Lessons from Microfinance for Social Entrepreneurship Theory : The Life Cycle of the Social Enterprise

Management theory has examined static concepts at the level of the social entrepreneur and of the social enterprise. In this contribution, we examine the work of the social entrepreneur at the unit level and the social enterprise at the organizational level. Based on the exemplar of microfinance, we make propositions for a dynamic theory explaining the evolution of the idea with the social entrepreneur to creation, development and transformation of the social enterprise as well as shakeout in the industry concerned. We posit that Social entrepreneurs are able to induce owners of other factors of production to work at lower than market rates, in a legitimate fashion, by effectively selling a story that they are doing more good to a disenfranchised aspect of society than commercial enterprises, and compelling innovative action to solve a social problem through a shared dream. The dream ends when the social entrepreneur shows visible evidence that they have made enormous financial profits without being able to visibly demonstrate that social impact has also been enormous. We suggest a possible divergence in the growth stage as a section of firms turn commercial. Some of these former social enterprises are going to suffer crisis in the shakeout stage owing to mismatch between their new financial goals and stakeholders old social expectations. We lay nine proposition and other directions for future research