(For more on this topic, see Social Entrepreneurship and Government: A New Breed of Entrepreneurs Developing Solutions to Social Problems.)

What is social innovation?

Social innovation is defined here as the practice of responding to market failures with transformative and financially sustainable innovations aimed at solving social problems. These three essential components - 1) response to market failures; 2) transformative innovation; and 3) financial sustainability - are discussed in more detail below. 

1. In addressing market failures, a social innovator might find that there is:

• No market - beneficiaries are unable to pay anything and, as a result, costs must be fully subsidized (Example: Resolve to Stop the Violence Program)
• Limited market - beneficiaries have some ability to pay, and thus the social innovator can rely on some earned revenues to sustain the initiative (Example: ITNAmerica)
• Low-profit market - beneficiaries have the capacity to pay the full cost and the social innovator thus has the potential to generate a profit. However, the market may be underdeveloped or investments in this market may yield returns that are less than typical for for-profit ventures (Example: Benetech)

2. Potentially transformative solutions can be completely new inventions or creative adaptations of existing ones. For innovators, whether in the business or social realm, innovation is not a one-time event but continues over time.

3. Financial sustainability is achieved through a combination of:

• Nonfinancial resources - the skilled or unskilled volunteers and one-time or recurring in-kind donations that enable social innovators to increase the sustainability of their initiatives
• Predictable revenue sources - includes long-term, repeat, and performance-based funding sources-foundation, individual, government, corporate, and fee-based that will provide predictable funding, despite conditions of market failure

Read case studies of the social-innovation models employed by the following organizations:

• Resolve to Stop the Violence Program (RSVP): no-market approach
• Triangle Resident Options for Substance Abusers, Inc (TROSA): low-market approach
• Outside the Classroom: low-profit market approach