The 13 policy recommendations below—with models that help to illustrate how the recommendations might be carried out—provide guidance to public innovators committed to creating a more supportive environment for social entrepreneurship.

Lay the foundation for a new era of social entrepreneurship

1. Establish institutions that support and promote social entrepreneurship. (Model: Louisiana’s Office of Social Entrepreneurship)

2. Allow greater autonomy. Set standards. Publish results. (Model: New York City Public Schools’ Children First Initiative)

3. Convene the public, private, and nonprofit sectors on critical social issues to advance solutions. (Model: The California Rural Economic Health Vitality Project)

4. Develop awards programs to recognize and reward innovative, effective, and sustainable solutions. (Model: Social Innovation Forum)

5. Educate all 3 sectors in social entrepreneurship’s new approach to social problem solving. (Model: The Phoenix Project)

6. Strive to set policy and remove barriers in order to encourage social entrepreneurship and scale success. (Model: SBA Office of Advocacy)

Set policy to enable and encourage social entrepreneurship

7. Explore tax structures to enable new organizational forms. (Model: North Carolina’s Low-Profit, Limited Liability Company (L3C))

8. Open earmarked funds to competitive processes. (Model: U.S. Dept. of Education’s Office of Special Education Programs 2007 Funding)

9. Allocate a percentage of agency budgets toward encouraging innovation. (Model: Charter Schools

Develop and leverage financial and non-financial resources for social entrepreneurship

10. Seek partnerships with foundations and corporations to support social-entrepreneurial endeavors. (Model: Wallace Foundation partnership with Chicago and New York City)

11. Create a public-private social innovation fund. (Models: Small Business Investment Company (SBIC); Venture Philanthropy & Social Venture Capital)

12. Coordinate volunteer resources to scale solutions. (Model: ReServe)

13. Establish a National Social Innovation Foundation. (Model: National Science Foundation)

Lay the foundation for a new era of social entrepreneurship

1. Establish institutions that support and promote social entrepreneurship.

The establishment of institutions, such as the Small Business Administration and the Office of Homeland Security, has long served as a key step that public officials can take to commit to and advance a particular issue. New institutions at the city, state, and federal levels would lead the way in creating environments in which social entrepreneurship can thrive. These institutions could also take the form of quasi-public agencies.

Model: Louisiana’s Office of Social Entrepreneurship
Louisiana’s Office of Social Entrepreneurship has made its mission to “enable citizens and organizations working across sectors to use business principles to build, measure, and scale the most innovative, effective, and sustainable solutions to the social problems facing communities across the state.” It plans to conduct convenings across the state, in partnership with the private and nonprofit sectors, to discuss the root causes of Louisiana’s most pressing social problems and to identify the solutions that have already proven successful. During this ongoing process, the office and its partners will support citizens and organizations by: seeking to improve public policy and remove barriers; recognizing and rewarding successful models; offering training and networking opportunities to social entrepreneurs; and providing access to financial and in-kind resources. The office is also in the early stages of developing a public-private social innovation fund. Louisiana’s Office of Social Entrepreneurship is positioned to be the first of many institutions that support and promote social entrepreneurship. Download the OSE's overview presentation.

2. Allow greater autonomy. Set standards. Publish results.

Granting initiatives working on difficult social problems greater autonomy in how they spend their allotted money can encourage entrepreneurial behavior. At the same time, government can set performance standards and publish results. Such practices will ensure that the necessary work is getting done, while creating space for developing new ways of meeting and even surpassing those results.

Model: New York City Public Schools’ Children First Initiative
Seeking to give school principals more control over their ability to meet performance standards, New York City Public Schools’ Children First Initiative grants greater autonomy to principals in handling day-to-day issues such as scheduling, hiring, curricula, and professional development. In return for this greater autonomy, schools are held to clear standards of accountability, particularly related to assessments and outcomes in reading and math, and particular school-performance measures, such as attendance and graduation rates. A central part of this reform is the development of public progress reports for every school in the system, based on a variety of measures, in which schools will receive a letter grade of “A” through “F".

3. Convene the public, private, and nonprofit sectors on critical social issues to advance solutions.

Government has the unique ability to convene the necessary stakeholders in order to address a particular social issue. By gathering the key players from all sectors, public officials can lead the process of agreeing on the root causes of the social problem, plotting out a course of action for addressing it, and advancing solutions.

Model: The California Rural Economic Health Vitality Project
In 2005, Governor Arnold Schwarzenegger and his cabinet joined the California Center for Regional Leadership in hosting a statewide planning process called the Rural Economic Vitality Project. Through a series of regional and statewide planning meetings, the project brought together the key stakeholders from all three sectors to develop an agenda for spurring economic growth in California’s rural communities. Convening the necessary mix of leaders from all sectors to understand the challenges faced by California’s rural communities and identify actions for addressing them proved to be a major breakthrough. The Governor and the California Center for Regional Leadership were able to develop a Rural and Economic Health Vitality Policy Agenda with specific recommendations that are now being implemented.

4. Develop awards programs to recognize and reward innovative, effective, and sustainable solutions.

Establishing government award programs to recognize success in social entrepreneurship would identify and support successful approaches. Such support could take the form of publicity, training, networking opportunities, and funding, and it would help to accelerate the progress of social entrepreneurs who are achieving exceptional results. A number of philanthropies, academic institutions, and media organizations—including Ashoka, Echoing Green, Fast Company Magazine, Harvard’s Kennedy School of Government, The Manhattan Institute, Schwab Foundation, Skoll Foundation, and the Social Innovation Forum—are already sponsoring awards programs that could serve as models for government.

Model: Social Innovation Forum
In the nonprofit sector, Root Cause’s Social Innovation Forum, which operates in Boston, provides an example of a competitive selection process that rewards proven solutions by connecting them to resources. Each year, the Social Innovation Forum partners with local foundations and corporations to identify “Social Innovators” who are demonstrating promising approaches to addressing specific social problems in greater Boston. The organization provides these Social Innovators with strategy consulting, executive coaching from private sector leaders who volunteer their time, and introductions to a local Social Impact Investment Community made up of government leaders, foundations, and individual donors who are willing to offer time, talent, relationships, and money. Since 2003, the organization has identified and directed more than $2 million in resources to innovative, results-oriented organizations working in such areas as domestic violence, workforce development, youth development, and the environment.

5. Educate all 3 sectors in social entrepreneurship’s new approach to social problem solving.

Social entrepreneurship provides not only new ways of addressing persistent social problems, but also news ways of thinking about them. Government leaders can play a crucial role in educating the public, private, and nonprofit sectors in how to begin tackling social problem solving from this new, business-oriented perspective that prioritizes cost-effective and results-driven solutions.

Model: The Phoenix Project
Leaders of Virginia’s public, private, and nonprofit sectors have joined forces to form the Phoenix Project, a statewide effort to accelerate social entrepreneurship in Virginia as a way of battling poverty and other pressing social challenges. The effort has involved Governor Tim Kaine, former Governor Mark Warner, Lieutenant Governor Bill Bolling, and other elected officials in educating leaders in all three sectors in the new way of thinking that social entrepreneurship brings to social problem solving. The presence of high-level government officials as spokespeople has drawn to the effort private and nonprofit sector CEOs, as well as leaders from 40 Virginia universities, to pursue the Phoenix Project’s four-part strategy: (1) convene statewide discussions to educate and network leaders interested in social entrepreneurship; (2) engage public leaders as guest lecturers in an annual six-week social entrepreneurship academic and experiential program for thirty top undergraduate and graduate students drawn from throughout the Commonwealth; (3) create partnerships between consortia of universities and economically distressed communities to provide the context for launching and refining social enterprise solutions; and (4) forge a statewide agenda for accelerating social entrepreneurship with specific roles for leaders of each sector. According to the Phoenix Project’s Founder Greg Werkheiser, “With the visible involvement of our government leaders, we are creating the conditions necessary to make Virginia a destination for social entrepreneurship and for effective solutions to the problem of poverty.

Set policy to enable and encourage social entrepreneurship

6. Strive to set policy and remove barriers in order to encourage social entrepreneurship and scale success.

Policy makers and leaders of government agencies at all levels can strive to set policies that encourage social-entrepreneurial behaviors, while ensuring that current and future policies and procedures do not present unforeseen challenges. As David Eisner, CEO of the Corporation for National and Community Service, explains, “Social entrepreneurs are constantly pushing up against artificial barriers. Teacher certification, social-service certification, volunteer-manager certification—all end up preventing social entrepreneurship and limiting scale and innovation as it relates to solving the problem.”

Model: SBA Office of Advocacy
The federal government passed the Regulatory Flexibility Act in 1980 to systematically review the potential impact of new regulations on entrepreneurs. The law mandated the Small Business Administration’s Office of Advocacy to “measure the costs and impacts of regulation on small business” of any new federal regulation prior to implementation. While the law does not require that regulations favor or support small business, it does ensure that agencies are aware of their potential encouraging or chilling effect on entrepreneurship before their passage. As the Office of Advocacy explains in its guidelines to federal agencies, “Without the necessary facts, it is possible for an agency to cause serious unintended or unforeseen adverse impacts on small businesses.

7. Explore tax structures to enable new organizational forms.

In the early twentieth century, Congress created a variety of 501(c) tax categories, enabling the existence of nonprofit organizations exempt from some federal income taxes. The creation of this new organizational form, and the establishment of tax deductions to encourage donations to such organizations, set the stage for the development of a vibrant nonprofit sector, whose workforce now makes up 10.5 percent of U.S. jobs.

Today, as social entrepreneurs demonstrate successful solutions regardless of organizational form, they increasingly blur the lines between the nonprofit and for-profit sectors. New tax structures, leading to possible new organizational forms, could help to encourage social innovation, while lending confidence that could spur greater philanthropic, private, and public investment in the development of sustainable models.

One example is the for-profit organization Outside The Classroom, which seeks to reduce alcohol and drug abuse on college campuses through an innovative Web-based curriculum for college students. While the company has recently begun generating a profit, its start-up phase proved particularly challenging. The organization was started as a nonprofit, but found itself turned down by dozens of grant makers. It then decided to become a for-profit organization and find “patient capital” from socially motivated investors who were willing to wait for profits while the market was developed, or accept below-market returns, in exchange for social impact. A new tax structure—or revisiting of 501c guidelines--could make it easier to adopt the core characteristics of social entrepreneurship and support companies like Outside The Classroom, which fit somewhere between traditional nonprofits and traditional businesses.

Model: North Carolina’s Low-Profit, Limited Liability Company (L3C)
In the 2007 session, North Carolina State Senator Jim Jacumin introduced the “Endangered Manufacturing and Jobs Act,” in an attempt to support North Carolina’s furniture industry, which has suffered in recent years as a result of global competition. A key element of the bill is the creation of a new organizational identity, the Low-Profit Limited Liability Partnership Company (L3C). L3Cs could generate modest profit, while pursuing charitable or educational aims. The new tax structure would make it much easier for foundations to make use of a little-used but already established vehicle—called Program-Related Investments (PRIs)—to invest in for-profit initiatives aimed at addressing social problems. In the case of North Carolina’s furniture industry, the existence of an L3C structure would greatly simplify the process of accepting philanthropic funds to aid in the purchase and revitalization of the state’s ailing furniture factories.

Robert M. Lang, Jr., chief executive of the Mary Elizabeth & Gordon B. Mannweiler Foundation, which developed the idea for the L3C structure, says that the idea is taking off in other states as well: “Vermont’s House of Representatives has passed a bill that would create the new designation, pending approval by the state senate. Backers are also trying to get legislation passed in Georgia, Michigan, Montana, and North Carolina." UPDATE: L3C legislation signed into law in Vermont. Click here for the bill's full text.

8. Open earmarked funds to competitive processes.

The federal government’s fiscal year 2008 spending bills included $18.3 billion worth of earmarks. This controversial federal budgeting practice designates funds for a wide variety of specific projects and initiatives—including some aimed at addressing social problems—without employing competitive processes to guide decision-making. Often, these earmarks are given to one entity for decades. By opening up earmarked funds to competitive processes administered by relevant government agencies, government could use these existing resources to seek out innovative, effective, and sustainable programs that government may not currently be aware of. This would also help to ensure that tax dollars are spent wisely.

Model: U.S. Dept. of Education’s Office of Special Education Programs 2007 Funding
In 2007, the Department of Education’s Office of Special Education Programs (OSEP) received $12 million in federal funding for special education, which had previously been allocated to one organization, through earmarks, for more than 15 years. OSEP opened up the funding to a competitive process, which enabled the agency to seek out the best solution based on the original purpose of the earmark: to make printed materials available to students with print disabilities—including blindness, low vision, severe dyslexia, and mobility impairment that prevents reading a traditional printed book. As Lou Danielson, a former OSEP division director, explains, “Lack of competition tends to stunt innovation and growth, particularly for the people who get the funding for long periods of time. Ultimately, it serves no one well.”

OSEP issued a call for proposals and administered a peer-review process that resulted in a 5-year, $32 million award to Benetech’s Bookshare.org, an organization OSEP had not been aware of previously. Bookshare.org was already the world’s largest accessible library of scanned books and periodicals that can be downloaded to be read as Braille, large print, or synthetic speech. OSEP funding has enabled Bookshare.org to build and improve upon a successful model and greatly increase its impact with students in elementary, secondary, and post-secondary schools. The organization is in the process of adding 100,000 new educational materials to its library. It is also coordinating with state education agencies, schools, and publishers to identify new content, and to provide that content at lower costs, for qualified disabled students.

9. Allocate a percentage of agency budgets toward encouraging innovation.

Reallocating just a small percentage of an agency budget to make room for experimentation can spark enormous social innovation. As Chris Gabrieli, chairman of the education think tank Mass2020, explains: “Think of social entrepreneurship as a way to create an R&D portfolio of innovative solutions to troubling social problems, by intentionally allocating a small portion of already-dedicated public financing for innovative proposals that are very goal-oriented and willing to show transparently how they do what they do. This would be a way to see if they can benefit the whole field, and it would open up a space for social entrepreneurs to operate in sectors that previously have had little room for innovation.”

Model: Charter Schools
One of the most widespread examples to date of government encouragement of social entrepreneurship can be seen in the development of charter school policy—the use of public school financing to encourage the development of new schools that exercise increased autonomy in their programming, in exchange for increased accountability in terms of academic results and fiscal practices. According to Gabrieli, “Charter school policy opened the door for literally hundreds of social entrepreneurs to try their hands at making a difference on the achievement gap. It has created thousands of schools, ranging from extraordinary successes through mediocrity down to abject failures, with experimentation and learning all along the spectrum.” Among the social-entrepreneurial initiatives leading this movement are KIPP schools, Uncommon Schools, and Achievement First—all of which have demonstrated an ability to outperform their traditional public school counterparts in math and reading achievements among the most at-risk students.

States took the first step in enabling this new form of public school that has fostered greater experimentation and innovation. The first state to pass a law to enable the existence of charter schools was Minnesota in 1991. By 2004, 40 states, in addition to the District of Columbia and Puerto Rico, had passed charter school laws, with more than 3,000 schools operating nationwide in 2004–2005, serving over 700,000 students.

Develop and leverage financial and non-financial resources for social entrepreneurship

10. Seek partnerships with foundations and corporations to support social-entrepreneurial endeavors.

Government can leverage public dollars by partnering with foundations and corporations to support social-entrepreneurial initiatives. Seeking partnerships with foundations and corporations can allow government to test new ideas within a constrained resource environment, while providing foundations and corporations access to entire systems, such as education. Such partnerships would also aid in raising awareness of a specific social problem, while engaging the expertise of stakeholders in the nonprofit and private sectors. Often, such projects are the only way to embark on new, resource-intensive initiatives, given the limits of existing government resources.

Model: Wallace Foundation partnership with Chicago and New York City
The cities of Chicago and New York have recently committed to ensuring that as many school-age children as possible—especially those most in need—have access to programs offering before- and after-school learning and enrichment opportunities. City agencies in both cities have partnered with the Wallace Foundation for support in planning and funding the development of city-wide networks of out-of-school-time programming. In Chicago, Wallace is working with AfterSchool Matters (ASM), which was created by the city to expand out-of-school-time programming. In New York City, Wallace is working with the Department of Youth & Community Development, which created a new funding stream that provides resources to programs that demonstrate adherence to quality standards and tailors its offerings to the needs of particular age groups.

In both cases, Wallace has provided significant funding to develop business plans as a means to engage public and private leadership, gather necessary facts, and map out the actions necessary to achieve sustained, citywide impact. Based on its assessment of the quality and feasibility of business plans, the foundation has made substantial multi-year investments to build data tracking systems, develop quality standards, and provide additional operational support. All of these investments would have been difficult to fund with government resources, given so many competing priorities.

11. Create a public-private social innovation fund.

A public-private social innovation fund can leverage taxpayer dollars with private funds to make resources available for funding social-entrepreneurial solutions. Creating a fund specifically designated to advance social entrepreneurship would enable government to follow a performance-based model for investment, not unlike venture capital funds, to both seed and scale initiatives. Two related models show how such a fund could work structurally and operationally.

Model: Small Business Investment Company (SBIC)
The Small Business Administration (SBA)’s Small Business Investment Company program provides an example of a fund that mixes public and private funding; it exhibits how a public-private social innovation fund might work structurally. The SBIC program seeks to make investment capital available to help start and grow small businesses that are not yet eligible for venture funding. In 2005, the program dedicated more than $23 billion in small business entrepreneurs—with $12 billion of that funding representing private capital. To do this, the SBA selects investment firms that are already skillful at managing funds for a particular audience and offers them a 2 to 1 match for funds privately raised. Once the investment capital is raised, the firm manages the fund, makes investments, and reports back to the SBA on its progress in reaching specific performance measures including providing a financial return on the SBA’s investment in the fund.

Model: Venture Philanthropy & Social Venture Capital
In the nonprofit sector, two approaches to funding for-profit and nonprofit social-entrepreneurial initiatives have emerged over the last decade; they show how a public-private social innovation fund might operate. The first approach, known as venture or engaged philanthropy, combines long-term grant making support with management assistance for nonprofit social entrepreneurs. The second, known as social venture capital, makes debt and equity investments to for-profit organizations focused both on social impact and financial return—sometimes called a “double bottom line.” Venture philanthropy and social venture capital borrow heavily from the private sector’s venture-capital practices, where initial investment decisions are typically measured against the organization’s past history, leadership, and a business plan that provides a clear roadmap of the next 3 to 5 years of growth, with clear targets to measure success. Whether such investments take the form of philanthropy, debt, or equity, they are typically made over as many as 3 to 5 years, with the expectation that if the organization meets its targets, it can expect re-investment for continued growth. The money is completely unrestricted, invested in an overall plan rather than a specific program.

Among the most prominent philanthropy groups operating this way are Ashoka, Atlantic Philanthropies, The Blue Ridge Foundation, Draper Richards Foundation, Echoing Green, Edna McConnell Clark Foundation, Great Bay Foundation, New Profit Inc., Robin Hood Foundation, Roberts Enterprise Development Fund, the Skoll Foundation, Venture Philanthropy Partners, and the Wallace Foundation. Some of the best known social venture capital groups include Acumen Fund, Good Capital, Investors Circle, and the New Schools Venture Fund. (The latter actually provides both grants and investment to nonprofits and for-profits in education.) In just the past 18 months, super-growth funds have emerged that act much like investment banks. Such funds include Growth Philanthropy Network, Nonprofit Finance Fund Capital Partners, and Sea Change Capital, which was started by former Goldman Sachs executives.

12. Coordinate volunteer resources to scale solutions.

The use of volunteers is a core component of nearly every successful social-entrepreneurial organization that has reached widespread national scale. This virtually free resource allows models to leverage human capital. City Year, Habitat for Humanity, and ITNAmerica figure among the many national organizations that rely heavily on volunteers to provide value and solidify a sustainable model.

The federal government already leads several programs—Americorps, VISTA, and Senior Corps, to name a few—that direct volunteers toward individual organizations and program sites. In addition, colleges across the country also have established volunteer programs. Social entrepreneurs seeking to scale their models could receive a further boost from government and colleges if these programs can commit volunteer resources on a larger scale, to support scaling solutions that work.

Model: ReServe
The New York-based nonprofit ReServe has developed a novel approach to volunteer coordination that could serve as a model for government. The organization acts as a placement service, which manages a reserve of skilled retirees interested in stipended volunteer positions in nonprofits and government agencies. ReServe has contracts with more than 100 nonprofits in New York City. Organizations seeking volunteers can call on ReServe to help match their needs and coordinate the placement of volunteers. While matching volunteers with opportunities is not a new idea, the organization currently has contracts with the City of New York and the City University of New York to fill a total of 170 slots, thus significantly supporting the stability and growth of these organizations. Positions with both are wide ranging. For the city, ReServe is placing lawyers, social workers, writers, organizational management consultants, and community relations experts. For CUNY, the organization is providing mentors, small business advisors, photographers, writers, and human resources professionals.

13. Establish a National Social Innovation Foundation.

A National Social Innovation Foundation would make social entrepreneurship a national priority. A very small percentage of the federal budget could create a sizeable pool of funds for advancing social entrepreneurship, while paving the way to make America a leader in this area for the twenty-first century and beyond. Federal agencies could all contribute toward National Social Innovation Foundation funding. Such funding would be an extremely valuable way to spark innovation, establish a research agenda, and scale solutions. It would also support collaboration across sectors and agencies, such as the Department of Health and Human Services and the Department of Education.

Model: National Science Foundation
The National Science Foundation is tasked with “keeping the United States at the leading edge of discovery in areas from astronomy to geology to zoology.” The federal agency serves as the largest source of federal funding for research in the sciences. A portion of this funding prioritizes “‘high-risk, high pay-off’ ideas, novel collaborations and numerous projects that may seem like science fiction today, but which the public will take for granted tomorrow.”