A social enterprise is a hybrid organization that works towards social change by leveraging charity and profits. It doesn’t measure its success on profits or scale of the business, rather it measures its success on the impact it’s having on its mission. And that’s an important distinction.
To further define it, an organization can be considered a social enterprise on the basis of the following:
• How it conducts its business (recycling materials used in its products like Blue Avocado, which sells reusable containers often made from recycled materials; employing underserved people to make their products like Open Arms, which employs refugee women to make products)
• What they do for business (produce a good or service that addresses a social problem like Recruit Her, an employment agency that specializes in placing more women in tech jobs.)
• Why they do it (to create a one-to-one exchange or to use the money for a social good like TOMS Shoes).
True social enterprise has been around a long time — think Goodwill, which operates stories and uses the profits from those stores to fund its job-training and placement programs. But they’re not driven by the profits of the stores. When a social enterprise starts making decisions based on driving more profits rather than on how well its serving its mission, that’s when their effectiveness in serving its mission can be in jeopardy.
WHY YOU MIGHT NOT GET IT
For that reason, social entrepreneurs have had a hard time explaining themselves. When you tell someone that you want to start a business selling water primarily to employ people in recovery from addiction, for example, and to create a sustainable source of funds to help cover the costs of services for others recovering from addiction, they might assume you’re talking about a nonprofit.
But that’s not what Wes Hurt, founder of Clean Cause Water, had in mind. As a successful entrepreneur and founder of Hey Cupcake! ⎯ and as a person in recovery from addiction — Hurt understood the power of a for-profit model and decided that he could make a great product — a still water and a sparkling water sources from the Carrizo-Wilcox aquifer — and give 50 percent of the profits to organizations that provide rehabilitation scholarships, intervention and family counseling services. Clean Cause Water launched this past spring and is available in H-E-B, Whole Foods and other stores across Austin.
Can a for-profit business, a social enterprise, really solve a social problem? Well, just as no nonprofit has completely solved an entire social problem, a social enterprise probably can’t either. But they can and do make progress, and often in ways different from a nonprofit.
THE DIFFERENCE BETWEEN SOCIAL ENTERPRISE AND NONPROFIT
Most great businesses start just like most great nonprofits: They see a need in the market as an opportunity to fill it. The best social enterprises, like Clean Cause Water, serve a market need and a social need.
One difference between a social enterprise and a nonprofit, however, comes down to where the early funding comes from.
A benefit of a social enterprise is that it can seek start-up funding from traditional business investors who judge the enterprise based on its prospects for revenue and return. Right now there’s a ton of information out there if you want to start a for-profit business, and more people are comfortable with thinking about profits as a bottom line than with “social good,” which can be hard to measure. So this may be an easier path if it fits your model. (Tom’s Shoes, for example, started with $300,000 in seed funding. Imagine if a nonprofit were able to launch with that kind of runway.)
Nonprofits, on the other hand, usually seek traditional business funding in the form of sponsorships or donations, which are mercurial, at best. They also have a more rigorous and complicated process for being considered a nonprofit because that designation grants them a certain tax status. Other sources of funding can be grants and individual donations, both of which require specific skills and knowledge to pursue. While nonprofits can make a profit, any revenue that comes from “earned income” sources has to be balanced with “contributed income” sources.
Another benefit of forming a social enterprise as opposed to a nonprofit, is that some believe the social enterprise culture is much different than a nonprofit culture. The former connotes a more creative, fast-paced, risk-taking approach compared to the stodgy reputation and play-it-safe approach of a traditional nonprofit. (Nonprofits argue that it’s not their organizations that are risk-averse and caught up in ineffective models; it’s the donors and funders.)
Also, it’s likely that both sides believe their model is best suited to solving social issues. While social entrepreneurs see only limitations and failings of nonprofits because they don’t apply traditional business-like disciplines, nonprofits see social entrepreneurs as not having a deep understanding of a social issue and having the misconception that nonprofits are risk-averse.
The end-result of this increasing interest in social enterprise, one hopes, is that it may allow nonprofits, funders and businesses alike to rethink, re-examine and constantly critique the best strategies for solving long-standing social issues. It’s time to get more creative… and more brave.
CALLING ALL SOCIAL ENTREPRENEURS
If you still want to know more about social enterprise, connect with the following Austin-based organizations:
Austin + Social Good: Part of a worldwide network that offers education and networking opportunities for local social entrepreneurs.
Impact Hub Austin: A co-working space that fosters a community of social entrepreneurs.
Unltd USA: A social enterprise incubator that works at the city-level to find, fund and support social entrepreneurs.
Enable Impact: Online platform and global network where social entrepreneurs can meet impact investors.
Mission Capital: Offers services to help social-impact minded organizations connect, learn and advance their missions.
Verb: Runs competitions that award prizes to social entrepreneurs taking on global issues.