Ultimate Guide to Social Entrepreneurship
In this article you’ll learn about 1) what social entrepreneurship is, 2) the history of social entrepreneurship, 3) how it differs from commercial entrepreneurship, and 4) some examples for social enterprises.
INTRODUCTION TO SOCIAL ENTREPRENEURSHIP
Due to the growing demand for responsibility and accountability from companies, the space for business models resolving social problems came to be. The rise of social entrepreneurship is unique in the sense that it not only seeks profit. It measures itself by the so-called fourth metric or its ability to contribute to nation-building, social justice, environmental protection, or any other mission the company seeks to align itself to.
Instead of the usual CSR or corporate social responsibility that most corporations employ to provide support to causes, social entrepreneurship cuts deeper. Helping is at the core of its existence but it also does not only rely on external donations to sustain itself. This fact alone makes social entrepreneurship a game-changing business model.
Social Entrepreneurship In Numbers: Charity Begins At Home
When it comes to performance, it pays to look at the two top first world countries, USA and UK from the data gathered by the Great Social Enterprise Census. In the US alone, social enterprises employ ten million people and generate total revenues of 500 billion dollars that contribute to a staggering 3.5% to the total US GDP. The mix of enterprises is about 35% non-profit and 31% corporations following suit.
On the other side of the pond, the United Kingdom lists social entrepreneurs as one of the main drivers of its economy. With 800,000 people employed, it might seem to be trailing the US. However, it boasts of 68,000 enterprises and 24 billion pounds of revenue.
These social enterprises range from a variety of industries and beneficiaries such as infants and mothers, employment assistance, and the environment. What is more impressive is that these small companies are assisting and committing to causes right at their own country, helping their own countrymen while earning revenue.
But what is social entrepreneurship and how does it affect the business in general? This definitive guide seeks to clarify what it is and what it is not and case studies that can shed light to a successful social enterprise and what the future holds in this ever-changing economy while running a company with a soul.
The Rise Of The Social Entrepreneur
Social entrepreneurship is all about marrying social mission and business discipline. As opposed to what most people would surmise, numbers and innovation matter when it comes to this business model while at its heart is the marginalized and the poor.
Given this definition, who then is the social entrepreneur? While businessmen aim to define, compete or create a market with the goal of earning in mind, the social entrepreneur looks at his community, sees the challenges, and commits to their improvement.
Ashoka.org, a not-for-profit organization registered in the US and whose name was derived from a social welfare leader who was a unifying force in India during the 3rd century BC, further expounds on social entrepreneurs as change agents who have new approaches and creative solutions to society’s problems. But more than just developing grand ideas, a true social entrepreneur implements this in a grand scale.
The Social Entrepreneur: Richard Branson & Mother Teresa
To become an effective social entrepreneur is all about being Richard Branson and Mother Teresa all at the same time as further described by the Schwab Foundation, an institution established in 1998 under the Swiss Federal Government with 260 social entrepreneurs in its community that continues to grow with its annual selection of new members under a fine-toothed selection process.
With its yearly selection of social entrepreneurs, the Schwab Foundation has these four criteria that it looks at when screening: innovation, sustainability, reach, and social impact. They also list certain personality characteristics as common among the most effective social entrepreneurs, but what stands out are these three:
- Values monitoring and measuring – the best social entrepreneurs know exactly where they are going due to a steadfast adherence to metrics and data, measuring their progress every step of the way
- Feedback hungry – adapting easily to changes from valid feedback and research
- Healthy impatience – simply put, they cannot sit still and wait for change to happen because they can and will make it happen
SOCIAL ENTREPRENEURSHIP: A LOOK AT ITS HISTORY
Social entrepreneurship was fuelled by the unprecedented advances in economy, which were not parallel to the progress in the social standing of people. Because of this, there was a great divide between rich and poor, and the number of marginalized rose exponentially in number. While most turned its cheek, a few took it as an opportunity to make a difference.
To further understand and imbibe what social entrepreneurship is all about, it’s worth looking at its history through its most popular proponents, the people who looked and saw the reality of social injustice and did something about it:
Dr. Maria Montessori
Every country definitely has a Montessori school and it’s all because of Dr. Maria who revolutionized early childhood education. Thanks to her study rooted in psychiatry, she questioned how the current methods of learning placed the mentally challenged students at a disadvantage compared to other students. It all started when she put up Children’s House in a poor district in Rome. Her experiments were built upon the idea that children are able to teach themselves without the supervision of adults. These showed promising results. Although the students were unruly at first, she persevered and refined the Montessori program that hinges itself in the idea that children have a natural desire to learn.
Today’s modern hospitals have to thank Florence Nightingale. Her commitment to innovate hospitals paved the way to making them much safer, providing better conditions such as having ample natural lighting, air, and gardens. Her writings also employed graphs, making them much easier to be understood even by the common man. She opened the first nursing school and provided modern nursing practices that are still being followed today.
William Lever’s social mission is all about the whole idea that cleanliness can be achieved by every person. He started with his Sunlight Soap that comes pre-cut and added palm oils so that it will be quick to lather. The one in the market at that time was cut from a big batch at a store and was harder to use. He also started a six-hour workweek for employees, a far cry from the conditions in other factories in the manufacturing business, so that they can also focus on their exercise routine and further care for their health. Today, Lever Bros. is the multinational Unilever who has William Lever’s mission at the core of its business practices.
TYPES OF SOCIAL ENTERPRISES
There are many kinds of social enterprises and these can be classified succinctly into these three:
- Leverage non-profit: uses funds in innovative ways to be able to fulfil a need. Usually, these enterprises have a more traditional way of tackling the issues they take up.
- Hybrid non-profit: uses profit to be able to support its causes and operations. Funding comes from market or government failures aside from grants and support from the private sector.
- Social business venture: uses set-up businesses in line with the enterprise to support its operations. This mostly happens to social enterprises due to lack of funds and/or support.
DIFFERENCE BETWEEN SOCIAL ENTREPRENEURSHIP AND TYPICAL COMMERCIAL ENTREPRENEURSHIP
There are definitely stark differences between social enterprise and the usual business. Here are the major items to look at to know which is which:
When it comes to its reason for existing, social enterprises prioritizes two things: great impact and sustainability. When put up, the first thing it considers is the kind of social need or injustice it seeks to respond to or its great big idea and if it’s sustainable enough to scale and affect more people. It looks at profit as a secondary need. On the other hand, commercial entrepreneurship is all about the money and amassing more of it so that it can be re-invested in the business. The needs of society come as an afterthought, when enough money has been earned and there is a surplus in the budget to spend on corporate social responsibility.
‘I’ versus “We”
When it comes to viability, most commercial enterprises are judged based on the ability of the team to deliver. Most venture capitalists look at the board of directors at the helm of the company to see if they are able to deliver the task at hand of running the daily operations. For profit business are judged primarily by the variety of roles it hires to ensure that every department is handled by several people who are experts in their own way or field. Investors look at companies or corporations as a well-made machine made of many parts, with their money being the oil that makes it run.
On the other hand, social enterprises are based mostly on the person who has the idea. Social enterprises’ ability to make money or receive funds rests upon the shoulders of its founder. He or she serves as the brand ambassador as he or she thought of the idea in the first place, much like a symbol of the cause. Philanthropists who fund non-profits most especially invest and give donations due to their belief to the person’s commitment and passion for his or her mission in life, which is to give back to society.
When it comes to making money, a commercial enterprise will continue to innovate and create to fill a need in a consumer’s life. When this happens, the consumer happily purchases the product or service and the profit comes rolling in. This becomes part of the company’s cash flow to again innovate to earn much more from its consumers. On the other end, Daria Uhlig of Demand Media mentions that social enterprise truly only uses wealth as a tool and not something that is there for the benefit of itself. Although it’s not the primary goal, social enterprises see wealth as an integral part of its ability to support its many causes.
The best way to differentiate the measurement of a social enterprises’ profitability versus that of a commercial enterprise is by looking at its beneficiaries. Commercial enterprises exist to make shareholders and private investors happy. The fact that they are able to generate profits to give as dividends or fulfil the return of investment of creditors make them successful and profitable.
For the social enterprise, profits are good, but it is funnelled immediately to the recipient cause that it seeks to support. Whether it is a school or a foundation for example, the social enterprise judges itself against a combined return on investment that speak of the following: the financial and the social return on the money it spends on its projects. Impact is of the essence when it comes to social enterprises.
CASE STUDIES: SUCCESSFUL SOCIAL ENTERPRISES
When it comes to social enterprise, an idea is cheap if it’s not executed. These samples of success stories embody the quote of LinkedIn’s Rick Hoffman when he said that the first mover is not the one who is first to launch but the first to scale.
These social enterprises have redefined the industries by just a germ of an idea that was brought to life and created massive impact.
Grameen Bank: What if we lend money to the poor instead of giving it to them?
The Grameen Bank’s proponent Muhammad Yunus embodies the true social entrepreneur and more if you ask the first people he suggested his idea to in the 1970’s. Yunus was the Head of the Rural Economics Program in the University of Chittanoga when he thought of providing credit to the rural poor. With its name “Grameen” literally meaning rural or village, Yunus saw the flaw in the prevailing idea that poor people are low-income, low-saving, and low investment, which lock them further into a never-ending cycle of poverty.
While most banks knock on the door of the richest, Yunus set out to prove that when given the access to capital, teaching them how to fish, they can also create a good life for themselves. Armed with capital, he set out to prove his idea right by choosing a few families and giving them access to capital that they can use to set up small businesses. With the help of the Bangladeshi government in funding, Grameen Bank became an independent bank in 1983.
Proof of its success is that today, around 80 million citizens of Bangladesh uses its services to better their lives and to also support Grameen-like banks all over the world. It has also diversified further and has provided the poor with access to other amenities such as health, education, water, food, and electricity. With the Grameen Creative Lab, it created the Global Social Business Summit, a venue of the world to think of effective solutions to its pressing problems via synergistic collaborations and discussions.
Philippines’ Gawad Kalinga: Sustainable way of getting the poor out of poverty
Two words have been used to describe Gawad Kalinga’s Tony Meloto over the years: insane and visionary. His idea was perceived by many in the beginning as utopian as his main objective was to eradicate poverty by 2024 in the Philippines and his path to this goal is by creating sustainable villages.
It’s no surprise that Meloto would choose this path. After all, he grew up exposed to the squatters living alongside his home. After a stint in the corporate world as a purchasing manager, Meloto was exposed to gangs and violence in one village that is mired in deep poverty. Instead of dole outs, he thought of making the place progressive by first providing a good home to these people as he believed that true human dignity springs from a person who lives in a peaceful and clean environment.
To make this happen, his social enterprise model consists of the local government, volunteers, and companies coming together to create sustainable communities. Instead of just setting up housing, he made sure that every community has a means to earn and conduct business to prevent them from returning to squatter living and violence.
Today, Gawad Kalinga has created 3,000 villages and counting and has put up the Center for Social Innovation, a Silicon Valley-like lab that seeks to create more social entrepreneurs. One such success story that it has created to espouse its message is its Human Heart Nature business, which is pro-poor and pro-environment. It creates a line of cosmetics that are natural and organic with ingredients coming from farms tended to by the people living in Gawad Kalinga villages.
Because of its so-called radical optimism, Gawad Kalinga is a sought-after partner by corporations for their corporate social responsibility programs and countries in Europe for partnerships.
Ashoka: Ideas that make the world a better place
While most businesses leverage money to create more money, the whole vision of Bill Drayton, a consummate academic with a deep understanding of social systems, is to treat ideas as currency that when strengthened can scale and change the world.
As founder and CEO of Ashoka, Drayton and his team annually find fellows into its fold who have the best ideas for social enterprise. It provides the right amount of support through financing, living stipends, professional guidance, and access to peer mentoring across the globe. Its name is a homage to a real person who is a true social innovator by encouraging the people in India. True to its name, Ashoka is a place where the best social entrepreneurs converge to save the world’s most pressing problems.
It now has evolved to be more inclusive and it challenges people to take up social entrepreneurship via its Everyone a Changemaker project, highlighting the fact that everyone can innovate and improve the social aspect of their communities in their own way.
IS SOCIAL ENTREPRENEURSHIP THE WAY OF THE FUTURE?
With the wave of social awareness brought upon by collapsing economies and climate change, social entrepreneurship has truly evolved from a buzzword to a way of life. There is a need for a shift in the mind setting of current entrepreneurs that while profit is good, making profit for an even greater good is better.
Social entrepreneurship is not the way of the future, it is the one thing that will guarantee a future in every community and country it finds itself in as it cares for the marginalized, the environment, and the people that it affects while being a sustainable business model.
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