Social enterprise, or entrepreneurship, is a business paradigm – a distinct premise on which a business is based and developed. This premise is that social change can be enacted through the use of practical, innovative, and sustainable business techniques. Increasingly, this social change can be thought of as the third metric of success in business, the first two being wealth and influence. This third metric is characterized by:
- Investing in businesses that solve problems
- Hiring people in need
- Addressing broad social and economic problems affecting society as a whole
- Emphasizing efforts on the marginalized and poor
Social entrepreneurship cuts across traditional sectors of business and non-profit organizations by seeking to address all aspects of society and not merely emphasizing one area such as education, health, welfare reform, human rights, worker’s rights, environment, economic development, agriculture, etc.
The Difference Between Social Enterprises and Non-Profit Organization
By seeking to champion change within communities and society as a whole and not specializing in singular causes as non-profits often do, social enterprise is allowed to utilize the market forces and leverage profitability into both charitable causes and business growth.
The utilization of income is an important distinction. In general non-profit organizations generate income through private donors and the government. These sources of income have strict rules on how money can be spent – often only to finance the organization’s established programs. For-profit ventures have more flexibility in generating income and its use. This ability to spend their income, as they deem necessary, to both benefit communities and grow the business is key to social enterprise and addresses the sustainability component of social enterprise. Reinvesting in the business and allowing growth and expansion ensures future investment in the community and further solidifies the social change that is taking place.
Another important distinction to be made lies in the set up of social enterprises. Social entrepreneurship begins with social ventures that are actual businesses that implement positive change. In contrast, some socially responsible organizations attempt to adopt business techniques to improve efficiency after their establishment. Social enterprises begin with the same goals as traditional for-profit businesses and function on the premises that social change can be enacted through the use of practical, innovative, and sustainable business techniques, and work to that end.
The Differences Between Social Enterprise and For-Profit Businesses
A defining characteristic of social enterprise is not to maximize financial returns for shareholders, as it is with for-profit businesses, but to grow the social venture and reach more people in need. Profits are reinvested in the enterprise to fund expansion, not simply accumulated. Investors in social enterprises seek to combine financial and social returns on their investment, above simply accumulating wealth.