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Social enterprise models combine business practices and principles with the passion and compassion required to create a fair and just world.

What is social entrepreneurship? Put simply, it’s the use of new approaches to solve old social problems. Throughout history there have been social change agents and activists who have put their societies on a better path. Over the past couple of decades, a distinct, more entrepreneurial approach to alleviating the problems associated with poverty has emerged. That path-breaking generation of social entrepreneurs broke free of the false dichotomy between “it’s a business” or “it’s a charity” to experiment with business models, innovate new distribution and replication methods, and hold themselves accountable for results.

Whether for-profit or non-profit, whether working in education or healthcare or employment, social enterprises all share certain characteristics. The first is innovation. The innovation can take the form of new products and services, new production and distribution methods, or new organizational models. For example, First Book designed a new distribution model to serve low-income children in the US with top quality education content, while mothers2mothers in South Africa tapped into a new labor supply – HIV positive mothers, called Mentor Mothers – to reduce dramatically the mother-to-child HIV transmission rate in pregnant women.

Creating the greatest impact requires leveraging market forces and business practices wherever possible. That means generating income from the sale of your products or services, yes, but it also means driving a relentless results-based focus throughout the organization, just as any commercial enterprise would. This requires strong accountability and auditing systems, robust strategic planning processes, the discipline to measure what’s working and what’s not, and the flexibility to adjust sales channels or product lines accordingly.

This is true whether you are a $130 million B-corp like Revolution Foods in the US, which is helping to change America’s eating habits by providing affordable, nutritious school meals and disrupting the industry in the process, or whether you are Aravind Eye Care Center in India, the largest provider of vision services and the most widely celebrated social enterprise in the world.

Aravind is financially sustainable even though it charges no fees to the 55% of its patient who cannot afford to pay precisely because it is run with hard-nosed business sense. Aravind’s operational efficiencies and specialized functions enables it to reduce costs to $0.50 per consultation; move patients from check-in to post-operative care in less than two hours; and provide consistently high-quality patient outcomes at staggering volumes (15,000 outpatient visits and 1,500 surgeries per day).

In addition to continuous innovation and business practices, social entrepreneurs have two other key characteristics in common. The first is that they maintain an openness to learning. Social entrepreneurship, after all, is a learning process by design. That process involves conceiving a more effective way to address a poorly met need; testing and refining the initial concept; mobilizing the resources and partners necessary to scale the model; and continuously improving the offering through rigorous impact measurement and an openness to incorporate feedback.

Finally, and most importantly of all, social entrepreneurs are driven by values: dignity, access to opportunity, transparency, accountability, equity, and empowerment. They are passionate about the problem they are trying to solve and keep their social mission front and centre as they scale up their impact. In many cases they have left potentially lucrative careers to found their social enterprise, motivated by a desire for a more meaningful purpose or struck by an “aha” moment that compelled them to act.

Organizational models

1. Non-profit social enterprise - A non-profit organization to drive the adoption of an innovation that addresses a market or government failure. The entrepreneur engages a cross section of society, including private and public organizations. There is a dependency on outside philanthropic funding, but their longer term sustainability is often enhanced given that the partners have a vested interest in the continuation of the venture.

2. For-profit social enterprise - A for-profit organization created with the explicit intent to solve a social problem. While profits are ideally generated, the main aim is not to maximize financial returns for shareholders but to grow the social venture and reach more people in need. The entrepreneur seeks investors who are interested in combining financial and social returns on their investment.

3. Hybrid social enterprise - A non-profit organization that includes some degree of cost-recovery through the sale of goods and services. Often requires setting up several legal entities to accommodate earning income and charitable expenditures in an optimal structure.