The Inevitable Emergence of Social Enterprises through Social Entrepreneurship

What is Social Entrepreneurship? Social entrepreneurship is the paradigm of establishing businesses that produce goods or services…

October 14, 2022

What is Social Entrepreneurship?

Social entrepreneurship is the paradigm of establishing businesses that produce goods or services for a given market while creating a positive impact on the environment around it with an emphasis on societal impact. A social enterprise, like any other business, does generate profit, but what makes a business a social enterprise is the prominence of the positive impacts on the cultural, communal, economic, and/or ecological environment.

Why be a Social Entrepreneur?

Social entrepreneurship at its core is no different from any other business. You are expected to make profits to ensure the sustainability of the business. However, a social entrepreneur has other motives that set them apart from traditional businesses that are merely profit-driven. Social enterprises use their profits to fund social causes that better the lives of a portion or the entirety of society. Social entrepreneurs typically work with marginalised groups who are excluded from or deprived of the benefits of the mainstream economy. They might be individuals who have undergone trauma, refugees of war, or victims of domestic abuse or violent crime. 

In almost all cases, a social entrepreneur will not set out to pick a group at random, but will pick one that means something to them, because they have a first-hand understanding of the plight of the sector of society that they set out to make better. A social entrepreneur might be someone who originally started as a non-profit organization that set up a business with the intention of generating resources that can be diverted back to society by supporting the organization’s social mission.  Those income-generating activities may be varied and may or may not directly include those that the social mission sets out to help.

Is Social Entrepreneurship a New Idea? Is it a Trend or a Fad?

The emergence of social enterprises at a higher rate than before might suggest that this is a new idea and that entrepreneurs are establishing themselves as trendy or merely following the latest fad, but if you take a deep dive into history, you will find that social entrepreneurship goes back at least two centuries. Among the earliest examples of what can now be called a social enterprise was created in the 1840s in the UK, when a worker’s co-operative was set up to provide affordable high-quality food as a direct response to the dire conditions in factories at the time.

The term “Social Enterprise” itself is believed to have been termed in the late 1970s by Freer Spreckley, considered the most influential author on the subject. His definition of a Social Enterprise was an organisation that is democratically owned and run, financially independent, and most importantly, has social objectives including environmental responsibility. 

More recently, 2006 Nobel Peace Prize laureate and founder of Grameen Bank Muhammad Yunus, in his book Banker to the Poor, defined a Social Enterprise as a non-dividend company created to solve a social problem. A social enterprise can be considered a hybrid of a charity – in that it has a social mission – and a business – in that it generates its own revenues to cover its costs. 

How Social Entrepreneurship works

Social entrepreneurs reinvest the money they make back by selling goods and services into their business or set it aside for the local community or specified marginalised groups. This model allows them to tackle social problems, improve people’s opportunities to get out of poverty or abusive situations, support communities, and even help improve the environment. When a Social Entrepreneur profits, society profits by definition. 

Entrepreneurs generally have one bottom line – profit. This is a clear cut number that is derived from subtracting all expenditure from revenue. Social entrepreneurs, on the other hand, endeavour to fulfil and enhance what is known as the Triple Bottom Line (TBL).

The following bottom lines are thus defined:

  1. Profit: The Traditional Standard. As discussed earlier, social entrepreneurs are concerned with making profits.
  2. People: The Growing Standard. As the human population grows and their needs expand, a social entrepreneur will aspire to serve everyone possible.
  3. Planet: The Growing Concern. This covers the concern for the environment and the impact of human activity on climate change and pollution.

While it may seem that social entrepreneurs directly compete with traditional non-profit organisations, it is better to look at the presence of social enterprises in the market as a powerful complement to their activities. Social entrepreneurs advance both their social mission and their financial sustainability. 

For startup companies – including nonprofit and for-profit – the social entrepreneurship paradigm provides the ability to combine the social impact and financial sustainability factors into the organisation’s building blocks from the very outset. For traditional established businesses, shifting into a social enterprise model would enable them to integrate their social mission into business operations and prioritise social goals alongside financial returns.

Social Entrepreneurship in contrast to Ethical Entrepreneurship

Social enterprises directly and actively integrate social aims with profits, either by incorporating business practices such as corporate philanthropy, equitable wages, and environmentally friendly operations or by performing business activities generally done by non-profit organisations. 

It is worth noting here the contrast between a social enterprise and an ethical business: A social enterprise centres itself around a social mission and uses commerce as a tool to maximise sustainability and impact. An ethical business centres itself around creating profit for its shareholders, but takes an ethics-based approach to issues such as the environment, trade practices, and community development. Social enterprises do not necessarily depend on philanthropy. They are self-sufficient and can be more sustainable than a non-profit organisation. This does not mean that Social Enterprises cannot be highly profitable; it simply means that when they are profitable, their priority is the reinvestment of profits into their social mission rather than pay out dividends to shareholders. A social enterprise’s primary purpose is its social and/or environmental mission – it tries to maximise the amount of social good it does against its financial goals. An ethical business, on the other hand, tries to minimise any negative impact it might have on society or the environment.

You may ask if this translates to shareholders getting nothing back from investing in a social enterprise. The answer is no, because as stated above, a social enterprise can be highly profitable, and shareholders will get a return on their investment, but a proportion of profits would go to the cause that the social enterprise champions.

Conscious Consumerism and its Impact

Today, people invariably try to purchase products or services from organisations whose values align with their own. The rise of “impact investing” and “conscious consumerism” incubate social enterprises’ development. 

By definition, social enterprises balance activities that provide financial benefits with social goals. They achieve this by integrating social causes with profit-making, riding an emerging contemporary trend that came about as a result of conscious consumerism – where consumers are more likely to think about the impact the product has on the world – and impact investment,  where investors look to invest in startups that make positive social and environmental change. The presence of social enterprises can now be seen in several spheres, ranging from global development, trading and financial institutions, community organisations, and even public policy.

Social Innovation and Social Enterprise

Social innovation and social enterprises often go hand in hand. J. Gregory Dees, Professor of the Practice in Social Entrepreneurship, often referred to as the “Father of Social Entrepreneurship Education” divided social enterprises into two main types in a paper co-authored with Beth Anderson as “Social Enterprise and Social Innovation”. Dees and Anderson explain: “enterprising social innovations…blend methods from the worlds of business and philanthropy to create social value that is sustainable and has the potential for large-scale impact.”

Social innovation is finding solutions to new or overlooked societal issues in a new and innovative way with the intention of making society at large better educated about such issues and to provide solutions that cater to the groups affected by the same.

Social Enterprises via Social Entrepreneurship

The concept of an entrepreneur has been defined in the 19th Century by French economist Jean Baptiste Say as “One who shifts economic resources out of an area of lower productivity and into an area of higher productivity and greater yield”. A similar view was presented by Joseph Schumpeter, who said “Entrepreneurs reform or revolutionise the pattern of production and are change-agents in the economy.” 

What we can distil from the above is that an entrepreneur brings about innovation that adds value, either to tangible goods or to society, in the case of social entrepreneurship. What this leads to is a “new and better way to address social problems or meet social needs”. In addition, social entrepreneurs explore innovative ways to solve social and environmental problems utilising business techniques and strategies. Social enterprises are formed with this foundation by social entrepreneurs to fulfil a business purpose and to solve identified societal needs through its commercial activities.

Social Enterprises’ Importance and Role in Society

More than ever, social enterprises are becoming an important part of the economy and of society in general. That they provide a workable solution to one of the main problems faced by not-for-profit organisations (charities) – dependence on grants and donations by either the government or the private sector – sets them apart. Social enterprises can provide a solution to more areas, even in societies who may not be as prone to make contributions to charities be it for economic or cultural reasons. It can be argued that in some societies, the fact that goods and services are provided for the money spent would entice more people to embrace social enterprises rather than charities.

As they are profit-based, social enterprises also have the potential to scale up and branch out faster than a charity to serve more geographical locations and more communities in need. This in turn would give social enterprises higher visibility, as their brand would be able to reach out to more markets.

Factors Impacting Social Entrepreneurs

The following factors impact the emergence of social entrepreneurs:

  1. Political environment: Political instability, conflict, civil unrest, etc. create the need for Social Enterprises, as there will be an increased need for their services as the number and size of marginalised communities increase.
  2. Economic environment: In areas with elevated levels of poverty and wealth inequality, Social Enterprises can provide necessary services.
  3. Legal environment: Regulatory frameworks or lack thereof in the country or jurisdiction may cause problems that require social enterprises to step in.
  4. Socio-Cultural environment: Whether the social enterprise will be hampered by cultural and/or religious factors needs to be assessed. In various cultures, people might be unwilling to take the services of a social enterprise as it might be perceived as a “hand-out”.
  5. Ecological environment: When there is a higher incidence of people suffering from the effects of high amounts of pollution and the drastic weather conditions caused by climate change, social enterprises can step in to provide services or supplies for them.
  6. Technological environment: Social enterprises are often the only way that some communities have to gain access to modern technology and to learn about their usage.

Depending on the above factors and their nature, these can be categorised into three types:

  1. The factors necessary for social enterprises to take root: These factors are the main cause of why a social enterprise would need to enter the market in the first place. It is often the case where social enterprises are the best solution to some issues that have not been addressed within a country or a region.
  2. The factors necessary for social entrepreneurs to emerge: These are the factors that allow social entrepreneurs to start social enterprises within the country or region. If the area has one or more barriers of entry, social entrepreneurs will hesitate to emerge.
  3. The factors necessary for social enterprises to mature and develop into an industry: The lifetime of the need for the social enterprise may be limited, but there may be a case for the long-term need for social enterprises, especially in an unstable region.

Social Enterprise Models

Social enterprises span the spectrum that includes not-for-profit to for-profit entities. Social Enterprise Alliance (SEA) recognizes three general social enterprise models.

Opportunity employment or Employment Model is where organisations employ people who have significant barriers to mainstream employment. They employ disadvantaged, or at-risk individuals at a fair wage and they try to break the cycle of poverty. They create opportunities for marginalised people and survivors of exploitation. 

Transformative Products or Services or the Innovative Model is where organisations create social or environmental impact through innovative products and services. They solve social issues by providing innovative methods. These businesses are based on a technology or service that has been fundamentally redesigned so that it is affordable to the poor. These products or services tend to be solutions that are both less expensive and more locally responsive. 

Donate Back or the Give-back Model is where organisations contribute a portion of their profits to non-profits that address basic unmet needs. While organisations based on this model are technically not social enterprises in the strictest sense, this model provides a way for traditional businesses to transition into social enterprises, and businesses that follow this model have been growing at a steady rate throughout the past few decades.

How a Social Entrepreneur can Achieve Sustainability

The sustainability of a social enterprise can be achieved by focussing and changing two features of an existing system — the economic actors involved and the enabling technology applied.

Socioeconomic issues frequently mirror an imbalance of power among the economic actors included. In order to achieve sustainability of a social enterprise, they add new actors to an existing system such as customers and government; customers will shift the power balance and government will alter the economics.

To impact change is to drastically improve technological innovation while leaving the current actors intact. Such improvement is accomplished in one of three different ways:

  1. Substitution – replacing existing technology with an option that is lower cost and / or gives higher efficiency.
  2. Creation – Innovating new technology to solve a problem (e.g. a new sustainable fuel source).
  3. Re-purposing – using technology typically used in a different context to solve an issue in an innovative way.

When starting a social enterprise, one needs to focus on how to incorporate social activities in a sustainable way. The following are some guidelines to do so, keeping the above key factors – Economic Actors and Technology – in mind.

  • Start big; then downsize it. Start big. Think about what your social enterprise can be in its largest scale or scope. Start to narrow it down into smaller scaled-down pieces. Afterward, focus on each fraction to ensure that everything works. Concentrating on smaller areas will help your startup by ensuring that all parts – big and small – work together as a single entity.
  • It is not an easy road, but it is rewarding. Building a social enterprise from the ground up is not an easy task, but you need to figure out how to learn and grow. The journey will be fraught with many challenges, but the Social Enterprise will need to be nourished along the way with a lot of time and effort spent on it. Professional bodies, not-for-profit organisations, and government bodies may provide guidance and avail you networking opportunities, but your experiences should be your main source of learning about the growth of your enterprise.
  • Be straightforward with your business idea. Pick an idea that works for you. Take some time to do a bit of qualitative analysis on that idea to see if it has the potential to succeed. Once you pick up an idea, you should not waver in your faith lest you lose focus. You have to ensure that your idea endures whatever happens.
  • Keep on reinventing and adjusting. Don’t stick to rules; rather, bend rules and re-purpose whatever fits you. If you are not willing to reinvent your enterprise at startup, you may miss out on opportunities down the line. Remember that it is much more challenging and costly to reinvent and adjust an already established enterprise.
  • Find the right investors and pitch to them. As a social entrepreneur, you should not be excluded from being invested in. Work on your pitch, polish it, and present it to investors you know have put down their funds in social enterprises or even those who are interested in investing in social enterprises as a part of their social responsibility. A good pitch with a great idea would even get those who are not initially looking to invest in a social enterprise to look your way. This is where comes in. We have a global network of investors looking for opportunities to invest in a wide variety of enterprises, and we have the tools to assist entrepreneurs to find their voice and get their dream investors.