A social enterprise is an entity that focuses on solving the triple nexus problem of social division, environmental breakdown, and economic stagnation in a sustainable way. Social enterprises are addressing these challenges head-on and they range from for-profit to non-profit firms. Why should you adopt a social enterprise model? The guiding principle is that they are driven by a cause to improve the living standards of society and the environment.
The priority of most commercial businesses is to maximize profits with the goal of paying out to shareholders while social enterprises focus on reinvesting profits into their social mission. Why should you adopt a social enterprise model? Social enterprises balance between upholding their social mission while at the same time ensuring they remain profitable and sustainable.
The growth of commercial businesses might lead to greater inequality as it is driven by capitalistic ideals. The communities, especially in the most deprived areas, enjoy the benefits which include gender and racial equality by fostering the leadership of women and ethnic minorities.
Research has shown that social enterprises are resilient and have been growing despite the economic and political disruptions that have been witnessed in the last decade. There has been an increase in the number and size of social enterprises which has led to an increase in job opportunities and impact. The success can be attributed to engaging the communities where they operate from, investing in their people, and coming up with innovative solutions compared to their peers in the private sector.
This is evidence that having a cause does not limit the social enterprise from optimizing the productivity of the business to ensure the venture is sustainable.
Social enterprises put in place measures to minimize environmental degradation on a better scale than ‘traditional businesses’. Why should you adopt a social enterprise model? They recognize that they need to put more weight to initiatives that control climate crisis as this has a direct impact on the health and lifestyle of humanity. Their employees are encouraged to be environmentally responsible by teaching them environment conservation measures and their benefits.
To achieve this, there needs to be a concerted effort by governments to support the social enterprises in matching the commitment of their clients and the motivation of their leaders. Governments can put in place regulations that facilitate operations and the growth of social enterprises.
Social Enterprise Models
The triple threat of ecological degradation, economic stagnation and social division can be addressed through three social enterprise approaches:
1) Innovative Products or Services
By developing innovative products or services, social enterprises can create the social or environmental impact:
D.Light is an example of a company that addresses a social need through innovative products. It transforms the lives of people that lack access to reliable energy by providing them with affordable solar powered devices. In the last twelve years the company products have transformed more than 100 million lives across 70 countries. Other social enterprises using this model include TerraCylcle, Benetech, Suncommon.
2) Employment Approach
These are social enterprises that offer jobs to people who cannot be able to work in mainstream employment:
HCT Group is an example of a social enterprise whose approach is to bring down the barriers faced by the most vulnerable in our society by using transport to provide jobs, education and healthcare to the most marginalized. They have a fleet of buses that they used to deliver a range of services; community transport, school transport and social services transport to education and training. Other social enterprises using this model include Womens Bean Project, Goodwill Industries and Nisolo.
3) Giving Back Approach
This model involves the social enterprise giving part of its profits to non-profits that are addressing the basic unmet needs:
DARITYis an example of a social enterprise that donates at least 3% of its profits in support of better infrastructure and maternal health programs. Even though it is an apparel company whose main goal is to support expectant and post-partum mothers, it has a cause of reinvesting back to companies that are supporting mothers. Other social enterprises using this model include All Star Cleaning Services, Zambeezi and Better World BooksRoma Boots.
How To Bridge The Gap
Social enterprises need to access finance in order to grow. Unfortunately, most of this capital is in forms that are only available to a few enterprises. Restrictions such as the requirement for collateral in order to access financing make it impossible for them to access financing. There is a need for blended capital, like venture or risk capital, which is not readily available, yet this is the form that the sector needs.
2) Information infrastructure
Lack of networks has contributed to the lack of information, know-how, and experience of domestic and international markets. We need to grow a network of entrepreneur support organizations focusing on equipping social entrepreneurs with information on how to access their local markets and international markets.
There is increased competition and concentration from large multinational companies caused by globalization. The social enterprises are not able to compete with multinationals given that they have the financial war chest and established worldwide infrastructure.
There is need to create consumer awareness on products and services offered by social enterprises so that they know the social benefits of what it means when they support these causes.
4) Entrepreneurial capacity and know-how
Most owners of social enterprises lack the business acumen to run those businesses, thus the business impact takes a protracted period to be realized.
We need to have hubs focusing on training entrepreneurs on the benefits of having ethical and sustainable businesses that have social and environmental causes.
5) Economies of scale
Social enterprises are most of the time not able to enjoy economies of scale-like procuring large amounts at good discounts because of their scale of operations. This increases their transaction costs and makes ventures unsustainable.
The tax system of countries needs to provide incentives for social enterprises by reducing their taxes to reflect the value generated by these ventures. They need to enact legislation that allocates part of their procurement to social and environmental firms.