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The What, Why, and How of Social Enterprise

What is social enterprise?

In a previous blog post I shared my reflections after a whirlwind trip to Australia, where I gave the keynote speech at Social Traders (ST) annual conference. Like REDF, ST provides technical assistance and channels financial support to social enterprises, and like both REDF and the U.S. Social Enterprise Alliance, they convene, inform, and advocate for the whole field.  I ended that blog post and my adventure in Australia on an optimistic note, convinced that social enterprise is moving toward a tipping point of integration into mainstream economies, poised to play a growing role in addressing some of society’s most intractable problems. To get the support necessary to make that happen, I noted at the conclusion of my blog post that we need to clarify three things: what social enterprise is, why it is important, and how we unleash its impact.

Why is a definition important?  First, because we can’t understand the value of social enterprise until we understand what it is. Second, if we decide to make special provisions to support social enterprise growth, we need a clear, transparent definition to divide eligible from ineligible entities and calibrate our expectations of the results.

At a high level, almost all business entities contribute to society by creating jobs, delivering needed goods and services, etc.  What distinguishes social enterprise is that:

  • Social mission is predominant. The intentional purpose of the business is, on balance, making a social contribution, which influences all of its decisions.
  • The social outcome has to be clear. In REDF’s case, it is jobs for people who face significant barriers to work. For others, it may be delivery of goods and services to people or communities where the market has failed.
  • Earnings are primarily (i.e. more than half) spent to achieve the social purpose.

Why are social enterprises important? 

History shows us that people have joined together for two primary purposes: to improve their lives and the lives of their family, clan, tribe, or community. From hunting to gathering, farming to food production, trading to banking—and within all economic, religious, and political systems—we are driven and bound together by a fundamental effort to sustain, improve, enhance, and (when we can) sweeten life.

Social enterprise is fundamentally about more deeply embedding that basic purpose of all endeavors into the institutions—for-profit and nonprofit entities—that we use to deliver goods and services. Social enterprise makes social mission the explicit driving force in order to achieve results that the market and governments have not been able to address.

Concretely, more and more people believe that government and businesses—the institutions we have created—are simply no longer delivering adequate sustenance, opportunity, or happiness to enough people. The great corporate and investment structures and public policies that have guided our nation (and, to a large extent, the Western world) are under more stress than ever thanks to the disruptive impacts of widespread international economic and social development and technology.

We are facing the increasingly dangerous polarities that, ironically, led these mainstream institutions to develop, ranging from growing nationalistic calls for immigrant, racial, religious, and ethnic exclusion to militant “anti-establishment” sentiment that seeks to overturn or dramatically alter existing government and business arrangements.

While social enterprise is hardly the cure-all, it is able to deliver specific benefits such as economic inclusion of people who otherwise face insurmountable barriers to employment. As an emerging part of the larger ecosystem of public and private institutions, it nourishes the whole as mainstream businesses and governments bring social enterprises and the people they serve into their supply chains and markets. Social enterprise is part of the profound transition from “shareholder value” to “shared value” that Harvard professor and business strategy guru Michael Porter has been promoting for several years.  And it offers government an alternative to simplistic attempts to privatize services that have too often struggled to meet public demands and expectations.  As the 2015 Global Entrepreneurship Report on social entrepreneurship notes, it is a growing part of economies worldwide.

Mainstream institutions leverage social enterprise to deliver value in a more inclusive fashion—one that better serves the entire society, rather than just a segment of it.

How do we unleash the impact of social enterprise?

Three actions will spur the growth and larger impact of social enterprise:

1. Business and government leaders’ explicit recognition of social enterprise’s as defined here by incorporating it into their policies, strategies, and core business plans

2. Specific incentives that encourage growth:

a. Social procurement (i.e. inclusion in supplier diversity—called social procurement in Australia and the U.K. —affirmative “anchor institution purchasing,” and other government and private sector purchasing programs), and

b. Investments in infrastructure and capabilities (leadership, education, intermediaries, capacity building, evaluation, and outcome data)

3. Widespread communication to the public of the value and results of social enterprise

The American Revolution envisioned our national purpose as supporting “life, liberty and the pursuit of happiness.” It was a dynamic time of change. From its basic principles flowed a constitution, laws, rules, and institutions that have flourished in the U.S. and beyond because they were rooted in essential values, but had the inherent flexibility to adapt to what the times might demand.

This combination of high purpose with timeless form  is resonant of the Aboriginal people who created their art for 100,000 years on their bodies and wooden shields and are now blasting a new path forward – deeply rooted in the past, sharing truths and knowledge that is adapted brilliantly for modern times.  Their philosophy ties together spirituality, morality, and place while speaking to our deepest urge to comprehend and thrive in the world we live in.

In an interconnected world of multinational corporations and intertwined governments, people, and economies, the social enterprise movement is growing. By fusing business models to explicit social purposes that serve human needs, our field offers a revolutionary path forward.  Now is the time for action.

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