What is a Social Enterprise?
Over the past few years of working in the social impact space, the question I am most commonly asked is “What is a social enterprise?” Since the concept is so new and complex, there are many variations of its definition floating around. A few of these definitions are (mostly) right, but many of them are not. In light of the confusion, I am seeking to clarify exactly what a social enterprise is.
In short, a social enterprise is an organization that has some type of social good (social justice, financial empowerment, environmental good, etc.) built into its business model intentionally. This means the organization, which can be either nonprofit or for-profit, has developed a business that facilitates social good through its operations so that as the business grows, so does the impact. Traditionally we think an organization must fall into either the nonprofit category or the for-profit category, but these organizations blur the line between the two as shown below:
While many types of organizations can fall into the Social Enterprise category, the three qualifying traits consistent among them are that they have (1) social impact, (2) a business model, and (3) intentional structure binding the impact to the business model.
Social Impact
To qualify as a social enterprise, the organization must drive positive social or environmental change through its existence. This is what distinguishes these enterprises from any other business model. Most social enterprises will tie their social impact back to one of the United Nations’ Sustainable Development Goals. The broader areas into which social impact can be categorized are poverty alleviation, reduction of social inequality, improving the environment and creating economic opportunity.
Business Model
For a social impact organization to be an enterprise, it must have a business model based on selling some good or service commercially. What makes social enterprises so innovative is the fact that they take the mission work that historically has been left to nonprofits and create sustainable business models out of it. Impact can be built into a business model in many ways, including responsible hiring practices, sustainable sourcing practices, or selling a socially beneficial product or service.
Intentional Structure
The final element necessary to being a social enterprise is intentional organizational structure binding your impact to your business model. Social enterprises can enforce their intentional structure through their operating policies, governance and even their legal entity type, but both components absolutely must be part of the organization’s long-term strategy and daily operations, otherwise you do not have a social enterprise.
