What exactly is a social enterprise?

By Marcus Coetzee and Roger Stewart,  1 July 2012.

The emergence of the phrase “social enterprise” is a positive sign of change. However, the term is often defined in varying ways.

First, we shall define “social enterprise” in the traditional sense; then we’ll discuss how traditional charities can start the journey to becoming social enterprises.

The African Social Entrepreneurs Network (ASEN) defines a social enterprise as “entrepreneurial activity with an embedded social purpose”. Wikipedia describes it as “an organization that uses commercial strategies to maximize improvements in human and environmental wellbeing”. Although both of these definitions are valid, we prefer to describe social enterprises as follows:

A “social enterprise” is a business venture aimed at solving a social problem by selling products or services, to the benefit of its beneficiaries, in order to fund its social purpose. Social enterprises are performance and goal-orientated, much like well-run businesses. Finally they operate with an ethical mind-set and act responsibly towards staff and other stakeholders.

For example, Helderberg Society for the Aged is easily identifiable as a social enterprise – it owns and manages forty one apartment blocks for the aged and provides discounted social housing and services to its tenants. A more extreme example is Pioneer Human Services, in the USA, which employs ex-prisoners to whom it offers social and individual development programmes. Through these employees, it offers goods and services in the open market, which generates more than 95% of the operating income used to fulfil its social purpose.

The essence of our view of “social enterprises” is that they should be “enterprising” – they should be bold, adventuresome, resourceful, energetic etc. They must take some acceptable risks in the pursuit of realising their social purpose and ambitious outcomes.

The legal form of the organisation (private or non-profit, private entity or association) is irrelevant to the definition of social enterprise. In other words, a privately-owned and community-owned social enterprise can operate in the same space. Even though the legal form of a private company permits the distribution of profits to shareholders, a privately-owned social enterprise will use its profits to further its social purpose. A number of organizations have fully embraced the social enterprise business models and have no problem complying with the definition above. A common question is how can more conventional charities (e.g. children’s home) adopt social enterprises principles?

Firstly, an organization can become outcomes-orientated and keep its eye on the financial bottom line. Social purpose organizations can only be effective if they can clearly explain and measure the outcomes they are pursuing (both social and financial outcomes), as well as provide convincing evidence of having achieved them. Unfortunately too many organizations simply report on their activities and make unfounded and philosophical assumptions about what these activities have achieved.

Secondly, an organization should continually strive to improve its performance – its ability better to use resources to achieve its outcomes. This task is only really possible if the foundation created by the previous step is in place. Organizations should examine all business processes, including their blueprint for earning money and delivering social impact, in order to improve them. They must invest in and build both the capacity and capability of delivering on its social goals. They will need to be enterprising, and be willing to question dearly held assumptions, experiment and take calculated risks. They will also need to be mindful of the performance of not only staff members, but also board members. Some organizations appear to exist with the primary purpose of keeping poorly performing staff employed. Furthermore, too many boards fail to perform more than a statutory bureaucratic function when they should be much more engaged in the strategy of the organization.

Thirdly, an organization can stop fundraising and start marketing and selling. Traditional fundraising is akin to licensed begging. Organizations identify some need, explain to donors how bad the situation is and provide appropriate bleak evidence (photos, newspaper clippings and research reports etc.), and then “beg” for money to help solve the problem. While this system of fundraising may have worked in the past, many social purpose organizations struggle to raise money using these techniques and from within this mind-set. We are in tough economic times where international donors are choosing to fund organizations in their own countries and where local corporate social investment funding is already allocated. There is also more competition for funding for a very limited pool of funding – an amount grossly insufficient for the work that must be done.

However, there are some social purpose organisations that are becoming increasingly able to tap into the limited pool of donor, corporate social investment and impact investment funding. These organizations are becoming more professional in the way they work and are more successful in achieving measured social benefit. They are able to identify and clearly describe achievable and measurable outcomes. Most importantly, they are able to develop inspiring sales pitches which address the specific requirements of donors and impact investors and which “push the right buttons”.

These progressive social purpose organizations embrace concepts such as marketing, branding, social media, PR etc. with the same enthusiasm that successful businesses do. For example, the Peninsula School Feeding Association sells sponsorship and quantifiable media value as part of its annual Big Walk. This Association has also recently employed a social media expert and will be launching a campaign around its successes. The bottom line is that organizations must sell success and achievement, not poverty and suffering.

Finally, an organization can develop income earning products or services. Here are two good local examples. Oasis Association is a Cape Town organization which supports and provides accommodation to intellectually disabled people. In order to supplement donations and state subsidies, it also runs a successfully recycling operation, a restaurant and a number of “charity shops”. Another example is Steps Charity which helps children born with clubfoot and educates medical professionals and parents. Steps Charity is busy developing low cost orthotic devices as well as arranging to import and market other orthotics in order to supplement its donations.

There is a tremendous need for social enterprises in South Africa. They are valuable since they are self-financing, create wealth and without compromise sustain and increase their social impact. Not all social purpose organizations are necessarily geared towards income generating activities (other than grants). If that genuinely is the case, they will need to ensure they are delivering measurable social outcomes that are of benefit to their stakeholders and society … they must be professional, well-run, entrepreneurial organizations that deliver social value.

Marcus Coetzee and Roger Stewart are management consultants specialising in business strategy.

In pursuit of strategic clarity

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