What the Hell is a Social Enterprise?
Silas Lee ⟩ CMO
“We’re a social enterprise.” As a novice “social” entrepreneur, I’ve used and heard this phrase a lot. The term “social enterprise” has rapidly emerged as a way of describing a new improved generation in business and entrepreneurship. In recent years, social enterprise has become prominent, attracting the interest and attention of investors, mainstream media, and consumers. The development of social enterprise as a field is reflected in the rise of “impact investing” and “responsible consumption”. But what the hell is a social enterprise exactly? A non-profit? A socially conscious corporation? Do charitable businesses count? Tesla produces eco-friendly vehicles. Are they a social enterprise? You may think “who the hell knows” or “it’s just good marketing.” Besides, who cares? It sounds trendy and has a nice tone to it. For our readers who have been asking, here’s a nuanced take on what a social enterprise is.
Defining social enterprise can challenging, largely because the concept has evolved rapidly to blur the lines between the traditional business, government, and non-profit sector. The Social Enterprise Alliance (SEA) defines social enterprise as “an organization or initiative that marries the social mission of a non-profit or government program with the market-driven approach of a business.” Put simply, they are a hybrid entity that addresses critical unmet basic needs in society through business. They umbrella both non-profit and for-profit organizations and are not a distinct legal entity for tax purposes – an ideological coalition between commercial approaches with social good. The architects of such enterprises, social entrepreneurs, work to solve social problems through innovation, create systemic change, and improve the lives of underserved or marginalized groups.
What’s the difference between social enterprises, B Corps, and public benefit corporations? While all three terms relate to “business for good,” they encompass distinct but overlapping concepts. From a legal perspective, social enterprise refers to a business model; B Corp refers to a certification; and public benefit corporations refer to a legal incorporation type. B Corps are for-profit and must adhere to regulatory standards for social responsibility, accountability, and transparency. They don’t necessarily have to be social enterprises. Similar to fair trade or organic, the B Corp certification is a distinction for social responsibility. In contrast, a public benefit corporation (existing in the US and recently adopted in Canada this year) is a legal incorporation that allows organizations to identify a purpose beyond shareholder value maximization. This lends more flexibility with sales forecasting and liquidity options after going public.
There is a marked difference between a social enterprise and an ethical business. Social enterprises pursue a social mission using the tools of commerce to maximize impact and sustainability. On the other hand, an ethical business generates profit through an ethics-based approach, taking into consideration issues such as climate change, fair trade, and community development.
Why are social enterprises important? Social enterprise is a promising approach to sponsoring “triple-bottom-line” organizations: those synchronously seeking profits, social impact, and environmental sustainability. Notable examples include Ashoka, TOMS Shoes, and Seventh Generation. Tesla, while not being a B Corp, shares most of the ethos of one. The hallmark of a social enterprise from a traditional charity is sustainable revenue (charities rely on outside donations or grants). Although revenue plays an essential role in the sustainability of a social enterprise, profits are not the primary motivation. This does not work against high profitability but instead fosters reinvestment into social impact rather than shareholder payouts. Here, success is defined by the maximization of both productivity and impact under the social mission. Now, social enterprise is neither a silver bullet nor the only solution, but it is most definitely a working solution.
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