What is social entrepreneurship?
Tools & Resources
Key learnings...
- Social entrepreneurs create their businesses to address a social issue and often reinvest profits from selling goods and services into the business and the communities they serve.
- While many businesses are doing good things, if a business was not set up for a specific social purpose but aims to maximise profit for owners and shareholders, then this will be considered corporate social responsibility (CSR) and not social enterprise.
- Social enterprises operate in a wide variety of sectors, and they can adopt almost any legal structure.
- The social enterprise business model incorporates social impact for a pre-defined group of beneficiaries, but otherwise operates like other profit-making businesses.
UMi’s Social Entrepreneur Index has been created to celebrate and inspire the incredible individuals who invest their time, energy and passion into driving social change. But who are these social entrepreneurs? What makes the way they do business different? Here, we take a look at this growing sector and answer some of the burning questions.
Defining social enterprise
Social Enterprise UK estimates that there are more than 100,000 social enterprises in the UK, contributing £60bn to the economy and employing two million people.
There is often confusion around what a social enterprise is – there is no official definition – and the lines appear to be increasingly blurred as more organisations embrace this way of doing business.
By most definitions, the social purpose for which the business was created and how its profits are used are the deciding factors.
Social entrepreneurs create their businesses to tackle a social issue, which is often written into the articles of association. They use their business as a vehicle to address inequalities and seek to make a positive impact on marginalised communities.
They also operate in a wide variety of sectors, selling goods and services to generate profit. Typically, social enterprises reinvest the majority of their profits back into the business and communities they serve. Sometimes, they start out with grant funding and are working towards becoming self-sufficient through making a trading income.
The way social enterprises operate is transparent in that they regularly report on the impact they have. Doing the right thing for people and the planet is as important as generating profit. This is often referred to as the triple bottom line.
Many social entrepreneurs characterise their businesses as being non-profits, but others say they are ‘for-profit for purpose’.
Moreover, social enterprises can take nearly any legal form, including cooperatives, community interest companies (CIC), sole traders, private limited companies and public limited companies. Charities may also run social enterprises to make a trading income from selling goods and services, donating the profits to the charity.
Social enterprise vs. corporate social responsibility
Lots of businesses do great things to positively impact on society. They give money to charity, launch initiatives to reduce their environmental impact, create campaigns and pay the living wage. But just because a business engages in corporate social responsibility (CSR) does not mean it can be considered to be social enterprise. Why is this?
It all comes down to the purpose of the business when it is created.
Businesses that set out to maximise profit from the sale of goods and services for the benefit of owners or shareholders are what we might call conventional for profit organisations.
A social enterprise, however, is an organisation founded with a clear social purpose that is at the heart of everything it does.
It is motivated primarily to make a social impact, whereas conventional for profit businesses may be motivated by the desire for customers to think well of the brand, choose to buy from them and make more money for the owners and shareholders.
As consumers are becoming more aware of the potential impact businesses can have on the environment, people and communities, they are making more conscious decisions about which organisations they support with their money. Companies that are not socially responsible may therefore lose customers, which is why so many conventional businesses are looking at the social enterprise model.
To be considered a pure social enterprise, the business must have been created with the intention of selling goods and services on the open market to reinvest the majority of the profits into making positive impact.
What drives social entrepreneurs?
“Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it’s the only thing that ever has.”
Margaret Mead - cultural anthropologist and authorIf a conventional business runs on profit maximisation for shareholders, social enterprises can be said to run on profit for social impact maximisation.
Social entrepreneurs need to keep a roof over their heads like everyone else. However, they create their businesses not to get financially rich, or make others rich, but to help as many people as possible with their chosen social issue. It’s this desire to make a positive difference that drives a social entrepreneur forward.
Many social entrepreneurs have personal experience of the issue they want to tackle too. Their passion often comes from a sense of injustice, a desire to educate and protect, and a desire to make the world a better place.
How do social entrepreneurs run their businesses?
Social entrepreneurs try to make the maximum social impact they can, in as many different ways as possible.
They can adopt any business model, but the difference is that they are always considering the social impact on their beneficiaries in the model.
Some examples of the way social enterprises operate are:
- Employing people who have been long-term unemployed or are disadvantaged in the workplace and training them up to provide a product or service that they sell.
- Providing free or low-cost products or services for beneficiaries, subsidised by the profits from selling products or services at market rate.
- Using waste materials to create new products for sale, for example community cafes that make food from surplus or short-dated ingredients.
- Managing resources for the benefit of a community, for example energy supply or a community hub.
It is easy to get bogged down by the definitions, legal forms and business models of social enterprise. It’s likely that will continue as the sector is growing rapidly.
The key thing to remember is that social entrepreneurs start their businesses to address a social purpose, which will be at the heart of all its decision-making. They aren’t driven by maximising profit for themselves or shareholders – it is to make profit to create more positive social impact.
Next steps...
- This interview features in the Social Entrepreneur Index 2022 digital publication.
- Read Social Enterprise UK’s ‘State of Social Enterprise report 2022’ to learn more about the sector and its impact.
- Check out the British Council’s list of social enterprise support organisations to get help for your business.
- As many of the activities to start and run a social enterprise are the same as other business types, head to the UMi starting a business bundle, to get advice on running your business.