How Social Enterprises might change the (business) world

Social enterprises suggest a new way of doing business which provides lessons for private sector organisations and charities alike, operating efficiently whilst putting the beneficiary, the ‘social’, in a prime position.

What’s social?

Here at On Purpose we’re regularly asking “What puts the ‘social’ in social enterprise?” Is it social ownership (like Co-op), social impact, profit distribution for community goals and an involvement of beneficiaries in the spending decisions of the organisation (like HCT), or is it the general spirit of the enterprise? With no strict rules for defining social enterprises, any of these criteria could potentially fit the bill. But to be a social enterprise, no organisation can neglect the ‘enterprise’ either. Social enterprises try to take the best of business practices, operating efficiently and professionally to further their stated aims; aims which combine profit-making and social concerns.

Why bother?

But why not just have a regular business enterprise (as the BBC recently wondered)? The financial crisis reminds us that in spite of the public origins of various businesses, and of banks in particular, some have become strongly divorced from their most important resource, their customer base. Social enterprises tend to be much more locally entrenched, and prioritise social concerns too, which promises an ongoing emphasis on customers, who are inherently identified as key beneficiaries (looking beyond shareholders).

What’s next?

The social enterprise market is young but growing rapidly - various developments are expected in 2011 - from better financing, to better measurement of social impact, use of scale and engagement of marginalised populations. More broadly, I for one hope to see larger businesses learning from social enterprise’s practices (especially via social ‘intrapreneurs’), mainstreaming their Corporate Social Responsibility initiatives to cover all business practices, and, dare I suggest it, even considering becoming social enterprises!

Financial Certainty

I don’t know if it’s because I’d been teed up for success with my brilliance goggles, but I had a sense of continued improvement regarding my financial fluency over the course of this session.  By no means are my interpretive skills on a par with the MBA set of On Purpose Associates, yet, but it was a reassuring revelation that the basics of financial statements are ones you can learn quickly.  No doubt this was predominantly induced by Jonathan Shellard’s  enabling-, financial-literacy-for-all- approach.

Bolstered by the security blanket of uniform reporting requirements, the confidence trick one has to perform to manoeuvre between the: Cash Flow; Balance Sheet; Profit and Loss, Income statement, and; Notes, will no longer be the preserve of the financially-versed few.  

Instead, I feel confident it will become another handy lens through which to critique organisational health, with Candice's chant 'Cash is King' ringing in my ear. 

Social Entrepreneurism

What does the future hold for social entrepreneurship?  UnLtd, a foundation for social entrepreneurs, is known for its broad definition of who those social entrepreneurs are:  people who lead positive change in society or the environment.  Cliff Prior, CEO of UnLtd, shared his views with the Associates, culminating with the 4 biggest debates in sector:

Is a social entrepreneur defined by the act of starting a social enterprise?

According to UnLtd, this approach is too narrow!  What about those people who start social businesses or at the other end of the spectrum, community organisations. How about people starting social projects within other organizations?  Or projects which do not classify as enterprises?  Should they necessarily be excluded from the term ‘social entrepreneur’? This is about people being entrepreneurial for social value, everything else is a detail.

What legal structure is best?

Some think that it is better to make stuff happen as quickly as possible and favour using equity-sharing companies to generate the most impact in the shortest time.  A second view is that an asset-lock is essential in ensuring that no person privately gains from the existence of social ventures.  A third view explores the question of beneficiary ownership of the entity (most commonly seen in the co-operative model).  UnLtd’s view is to be open!  People will choose the right model for their purpose.  Often, equity investment is necessary to achieve scale.

Is scaling UP or OUT better?

Scaling up through franchising and replicating social ventures may prove the way of the future, but we need to also consider moving towards a “scaling out” model where a lot of passionate people do a lot of little things to sustain working models of social enterprise.

Should great innovators be more highly regarded than replicators of innovation?

Some schools of thought truly believe that a core element in the definition of a social entrepreneur is the proven ability to innovate and in so doing, change the terms of the sector and society.  However those who replicate innovation manage to take those ideas and carry them out more efficiently.  They represent that small group of people who make things happen as opposed to just thinking about them.

Cliff also spoke to us about the funding options available for early-stage projects.  UnLtd’s funding program resembles a pyramid, providing small grants to many people, and only backing a few of the best ones with large sums and in-kind support.  Other organizations follow the incubator type model of funding, picking a few people as potential high flyers and focusing intensive support on them as a cohort.

Cliff left us with a few words of inspiration for the budding social entrepreneurs in the room:  Have a lean design, learn from your competitors, and don’t wait until you’re ready because you never will be.