What is a Social Enterprise and Why Would You Start One?

Karin van Vliet

8 years ago

When I started my company I knew I wanted to have a social cause attached to it. I wanted to contribute in a way that would help others where I could. To me, this was a no-brainer. Inspired by other companies, I decided to donate a percentage of sales to a cause that I was passionate about, creating a win-win situation. It meant that my company was about more than just making money. This made me more passionate about making things happen. While I can not yet call my company a social enterprise, it does help to make my business mean a little bit more to me than purely financial gain.

Little did I know that by aspiring to this, I was opening myself up to a whole new world: the world of social enterprises.

I began by looking into social enterprises that I admired to better understand how they worked and what they did. I wanted to know if social enterprises actually have a positive impact. Do they make a difference? Are there any negative consequences? Or is it just the latest trend for entrepreneurs to call themselves ‘a social enterprise’.

In this, my first article, I share more about what social enterprises are and highlight some I admire. The second article will focus more on the impact social enterprises make. The last article will explore whether I think social enterprises are here to stay or if it’s just another entrepreneurial trend.

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What is a social enterprise?

A social enterprise can be described as an organisation that applies commercial strategies to maximize improvements in human and environmental well-being. This may include maximizing social impact alongside profits for external shareholders.¹Or in short, where business and consumers co-create commercial and social value at the same time.²

So we’re not talking about setting up a non-profit or a charity. We’re talking about setting up a business – for profit. It becomes a social enterprise when the business primarily exists to support and solve a social problem.

My business is not a social enterprise, however it was important for me to pick a cause that I could support each year. In 2017, we donated a portion of our profits to Venture 2 Impact and also spent a week volunteering in Indonesia.

A company that donates a percentage of every sale is not necessarily a social enterprise. It’s important to make this distinction since the company’s objectives are different. If a company exists to support and solve a social problem and they use their business to fund a solution, they are a social enterprise. If they donate a percentage of sales and their purpose is to make their business successful while sharing some of that success by donating to a charity, they are not considered a social enterprise. This is because the business doesn’t exist to solve a social problem. How exactly social enterprises support and contribute can vary greatly. I’ll discuss this in my second article – Do Social Enterprises Actually Make a Difference? But first, let me dig deeper into what social enterprises are.

Social enterprises I admire

I’d like to introduce two brands to you that I admire and take inspiration from.

TOMS

When I think of a social enterprise, TOMS³ right away comes to mind. They were one of the first to make big headlines with the 1-for-1 business model. Buy one pair of shoes and TOMS will donate a pair of shoes to a child in need. The model has gotten a lot of attention, both positive and negative, ranging from inspiration to criticism of its effectiveness.

Personally, I was inspired by TOMS’ founder Blake Mycoskie’s story and initiatives. Of course, I whole-heartedly agree that whatever social enterprise is launched, it needs to have a positive, long lasting impact. I also believe that, without trying, you won’t know what will or will not work. Trying helps you learn and then you can improve. This is exactly what TOMS is doing.

As mentioned, TOMS got a lot of criticism and they took it to heart. They asked a group of academics to investigate whether their 1-for-1 model had an impact on the local economy – positive or negative. Their initial findings showed that giving away shoes didn’t have a negative impact on the local economy: people were not significantly buying less shoes than before.

However, further studies revealed some more worrying findings. Firstly, among the children and families that received shoes, there was an increasing belief that others should take care of them instead of their own responsibility towards themselves. Secondly, there was no significant or positive impact on general well-being, foot health or self esteem.

I just want to point out two side notes here. One, other types of development work may give similar responses. Two, the slightly more dependency mindset might be acceptable, when the development work is given in the right context. In this case, kids that didn’t have shoes, needed shoes and wanted to wear them. This is key across the board of development work in order to have any positive impact: the receiver needs to want what you offer in order to use it.^4&5

The results of these studies prompted TOMS to change direction in what projects they supported. While they still follow the 1-for-1 model, they’re looking at ways to make a bigger and more lasting impact. I assume this is why they don’t advocate the straight forward ‘buy-one-give-one’ anymore in their communication. Instead they say ‘With every purchase we help a person in need. One for One^®’. They now offer support across different areas. From giving shoes, to eyesight surgery, water access, safe birth and prevention of bullying.

Thankyou.™

Another company I find highly inspirational is Thankyou.™ in Australia.⁶ They launched in 2008 when founder Daniel Flynn (then aged 19) learned about the World Water Crisis and how, at that time, over 900 million people didn’t have access to clean water on a daily basis. Yet, the water business in Australia alone was worth $600 million. He came up with the plan to launch a water bottle, sell it and 100% of profits would support clean water initiatives.

You would think this was an easy sell and that people would support this. I mean, buying water as you normally do, yet at the same time helping to give clean water to those in need? Who wouldn’t want to do that?

Surprisingly enough, it took Daniel and his friends over three years to launch and actually get somewhere with their business. Trust me, it didn’t take them this long because they weren’t original or innovative. From a marketing point I can learn a lot from them.

They currently offer not only water, but have expanded their product range to food, body care items and, since last year, babycare. Every product supports causes in line with the product category, whether it is safe water, food, hygiene, sanitation services or maternal programs to improve safe childbirths.

I thought at first, this can’t be true and at the same time, how admirable. Launching a business for such a cause at that age – really impressive. While reading more about it, I found that the critics were present here as well. Whether it was the Christian background of the founders, the trustworthiness of the (Christian) charities they supported or salaries, share and/or stock options the owners had, even the actual realisation of projects have been called into question.

Call me naive if you want, but I find it a bit sad that companies like this can’t do something good without most people doubting if they have any ulterior motives.

In the case of Thankyou.™, every critic has been silenced or addressed gracefully by Daniel or his team and they keep going strong. I completely fell in love with Thankyou.™ last year when they launched their book. I have a soft spot for books, actual paper books in particular. Although I’m addicted to my kindle at the same time. That’s a story for another time. Daniel wrote the book and called it Chapter One⁷, since they’re still in the midst of writing their story, hence I eagerly await a Chapter Two at some point.

Thankyou.™ launched this book to fund their baby care line. In line with their purpose, they don’t use profits for expansion and they don’t take outside investments. Everything about this book launch was original and different.

Firstly, the book was printed in landscape compared to the traditional portrait orientation. Secondly, the book didn’t have a price tag. You could pay what you want. Yup, you heard that right. Thirdly, all profits from the book were used to launch their baby care line. After hitting their initial goal, they set a new goal of launching in New Zealand. They hit that goal too and their new goal is still ’Top Secret’ and to be revealed.⁸

I could go on and on about what inspires me about Thankyou.™ but I think you get my message.

In my opinion

Whether you like the companies TOMS or Thankyou.™ or believe in their business models or not, they try. They make an effort to help others and support communities that can use help. Is this always given in the right way? Perhaps not. Does that mean we should all stop trying? Absolutely not I would say. Growth is uncomfortable but we can’t shy away from it if we want to make change happen.

Do they launch these initiatives with the right intentions?

I definitely believe so. These companies show they have a soul, a bigger purpose than themselves, a passion and that shows in everything they do.

In my next article I will be discussing how social enterprises contribute and if they make a difference.

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Sources:

To find out more about Karin and her business EATSingapore, read 12 Fantastic Restaurants in One EATSingapore Keepsake Book.

Disclaimer.

The views and opinions expressed in this article are of the author and do not necessarily reflect the view of vanillabeige.com or its founders. Assumptions and reviews of companies discussed in this article are based on open source information only. This article in no means tries to have an answer for the complex questions of what impact social enterprises have or how governments/NGO’s/aid-agencies/social enterprises should be run – it’s merely an attempt by the author to understand it better and share this with others.

Images have been sourced from stocksnap.io, toms.com and thankyou.co