The Bluffer's Guide to Social Enterprise
You’ve heard people talking about “Social Enterprises”, but what are they actually on about?
With this FAQ, you too can become an instant expert in one of finance’s most contagious topics.
What’s the difference between social media and social enterprise?
Two different uses of the word Social:
Social Media is the ability to communicate with your personal network through technology. A revolutionary tool primarily used to swap memes and skim past pictures of your friends on holiday.
Social Enterprise is a business that is committed to solving a social problem – like homelessness, discrimination, pollution, poverty or disease. These are huge systemic problems, which businesses can begin to address through funding, employment, or providing alternative products that are good for society.
What sort of social problem?
There’s no set list of social problems, and there’s certainly no shortage. This usually starts with a social entrepreneur, who finds a problem that makes them angry. The entrepreneur then creates a business specifically dedicated to making a dent in the problem, doing much more than any one person could on their own.
Isn’t that what charities are for?
Traditionally, yes. The old system was that we spend 99% of our money on products and services without much thought, then make a donation to a charity that helps the poor.
These days, three things have changed:
1. The amount of money available to charities seems to be shrinking
2. People are more conscious of the impact of their their purchases
3. It’s generally accepted that the “teach a man to fish” philosophy creates more positive change than the old “give a man a fish” approach.
Charities still work, but there’s a new role for businesses that make the world better without relying on your generosity.
How is this different to corporate social responsibility?
In a word? Dedication.
Corporate Social Responsibility is when a company feels compelled to “Give Back” to the world, often having taken so much already.
If a cigarette manufacturer donates 1% of their profits to a noble cause, they’re still a terrible force in the world.
It’s not just about how much money you give away; it’s about consistently making decisions each day that address a problem.
Would I have heard of any social enterprises?
Yes! You may have bought a bottle of Thank You water at 7/11, or used their hand soap in a café.
You may have received a gift from the Oxfam shop, or spotted someone’s brightly packaged Who Gives A Crap toilet paper.
Maybe you’ve walked past STREAT in Melbourne Central, or seen a distinctive BeeKeeper backpack.
Perhaps you own a KeepCup, or have bought a copy of The Big Issue.
The trend is growing, so if you haven’t seen one yet, you’ll definitely see a lot of them in the future.
Why are social enterprises becoming more common?
Firstly, young entrepreneurs are more socially conscious than ever before. They’re not content to simply get rich by any means possible, then join Rotary when they hit 65.
That means they’re starting businesses that do something good for the world, whilst also remaining profitable.
Secondly, customers are more aware of what they buy, and the impact their purchases have. We now have a demand for BPA-free plastics, recyclable packaging, clothing that isn’t made by slaves, cars that don’t pollute, and materials that are grown in sustainable ways.
People vote with their wallets, and they’re voting for responsible businesses that aren’t horrible.
Thirdly, social media rewards businesses who have an interesting, shareable story – which just so happens to be the strength of many social enterprises. That’s an advantage that didn’t exist in 1980, and has probably led to the acceleration of the social enterprise industry.
How can a business do good and make money at the same time?
It’s not easy, but it can be done.
Here are some strategies that social enterprises use:
- Making lots of profit, and giving 50-100% of it away to good causes
- Creating a product that solves a social problem (think reusable bags, affordable medicine, solar lights for villages without electricity, or educational products for kids)
- Running a business that employs people with disabilities or asylum seekers
- Creating products out of discarded/waste or sustainable materials
- All of the above
How does the business decide how much good to do and how much money it makes?
Sometimes it’s a tradeoff, and is decided by the entrepreneur. It can be a really tough decision, and there are only two real rules:
1. Don’t go bankrupt
2. Don’t make fraudulent claims about your impact.
The better alternative? Design the business so that the more products/services you sell, the more good you can do and the more money you make. If you’re clever, you can avoid the tradeoff.
Where do the profits go?
It depends, but generally most goes back into the business. Some people believe in a >50% profit donation rule, but that’s not a law. In fact, sometimes giving all your profits away can be really unhelpful, as it depletes your cash reserves for the rough months.
Profit isn’t evil, profit is just the amount that’s left over after costs are covered.
Smart entrepreneurs tend to use this money to grow and expand, since that increases the social impact as well as strengthening the business itself.
So if a business does something good, does that make it a social enterprise?
Danny Almagor, founder of Small Giants, has a great way of looking at it:
“If you walk down the street, and a $100 note falls out of your pocket, and a homeless person picks it up – I’m not going to call you a philanthropist”
Doing good by accident isn’t enough. To be a social enterprise, doing good needs to be in your DNA.
That means, making all of your decisions based on how you can address your social issue, not just an occasional tokenistic effort or positive by-product.
There are no strict rules, but keep in mind: the public can spot disingenuous marketing and spin from a mile away.
What’s next for the industry?
Most not-for-profits and charities are in full panic mode, and they all want to get in on the lucrative social enterprise action.
Expect to see most of them launch an enterprise.
Expect to see most of them ignore the needs of their customers, and fail spectacularly.
The ones that stick around will be the ones that make great products and deliver great services, rather than dishing up mediocrity and relying on people’s generosity.
You can also expect to see more companies becoming more transparent about how their stuff is made, and switching to more ethical suppliers of their raw ingredients.
Eventually, these concepts will be so common that we take them for granted, like how we think about Medicare and Workcover.
We won’t even use terms like Social Enterprise, they’ll just be Enterprises, and we’ll tell our grandchildren about those long lost days when companies were horrible and damaged the world.
Until then, keep voting with your wallet.