In 2008, Bill Gates stood up at the World Economic Forum and gave a speech essentially saying that charities and governments cannot solve the world’s problems alone. He called for a new creative capitalism and the entrance of the private sector (businesses and innovation) into the work of caring for others. These are exciting times.
Businesses are having to change ways and explore better ways of pursuing interests. The new fad is corporate social responsibility (CSR). I long for the day when companies have no CSR departments because social responsibilities and social aims are so interwoven into their mission and actions and operations and vision and strategy that it is every (by giving it no place, it occupies every space). Please take a moment and watch this 5 minute video called We First. Why is it that we make money in the first place? Is it just profit for profit’s sake? Watch the video.
Someone was criticizing me recently saying that I don’t believe in for-profit work or working for for-profit entities. They asked me “how do you think non-profits function?” “Where do you think non-profits get their funds from?” So I want to introduce the simultaneously ancient and emerging field of social enterprises.
So what is a social enterprise? A social enterprise is a socially-oriented business venture created to solve a social problem or market failure through entrepreneurial private-sector approaches that increase effectiveness and sustainability while ultimately creating social benefit or change. But that’s a somewhat technical and long definition.
In simple terms a social enterprise is an organization that uses business models (like a for-profit company) in order to achieve social aims (like a non-profit). For-profit companies deal with a bottom line. Social enterprises often deal with what’s called a double-bottom line (people and profits) or a triple-bottom line (people, environment, and profits) instead of the traditional bottom line of profits. Social enterprises can legally be classified as for-profits or even non-profits. The legal classification doesn’t actually matter. What matters is that they have some means of a revenue-generating streams to propel the organization towards its aim and mission.
Now there are many benefits to working as a social enterprise instead of a traditional non-profit. I’ll list a few below. This is not a comprehensive list.
1. Traditional non-profits often depend on grants, contracts, funds, and donations from the private sector, the public sector, and private individuals. Social enterprises have their own means of generating revenue so donations and grants and fund raising becomes supplementary or optional.
2. Social organisations working in community or international development often deal with the problem of people not valuing the service or product provided because it’s free. By charging a fee for it, it creates a sense of value and a sense of ownership by the person who worked hard for the money to purchase the service or product. This often leads to better care of the service or product and ownership over its maintenance. However, if the price is set too high, the business pricing model becomes a hindrance or prohibition to those who desperately need such services.
3. Social enterprises have the potential to be more sustainable than traditional non-profits. This does include financial sustainability (#1), but it goes beyond that. Especially in community and international development, this includes the sustainability that comes from building the capacity in the community’s people to do the work. Social enterprises provide opportunities for jobs due to the revenue generation. This gives opportunity for training, and if it goes well enough, possibly expansion in other locations.
So to review, social enterprises have social aims.
Social enterprises create value.
Social enterprises are agnostic about legal form.
The "S" (social) drives the "E" (enterprise).
Now there are many ways to be a social enterprise and many companies claim the title (because there are certain benefits if people view you as a social enterprise). The differences in types of social enterprises depend on a few criteria:
1) How good is the social good you are producing? (an organization can be socially neutral or socially evil)
2) Do you directly produce the social good or do use the profit from some other economic activity to then do social good? (social good from product/service or social good from use of profit)
3) Is your social aim placed on par with or ahead of your profit aim?
4) Do you generate all of your revenue alone or do you supplement it with donations and fundraising and grants?
Let’s look at how John Rougeux categorises the nuanced spectra of organizations. I’ve added italicised examples of organisations that fit into some of the more positive categories.
Above is the old school way of dividing organizations: for-profits and non-profits, or businesses an charities. Non-profits help social problems, for-profits make money. An easy categorization, but hardly accurate, and certainly outdated. It’s also makes a dangerous assumption, that the good created for society is most easily judged be assessing an organization’s tax status. This paradigm assumes that there is no overlap between the two (i.e. all non-profits create more good for society than all businesses). The world isn’t that simple, and below is a more accurate depiction of how organizations might be categorized (click the image for an enlarged version):
At the left hand side of the spectrum are entities that harm society, and to the right are organizations that seek social good for society. For the purposes of this illustration, “social good” is the generally positive intent of an organization’s product or service, or the positive outcome sought from the way the product or service is delivered. Favorable results that stem from job creation, economic growth, etc. are not represented here.
These categories don’t imply that a business or charity is either “all good” or “all bad”, either; there are bright and ugly sides to any organization, but these nuances can’t be included here. Instead, this spectrum ranks how actively each type of organization generally seeks to better (or worsen) society.
For-Profit (Active Social Ill) – these are companies that actively harm the world through their actions. Thankfully there are few of these, but Girls Gone Wild is a good example. Sorry, no link included here.
For-Profit (Social Ill from Company) – a business that harms society through the way it runs itself falls into this category. A shady mortgage company certainly fits the bill. A company that packaged, sold, and traded sub-prime mortgages would fall into this category as well.
For-Profit (Social Ill from Industry) – these are entities that operate in an industry in which unwanted social outcomes are generally unavoidable. Coal mining, for example, provides a needed product, but no matter how it’s done and no matter how coal is used, it harms nature.
For-Profit (Neutral) – a business that doesn’t actively harm society, but doesn’t go out of its way to improve it, could be defined as neutral. A large number of businesses would fall into this category, like a local car dealership or a hedge fund.
For-Profit (Social Good at Discretion) - it’s not uncommon for a large corporation to develop its own foundation to make grants to other non-profits, and that’s how these businesses would be categorized. This is ranked lower than other categories, because donations are not necessarily tied to sales or the behavior of customers. The Hewlett-Packard Company Foundation and the Dell Foundation are two examples.
For-Profit (Social Good from Revenue/Social Good from Profit) – companies like Patagonia and Newman’s Own pledge a minimum percentage of revenue or pre-tax income towards causes. These arrangements directly link the success of the company with donations to charities. Another example is my church’s coffee shop Ebenezers Coffeehouse in which 100% of the profits go towards fighting human trafficking, economic empowerment, housing, orphanage projects, etc. Ben & Jerry’s Partnership Program fits into this category. They allow non-profits to run fee-discounted/free franchises and employ youth in jobs through this effort.
For-Profit (Social Good from Product) – this is a gray area, but there are certainly some businesses whose products are genuinely designed to improve people’s lives. A medical device company, like Medtronic, fits this bill. A new friend, Kohl Gill, runs Labor Voices, a group that rates and reports on working conditions and factories overseas and then sells this information to companies like a Nike or a Sprite so that they don’t employ such factories and the employers have to shut down or change their ways.
B-Corp (Social Good Before Profit) – these are a more recent creation, but more and more business are created with the intention of a double- or triple-bottom line, in which social outcomes are placed on par or even before the pursuit of profits. Better World Books is a good example of this. The Body Shop’s environmental, pro-animal, and fair-trade work is another example. Ben & Jerry’s is another example.
Non-Profit (Advances Culture) – organizations like the art museums, opera houses, performance centers, and the like all seek to improve society, and in general, the more of these, the better.
Non-Profit (Corrects Social Problems) – these are charities that seek to feed the hungry, house the poor, heal the sick, and so on. It would be difficult to make an argument that these types of organizations don’t deserve their own place at the far right of the spectrum.
There are a number of social enterprise/entrepreneurship conferences, workshops, competitions, accelerators, and incubators. These events and groups are helpful to social enterprises at different stages of development. One of the most difficult developmental points is initial funding or seed funding. So there are groups like incubators or accelerators that were established to help aid the launching of social enterprises. They locate and work with social entrepreneurs and organizations, help formulate a business plan, provide seed funding, help form a board, create a long-term sustainability plan, help locate partners and networks, and then set the enterprise off on its own hopefully to succeed and thrive. A few incubators, accelerator programs, competitions, and conferences are listed below.
Socap (biggest social enterprise conference I know in the world)
Ashoka Changemakers (their competitions)
Praxis Labs (accelerator program)
And the list goes on and on and on. . .