of domains that might contribute to success — including management, design and government relations — none of the three entrepreneurs had previously founded an organization.

These observations raise a serious question for impact investors and others who are trying to identify and support the most promising young social ventures: Why doesn’t accumulated entrepreneurial experience improve the performance of social entrepreneurs?

Part of the answer might lie in the fact that social entrepreneurs are launching what some call hybrid organizations. Hybrids follow neither straight-up for-profit nor nonprofit models. Instead, they use for-profit techniques in order to meet the concrete social and/or environmental aspirations of traditional nonprofits. Entrepreneurial experience from either domain may not help founders navigate the many tradeoffs that this novel model requires.

It may also be that entrepreneurs who are not imprinted by traditional founding experiences aren’t bound to traditional ways of working and are thus better able to think outside the box. Thinking in this way seems quite valuable in the current period of mass experimentation within the social enterprise sector.

But there may be something deeper at play here: No one yet knows how to systematically produce social value by using markets and business acumen. Decades of business research and teaching has given us a common understanding of what goes into the production of commercial value (e.g., valuable resources and capabilities, reliable organizational routines, and powerful market signals). However, we don’t yet have a similar understanding of what business resources or market mindsets produce greater social impact. This makes it difficult to draw any lines from prior startup experiences to current attempts to create social value.

To make headway here, we must continue to push the business research community (both inside and outside of business schools) to produce more robust and nuanced insights into why certain social ventures, such as Co2 Bambu, are able to perform at a high level.

I did find one potential clue to success in these datasets. Female social entrepreneurs in two of the three samples seem to be doing better than men. They tend to attract significantly more Facebook likes and Twitter followers, and B Corporations with at least one female entrepreneur generating significantly better social performance. However, I did not find a similar gender effect in the revenue and capital data, which suggest that investors and customers might be overlooking gender as a potential signal of the ability to deliver superior social venture performance.

In the meantime, the lingering truth is that we don’t currently know what an ideal resume should look like for a promising social entrepreneur. This presents a problem for impact investors who are currently trying to find and back social entrepreneurs. Without help from the traditional cues, they are forced to do their work in partial darkness. This further slows the flow of funds into social impact organizations that desperately need them.

Via Harvard Business Review

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