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Business Models and Venture Growth in Social BUSINESS MODELS AND VENTURE GROWTH IN SOCIAL ENTREPRENEURSHIP Schriftliche Promotionsleistung zur Erlangung des akademischen Grades Doctor rerum politicarum vorgelegt und angenommen an der Fakultät für Wirtschaftswissenschaft der Otto-von-Guericke Universität Magdeburg Verfasser: Nicole Siebold Geburtsdatum und -ort: 06. Juli 1983, Halberstadt Arbeit eingereicht am: 10. April 2017 Gutachter der schriftlichen Promotionsleistung: Prof. Dr. Matthias Raith Otto-von-Guericke Universität Prof. Dr. Steffen Korsgaard University of Southern Denmark Datum der Disputation: 05. Juli 2017 TABLE OF CONTENTS I. SUMMARY ........................................................................................................................................ I-1 II. A TYPOLOGICAL THEORY OF SOCIAL BUSINESS MODELS ........................................... II-1 III. DETERMINANTS AND INDICATORS OF GROWTH IN SOCIAL VENTURING ............ III-1 IV. GROWING A FOR-PROFIT SOCIAL VENTURE: A LONGITUDINAL CASE STUDY ..... IV-1 V. MONETIZING SOCIAL VALUE CREATION – A BUSINESS MODEL APPROACH ......... V-1 ii I. SUMMARY I-1 SUMMARY The severity of global sustainability challenges has led to the emergence of entrepreneurial ventures, which pursue market opportunities by addressing social needs and catalyzing social change (Mair & Martí, 2006). Social entrepreneurship occurs as a result of market failure when social needs are, on the one hand, not met through commercial market forces or, on the other hand, not satisfied through governmental interventions (Austin, Stevenson, & Wei-Skillern, 2006; McMullen, 2011). Market failure thus creates entrepreneurial opportunities, which social entrepreneurs seize by mobilizing resources and creating new organizations with the potential to address and solve complex social problems. In doing so, social entrepreneurs create ventures and deliver social value to benefit needs of disadvantaged individuals in society (Martin & Osberg, 2007) and pursue neglected problems of advantaged segments of populations (Santos, 2012). With the purpose of creating and delivering social value (Moss, Lumpkin, & Short, 2008; Weerawardena & Sullivan Mort, 2006), social ventures emerge within and across different sectors and adopt diverse organizational and legal forms (Austin et al., 2006; Bacq & Janssen, 2011; Choi & Majumdar, 2014; Murphy & Coombes, 2009; Nicholls, 2008). Furthermore, social ventures have a diversity of stakeholders with varying socially and commercially oriented preferences and expectations, and scholars assess their alignment as a critical task for venture survival and growth (Eikenberry & Kluver, 2004; Townsend & Hart, 2008). Over the last two decades, social entrepreneurship has become an increasingly important international phenomenon. Its growing appeal is strong among socially aware members of society who question the ability of traditional businesses and governments to purposefully target social problems such as poverty, social exclusion, and climate change (Harding, 2007). Leading organizations in the field such as Ashoka, the Skoll Foundation, and the Schwab Foundation actively promote social entrepreneurship by highlighting the innovativeness of social ventures in addressing market failures and by celebrating individual social entrepreneurs as successful change makers (Dacin, Dacin, &Tracey, 2011). At the same time, research in social entrepreneurship is gaining momentum as a new discipline, and scholars investigate in several directions to provide insights for research and practice alike. However, as a complex phenomenon with several intersections to other academic domains (e.g., accounting, economics, finance, management, political science, sociology), research in social entrepreneurship is still in an embryonic state, experiencing the need for a nuanced understanding and greater clarity provided by I-2 SUMMARY academic scholarship through conceptual studies and empirical work (Short, Moss, & Lumpkin, 2009). In order to develop the nascent field of social entrepreneurship into a promising domain of inquiry, an important stream of research focuses on social business models to understand the various types of ventures with a social mission. The emerging literature has contributed conceptualizations of social business models, which picture a fragmented spectrum from social to commercial ventures with some hybrid structures in between (e.g., Santos, Pache, & Birkholz, 2015; Thomson & MacMillan, 2010; Wilson & Post, 2013; Yunus, Moingeon, & Lehmann-Ortega, 2010). A second major stream of research focuses on social venture growth. Scholars emphasize that ventures with a social mission not only follow attempts to grow organizationally but first and foremost aim to advance social and environmental conditions and, hence, increase their impact (Austin et al., 2006). In both research streams related to business models and venture growth, scholars and practitioners experience a similar increasing awareness for conceptualizations of social ventures and their scalability, whereby especially impact growth of social ventures recently became a popular theme in political debates. Despite an overall interest in the topic and a respective increase in social entrepreneurship research, several questions remain challenging: How are ventures with a social mission conceptually constructed to create, deliver, and capture social value in a self-sustainable manner? How can ventures with a social mission grow their impacts and in which way is impact growth achieved? How are both social and commercial missions combined for growth? And, finally, in which way is social value monetized? In order to approach these questions, this dissertation comprises a collection of four related studies, which aim at advancing the academic discussion on social entrepreneurship by (i) developing a typological theory of social business models, (ii) revealing determinants and indictors of growth in social venturing, (iii) examining the combination of social and commercial missions for venture growth, and (iv) demonstrating the monetization of social value creation. The four studies of the dissertation are briefly outlined in the following. The first research paper, “A Typological Theory of Social Business Models,” written together with Matthias G. Raith, is motivated by the diversity of social ventures found in practice, which led to much debate among scholars how underlying business models of social ventures can and should be conceptually configured. While prior research portrayed I-3 SUMMARY a stylized picture mainly based on anecdotes and case studies (Dacin et al., 2011) that resulted in fragmented classifications of social business models, social entrepreneurship research still lacks the theoretical foundation to meet its diversity in practice (Kistruck & Beamish, 2010). In order to fill in this research gap, the first study takes a theoretical approach in formally characterizing the business model as an equilibrium concept of the market-making entrepreneur (Alvarez & Barney, 2007; Casson, 2003, 2005; Kirzner, 1997; Shane & Venkataraman, 2000). Therefore, the business model is established as a logical sequence of value creation, delivery, and capture, where the relevant business model components–value proposition, customer segment, and generated income–are graphically arranged in a closed cycle. The closed structure thereby represents the economic self- sustainability of the business model and, accordingly, the equilibrium state. In the course of the study, the theoretical business model structure is applied to situations of market failure to develop a typology of market-making social business models. The typology comprises varying strategic orientations of business models, acknowledging prior research that emphasized different mission foci (i.e., social provision and social integration) and contrasting market orientations (i.e., social market and commercial market) in social venturing. The strategic orientations within the typology yield four alternative theoretical business models, i.e., the donor model, the self-help model, the asset model, and the corporate model. For each business model, illustrative examples are provided, which complement the theoretical typology by a taxonomy (Baden- Fuller & Morgan, 2010). Due to the business models’ parsimonious structure, each of them serves as a cognitive construct for generative cognition, a process in which new business models are developed through analogical reasoning and conceptual combination (Martins, Rindova, & Greenbaum, 2015). Through this process, the typology is extended by new conceptual combinations of business models, i.e., the volunteer model, the matching model, the leverage model, and the partner model. In conclusion, the study provides a typological theory for social business models that, on the one hand, covers the diversity of social ventures found in practice and, on the other hand, serves as a cognitive approach to business model innovation and development. An important research implication of the first study relates to growth in social entrepreneurship, where the analysis suggests that the meaning of growth for the social venture very much depends on the market orientation of the business model. Accordingly, the second research paper, “Determinants and Indicators of Growth in Social Venturing,” I-4 SUMMARY acknowledges the variety of socially and commercially driven ventures in social entrepreneurship and aims to provide a nuanced understanding of their attempts to achieve social venture
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