What is a Social Enterprise?
Enterprises for transformative change
Since 1980s, the concept of social entrepreneurship has gained tremendous momentum, especially among younger generations. Today more than ever, social values influence indeed people’s daily choices and habits – what to buy, where to work, how to live. The growing interest towards social impact lead to the rise of social enterprises. But exactly, what is a social enterprise? And how do such entities try to tackle and solve social problems? In this article, we provide answers to both questions.
Social Entrepreneurship briefly explained
Let’s start with the basics. We mentioned “social entrepreneurship” early on. Yet, we should align on its actual meaning. And one cannot dig into this topic without tacking a step back and first addressing the word “entrepreneurship“.
According to SSIR, entrepreneurship (for which a commonly agreed definition is still lacking) is comprised of three elements. To begin with, the entrepreneurial context, namely the industry or market an organization (or individual) decides to target and operate in. Secondly, the so-called entrepreneurial characteristics. In other words, the entrepreneur’s mindset and attitude, that allows him/her to identify a unmet need (“a suboptimal equilibrium”) and to directly intervene in order to fill in the gap. Lastly, the entrepreneurial outcomes, which include the new, stable equilibrium reached all stakeholders (i.e. customers, entrepreneur, etc.) can benefit from.
Simply put, entrepreneurship is about creating valuable solutions for a dissatisfied (or only partially satisfied) demand, remaining financially sustainable while doing so.
There is no widely accepted definition for “social entrepreneurship” either, but same core logic applies. What’s distinctive here is the particular kind of needs social entrepreneurs usually tackle: complex social problems. Through their activities, they contribute indeed alleviating societal issues and creating positive, transformational change in their communities and broader society.
So, what is a Social Enterprise?
Now, let’s move onto the next topic: “social enterprise“. As you might assume, the two concepts strictly relate one another.
According to Social Enterprise Alliance, social enterprises are those organizations that “address basic unmet needs and solve social (or environmental) problems through a market-driven approach“. So, they are entities using business tools to address a social need. If pure philanthropy and traditional, commercial for-profit are two opposite poles, the social enterprise spectrum is anything happening in between. This includes traditional non-profits running business activities on the side, as well as for-profit companies driven by a social/environmental motive.
Therefore, it comes as no surprise that social businesses are a particular subset of social enterprises. As a matter of fact, they are specific, non-dividend companies solely created for social or environmental purposes. Organizations having their own economic/financial sustainability, in which investors can recoup the money they initially put in but do not take any additional dividend.
Still, “social businesses” and “social enterprises” shouldn’t be confused nor used as interchangeable synonyms. In a recent article, Professor Muhammad Yunus clarified indeed that “in a rare case if a Social Enterprise produces no personal profit but only produces social benefits, such a social enterprise becomes the same as a Social Business“. So, social businesses are always social enterprises, but not the other way around.
In this article, we briefly explained what social enterprises are and how they relate to social businesses. The two terms shouldn’t be used interchangeably, as the latter is a subset of the former.
Nevertheless, what’s important here is to acknowledge the positive impact all such organizations try to generate. In fact, they bring social dimension into economics, embracing new hybrid models and constantly reducing the gap between traditional non-profit and purely profit-driven entities. As the field continues to evolve, we suggest keeping an eye on how policy-makers and legislative activities regulate similar socially-oriented organizations in your country. Hopefully, one day these enterprises will become the (new) norm!
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