My friend was recently telling me about his struggle with balancing business development and networking with product development (he’s a virtual reality game developer). He said he needs to expand his network and turn his business into more of a “social enterprise.” I was completely distracted from what he was saying, hung up by the language he was using. While his business provides culturally important, entertaining, and significant experiences for people, it does not constitute a social enterprise. But I didn’t hold this misunderstanding against him, for the misconception is quite common.

A dozen years ago, most people had no idea what a social enterprise was. Today, most people still have no idea what a social enterprise is, but many people think they do. Let’s get some clarity.

Common Misconceptions of What a Social Enterprise Is

Many people are under the impression that a social enterprise is one of the following:

  1. Any non-profit
  2. Any benefit company
  3. A business that leverages social networking

In reality, a social enterprise is a business that uses market-based revenue strategies to power a mission, and that mission is its priority. The effectiveness of a social enterprise is measured by its impact rather than by its profits.

 

 

The broad landscape of non-profit entities often gets lumped in with social enterprises. This is because all non-profits are mission oriented. However, most non-profits are missing the key component of having revenue as their primary source of funding. They depend on donations and grants, year after year, to sustain their work.

For-profit ‘benefit companies’ are attractive to those who are more altruistic and going into business. Incorporating as a benefit company requires that the company adopts standards into its bylaws, to ensure that it operates in a  socially- and environmentally-responsible way . Although a social enterprise can take the form of a benefit company, not all benefit companies are true social enterprises.

In the last decade, we have come to associate the word ‘social’ with social media—Facebook, Twitter, crowdfunding, and crowdsourcing. Social networking has become part of the fabric of our society, so it’s understandable that this new perspective has clouded our understanding of the concept of ‘social enterprise’ which existed before the internet. Let’s be clear – social media is completely separate from social enterprises.

Entity Choice: For-Profit or Non-Profit Both Work.

A social enterprise can be organized as a for-profit or non-profit enterprise (or a hybrid of both). The key is that the organization’s sustained income is generated from revenue (yes, non-profits can make money!). Two considerations for whether a non-profit or a for-profit entity is a better fit for your mission are:

  • whether or not you will be selling non-mission-related products or services, and
  • whether it will be a better fit to pursue startup and growth capital via grants and donations (non-profit enterprises) or through investors and bank loans. (for-profit enterprises)

Could you be a social entrepreneur?

At this point, you may be thinking “I have zero interest in starting a business,” or “I would have no idea where to begin!” Most people become social entrepreneurs not because they want to run their own business, but because they want to address a serious social or environmental problem in the world, and they come to recognize that a business is an effective tool for addressing that problem in an ongoing, sustainable way.

Perhaps you see a problem in the world that gets under your skin. You think about how perpetual it is, about how the world would be a much better place if that problem would go away, and you feel frustrated that no one seems to be addressing that problem. If that’s the case, you may just be poised to be a social entrepreneur.

If you think this may be you, and are interested in what you might do about it, come talk to us.