Social good start-ups can jump-start job creation

During the COVD-19 pandemic, most countries have experienced widespread unemployment and serious physical and mental health problems.

While government action to alleviate the crisis has been a lifeline for many, a new study has shown that social venture start-ups were an important and successful initiative mostly ignored compared to the focus on private sector commercial start-ups.

The study by Martin Obschonka Director of QUT’s Australian Centre for Entrepreneurship Research, and its founding director, Professor Per Davidsson, along with collaborators from Sweden published their paper entitled “The regional employment effects of new social firm entry,” in Small Business Economics.

The study compared regions in Sweden in terms of their social and commercial start-ups between 1990 to 2014 and their net job creation effects in each up to eight years after they entered the market.

Obschonka and his colleagues argue that social venture initiatives can be an important job creation strategy that has been overlooked by policy makers.

“It has long been acknowledged that the entry and growth of new firms contribute a large share of job creation in most countries. Social venture start-ups, however, are mostly celebrated for their worth in helping the disadvantaged or solving social concerns — their role in job creation has not really been considered,” said Professor Obschonka. He goes on to say “ using an established method for tracking direct and indirect job creation effects across 67 regions in Sweden over an eight-year period from start-up entry into the marketplace, our findings show the average job creation effect per firm was larger for social start-ups than for their commercial counterparts. Job creation is often a major focus of the social mission of these start-ups, especially for marginalised groups including people with disabilities and long-term unemployed individuals.”

Per Davidsson argues “There appear to be a number of reasons social ventures create more jobs. First up, most ‘commercial’ start-ups represent individuals choosing self-employment which can mean they have no burning desire to grow and take on employees.” He also argued “Commercial start-ups also often operate in crowded markets with little room for growth. So even the high growth firms among the commercial category do not raise the average to high levels; partly because they out-compete or acquire some of their peers. By contrast, social ventures address under served ‘markets’ of social problems, such as homelessness, substance abuse, domestic violence, refugees, environmental concerns, animal shelters, foodbanks, crisis centers, youth unemployment and so on. This creates room for growth without pushing out other social ventures. And being passionate about solving as much of ‘their’ social issue as they possibly can, social entrepreneurs are motivated to grow. They can also benefit from lower costs due to tax breaks and partial reliance on volunteers to have a growth advantage over commercial firms offering competing products or services.”

In conclusion, the study emphasizes that governments would be wise to consider that relying on traditional private sector commercial start-ups to jump-start the recovery from COVID-19 ignores the opportunity to see social venture start-ups as an important strategy.

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