Social enterprises contribute to our society by promoting an economic, social, cultural or environmental mission for the public’s benefit. The next generation of social entrepreneurs is on the rise, applying business strategies to achieve philanthropic goals through a non-government organisation (NGO) business hybrid. Below, we identify some characteristics of a social enterprise – what exactly they do, how they grow and scale as well as their purpose.
What is a Social Enterprise?
Although defining a social enterprise is a difficult task, they typically share the following:
- Possessing clear social objectives which serve and benefit the public;
- Acting as a not-for-profit with a surplus being reinvested (not distributed to shareholders);
- Taking a variety of legal forms;
- Having economic value that produces goods and services with elements of social innovation and addressing social needs, distinguishing themselves from corporate social responsibility; and
- An independent entity with a strong element of participation.
How is a Social Enterprises Funded?
Social enterprises address a social need through their products and services, attempting to bring change through their product and service offering. Both altruism and profit motivate these structures. A social enterprise relies on generating revenue while a traditional not-for-profit receives funding from grants. The ultimate goal is self-sufficiency through profit but also measuring the business’ success through Social Return on Investment (SROI).
What is its Purpose?
Social enterprise and social entrepreneurship highlight the idea that an individual can create change through one revolutionary idea. You may be familiar with social enterprises addressing the United Nations’ Sustainable Development Goals (SDG) to alleviate poverty, improve health care, training, environmental protection, governance and peace. A social enterprise is now fulfilling the role traditionally reserved for the public service, injecting social concerns into the private sector.
Importantly, these structures must educate the public through awareness campaigns about their product or service. That is, the public must know about a certain product or plight to determine whether they need it in their life. Here, it is important to receive financing via seed investors or grants to build traction and bring your idea to life.
How Does it Grow?
The social venture is growing, breaking even and maybe even returning a profit as it expands. You will likely consider raising capital from other sources such as:
- Social investment bonds
- Micro-donations; and
- Membership fees.
Social enterprises cannot raise capital from investors purchasing equity. You should also think about finding new product lines or refining your current offering to scale and maintain self-sufficiency.
Dealing with Mission Drift and Accountability
Organisations that pursue a social mission as a ‘hybrid organisation’ typically face two key challenges:
- Accountability for dual performance objectives; and
- Accountability to key stakeholders.
Social enterprises can have potentially conflicting objectives and interests as their dual goals do not necessarily align and may be contradictory. It is then important to choose a board whose long-term strategy prioritises social results over financial.
Forming purposeful partnerships can be beneficial for both social enterprises and profits. USYD Business School Associate Professor, Ranjit Voola, explains that “the solution to the big questions of our time [achieving the UN Sustainable Development Goals] needs to come from us all, working together”.
Leveraging current capabilities of each partner is essential to achieve shared prosperity while meeting common social goals and in particular the framework provided by the SDGs. Leading companies and their strategic partners have implemented commercially viable and inclusive business models to provide scalable solutions to address the needs of the world’s poorest people. Commercial entities should then look to form genuine partnerships to engage with SDGs proactively.
Creating a Micro-Economy
A successful social enterprise, such as Food Supply or Pollenizer Energy, works with local communities to solve problems and create a sustainable microeconomy. These startups aim to influence communities and transition from enterprise to ecosystem. Food Ladder also addresses food security in regional communities through sustainable community partners to become economically self-sufficient.
Thankyou. is another example of a social enterprise that empowers buyers through the choice of purchasing a product that commits its profits to benefit short and long term food, water, health and hygiene training to those in need. The business is an example of a social enterprise startup whose products are now stocked in major food retailers across the country.
Social enterprises tackle the big questions of our time, aiming to facilitate social progress through the global market economy. If they can continue to execute their social goals while remaining a viable, self-sustaining organisation, they will be an invaluable player in helping to achieve the SDG 2030 goals. If you have any questions or need help setting up your social enterprise, get in touch with our commercial lawyers on 1300 544 755.