What Exactly Is A Social Enterprise? Here Are Four Misconceptions Debunked
The social enterprise is a relatively new concept, a hybrid of sorts between purely altruistic institutions and revenue-generating businesses. The idea was said to have been introduced in 1978 by international development consultant Freer Spreckley. It later came into the spotlight again when Muhammad Yunus, a Nobel Peace Prize laureate who founded micro-finance organisation and community development bank Grameen Bank, used it in his 2009 book, Banker to the Poor, to refer to micro-financing.
Today, there are hundreds of thousands of social enterprises all over the world, addressing social causes from poverty to inclusivity. According to a Deloitte report, the reason for their rise to prominence in the business world can be attributed to the financial crisis of 2008. Although the global economy has generally recovered since then, experts say many people still feel frustrated that financial gains haven’t improved individuals’ lives and society as a whole.
Backing this up, in 2018 BlackRock founder and CEO Laurence Fink wrote in one of his annual letters to CEOs that people are increasingly “turning to the private sector and asking that companies respond to broader societal challenges” and expecting organisations to “serve a social purpose”.
The growing power of the individual as a result of our hyperconnected world is another factor that has led to the rise of social enterprises—and millennials are at the forefront of this era. According to a survey, 86 percent of millennials believe that business success should be measured in terms of more than just financial performance. In many countries, millennials make up the majority of the workforce, and their power will only continue to grow as they enter leadership roles or take over the reins of their family businesses over the next two decades.
Despite the growing pool of social enterprises today, the nature of their business model still puzzles some. We speak to Ken Chua, founder of Singapore-based design and technology startup (these)abilities and a 2020 Gen.T honouree, to understand the idea behind social enterprises and debunk some of the most common misconceptions about them.
Myth: Social Enterprises Are Charities
Neither a non-profit organisation nor a purely profit-driven business, a social enterprise is “an organisation whose mission combines revenue growth and profit-making with the need to respect and support its environment and stakeholder network”, according to Deloitte.
According to Chua, the quickest way to understand what a social enterprise does is to look at the term itself. “Looking at the two words, social and enterprise, you will get the idea that the company must be enterprising and there must be a social focus.”
With this loose definition in mind, he says there’s a spectrum of social enterprises. This includes a non-profit organisation with earned income, which is an organisation that doesn’t rely 100 percent on donations, but generates part of its income through other means such as selling cookies; a for-profit business with a performance goal set based on its social impact; and an organisation with both a revenue-generating entity as well as a non-profit entity, or what he calls a hybrid, where there is "a symbiotic relationship between both entities beyond a traditional corporation's foundation".
The idea is that social entrepreneurs work hard every day because we hope that one day, we will no longer be relevant as solution builders, just happy friends
— Ken Chua
Myth: A Social Enterprise is Equivalent To CSR
A social enterprise is also not a form of CSR, which Chua says can be defined as “doing good with money you made otherwise”. While CSR is seen as more of a company obligation that needs to be fulfilled once a year, social enterprises are anchored by CSV, or corporate shared value. A business concept created by two Harvard professors, Michael E Porter and Mark R Kramer, it drives companies to “make money by doing good”, says Chua.
In fact, more companies globally are identifying with this CSV thinking. According to a recent survey, for instance, 65 percent of CEOs feel that “inclusive growth” is one of the top three strategic concerns—more than three times greater than the proportion of those who rated “shareholder value”.
To Chua, the ideal social enterprise is driven by a mission that’s “reflective of the needs of the community that they’ve come to understand and bond with, but also tied in to the reality of the corporate world.”
Myth: Social Enterprises Are Not Sustainable
“For me, a good social enterprise is able to balance its social impact and financial returns well,” says Chua. While the end goal for social enterprises is to create and scale its social impact while making money, he says the quintessential social entrepreneur “knows not to let the collective expectations of a community detract them from their immediate business decisions, as it's the long game we're playing.”
A social entrepreneur should recognise that if their company is not financially sustainable, its social impact won’t be sustainable either, he adds. “Sometimes, it’s as closely tied as if a company isn’t making money, it’s not making social impact.”
The perception of social enterprises is greatly dependent on public opinion. “How the public usually looks at it is which comes first—social or financial? If social comes first, then okay, it’s a social enterprise. If financial comes first, then it’s just a traditional business even if they’re doing well on the social side.”
For Chua, however, the bigger question is if we can do without the ‘social enterprise’ label. “When working with other companies, I don’t look to see if they have a social enterprise label or certification. Rather, I look at their mission, vision and track record, because I find that gives me much more information about who I’m going to work with.”
“When you look beyond labels and exercise human judgement, you realise there are way more responsible and sustainable businesses out there than what is defined.”
See also: Inside One Foundation's Fight Against Forced Labour And Debt Bondage Among Domestic Workers
Myth: Social Enterprises Are Always Valuable
There’s no doubt social enterprises play an important role in driving social change, but their success is ultimately determined by the community they seek to serve. “Anyone can be a social entrepreneur and put the label on their name card,” says Chua. “But it is the community that decides if they’re actually valuable or not.”
“The communities are able to judge a social enterprise by its leadership—are the leaders there to befriend and work alongside the community they seek to better? And do these leaders make a consistent effort to empathise with the community rather than sympathise? From my own experience, some communities are more critical about this than others because they’ve had so many companies saying they want to help, but end up only doing one-off CSR projects instead of building a lasting relationship.”
For “quintessential social entrepreneurs”, a common goal is to empower their communities with skills that can help them take control of their lives. “This is so, soon enough, the leaders of social enterprises will be individuals from the community,” says Chua.
“The idea is that social entrepreneurs work hard every day because we hope that one day, we will no longer be relevant as solution builders, just happy friends.”
See more honourees from the Social Entrepreneurship category of the Gen.T List 2020.