The term “social enterprise” has been tossed around since the 1960s, but first really took off during the 2000s. It is thanks to 2006 Nobel Prize winner Muhammed Yunus and his Grameen Bank that social entrepreneurship has gained its place in the spotlight. Grameen Bank provides microcredit loans to low-income earners to encourage economic growth and foster financial self-sufficiency. Through it, Yunus showed that lending money to low income people to start businesses can both be profitable and transform their lives by raising them out of poverty.
While the term has certainly become more popular since then, the definition of social enterprise is still a hot topic at conferences and round tables around the world. In essence, there is a flurry of activity to come up with a universally accepted definition of social enterprise.
While opinions vary, it is generally believed that social enterprises are cause-driven organizations that serve the wider community and seek to improve the society through their business activities. Social enterprises use the power of the market place to generate social impact and change.
Impact over profit
A wide consensus also regards social enterprise as an alternative business model that prioritizes positive social impact and common good over profit.
A social enterprise typically generates profit but usually chooses to reinvest it in order to support its beneficiaries and increase its positive impact. Most social enterprises reinvest the majority of their profit/surplus in the fulfilment of their mission. This does not mean that they cannot be highly profitable, it simply means that their priority is the reinvestment of profits into their social mission rather than payouts to shareholders.
Social enterprise is somewhat of an umbrella term for a wide variety of unique initiatives. There are small organizations using entrepreneurial practices on one end of the spectrum; and big companies with a strong social or environmental code, who, for example, donate a portion of their proceeds to a cause. Some believe that, in order to be called a social enterprise, an organization’s core activities have to be strongly tied to a social mission. Some even believe a commitment to a social cause needs to be included in the organization’s formation documents, that the organization is a social enterprise only when it was created to address a social need. Many are agnostic on the legal form of a social enterprise as long as its primary purpose is socially-driven.
In addition to that, definitions vary across the world – which only adds to the confusion. For example, The Voluntary Code of Practice for Social Enterprise in Scotland believes that the term “social enterprise” should not be confused with private businesses that simply operate in an ethical way.
Social enterprises embed social impact into the very core of their business model. For them, social impact is the essence, not an afterthought. Even the incentives of a social enterprise are designed in such a way that greater positive impact directly correlates to a greater profit.
Catalysts for Social Change
Social enterprises, being a viable alternative business model, constitute a real catalyst for social change. Unlike nonprofits who rely on donations or grants to keep their doors open, social enterprises sustain themselves through their business activities. A social enterprise generates enough revenue to sustain themselves financially and has a steady stream of income, while seeking to create social value. Although profits are not the primary motivation behind a social enterprise, revenue still plays an essential role in the sustainability of the venture. They do this while, at the same time, offering solutions to major local or global challenges.
Social Enterprises vs. Non-profit vs. For-profit
It’s sometimes easier to understand the concept of a social enterprise in juxtaposition to nonprofit and for-profit organizations. A nonprofit organization primarily or only cares about coming closer to achieving its mission and increasing its social impact, and a for profit organization cares primarily about profit. Therefore, each one ultimately cares about one single bottom line: profit or social impact. In contrast, a social enterprise cares about both; it tracks both bottom lines. It sets KPIs for both things like marketing and sales, and social impact. Some even say social enterprises are pioneering the triple bottom line. The triple bottom line is a framework that incorporates three dimensions of performance: social, environmental and financial (people, planet, profit).
Sustainable, scalable, financially robust
Effective social enterprises are sustainable, scalable and offer financially robust and otherwise proven mechanisms for addressing social issues. Social entrepreneurs are usually individuals who try to drive social innovation in fields such as education, healthcare, agriculture, human rights and more. They are also usually accountable, transparent and inclusive. Social enterprises are at the forefront of economic recovery and growth, and they pioneer fairness and innovation.
Faced with, what can seem like an overwhelming number, of challenges and issues, our world is seeing a rise in the number of social enterprises. We see them outperform their SME counterparts in many areas of the world. Some experts predict social entrepreneurship is about to hit the tipping point.
Using the broad definition, 3.2 per cent of the adult population (18-64 years old) across 58 GEM economies is engaged in a social venture that’s in the start-up phase, with the highest rates of activity in Peru, Hungary and Burkina Faso. The average rate of post-start-up, operating social enterprises is 3.7 per cent of the adult population, ranging from 0.4 per cent in Iran to 14.0 per cent in Senegal. (Source)
Some attribute this growth and expansion to the cultural changes within our societies. For examples, Millennials and Gen Z are increasingly looking to work for socially responsible organizations. Even Baby Boomers are making late-career changes. Consumer awareness is also shifting, with more and more consumers looking to buy products and services from socially and environmentally responsible organizations.
Social entrepreneurship is increasingly supported by large organizations, governments, and businesses. Every day, social enterprises gain more access to capital and knowledge.
Social enterprises are demonstrating that it is indeed possible to do well and do good at the same time.
The future is exciting for social enterprise. And with social enterprises powering meaningful social change, the future of the world becomes brighter as well.