When starting and running a social venture, social entrepreneurs simultaneously pursue the creation of social and economic value. In this study, we introduce the notion of “the social entrepreneur’s dilemma,” that is, social entrepreneurs’ strategic choices that lead to more economic value appropriation tend to negatively affect social value creation, and vice versa. We focus on two choices related to the fundamentals of business strategy: competitive scope of activities and source of competitive advantage. Using a unique panel data of charter schools in Texas (1997-2007), we find evidence that both a broader scope and a differentiation strategy improve a school’s social value creation (academic performance), but reduce its economic value appropriation (economic performance). The trade-offs from the opposing effects become even more pronounced in a more turbulent environment: the positive impact of differentiation on social value creation would vanish, whereas the negative impact of scope expansion and differentiation on economic value appropriation would increase even further. Our findings provide insights on how theories of strategic management and the public and nonprofit literature can illuminate the challenges of value creation and appropriation in social entrepreneurship.
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