Definition
A social enterprise is a type of business that aims to generate profit while also solving social issues or driving positive environmental changes. It reinvests or uses the majority of its profits to further achieve its social or environmental goals. Essentially, it combines entrepreneurial activities with a strong focus on social objectives.
Phonetic
The phonetic spelling of “Social Enterprise” is /ˈsōSHəl ˈɛntərˌprīz/.
Key Takeaways
- Social Impact: Social enterprises primarily look to generate positive social or environmental change. These businesses directly address social needs through their business models and direct a portion of their profits towards their mission.
- Balanced Priorities: Unlike other business models that prioritize profits, social enterprises strike a balance between making profits and achieving their purpose. They focus on creating social value while being financially self-sustainable.
- Innovation: Many social enterprises bring innovative solutions to pressing societal problems. They often thrive in areas where traditional businesses and public sector services cannot reach or have been ineffective.
Importance
The term “Social Enterprise” is important in business/finance as it represents a new kind of organization that operates with the main goal of addressing social issues and creating positive community impact. These enterprises not only focus on generating profit, but also on a double bottom line – social change and sustainability. Social enterprises blend the charitable aspects of non-profits with the business dynamics of for-profits. They prioritize social, environmental or human rights agendas over shareholder profit. Thus, they play a pivotal role in bridging the gap between traditional capitalism and a sustainable economy. By addressing societal needs, they contribute to social innovation and create an inclusive economy where growth benefits everyone.
Explanation
The purpose of a social enterprise combines the worlds of business and social work, aiming to balance the pursuit of both profit and welfare improvements. Social enterprises represent a modern business model where entrepreneurs create and run ventures for societal and environmental improvements, using the revenue generated not only to sustain the business’s operating costs, but also to drive a socially beneficial agenda. In other words, social enterprises do operate for profit, but their primary purpose is to promote social change and to add value to society.As for what it is used for, social enterprises serve as a tool to address various kinds of societal issues ranging from poverty, education, health, and environmental degradation to, even, dissolving barriers to employment for disadvantaged groups. They are a vehicle for innovative solutions to perennial societal issues. Their unique business model often allows them to outperform traditional charities and nonprofits in terms of sustainability and self-reliance, as they do not rely solely on donations or grants to finance their efforts. In essence, the emphasis is on developing market-driven approaches to tackle social issues, thus bridging the gap between corporate success and social progress.
Examples
1. Grameen Bank: Founded in Bangladesh, the Grameen Bank provides microloans to those without credit, who are typically ignored by conventional banks. Their main aim is to reduce poverty by providing individuals the opportunity to start their own businesses.2. Ben & Jerry’s: A well-known ice cream company that set-up their business as a social enterprise. They aim to make a profit but also have a strong focus on environmental sustainability, fair trade, and improving conditions for their workers. Also, they have various initiatives supporting local communities.3. TOMS Shoes: For every pair of TOMS Shoes purchased, the company promises to donate another pair to a child in need in a developing country. This “One for One” business model is a prime example of a social enterprise, where commercial strategies are used to maximize improvements in human well-being.
Frequently Asked Questions(FAQ)
What is a Social Enterprise?
A social enterprise is a type of business that seeks to achieve social objectives alongside profitability. These businesses reinvest the majority of their profits back into benefitting the community or the environment.
What’s the difference between a Social Enterprise and a Non-Profit Organisation?
While both aim to achieve social objectives, a social enterprise is a business that earns revenue, whereas a non-profit organization mainly depends on fundraising and donations for its operations.
What are examples of Social Enterprises?
Examples of social enterprises include fair-trade organizations, employment agencies for disabled individuals, community-owned renewable energy cooperatives, low-income housing corporations, etc.
How does a Social Enterprise benefit the community?
Social enterprises address social and environmental challenges through their operations and use profit-making to sustain their mission, providing community benefits like creating jobs, improving local services or protecting the environment.
Is a Social Enterprise always a small company or can it be a large corporation?
Social enterprises can be any size – from small local cafers to large international corporations. The defining factor is their commitment to social or environmental goals alongside financial growth.
How is the performance of a Social Enterprise measured?
Performance is evaluated by both financial measures and the extent of social/environmental impact. This could include metrics like jobs created, waste reduced, or individuals supported.
Can a conventional business become a Social Enterprise?
Yes, a conventional business can reorient its mission and objectives toward social or environmental concerns and reinvest a majority of its profits to these causes to become a social enterprise.
How are Social Enterprises funded?
Social enterprises generate income through selling goods or services. They may also receive funding through grants, investment, or loans specifically designed for social enterprises.
Who regulates Social Enterprises?
This depends on the location, but typically social enterprises are regulated by the same bodies that regulate other businesses, along with any sector-specific bodies related to their social or environmental goals.
: Can a Social Enterprise be profitable?
: Yes, social enterprises are designed to generate profits. The primary difference from traditional businesses is that these profits are reinvested into social or environmental causes.
Related Finance Terms
- Social Entrepreneurship
- Impact Investments
- Non-profit Organizations
- Corporate Social Responsibility
- Sustainable Development
