Zubair Khan
Richard Montgomery High School
Rockville, MD
11th Grade
2nd Place, Maryland

The Answer Has Been And Still Is Business Entrepreneurship

     Apple. Microsoft. FedEx. Amazon. Google. These are the fruits of the traditional established practice called entrepreneurship which ironically thrives on creative destruction and disruption. The aforementioned companies nor their founders even existed just a hundred years ago yet they have revolutionized life in the United States, if not the world. In fact, their effects have influenced life for not just the next decade, but reasonably the next century. There is no reason to believe that business entrepreneurship will stop producing positive change in the United States. Consequently, in the upcoming decade the biggest collective strides in improving life in the United States will be brought on by business entrepreneurship. 

     Until recently, the word 'entrepreneurship' was automatically associated with individuals who took great initiative and risk to develop an idea into a successful business entailing enormous returns to reward them and their investors for the corresponding risks they took. However, recently a supposedly new type of entrepreneurs and their ventures have gotten more and more media attention -social entrepreneurs. The basis of social entrepreneurship is to create enterprises that primarily seek to solve 'social problems' and create so-called 'social value' while putting profits second ("The New Heroes"). The notion has proved popular with the growing increase of people whom Mark Zuckerberg pointed out "want to use services from companies that believe in something beyond simply maximizing profits" (Constine). However, prior to making assertions about the future impact of social entrepreneurship due to its social value element, we should look at its track record. 

     Contrary to public perception, 'social entrepreneurship' is actually quite old. The first usage of the term 'social entrepreneur' harkens back to the early 1970s. Only a few years later, the man who is now acknowledged as the pioneer of social entrepreneurship, Bill Drayton, founded 'Ashoka: Innovators for the Public' in 1981. After thirty-two years of supporting and investing in social entrepreneurs, Ashoka required nearly $54 million of public support with less than $2.2 million of generated revenue ("Annual Report"). Considering that Ashoka is essentially the venture capital fund of social entrepreneurs, the lack of its own sustainability is concerning. Moreover, its impact on life in America is almost negligible and so is its focus. Of its six thousand Fellows (social entrepreneurs whom they support) worldwide, just a hundred twenty-six of them are in the United States ("Annual Report"). 

     Marking 1982 as the birth of social entrepreneurship, let us compare since then how social ventures have changed life in the United States versus business entrepreneurship. Take the simple example of an average middle-class sixteen year-old in the United States. In 1982, a middle-class American sixteen year-old writing an essay entailing research would have to research by spending countless hours at the library, tediously searching through an assortment of books and encyclopedias. In 2013, that very same research and search queries are done exponentially faster thanks to a countless number of creations by business entrepreneurs including but not limited to Google, Apple, and Microsoft. During the same time period in which our lives have been fundamentally revolutionized by these business enterprises, there simply is not a social venture to which Americans can turn to and admire as revolutionizing their lives. What did social entrepreneurship do for America? 

     The fact of the matter is that social entrepreneurship's main success and focus have been in poverty alleviation in developing countries --not in the United States. One of the biggest success stories of social entrepreneurship is Mohammed Younus's revolutionary Grameen Bank. The novel idea of microcredit has been extremely successful in not just Bangladesh but around the world. Another remarkable example of sustainable social ventures would be BRAC, the world's largest developmental NGO, which was founded by a former Shell Oil executive who sold his London apartment after being overwhelmed the extreme poverty in Bangladesh (Korngold). According to The Economist, it is "by most measures the largest, fastest-growing non-governmental organization in the world--and one of the most businesslike" ("BRAC in Business"). The most successful examples of social entrepreneurship operate in the world's poorest countries, not in the United States. 

     There are fundamental structural reasons which explain why the world's most successful revolutionary business ventures are in America but not world's most successful social ventures. According to the dictionary, an 'entrepreneur' is 'a person who organizes and manages any enterprise typically a business, with considerable initiative and risk'. Risk is the mantra of entrepreneurship. However, risk is only taken when there is a corresponding reward potential thereby creating a sensible value proposition. Social enterprises like Grameen Bank and BRAC were both founded because their founders were inspired and appalled by the extreme poverty that they witnessed. Whereas most entrepreneurs are motivated in large part from the financial reward potential, these founders were largely motivated by a sense of duty to take some action against the poverty they witnessed. However, in the United States, fortunately there is not an equivalent level of ultra poverty that exists in developing countries. Consequently, there is not as strong as an impulse to motivate individuals to organize a social enterprise with the primary aim to improve life in the United States with considerable initiative and risk. On the other hand, in the United States there are strong motivations to organize a for-profit business with considerable initiative and risk. 

     Although entrepreneurship requires great ideas, it goes far beyond a great idea. Ideas are relatively easy; implementation and execution are hard. Moreover, implementation and execution takes time, energy, effort, ability, and money. The investment necessary to fund the venture often goes beyond the ability of the founder. As a result, outside investors are necessary and an investor only invests when he can reasonably anticipate an outsized return. However, if from the outset, the entrepreneur is not aiming for future significant profitability, there is no incentive for the investor to invest. According to Sand Hill Econometrics, an average 41% of venture capital investments will fail, it is the 2.3% chance of a $100M payout and 0.18% chance of a $1B+ payout that keeps venture capitalists investing and the American entrepreneurship machine humming (Davidoff). As a result, an enterprise without even the hope of achieving either $100M or $1B, is unlikely to get investors. Guy Kawasaki, an early Apple employee and venture capitalist, admits that venture capitalists look to make at least 5x their investment (Kawasaki). Investor money is critical and therefore so is profitability (or at least potential). 

     Venture capitalists invest billions of dollars every year into start ups. Over the last twelve years, a median of $22 billion dollars were invested every year (Tungunz). Those investments are promptly put to work by entrepreneurs. According to the National Venture Capital Association, 11% of private sector jobs come from venture backed companies and venture backed revenue accounts for 21% of the US GDP1. In comparison, social ventures did not receive that same level of aggregate investment nor do they drive that similar sort of economic activity. 

     More importantly, people often fail to recognize that regular business entrepreneurs do generate social value. The job of an entrepreneur is to seek out better solutions and service the needs of an untapped market. Business entrepreneurs are adding value to the economy through efficiency or technology and creating jobs. Furthermore, as the enterprises metamorphosize into full fledged Fortune 100 corporations, they create even more economic activity and contribute even further to the GDP. GDP is not based on donations or transfer payments but actual consumption, production, and investment. Entrepreneurship is what allowed David Rubenstein, a man from a very modest background, to achieve success and billions ("David Rubenstein"). Simultaneously, his creation of wealth undoubtedly created jobs and added value to world ("David Rubenstein"). 

     Ultimately, the improvements in life over the next decade in the United States are not going to be poverty alleviation efforts. The improvements in life are going to be first strongly based on increased material well-being (measured by higher GDP per capita) and lower unemployment which is dependent on better technology and more efficiency. These changes are going to come from the next Apple and Google; not the next Ashoka. Business entrepreneurs are the ones who are going to have the access to capital to develop solutions that will continue propel the United States forward and revolutionize life in the United States once again. 

Works Cited

"Annual Reports." Ashoka. Ashoka, n.d. Web. 06 Nov. 2013. <https://www.ashoka.org/annual-reports>.

"BRAC In Business." The Economist. The Economist, 18 Feb. 2010. Web. 6 Nov. 2013. <http://www.economist.com/node/15546464>. 

Constine, Josh. "Facebook’s S-1 Letter From Zuckerberg Urges Understanding Before Investment." TechCrunch. N.p., 1 Feb. 2010. Web. 06 Nov. 2013. <http://techcrunch.com/2012/02/01/facebook-ipo-letter/>. 

David Rubenstein Speaks at the Robert H. Smith School of Business. Perf. David Rubenstein. YouTube. YouTube, 13 Apr. 2011. Web. <http://www.youtube.com/watch?v=E7AyYjAUumA>. 

Davidoff, Steven. "DealBook." DealBook Venture Capitals Rocky Road for Entrepreneurs Comments. N.p., 2 May 2013. Web. 06 Nov. 2013. <http://dealbook.nytimes.com/2013/05/02/venture-capitals-rocky-road-for-entrepreneurs/?_r=0>. 

Davidoff, Steven. "DealBook." DealBook Venture Capitals Rocky Road for Entrepreneurs Comments. N.p., 2 May 2013. Web. 06 Nov. 2013. <http://dealbook.nytimes.com/2013/05/02/venture-capitals-rocky-road-for-entrepreneurs/?_r=0>. 

Davidoff, Steven. "DealBook." DealBook Venture Capitals Rocky Road for Entrepreneurs Comments. N.p., 2 May 2013. Web. 06 Nov. 2013. <http://dealbook.nytimes.com/2013/05/02/venture-capitals-rocky-road-for-entrepreneurs/?_r=0>. 

Hsu, Caroline. "Entrepreneur for Social Change." US News. U.S.News & World Report, 10 Oct. 2005. Web. 06 Nov. 2013. <http://www.usnews.com/usnews/news/articles/051031/31drayton.htm>. 

Kawasaki, Guy. "What To Expect From A Venture Capitalist." Forbes. Forbes Magazine, n.d. Web. 06 Nov. 2013. <http://www.forbes.com/2004/01/27/0127artofstartmidas04.html>. 

Korngold, Alice. "BRAC Is The Largest Global Anti-Poverty Organization." Fast Company. N.p., n.d. Web. 06 Nov. 2013. <http://www.fastcompany.com/1753519/brac-largest-global-anti-poverty-organization-and-its-secret>. 

"The New Heroes." PBS. PBS, n.d. Web. 06 Nov. 2013. 

Tunguz, Tom. "A Few Good Rounds: Trends In Venture Capital Over The Last 12 Years." TechCrunch. N.p., n.d. Web. 06 Nov. 2013. <http://techcrunch.com/2012/07/28/a-few-good-rounds-trends-in-venture-capital-over-the-last-12-years/>. 

  1. Venture Impact. Venture Impact (5 ed.). IHS Global Insight. 2009. p. 2.ISBN 0-9785015-7-8.