Oct 3

Oct 3 Inclusive Business and Social Enterprise

It would be easy to get confused by jargon in our industry, especially as the terms themselves are so new.

On one hand, I hate the pettiness of “ooh, it’s not a social enterprise if it doesn’t give 50% of it’s profits away”, which is an unhelpful definition.
On the other, I cringe when I hear entrepreneurs calling grants “investments”, so I’m guilty of being picky about language.

Two terms that are used interchangeably are Social Enterprise and Inclusive Business:

A Social Enterprise is a business that deliberately makes money and a positive social impact at the same time, and can be for-profit or not-for-profit.

An Inclusive Business is a specific type of social enterprise – a for-profit business that uses its value chain to raise people out of poverty.
While it has all the characteristics of a social enterprise, it also brings a focus to low income communities, and is often centred around agriculture.

Shakespeare famously claimed that "a rose by any other name would smell as sweet".
The same applies here - regardless of what you call yourself, impact is what counts.

The terminology is secondary to the end result – is the business sustainable, and does it improve the lives of its beneficiaries?

It’s the answer to those questions that makes a business truly remarkable.

What makes an Inclusive Business sustainable?

The driving force behind an impactful inclusive business or social enterprise is the same:
A strong business model.
Without it, the entity treads water, and becomes dependent on grant funding and philanthropy.

A sustainable business model has three vital features:
1.     It solves a problem for a paying customer.
2.     It has the right combination of people, equipment, expertise and partnerships.
3.     It is financially sustainable, and consistently generates a surplus.

These three factors are drawn from IDEO’s framework The Three Lenses of Innovation, which describes them as Desirability, Feasibility and Viability. You can read more about them here.

For an inclusive business, these factors make or break the operation.

The business must be desirable to a customer, not a philanthropist or sponsor.
If the business creates a sub-par or low grade product, or can’t fulfil its orders, the customer will have no choice but to go elsewhere, and the entity will close – devastating the local community.

The business must be feasible, with the right expertise shared amongst the supplier households, so as to not be dependent on any one individual or sponsor.

The business must be financially viable, or else it either folds or requires constant subsidisation.

These surpluses can be used to increase the capacity of the business (e.g. buying more equipment), be funnelled into increased prices for supplier households, or be channelled towards community projects, such as improving local schools.

Where does Social Impact fit into the business model?

Contrary to popular opinion, there is not just one single way of incorporating social impact into a social enterprise or inclusive business. In fact, social impact can be incorporated into any or all of the three factors mentioned above: Desirability, Feasibility and Viability.

Desirability: The business creates a product or services that generates a positive social impact.

For example, East West Seeds in Indonesia promotes small holder farmers to grow their own vegetable gardens.
These generate higher household incomes, plus they encourage households to drastically increase their consumption of fresh vegetables, and therefore improving their health.

Feasibility: The act of creating the product or service leads to improved social outcomes.
This might be through providing employment to those living in extreme poverty, or creating substitutes for unsustainable resources.
This is the most common and impactful model for inclusive business.

For example, Kwale Cotton in Kenya supply fashion retailer Cotton On with part of their cotton needs.
To the end user, nothing has changed about their t-shirt, but to the farming households in Kwale, the jobs created have changed their lives.

Viability: The proceeds of the business fund vital social issues.
This can be allocated by a governance panel, or a separate not-for-profit arm of the business.
It can also take the form of a cooperative, so that when the business makes a profit, the employees receive a direct benefit.

An example is the social enterprise Thank You, whose bottled water and muesli bars fund aid projects across South East Asia and Africa.
The product and the manufacturing processes do not directly address a social need, however the surpluses generated from their sales empower aid organisations

These options are not mutually exclusive – the most impactful inclusive businesses are those which are designed to do all of the above.

These models are proving to be incredibly effective, because they are not dependant on a philanthropist or high levels of profitability to achieve positive impact.

A useful thought experiment can be: if this business only hit breakeven next year, would it still have made a positive impact on the community?

If the model creates employment, uses sustainable resources or benefits the wellbeing of the customer, the answer is a resounding yes.
Any extra surpluses generated are a bonus, and can be used to further fuel the impact of the business.

When a social enterprise or inclusive business works, the transformation is extraordinary.
The model creates job security, educates and up-skills workers, and raises incomes by up to 10x.
That’s the type of business that changes lives, no matter what you call it.

This article also appeared on Inclusive Business Practitioners Hub, that I ghost-wrote for our CEO.