What’s the Big Deal With Defining Social Enterprise?

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It’s no secret. When it comes to defining social enterprise, things can get confusing quickly.

For starters, are we talking about a mega non-profit that’s been around for 100 years, like Goodwill? Or a new tech start-up selling a life-altering soccer ball that can generate energy for an entire rural village? What about the coffee shop on the corner that only sources fairly traded, pesticide-free coffee beans and donates profits to local charities?

The answer is: Yes, Yes, and Yes – a social enterprise can be all of the above.

Two Necessary Pieces to the Puzzle

There’s been a lot of back and forth recently on the definition of a social enterprise. And rightly so. For example, if both non-profit organizations and for-profit businesses can be called social enterprise, does that mean any venture with social value qualifies? (No.) And wouldn’t that undervalue what social change is all about and render the term meaningless? (Yes.)

The truth is, there are two pieces to the puzzle that must be in place for the label to fit.

Piece #1: There is a social and/or environmental mission at the core of what the organization or business does. Social impact is prioritized as much as economic return – in fact, solving social problems is the reason for that organization’s existence. That’s the “WHY” of the business.

Piece #2: A service or product is sold for a profit to sustain the work and further the social mission. That’s the “HOW” of the business.

That tricky word “social” – and the dangers of social washing

Maybe now you can start to see what the big deal is all about. Having a firm yet flexible definition makes it clear just what social enterprise is and leaves space for an astounding variety of them to grow.

The use of the word “social” contributes to some of the confusion. Imagine a non-profit that offers vocational training for the disabled – but relies solely on donations and grants to do so. That non-profit is definitely serving a social mission. But it is not a social enterprise because there is no service or product sold at a price to sustain their efforts.

And what about traditional businesses like Target donating 5 percent of profits to environmental or educational initiatives? Again, we’re all for seeing corporations acknowledge their social and environmental impact. But Target exists to be a profitable big box retailer. It wants to sell clothes, toys, and fun stuff from the dollar bins – not for social impact, but to maximize return for shareholders.

And that brings us to the “WHO.”

Choosing the right business model for your social enterprise

Defining social enterprise brings clarity about who it actually benefits. The “Who” of social enterprise usually shows up in one of the following ways:

  • Hiring practices – intentionally hiring people related to the social mission you’re on.
  • Conscious sourcing – remember that local corner coffee shop? It captures the who by making sure its beans were harvested by farmers with fair labor conditions and compensation.
  • The actual product or service – think back to that soccer ball. It’s meant to benefit families who need ready and reliable light to read, cook and play by.
  • Profit-sharing – the profits from that product or service are shared with organizations, communities, and people you care about.

What’s exciting is that these aspects refine the definition but leave a lot of room for the ways a social enterprise can organize and operate.

Towards a mission-driven economy

The truth is we care about defining social enterprise because we believe it’s about more than changing one organization. It’s about marrying what’s best in social and environmental causes with what’s best in business.

Supporting social enterprises is part of changing from a marketplace with only financial values at its core to a market that creates social, environmental, and economic benefit for all.

That means social enterprise is not just business as usual. (And that’s a big deal!)