Conduct good business and promote social good at the same time? What a concept! Today it’s called “social entrepreneurship.” And it’s an increasingly popular way to do business.
To some, this is an unfamiliar term for a somewhat familiar idea: using entrepreneurship, innovation, and passion to drive social change.
For a social entrepreneur, a business venture isn’t exclusively about profit. It’s more about social impact (although you need revenue to make that happen). In this business model, most of the profits are put back into the enterprise, to expand capacity and deepen impact.
Social enterprise is fast gaining traction at the micro-business level as our workforce becomes more globally connected. Also, a connected world has given even the smallest enterprises opportunities for global commerce that never existed before, and everywhere problems are getting solved at the community level. Corporations are also stepping up in interesting new ways.
So, who are the social entrepreneurs, and how are they impacting lives and communities? And how could you become part of this mass migration toward shaping business for social equity and the common good?
What is a Social Enterprise?
A social enterprise is a business with two bottom lines: profit and social impact.
These enterprises are generally mission-focused, built to impact a specific social, environmental, or social problem.
Many social enterprises strive to link their impact goals to one or more of the United Nations 17 Sustainability Development Goals (SDGs). The list of UN goals articulates a worldwide push to end poverty, create educational opportunity, make healthcare available to all, and promote gender equity. It also includes climate action, workforce development, and building economies that support prosperity and peace.
Profits generated by social enterprises funnel directly back into the organization, to bolster its existing programs or help it branch out to create more initiatives that further its social mission. Innovation is highly prized, leadership may be decentralized, and small, local social enterprises can be surprisingly nimble and sustainable.
Who Are the Social Entrepreneurs?
Social entrepreneurs are people who design and create a self-sustaining business for the purpose of making a social impact. They see themselves as part of a broader movement and seek to – as the Social Enterprise Alliance states on its website – “create a new, equitable economic norm” that includes all citizens, with nobody left out.
Unsurprisingly, many millennials aspire to be social entrepreneurs, with Gen Z slowly falling in line as they begin to enter the workforce. To these generations, adopting new technology and appreciating innovation come as easily as breathing. Combined with a heightened sense of global responsibility and a much greater awareness of social issues, it’s this group that seems to be most driven to mold their careers around social good.
Some social enterprise founders and leaders start out in the nonprofit world and bring their world-changing ethos into the for-profit social enterprise model.
Additionally, some nonprofits have a social enterprise attached to them, including some prominent ones. The Chicago Lighthouse (formerly The Chicago Lighthouse for the Blind) is a well-known example. It is a hybrid nonprofit/social enterprise. The organization has served the visually impaired and other handicapped people for more than 100 years. For most of that time, their social enterprise arm has provided employment, and thereby independence, for thousands of visually impaired people and others who have trouble getting jobs.
Another faction of the social enterprise movement can be found within regular for-profit businesses that make individual choices to influence social change – like choosing to hire from populations with “barriers to employment,” such as physically or mentally challenged or formerly incarcerated people.
Becoming a Social Enterprise
Think you want to start a social enterprise or reframe an existing dimension of your business to focus on a social issue? Maybe you realize you’ve been in the category all along and that you could get certified. Here’s how to approach it.
Establish Your Purpose
Social enterprises usually focus on a single objective. So what’s yours? It must be a social, cultural, or environmental challenge that you feel you can impact in your own community.
For example, let’s say your hometown has a large number of students who age out of youth programs and have difficulty finding jobs, leaving them with no support once they graduate from high school. This is a social problem that you are confident you can address.
Once you have identified your challenge, outline your solution.
Working with our example, you decide to open a coffee shop on a Main Street that is walkable and accessible to juniors and seniors in a nearby high school. You hire heavily from this population, giving them both hard and soft skills while they also earn an income.
Work like that produces results that you can measure. Impact.
So, define your area of impact carefully. It is the one thing you will become known for first, before you even think of branching out into other lines of business.
Write It Down
The mechanics of getting started is much like that in any other business. You’ll have to develop a solid business plan that outlines the services you will offer; provides market analysis, financial projections, and staffing structure; and makes clear how you expect to meet your social goals.
You will also need to decide on the legal structure of your business. A social enterprise is a for-profit entity. While often a standalone business, a social enterprise can also be the revenue-earning subsidiary of a nonprofit.
Questions to consider: Will you become a B Corp or a Public Benefit Corporation? (PBC) and develop a working board? Will your funding model be a mix of earned income and donations? Will you pursue grant funding? Do you intend to own property? Will your directors be paid or volunteers?
These are questions you and your team will have to have the answers to before you set up shop.
Implement Your Solution
After firming up your concept and business plan, it’s time to put that plan into action. Your business plan outlines the steps needed to get started; it “operationalizes” your enterprise. This includes identifying funding, choosing the jurisdiction in which to operate, and outlining the organizational structure.
Then you’ll need all the legal stuff:
- articles of incorporation, declaring your business structure (e.g. LLC, B Corp
- a business license with your state state
- an Employer Identification Number (EIN) from the IRS
- an operating agreement, laying down everything from who will manage the operations of the business (leadership and hierarchy) to the legal agreements between collaborators and key employees
Get Certified
The accepted method to prove you’re an established, proven social enterprise is through third-party certification. In the United States, a wide range of certifying organizations like Society Profits assess an organization. Among other criteria, they seek to determine the organization’s:
- commitment to its stated issue
- ability to operate independently
- the veracity of its plan to reinvest most of its profit into the business, and
- whether it can demonstrate having made an impact on the community it serves
If your business fits the bill, you can elect to become a USA Certified Social Enterprise.
How You Can Get Involved
You don’t need to establish a social enterprise from the ground up to get in on the movement.
According to David Gaines, Chair of the Board of the Social Enterprise Alliance, the practice of social entrepreneurship can be applied to any business model. He argues that “all businesses, in their most pure version, are social,” and that we should reframe the idea of the social enterprise “as a journey rather than anything else.”
Gaines points out that it’s quite possible to work within your current means to support your community. One way is to partner with existing organizations that are already having demonstrable impacts. For example, if your goal is to provide opportunities for at-risk youth in your town, then partner with organizations that are already working to connect that demographic with paid work opportunities. You can provide jobs to some of their constituents – and have as big, or a bigger, impact than you might have made on your own.
Gaines emphasizes that making impact can be even simpler than that. Consider how your products are sourced, from your employee’s uniforms to the packaging of your products – and make an environmental impact, right where you are. Or, provide your employees with a living wage and benefits, encouraging the change you want to see in the world. Hire competent workers from the disabled community, or people coming out of incarceration. There are many paths to impactful social entrepreneurship.
Frequently Asked Questions: an Interview with Jay Nwachu
We talked to A. Jay Nwachu, President and CEO of Innovation Works, Baltimore, and an adjunct faculty member at University of Maryland, Baltimore. We asked him to help us understand the distinctions of social enterprise.
How is a social enterprise different from a nonprofit?
The way I think about social enterprise is that the business plan generally is designed around a mission.
What is the social mission the enterprise is pursuing? What is the impact hoped for? Then, the business model is designed to be sure it’s optimized for that impact.
Also, as a social enterprise, you are not just solving a problem for a constituent group that’s outside of you. The people doing the work are also part of the mission. This is a big differentiator between social enterprise and traditional business – or even nonprofits. The entire model has to be full of equity.
What are some ways that an existing business can work social entrepreneurship values into its operation?
Existing businesses can work social values into their operation, and many do. There are different ways to approach it. Sliding scales? Ask some customers to pay more than others? That sometimes works. But take it a step further.
Some companies give a percentage of profits to social causes. If you look at Baltimore-based corporation Underarmour, the amount their foundation devotes to nonprofits each year is dependent on their annual sales. Other companies have a different commitment – and will give the same amount no matter how much they make that year.
There are many models. Buy one, donate one is another – for example, asking the customers who can afford $30 socks to essentially also buy a pair for a homeless person with their single purchase (thereby providing what is apparently the article of clothing most requested by people living on the street). Bombas has popularized that model.
From the nonprofit side, though, the idea of social enterprise is gaining steam because the for-profit model holds the promise of making organizations less dependent on the ups and downs of grant funding. Earned income can offer them more control over their budgets from one year to the next.
What would you say is the most important quality for a social entrepreneur to have?
Resilience. Flexibility. A real heart for mission. Think about the concept: “Do good…and be financially successful.” That creates a natural tension inside the U.S. capitalist model. But if you have a good understanding of both mission and money, and a willingness to live with the tension that lives inside that, you can succeed. In fact, if that tension is not showing up, something is wrong.
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