Why We Love Social Enterprises and You Should Too
A social enterprise is a business model that strives to create positive social change.
When it comes to for-profit businesses operating within capitalism, the bottom line has always been making money. On the other end of the spectrum are nonprofits, which focus solely on making an impact in specific communities or around certain causes. In the middle lie social enterprises, which make profits but still focus on improving social objectives.
Social enterprises are becoming more popular as consumer demand pressures companies to care about their impact. They typically focus on the triple bottom line: People, planet, and profits. At Fearless Foundry, we love working with social enterprises because they’re purpose driven and get sh@!# done (like us!). Let’s take a deep dive into the world of social entrepreneurship to understand how these businesses work!
Social Enterprises: Profits → Impact
In comparison to traditional for-profit businesses, social enterprises attempt to address a social problem or challenge with their business. They’re cause-driven businesses that serve the common good and improve certain social objectives.
The goal of social enterprises is to earn a revenue and positively impact social, cultural, community economic and/or environmental outcomes, instead of maximizing profits for external shareholders like traditional for-profit businesses tend to do. They embrace financial support and for-profit opportunities to earn more sustainable revenue.
Traditionally, social enterprises operate on a blended return on investment (ROI), putting part of their revenue toward a social cause and part toward furthering their products or services. Successful social enterprises uphold their social missions and maximize the productivity of their business aspects to ensure sustainability.
Social Enterprises in Action
B Corporations are quintessential examples of social enterprises. According to Harvard Business Review, “Certified B Corporations are social enterprises verified by B Lab, a nonprofit organization. B Lab certifies companies based on how they create value for non-shareholding stakeholders, such as their employees, the local community, and the environment…..Identifying as a B corporation is a way to publicly claim an identity as an organization interested in both shareholder and stakeholder success.”
Companies like Patagonia and Allbirds are examples of B Corps that uphold their social and environmental missions because of the money they make from their products. They wouldn’t be able to achieve their objectives if it weren't for their profits, and they’re helping people and the planet with them.
Social enterprises don’t have to be B Corps to be impactful, though. Some of our clients, like Teneral Cellars and 228 Accelerator, are mission driven companies that are changing the lives of women and students—no B Corp status needed. Teneral Cellars creates exceptional wines and uses them as a conduit for change, donating 10% of profits to organizations that empower women and promote gender and racial equity. 228 Accelerator leads courses that empower a new generation of school designers to create schools and classrooms that put equity at the center of their work.
Nonprofits: Funding → Impact
Nonprofit organizations (NPOs) focus their actions on improving certain social or environmental objectives and rely on grants, fundraising, and donations to do so. They operate with an almost absolute social return on investment (ROI) instead of a financial ROI, which means they put most of their revenue towards their mission statement.
While nonprofits can make money, they’re subject to certain rules to keep their tax and other privileges under local law. They are exempt from income tax, and any donations they receive from outside sources are tax-deductible, unlike all other profit-generating ventures, but they still have to pay employment taxes for their employees.
NPOs are tasked with finding innovative ways to sustain their organizations while managing board and community expectations in an increasingly competitive funding space.
Nonprofits in Action
Nonprofits are known for their changemaking abilities, and are often led by passionate people who make it their mission to positively impact a certain social or environmental objective. One of our clients, the Healing and Reconciliation Institute, is a nonprofit that provides consulting services that support healing and reconciliation, especially for those who are seeking to be in good relations with Indigenous Nations.
Other nonprofits we love include Kiss the Ground, which raises awareness about soil health and regenerative agriculture alongside other 501(c)(3) leaders like the Savory Institute. Nonprofits take economic interest out of the social change equation, which can be challenging operationally, but keeps the spotlight on the purpose of the organization.
Swooning Over Social Enterprises
Social enterprises combine the best of traditional nonprofits and traditional businesses. Social entrepreneurs are inspiring traditional for-profit entrepreneurs to utilize their products and services as a means to impact community social issues and satisfy profit goals, without needing to become a nonprofit organization.
Social enterprises provide an exciting change in today's increasingly competitive and lucrative market. They provide many individuals with funding via consumer franchisee, patent funds, and commercial sources.
Both non-profits and social enterprises have similar goals—serve a community/consumer need and create a social impact. Compared to nonprofits, social enterprises have more freedom because they aren’t constrained in terms of their activities and funding. In some cases, potential funders want nonprofits to demonstrate that they can actually operate and generate revenue like a traditional for-profit business in order to justify funding. Social enterprises can simultaneously generate revenue and still be eligible to seek grants.
There will always be a time and place for nonprofits, but they aren’t the only vehicles for change—for-profit entities can make huge impacts with the right business models and people behind them.
Looking for resources on how to find or become a B Corp? Head to BCorporation.net.
Want to work for a social enterprise? Checkout Idealist.org.
Want help marketing your social enterprise? Get in touch with us.