Social entrepreneurs in Germany: more than socially innovative

• KfW Research presents first study about young social entrepreneurs
• For 154,000 social entrepreneurs, social contribution matters more than earning an income
• Social entrepreneurs start up more often with new-to-market and technological innovations than the average
• They are more likely to need capital than other young entrepreneurs

For years, social and environmental engagement has grown in importance in the business community as well. In this context, ‘social entrepreneurs’ have increasingly moved into the public spotlight – entrepreneurs who, more than anything, want their business activity to make a specific contribution to solving a social problem or protecting the environment. KfW Research has examined the particular characteristics of young social entrepreneurs and their businesses with the KfW start-up Monitor for the first time. It has found that there are currently 154,000 ‘young’ social entrepreneurs in Germany at the helm of 108,000 businesses – 9% of all young entrepreneurs of the year 2017. All business founders of the past five years prior to the survey who are still in business are regarded as young entrepreneurs.

“Social entrepreneurs innovate in two different ways. Apart from seeking to make a profit, their social or ecological concern is firmly at the top of their target system, for which they forgo possible returns”, said Dr Jörg Zeuner, Chief Economist of KfW Group. “Besides, they often innovate in the ‘classic’ sense as well. Just under one third of young social entrepreneurs offer new-to-market innovations that were previously unavailable in their target market. One in four develop technological innovations of their own up to market readiness. That makes many of these social entrepreneurs indeed precursors of sustainable economic development.” By way of comparison, only a good one in eight of the other young entrepreneurs are active with new-to-market innovations (12%) and only one in nine of them work on developing technological innovations (11%).

The KfW analysis has also revealed that women and more mature persons are particularly likely to focus on a social or ecological concern. The share of female social entrepreneurs in the start-ups that have been active for up to five years is higher than the average (12% compared with 7% for men). And while 8% of the young entrepreneurs up to the age of 50 are social entrepreneurs, the share of over 50s rises to 14%. “Social entrepreneurs show that you can realise new plans even at an advanced stage of your working life. This, too, is a welcome trend given the demographic dynamics.”

“Young” social entrepreneurs and other young entrepreneurs also differ significantly in other ways:

• The majority of social entrepreneurs founded their business with the aim of putting in practice a particular business idea (60%; other young entrepreneurs: 49%). Social entrepreneurs are thus less “labour-market driven”, meaning they are less likely to start a business for lack of a better income alternative. Only 17% of them stated this motive as the main reason for setting up their business compared with one third of the other young entrepreneurs.
• Young social entrepreneurs are more likely to be team players. One in four work in a business team with others (26%), one third have employees (32%). Other young entrepreneurs, by contrast, are more likely to be solo entrepreneurs and less likely to have employees (19% and 25%).
• Social entrepreneurs are more likely to require capital than the other young entrepreneurs (75% vs. 60%), especially up to EUR 25,000 (58% vs. 48%). They are more likely to use promotional funds and alternative sources of funding such as grants from endowments, money from investors or from crowdfunding campaigns.
• Compared with other young entrepreneurs, social entrepreneurs are significantly more concerned with their business skills (23% vs. 33%). Very few differences exist, however, with regard to multiple other stress factors such as red tape or balancing work and family life. Providing targeted support to social entrepreneurs in acquiring business skills would therefore improve their chances of staying in the market in the long term.

The current analysis by KfW Research on social entrepreneurs is available (in German only) at: www.kfw.de/fokus

The database:
The current survey of young social entrepreneurs is based on the KfW Start-up Monitor, a representative survey of approximately 50,000 randomly selected persons domiciled in Germany. It covers a broad range of start-ups: full-time and part-time entrepreneurs, self-employed professionals and business owners, new businesses and takeovers. Social entrepreneurs are identified on the basis of the information they provide about the purpose of their business.