The rise of technology and digital access has allowed businesses to sell us meal kits online, connect strangers and lovers and send individuals down rabbit holes of viral short clips and cooking shows. But each innovation brings us closer to what exactly? Summed up, we’re getting convenience – quicker and more effective ways to consume dollars, calories, affection and time.
While blossoming businesses with “Uber for X”, “tech-driven XYZ” models have profoundly generated revenue across markets and raised billions of dollars, what happens when a select group of business-oriented individuals use their talents (and profits) for the greater good? For plugging forgotten but gaping holes in our world’s fabric such as food waste and limited access to proper healthcare and education?
Then we have, ladies and gentlemen, the social enterprise.
What is a social enterprise (SE)?
And why is it important to know?
“We need more clarity – investors and consumers need to know what they are getting themselves into when they say that they support a social enterprise,” – research associate Roshini Prakash at Asia Centre for Social Entrepreneurship and Philanthropy.
As an investor, it must be clear if you’re only keen on companies with purely profit-driven ambitions and a quick exit. SEs tend to be long-term plays with heavy reinvestment back into the community versus pockets.
As a socially conscious consumer, you don’t want to spend your hard earned dollars at a company using buzz words such as ‘sustainability’ and ‘social justice’ to sell more, while making little positive impact as promised in their mission statements.
Definitions are plenty, while actual SEs are few.
For example, to be legally government-certified as a SE in South Korea, the company must re-invest two-thirds of profits into a social purpose and at least 50 percent of revenues must come from business, and not pure charity.
One of the largest SE incubators in Singapore, on the other hand, provides a more loose definition of what a social enterprise is: “businesses that work to drive profit and intentionally address social issues, improve communities, and provide employment opportunities.”
Out of the many definitions out there, the most accurate one is provided by Investopedia:
A social enterprise is a commercial organization that has specific social objectives that serve its primary purpose. Social enterprises seek to maximize profits while maximizing benefits to society and the environment. Their profits are principally used to fund social programs.” – Investopedia
By upholding this definition, companies claiming to be SEs can be smartly filtered out with a few clarifying questions:
- A social enterprise is not an NGO (non-government organization), it is a business that makes money – is your company profitable and does not rely on charitable donations as a means of positive economics?
- A social enterprise has a primary goal to maximize benefits to society – what is the vision of the company?
- A social enterprise must allocate the majority of its profits to fund social causes – what percentage of your profits go back into the community (after subtracting operating costs)?
The three factors above are what make a social enterprise stand out from traditional non-profit organizations also aimed at creating positive social impact. SEs only exist if they have and implement a viable business model like any other high-growth startup to increase likelihood of success.
And while not every social enterprise needs to be tech driven, given today’s average consumer and user journey starting point (i.e. Google search, online forums, etc.), it would be hard to build an enterprise without a digital footprint to reach critical scale. The goal is to stick around for longer, reach more people, and generate continuous revenue to spend less time on bureaucracy and fundraising.
With this definition, ride-hailing is not a social enterprise, food delivery companies are not social enterprises, most ecommerce companies are not either, and even some so-called ‘sustainable fashion’ companies cannot be called SEs.
2019 and beyond will bring a wave of social enterprises that take centre stage over trend-chasing startups. Their impact will only be seen if and only once consumers make smarter decisions and scrutinise the businesses they choose to support. Where do you source your produce / raw materials? What happens to the left overs? What’s your carbon footprint?
65 percent of Gen Z (born 1995 – 2010) try to understand the origins of what they buy – where it is made, what it is made from, and how it is made. 80 percent will not buy goods from companies involved in scandals.
The demand for sustainability, social responsibility and ethics from consumer facing establishments is rising presenting.
The world’s biggest problems are also the world’s biggest business opportunities.” – Peter Diamandis
There are incredible companies out there providing what the new wave of consumers are demanding. How will your business remain relevant with the new wave of consumer and prove its keeping up with the times?
Follow ca(o)se on WordPress or Facebook for the latest news on social enterprises changing the world. I’ll be releasing an article each week that dives into the business model and impact of a different SE for the #SOCIALSPOTLIGHT series.
Step by step, ferociously.