I approach “social enterprise” broadly, and this is evident in my writings and talks. I see “social enterprise” as a multi-faceted concept, much like a gemstone will appear differently when examined from different perspectives. Social enterprise is a “concept space”, rather than just a “business space”.
This approach has served me well in my consulting work. It has given me a framework and language to explain things and support organizations on their journey. It has provided social entrepreneurs with increased strategic clarity.
This thought-piece unpacks the six principle facets of social enterprise as I see it.
1. Social enterprise as legal form or accreditation
In some countries “social enterprise” is a legal form and/or an accreditation. Although South Africa does not have a dedicated legal form for social enterprises, it is possible to create the equivalent features within the South African legal and policy context. Furthermore, the fascination identifying or re-creating the “perfect” legal form is frequently based on a poor understanding of how it works in other countries.
I’ve previously unpacked the 10 most common confusions about the legal aspects of social enterprises in South Africa.
South Africa currently has an incomplete or immature policy landscape for social enterprises. Without adequate formal recognition within the fiscal, enterprise development, B-BBEE and the wider policy debate – any attempt to crystallize a more definitive position would be premature and likely an academic exercise.
In the meantime, accreditation is frequently overlooked as a tool for social enterprises. It is both possible and desirable for South African social enterprises to earn an international accreditation such as the B-Corp or Social Enterprise Mark.
2. Social enterprise as a business model
Social enterprise is also a type of business model characterize by three main features. First, the organization has an explicit social or environmental purpose, with which it strives to be congruent. Second, its income from the sale of goods and services to customers contribute a significant proportion of an organization’s revenue. Third, its profits are used to further its purpose, whether these are paid to impact investors or reinvested in the enterprise or directly enjoyed as a premium or benefit by the enterprise’s direct customers.
A lot of work has also been done (e.g. by Kim Alter) to develop typologies of social enterprise models. However, there appears to be no best or optimal business model for social enterprises. Rather, successful enterprises tend to adapt and transition between business models as their context changes. For most enterprises that transition out of a state of donor dependency, this process is organic as products, markets and impact become better understood.
3. Social enterprise as a mindset
Social enterprise is a mindset or way of thinking that all organizations can embrace. The components of this mindset are described in “Think like a social enterprise”.
It is more difficult for organizations to get the mindset right than the social enterprise business model. This is echoed in the mantra that management consultants use, “culture eats strategy for breakfast”, which recognizes the power of mindset and organizational culture over strategy.
This mindset is particularly evident in South Africa’s non-profit sector where organizations have a history of suspicion towards business principles such as income and profits.
Those non-profit organizations that, because of the nature of their work, have been unable to adopt the business model of the social enterprise, have nevertheless benefited tremendously from embracing the mindset and learning how to think like social enterprises. For example, learning how to see their donors as customers can change the way they budget and transact, and learning how to partner with businesses can open new opportunities.
4. Social enterprise as a direction
The is a global convergence between business and non-profit organizations. On one hand, businesses are becoming more sensitive to their role in society. Many have even adopted a social or environmental purpose and moved beyond the superficiality of corporate social investment.
On the other hand, an increasing number of non-profit organizations are starting to apply business thinking and models to help them achieve fulfill their mandate.
Both these types of organizations are heading in the direction of social enterprise.
I’ve always seen social enterprises as a beacon of hope. Businesses that head towards this beacon are likely to significantly increase their social impact. Similarly, non-profit organizations are likely to become more robust and able to generate the additional resources they need.
5. Social enterprise as a journey
It is very rare for social enterprises to magically appear overnight. Rather organizations embark on their journey to social enterprise and emerge as a social enterprise over a 5 year period. This is the strategic time-frame in which organizations can make the necessary strategic shifts.
There are many struggles and setbacks on the journey, as organizations move through difficult transition points. And during this journey, organizations need to master new skills and undergo structural changes.
There are very few mature social enterprises in South Africa. However, I’ve noticed that pursuit of sustainability, which is well represented by social enterprise, is a deep and slow current within the non-profit sector. Thousands of organizations in this country appear to have embarked on this journey, some knowingly while others have just been swept along by the current.
6. Social enterprise as an analytical framework
Social enterprise is a theoretical lens – a method of mapping the components and transactions of organizations that have a social or environmental purpose – a form of reductionism where everything is reduced to its parts and base transactions. I’ve found this technique invaluable when untangling complex strategic situations, and I frequently use it in my consulting work.
The social enterprise framework can be used to identify and label various parts and transactions surrounding an organization. We can ask questions such as: Who is the customer? Who is the investor? Who is the donor? What is the product? What is the mechanism for delivering the social impact? How is money being earned? What is the value being exchanged (i.e. what are you giving and receiving)?
By answering these questions, we can unpack the business model and the relationships surrounding a social enterprise. This will bring strategic clarity and enable the situation to be properly explored.
Thinking broadly and clearly about social enterprise has been incredibly empowering. It has enabled me to draw inspiration from social enterprises and apply it throughout my work. I encourage you to explore social enterprise more deeply and discover what it represents for you.
Thanks to Andy Simpson from Imani Development for some insightful comments on the draft article.