Leveraging personal past to shape social enterprise

Treading the fine line between making an impact and achieving financial gain is a captivating challenge for social enterprises, and the key could be found in the founder’s professional journey

By Putro Harnowo, Senior Content Manager, China Business Knowledge @ CUHK

Along with the increase in awareness of sustainable and responsible practices, the world has experienced a significant surge in environmental, social, and governance (ESG) investments. PwC’s Asset and Wealth Management Revolution 2022 report estimated that ESG-related assets under management globally will reach US$34 trillion by 2026, up from US$18.4 trillion in 2021.

One noteworthy aspect of the ESG landscape is the rapid growth of social enterprises in recent years. Driven by a mission to address social challenges, the impact of these purposeful companies is not limited to economic growth, as they are actively addressing pressing societal issues such as poverty alleviation, healthcare and education access, and ecological conservation, among others.

Not to be confused with non-profits, social enterprises generate revenue through the sale of products or services by integrating sustainable business models and optimising market-based strategies. It is the dual emphasis on social value creation and economic benefit that sets social enterprises apart and significantly influences their establishment.

“Due to this unique nature, social entrepreneurs often face conflicting pressures that originate from the business and social worlds,” says Kevin Au, Associate Professor of the Department of Management at The Chinese University of Hong Kong (CUHK) Business School.

“There are inherent tensions between the demands of market competition and the expectation of making an impact, and it is believed that the founder’s knowledge and experience have a bearing on the organisation’s performance.”

In a new study titled Founder commercial imprint interacts with strategic orientations in affecting social enterprise performance, Professor Au, along with Professor Xiao Yingzhao and Professor Tang Jiansheng at Tianjin University, Professor Liu Zhen at Shandong University, and Professor Zhang Yuli at Nankai University, looked into these matters.

The researchers specifically explored how the founder’s prior experience influences the performance of social enterprises. They found that founders with a strong commercial imprint are most likely to have a better understanding of business practices and are more focused on revenue, but may be less committed to the social mission. However, the study also found how to moderate this relationship.

Synchronising commercial imprints

Social entrepreneurs have different approaches to embracing business-first principles or staying committed to a social mission mindset. The research focuses on the founder’s commercial imprint, as it is believed that the founder’s previous work experience can influence their perceptions of the enterprise’s performance. Commercial imprint refers to prior experience in the commercial sector, including education, work experience, and entrepreneurial background.

Having conducted a comprehensive survey of 230 social enterprises in China, the researchers collected data on the founding conditions of the social enterprises, including the founder’s prior work experience and education, as well as the strategic orientation of the organisation. The survey also collected data on the organisational actions and performance of the social enterprises.

“There are inherent tensions between the demands of market competition and the expectation of making an impact, and it is believed that the founder’s knowledge and experience have a bearing on the organisation’s performance.”

Professor Kevin Au

The empirical findings of the study indicated that the commercial imprint has a significant impact on how the founder perceives the performance of the organisation. The influence of this commercial imprint on commercial and social performance is more pronounced for social enterprises that prioritise competition but less noticeable for those with a focus on social impact.

The study suggests that the relevance of a founder’s previous work experience depends on the specific environment in which a social entrepreneur operates. The alignment between the founder’s recent work experience and the external environment plays a crucial role in the performance of the social enterprise, especially when the founder can effectively utilise and apply their prior work experience in the new environment.

“If the founder’s most recent work experience before starting a social enterprise is not a good match with the focal enterprise’s current strategic orientation, the start-up’s commercial and social performance would suffer,” Professor Au adds.

Two sides of a coin

The research also suggests that social enterprises can adopt different strategic orientations to enhance their performance, such as competitor orientation and social orientation.

Competitor orientation refers to closely monitoring and analysing the strengths, weaknesses, capabilities, and strategies of current and potential competitors. This approach directs a company’s focus towards the actions and behaviours of its rivals in the market to enable quick responses that will give the company a competitive edge.

Social entrepreneurs who have previous experience in the business world were found to be more likely to utilise this strategic orientation effectively. Since entrepreneurs with a business background may be less familiar with the social aspects of their ventures, a competitor orientation helps them gain the necessary industry and market knowledge.

On the other hand, social orientation focuses on impact creation and meeting the needs of beneficiaries. In social enterprises that strongly prioritise this value, founders will actively pursue social impacts rather than focusing on competitive issues such as market dominance. In this case, the knowledge and skills acquired by social entrepreneurs during their for-profit employment may be undervalued. Consequently, social enterprises that prioritise a social orientation may fail to recognise the significance of the beliefs and values derived from the founders’ commercial experience.

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“When a social enterprise prioritises a social orientation and its founders’ most recent work experience was in the for-profit sector, the positive relationship between the founders’ commercial background and the venture’s subjective commercial performance will likely be weakened,” says Professor Au. “This is because the organisation will have limited awareness of industry and market-specific knowledge that are essential for success.”

Previous experiences are seen as entrepreneurial incubators, shaping individuals’ skillsets and mindsets. When individuals transition to new roles, such as social entrepreneurship, they bring along not only their skills and knowledge but also a cultural imprint from their previous experience. This imprint can have far-reaching effects, crossing organisational boundaries, and founders often draw from their past knowledge to navigate the uncertainties of their new venture.

“Social entrepreneurs need to take into account the potential compatibility between the founding imprint and strategic orientations and then decide whether and how to undertake actions that can leverage the best of both,” says Professor Au.