A social enterprise is social mission driven organization which applies market-based strategies to achieve a social purpose. The movement includes both non-profits that use business models to pursue their mission and for-profits whose primary purposes are social. There are many who see social enterprise as a method for creating a more just and sustainable world–through enterprise.
There are hybrids of various kinds, such as back-to-back for-profit companies to fund non-profit organizations, and quite a number of new corporate forms being established in different states. In Vermont, for example, there is a new Beneficial Corporation that will become legal in 2011.
Legislation has been enacted in State Senate that would allow companies to exist for other reasons — providing a social good for the community while returning gains to investors. For example, they will have right to name specific public benefit purposes (e.g. 50% profits to charity, carbon neutral, 100% local sourcing, beneficial product to customers in poverty).
Vermont is a state in the vanguard, for it also offers the L3C (low-profit company), which is a cross between a nonprofit organization and a for-profit corporation – organized as a Limited Liability Company with charitable or educational goals.
There is no reason why a for-profit social enterprise venture should not distribute some or all of its profits or a percentage of its sales to social purposes and many do. Dansko is a vibrant example of using for-profit business to effect social change – to initiate and exemplify ethical governance, personal and professional growth, community service and philanthropy, and to take responsible and meaningful measures to reduce our negative impact on the planet.
Dansko is a B Corporation, like Venture Founders, the Startup Owl’s company that is a founding member. B Corporation promotes a new type of company which uses the power of business to solve social and environmental problems. BCorp is promoting legislative change to allow for structures like the Vermont Beneficial Corporation and is beginning to have real traction.
An example of social enterprise that I patronize is PACT, whose motto is “Change starts with your underwear”.
The purchase of PACT underwear is participation in a social movement: when you buy PACT underwear, you are supporting and encouraging organic cotton farmers, responsible labor practices, and businesses that form partnerships with nonprofit organizations dedicated to positive change in our world.
A social enterprise with which I am personally involved is a ‘bank of last resort’ for micro-entrepreneurs that offers not only money, but dignity and assistance. I am on a loan committee and work as a post-loan technical adviser at Community Capital of Vermont–a 501(c)3 nonprofit community development financial institution (CDFI).
CCV provides much-needed access to capital for new and seasoned entrepreneurs throughout Vermont who are unable to secure bank financing. It has a special focus on business startups and individuals with limited income and wealth.
Another fellow BCorporation is IGNIA, a venture capital investment firm based in Monterrey, Mexico that supports the founding and expansion of high growth social enterprises that serve the base of the socio-economic pyramid in Latin America.
By providing effective responses to the enormously underserved needs of low income populations, both as consumers as well as active participants in productive value chains, IGNIA empowers entrepreneurship and generates social impact while creating attractive financial returns for its investors.
Yet another B Corporation, in my own state of Vermont, is King Arthur Flour–that had five employees in 1990, and today has over 160.
It is an employee-owned, open-book, team-managed company, with profit sharing and an employee stock ownership program. Their employees have a stake in what the company does, and they believe it shows in every bag of flour.
Making money in itself is not their highest priority. They view profit and wealth-creation as inevitable byproducts of doing things well. As a matter of interest they are America’s oldest flour company, founded in 1790
Prosperity Candle is an example that is both a social enterprise and a foundation that work together to achieve sustainable impact.
The foundation focuses resources from organizations and individuals on helping women in places of conflict and distress, while the business ensures the sustainability of our work, based on a simple model of shared prosperity.
The mission of FEED Project is to create good products that help FEED the world. They do this through the sale of FEED bags, bears, t-shirts, and other accessories by building a set donation into the cost of each product.
Thus the impact of each product, signified by a stenciled number, is understandable, tangible, and meaningful.
Root Capital is a nonprofit social investment fund that is pioneering finance for grassroots businesses in rural areas of developing countries. They provide capital, financial education, and market connections to small and growing businesses that build sustainable livelihoods and transform rural communities in poor, environmentally vulnerable places.
Since the launch in 1999, they have provided $256 million in credit to 320 small and growing businesses in 30 countries, maintaining a 99% repayment rate from borrowers and a 100% repayment rate to investors.
Tegu makes magnetic wooden blocks and other toys for kids. They are made in Honduras and this creative social enterprise founded to address unemployment, under-utilized natural and human resources and the need for entrepreneurship in Honduras. The company includes employees, customers, shareholders, and supply chain partners as well as ultimately the broader society in which we all live.
Warby Parker (another BCorp) was conceived as an alternative to the overpriced and bland eyewear available today. The company delivers an eyewear product online, with home try-ons, at about a third of the price of typical fashion lines.
That is unique in itself, but the company also partners with renowned non-profits, such as VisionSpring.org, to deliver one pair of glasses to someone in need for every pair that we sell. Read more about them and a VC raise in this article.
Social Enterprise Database
You should take a look at the Social Enterprise Database. It was established by Stacy McCoy of Give To Get Jobs, which finds jobs where people can give back and get paid. It connects people with companies who share the same values, give back to society, and still make a profit. Stacy’s database is a comprehensive social enterprise database of social enterprises in the United States. It went live today. As the database expands, they hope to extend coverage internationally.
Stacy also has a useful description of social enterprise. It is a good way into her website–take a look. You might just decide to seek a job with a social enterprise as a way of learning how its done, before you set up on your own.
The Invisible Marketplace
Traditional business models are concerned with issues and people that are visible: investors, customers, staff and immediate community—the stakeholders. However, business now impacts many whom it does not see at the boundaries of the system. Take a look at what I have to say on coopetition–a hybrid of competition and cooperation!
For this reason we have to consider the unintended impact of our business activity: the butterfly effect1. Considering the ‘unseen’ often also provides opportunities to the entrepreneur.
Think contribution: your enterprise will be a social enterprise by making a contribution if it is genuinely doing something of value and does want to survive. Think service: your enterprise can be of service beyond immediate financial reward and get benefits in profusion: learning, new ideas, a sense of playing its part in the world, recruiting motivated staff…
Creating shared value acknowledges that business performance and social wellbeing can be mutually supportive. Business can only exist successfully in a flourishing environment. Below you’ll see a practical example of creating shared value is all about.
Benetech® is a unique bridge that connects the social sector with business and technology leaders. They join together the heart of social mission with the mind of high-tech process and project management. Leveraging the vast technical skill in Silicon Valley, they have project managers and engineers proficient in almost every area of software development. Together, as they say, they’re “using technology to serve humanity.”
Relocalize the Economy
While we can enjoy the benefits of globalization, there are many things which we have globalized that can be repatriated and relocalized with benefit. It is worth thinking about what we can procure of make locally, in the community of which we are a part. What might we be able to produce locally on our own or with collaborators, given the benefits of
- lower transport cost,
- speedier deliveries,
- better service,
- greater local business support
- personal contact.
A consumer who relocalizes is a localvore: someone who eats food grown or produced locally or within a certain radius such as 50, 100, or 150 miles and the movement is now quite widespread in the US. The principle is being taken up by other industries desirous of appealing to consumers who consider themselves localvores–and participating in a social enterprise.
The availability of local financial support has been dwindling, as mega banks gobble up local ones. And some cases, then go bust in a downturn. One way forward has been demonstrated by Community Supported Agriculture. Now that model is being borrowed in many other sectors in the form of community supported business—in fields like other food services, books, and manufacturing.
An example of what can be done is the Brattleboro Food Coop (two stores and $16m sales), where I serve as a Board Member. The BFC exists to meet its shareholders collective needs for a range of purposes including offering reasonably priced food and products with an emphasis on healthy, locally grown, organic, and fairly traded goods, in a welcoming community marketplace. It also exists as a regenerative business that has a net positive environmental impact to encourage a strong local economy. Management is continually seeking new partnerships with producers within a 100-mile radius.
Invigorate the Base of the Pyramid (BOP)
An inclusive business is a sustainable business that benefits low-income communities. Inclusive businesses may engage low-income communities through, among other things, directly employing low-income people; targeting development of suppliers and service providers from low-income communities; or providing affordable goods and services targeted at low-income communities.
BoP, an acronym for “base of the (economic) pyramid,” refers to the approximately four billion people whose incomes are less than $3,000 a year, based on analysis done at the World Resources Institute. BoP – a term first introduced by Professors C.K. Prahalad and Stuart Hart in their 2002 article, “The Fortune at the Bottom of the Pyramid” – has come to designate not the poverty but the potential of the world’s poorest citizens as entrepreneurs, employees and discerning consumers.
A practical primer of microcredit and how it works is by businessman Phil Smith and mircrocredit expert, Eric Thurman; called A Billion Bootstraps Microcredit, Barefoot Banking, and the Business Solution for Ending Poverty, the book should convince you. The ethical case for contributing to the elimination of world poverty is argued effectively in a book called The Life You Can Save: Acting Now to End World Poverty by Peter Singer, Professor of Bioethics at Princeton University.
For an excellent summary of the opportunities for investing at the base of the pyramid, download a copy of KPMG Netherlands’ Profiting from the Poor report. Micro-businesses are proliferating through the use of the mobile phone as a means of deliver—the mobile phone is becoming a key tool for reaching new markets and servicing customers at the lowest possible cost. In South Africa, for example, there are many more mobile phone customers than there are bank account holders.
Take a look at Wizzit, a South African startup that takes low cost transactional banking to the poor through mobiles. Research suggests that there will be 43 million mobile phone owners in the country by 2011 (a 90% market density). The BOP world has a myriad of mobile phone based stories and more than 1.5 billion people in developing countries now have mobiles. In India, there are door-to-door sellers of spices working by mobile and moped. In Tanzania, a hospital sends money by text message to women in remote areas so they can pay for bus fare to travel for critically needed surgery. In Afghanistan, the government pays its police officers by text message to skirt corrupt middlemen. In Pakistan, the biggest financial network is not a bank, but a unit of Telenor, the Norwegian mobile phone operator.
The Gates Foundation plans to give away a total of $10 million to the first companies that help Haitians with mobile banking. The country has three cell phone companies, and one other also has started offering mobile banking.
NextBillion brings together the community of business leaders, social entrepreneurs, NGOs, policy makers, and academics who want to explore the connection between development and enterprise. The goal is to identify and discuss sustainable business models that address the needs of the world’s poorest citizens. NextBillion.net is a website and blog about how business drives positive social and environmental change in low-income communities.
To learn more about social entrepreneurship and micro-finance, take less than ten minutes to watch this video
One of the reasons we so often fall into economic downswings and the social suffering that results is that globally we try to measure things in the wrong mix. From the international and nation level on down, we consider progress in terms of Output and Growth.
Using Gross National Product as the evaluator, we convey the idea that doing more beats doing better. There is a huge movement to change the way we calibrate the way we live.
The tiny Himalayan Kingdom of Bhutan measures GNH or Gross National Happiness. The GNH measurement attracts a lot of attention, but is often seen as remote as the kingdom that uses it. At levels nearer to home there are also many efforts, many of which are described by Mark Anielski in his book, The Economics of Happiness: Building Genuine Wealth.
As an entrepreneur, you can make similar decisions about what you measure. Naturally your business has to thrive, but you can join the thousands of companies (big as well as small) that measure the Triple Bottom Line and meet the interests of all your stakeholders. The social enterprise is no less dedicated to measuring success than any other business.
1. Small variations of the initial condition of a dynamical system may produce large variations in the long term behavior of the system.The idea is that a butterfly’s wings could create tiny changes in the atmosphere that would alter the path of a tornado or delay, accelerate or even prevent one somewhere else.