Social Enterprise: business for society

Mission driven organizations

Social enterprises are social mission driven organizations which apply market-based strategies to achieve a social purpose. The movement includes both non-profits that use business models to pursue their mission and for-profits whose primary purposes are social.There are many who see social enterprise as a method for creating a more just and sustainable world.

There are hybrids of various kinds, such as back-to-back for-profit companies to fund non-profit organizations, and quite a number of new corporate forms being established in different states. In Vermont, for example, there is a new Beneficial Corporation that is proposed. Legislation has been introduced in State Senate that would allow companies to exist for other reasons — providing a social good for the community while returning gains to investors. For example, they will have right to name specific public benefit purposes (e.g. 50% profits to charity, carbon neutral, 100% local sourcing, beneficial product to customers in poverty).

Vermont is a state in the vanguard, for it also offers the L3C (low-profit company), which is a cross between a nonprofit organization and a for-profit corporation – organized as a Limited Liability Company with charitable or educational goals.

B Corporation, of which WorkSavvy, the Startup Owl’s company is a founding member, promotes a new type of corporation which uses the power of business to solve social and environmental problems. BCorp is promoting legislative change to allow for structures like the Vermont Beneficial Corporation and is beginning to have real traction.

An example of social enterprise that I patronize is PACT, whose motto is “Change starts with your underwear”. The purchase of PACT underwear is participation in a social movement: when you buy PACT underwear, you are supporting and encouraging organic cotton farmers, responsible labor practices, and businesses that form partnerships with nonprofit organizations dedicated to positive change in our world.

A social enterprise with which I am personally involved is a ‘bank of last resort’ for micro-entrepreneurs that offers not only money, but dignity and assistance. I am on a loan committee and work as a post-loan technical adviser at Community Capital of Vermont–a 501(c)3 nonprofit community development financial institution (CDFI). CCV provides much-needed access to capital for new and seasoned entrepreneurs throughout Vermont who are unable to secure bank financing. It has a special focus on business startups and individuals with limited income and wealth.

A fellow BCorporation is IGNIA, a venture capital investment firm based in Monterrey, Mexico that supports the founding and expansion of high growth social enterprises that serve the base of the socio-economic pyramid in Latin America. By providing effective responses to the enormously underserved needs of low income populations, both as consumers as well as active participants in productive value chains, IGNIA empowers entrepreneurship and generates social impact while creating attractive financial returns for its investors.

Another B Corporation, in my own state, is King Arthur Flour–that had five employees in 1990, and today has over 160. It is an employee-owned, open-book, team-managed company, with profit sharing and an employee stock ownership program. Their employees have a stake in what the company does, and they believe it shows in every bag of flour.

Making money in itself is not their highest priority. They view profit and wealth-creation as inevitable byproducts of doing things well. As a matter of interest they are America’s oldest flour company, founded in 1790

The Invisible Marketplace

Traditional business models are concerned with issues and people that are visible: investors, customers, staff and immediate community—the stakeholders. However, business now impacts many whom it does not see at the boundaries of the system.

For this reason we have to consider the unintended impact of our business activity: the butterfly effect¹. Considering the ‘unseen’ often also provides opportunities to the entrepreneur.

Think contribution: your enterprise will be making a contribution if it is genuinely doing something of value and does want to survive. Think service: your enterprise can be of service beyond immediate financial reward and get benefits in profusion: learning, new ideas, a sense of playing its part in the world, recruiting motivated staff…

Relocalize the Economy

While we can enjoy the benefits of globalization, there are many things which we have globalized that can be repatriated and relocalized with benefit. It is worth thinking about what we can procure of make locally, in the community of which we are a part. What might we be able to produce locally on our own or with collaborators, given the benefits of

• lower transport cost,
• speedier deliveries,
• better service,
• greater local business support
• personal contact.

A consumer who relocalizes is a localvore: someone who eats food grown or produced locally or within a certain radius such as 50, 100, or 150 miles and the movement is now quite widespread in the US. The principle is being taken up by other industries desirous of appealing to consumers who consider themselves localvores.

The availability of local financial support has been dwindling, as mega banks gobble up local ones. And some cases, then go bust in a downturn. One way forward has been demonstrated by Community Supported Agriculture. Now that model is being borrowed in many other sectors in the form of community supported business—in fields like other food services, books, and manufacturing.

An example of what can be done is the Brattleboro Food Coop (two stores and $16m sales), where I serve as  a Board Member. The BFC exists to meet its shareholders collective needs for a range of purposes including offering reasonably priced food and products with an emphasis on healthy, locally grown, organic, and fairly traded goods, in a welcoming community marketplace. It also exists as a regenerative business that has a net positive environmental impact to encourage a strong local economy. Management is continually seeking new partnerships with producers within a 100-mile radius.

Invigorate the Base of the Pyramid (BOP)

An inclusive business is a sustainable business that benefits low-income communities. Inclusive businesses may engage low-income communities through, among other things, directly employing low-income people; targeting development of suppliers and service providers from low-income communities; or providing affordable goods and services targeted at low-income communities.

BoP, an acronym for “base of the (economic) pyramid,” refers to the approximately four billion people whose incomes are less than $3,000 a year, based on analysis done at the World Resources Institute. BoP – a term first introduced by Professors C.K. Prahalad and Stuart Hart in their 2002 article, “The Fortune at the Bottom of the Pyramid” – has come to designate not the poverty but the potential of the world’s poorest citizens as entrepreneurs, employees and discerning consumers.

A practical primer of microcredit and how it works is by businessman Phil Smith and mircrocredit expert, Eric Thurman; called A Billion Bootstraps Microcredit, Barefoot Banking, and the Business Solution for Ending Poverty, the book should convince you. The ethical case for contributing to the elimination of world poverty is argued effectively in a book called The Life You Can Save: Acting Now to End World Poverty by Peter Singer, Professor of Bioethics at Princeton University.

For an excellent summary of the opportunities for investing at the base of the pyramid, download a copy of KPMG Netherlands’ Profiting from the Poor report. Micro-businesses are proliferating through the use of the mobile phone as a means of deliver—the mobile phone is becoming a key tool for reaching new markets and servicing customers at the lowest possible cost. In South Africa, for example, there are many more mobile phone customers than there are bank account holders.

Take a look at Wizzit, a South African startup that takes low cost transactional banking to the poor through mobiles. Research suggests that there will be 43 million mobile phone owners in the country by 2011 (a 90% market density). The BOP world has a myriad of mobile phone based stories and more than 1.5 billion people in developing countries now have mobiles. In India, there are door-to-door sellers of spices working by mobile and moped.

NextBillion brings together the community of business leaders, social entrepreneurs, NGOs, policy makers, and academics who want to explore the connection between development and enterprise. The goal is to identify and discuss sustainable business models that address the needs of the world’s poorest citizens. NextBillion.net is a website and blog about how business drives positive social and environmental change in low-income communities.

Recalibrate Success

One of the reasons we so often fall into economic downswings and the social suffering that results is that globally we try to measure things in the wrong mix. From the international and nation level on down, we consider progress in terms of Output and Growth.

Using Gross National Product as the evaluator, we convey the idea that doing more beats doing better. There is a huge movement to change the way we calibrate the way we live.

The tiny Himalayan Kingdom of Bhutan measures GNH or Gross National Happiness. The GNH measurement attracts a lot of attention, but is often seen as remote as the kingdom that uses it. At levels nearer to home there are also many efforts, many of which are described by Mark Anielski in his book, The Economics of Happiness: Building Genuine Wealth.

As an entrepreneur, you can make similar decisions about what you measure. Naturally your business has to thrive, but you can join the thousands of companies (big as well as small) that measure the Triple Bottom Line and meet the interests of all your stakeholders.