What you need to know about making sound investments that are ethically sound.
Around the world there are many different definitions of social enterprise that reflect the whakapaka of the sector in each of those places. At Ākina we define social enterprise using the following definition (from Social Enterprise UK )
Social Enterprises are purpose-driven organisations that trade to deliver a social or environmental purpose
There are a two important elements in this definition: purpose and trading.
Social enterprises exist for a purpose, which is tied to a social or environmental challenge or opportunity. When we say that an organisation is purpose-driven we are saying that purpose comes before personal profit. It is easiest to think of this distinction through an example.
Large publicly traded companies employ lots of people, which is great because it provides a livelihood for the employees and their families, but generally the company does not exist for the purpose of employing people. Listed companies exist in order to generate and capture wealth for shareholders. That is their primary purpose.
On the other hand, a small community cafe might exist for the purpose of providing training and employment for people who are currently unemployed. The organisation exists in order to provide employment, the cafe is merely the way in which they do it.
Within our definition, the community cafe would clearly be a social enterprise and the publicly traded company would not.
However, not all comparisons are so easy. Rather than sticking strictly to a definition it may be easier for you to think of social enterprise as the space between charity (for purpose) and business (for profit).
To the right end of the spectrum you have businesses that exist solely to extract profit. On the left, you have charities that exist solely for an environmental or social purpose and do not trade. In the gap between you have organisations that exhibit some, or all, of the characteristics of a social enterprise. Some examples might be charities that run second hand goods stores, or businesses that focus on environmental impact through the work they do.
You could think of the spectrum as a more detailed categorisation:
Trading is key to the existence of a social enterprise. Trading is important because it allows a social enterprise to generate its own income without relying on grants or donations. While selling goods or services can be challenging it is vital to the way social enterprises work. Trading allows a social enterprise to have much more control over its income and destiny than grants and donations allow.
When thinking about purpose and trading it makes it easier to think about how we would observe each in action.
We would expect a social enterprise to have two models that explain how they operate; an impact model and a business model.
An impact model shows what the primary purpose of the organisation is and how that purpose is achieved. If you want to know more impact models read our article introducing them .
Impact models come in lots of different forms with varying levels of complexity, but at their most simple they are a diagram showing what the problem is, how the social enterprise helps, and what changes because of that help.
A business model is how the social enterprise makes money. Some business models are more complex than others, but in the simplest form the social enterprise provides a product or service to a customer and that customer pays for it. You can check out different business models by looking at the case studies in our resources.
TOMS Shoes was started by Blake Mycoskie after a visit to Argentina. While traveling in Argentina he started wearing the local shoes made from canvas. He also noticed that many children in poverty ran on the streets without shoes.
Around the world this causes injury, which can lead to disease. Sickness and disease is one of the common reasons leading to decreased education in developing countries.
Based on this experience Blake did a production run of shoes and donated a pair of shoes for every pair he sold. Since starting the company they have given away 60 million pairs of new shoes to children in developing countries. TOMS has also branched out into other areas in order to provide support for clean water, eye surgery, safer childbirth and bullying reduction programs.
The model TOMS operates on is called a ‘Buy-one, give-one model’. For every item sold commercially another is donated. Harvard Business Review have written an interesting analysis of this model.
Who Gives a Crap sells toilet paper to support WaterAid projects in the developing world. Three friends launched Who Gives A Crap with a crowdfunding campaign on IndieGoGo. This was in response to learning that 2.5 billion people across the world don’t have access to a toilet, and that diarrhoea related diseases fill over half of sub-Saharan African hospital beds and kill 2,000 children under 5 every day.
For the crowd-funding campaign Simon sat on a toilet in a draughty warehouse and refused to move until enough pre-orders had been made to start production. 50 hours and one cold bottom later, they’d raised over $50,000. You can still watch the very entertaining video they used.
Who Gives a Crap create impact through a profit generating model. They donate 50% of their profits to WaterAid to build toilets and improve sanitation in the developing world. They are using the profits from their business to make the change in the world they want.
Who Gives a Crap also uses an innovative business model which is crucial to their ability to generate profits for their cause. Rather than selling their toilet paper through supermarkets, they sell direct to consumers via subscription. By selling direct they cut out the intermediaries in the supply chain which allows then to extract more profit for their purpose.
Dine Academy was started in Wellington a couple of years ago by Sonia Tiatia when she saw a need for young people to gain skills and experience that would get them work. The programme is a week-long boot camp for school children where they learn the skills to work in a commercial kitchen or serving customers. Sonia works with local venues like stadiums to host the programme. At the end of the week the participants get the opportunity to work on a real event like a Super Rugby match.
Since starting, Dine has helped 300 participants, and on average 80% get an offer of employment at the end of the programme. Many offers lead onto apprenticeships or more part-time work (during tertiary studies) and/or full time employment because the young people have a proven work ethic based on their employment history which started during their high school years and through school holidays.
From an impact perspective getting young people into employment is a vital contributor to building a stronger economy. People who are employed help contribute to economic growth and do not require as much support from Government services. On top of the economic benefits, there are other important side effects of being employed. Being in employment provides measurable benefits to individual’s mental and physical health.
Dine’s business model is based on the delivery of a service for a fee. The student’s school pays for the student to attend the course as part of their work development.
If you’d like to see more social enterprise examples then visit the case studies section of our resources.
Types of Social Enterprises
Social enterprises tend to fit into one of three main categories:
- Service/Product impact
- Profit generators
- Employment and training
Sometimes social enterprises will be a hybrid of more than one of these categories depending on how you look at it. For example, TOMS Shoes could be seen as either a profit generator or a service/product impact model. By selling their shoes at a premium they are able to generate higher profits which allow them to have an impact by distributing shoes to those in need.
Who Gives a Crap would be a more simple example of a profit generator. The organisation doesn’t have a direct impact by selling toilet paper in developed countries. Instead they use the profit from those sales to cover the cost of water projects in developing countries.
Dine Academy is an example of an employment or training social enterprise. Around the world this tends to be one of the most common types of social enterprise because of the big difference that employment can make in an individual’s life.
If social enterprise sounds like something you’d like to learn more about we’d recommend you read these articles next:
If you don’t have an idea then you’ll want to look at our article about processes to find ideas. If you already have an idea you want to investigate then you’ll want to read our article about using the social lean canvas to design your business.
If you haven’t already, make sure you check out our Intro to Starting a Social Enterprise webinar.