Social Enterprises (Definition and Different Models)

By Indeed Editorial Team

Published May 22, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

In recent years, socially conscious business development has gained popularity. Social enterprises, frequently referred to as social businesses, focus on this and address a global or local issue. Understanding what social businesses are can help you decide if you want to start your own. In this article, we explain what social businesses are, list how they differ from standard enterprises, review how social businesses utilize their funding, explore the different models of social businesses, identify the different between a social business and social entrepreneurship, example the ideas of social responsibility and ethics, and highlight examples of both social responsibility on corporations and social businesses.

What are social enterprises?

Social enterprises are a type of business committed to improving society. In recent years, the concept of social businesses has rapidly evolved, helping professionals reimagine the social welfare potential of their sector. As with traditional business ventures, social businesses generally seek to maximize profits and operate within the constraints of existing market infrastructure. They also seek to benefit society, frequently using their profits to fund social programming through reinvestment rather than dividend payments to shareholders.

How are social businesses different from standard enterprises?

In the late 1970s, professionals in the United Kingdom developed the fundamental concept of social businesses to counteract the effects of more traditional commercial businesses. These professionals pioneered this concept to mitigate any negative social consequences created by commercial activity. Because of this fundamental structure, social businesses typically operate differently than traditional businesses. While social businesses receive funding through the sale of goods and services, they may also receive funding through unique grant and philanthropy programs.

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How do social enterprises utilize their funding?

Most profits generated by social businesses get reinvested in the enterprise's social mission. These companies continue to focus on developing sustainable revenue streams that enable them to handle their social missions, such as providing access to health care or affordable housing for underserved communities. As consumers and investors gain a better understanding of the impact of their actions, they have direct their purchasing and investing power toward social good. The popularity of these enterprises has recently increased as consumers and business professionals alike have become more aware of the impact of commercial activity.

Popular concepts such as impact investing and conscious consumerism have led to the introduction of social businesses. In impact investing, investors direct their funds toward businesses that aim to benefit society. Conscious consumerism, in which consumers direct their purchasing decisions toward businesses committed to social change, has also influenced this movement.

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Different models of social businesses

There are several models available, depending on an organization's mission, for effectively operating a social business, including:

  • The employment model: Social businesses that use an employment model focus on hiring individuals who may face significant barriers to obtaining employment. They enable disenfranchised communities and individuals to earn a living wage.

  • The transformative model: These social businesses aim to close social gaps directly by developing new products and services. They may employ various strategies to create solutions that alleviate the effects of specific social inequalities.

  • The donation model: These social businesses operate on a donation basis by donating a good or service in exchange for each transaction made through their business. This model enables consumers to visualize the tangible benefits of their involvement in the social business.

Social business vs. social entrepreneurship

It's easy to distinguish between social business and social entrepreneurship. The primary difference between the two concepts is that social entrepreneurship remains fostered by individuals who use established business tactics, whereas businesses that establish themselves as social businesses launch explicitly to address societal needs. To assist you in differentiating the two concepts, here's a brief definition of social entrepreneurship:

Definition of social entrepreneurship

Social entrepreneurs work to address societal issues and develop innovative solutions to meet specific needs. Experts refer to social entrepreneurs as innovators or change agents in their industries, as many work to improve the lives of vulnerable populations and marginalized groups. Social entrepreneurs may launch ventures to address accessibility issues in specific communities by providing essential services, products, or funding. While social entrepreneurs may employ conventional business or financial strategies while developing novel strategies to effect change, they don't do so explicitly for profit. In comparison, social businesses seek to address societal needs while also pursuing commercial objectives.

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Examples of social entrepreneurship

Social entrepreneurship has increasingly incorporated the use of technological assets in recent years. Entrepreneurs can more easily address social disparities within communities by introducing innovative technological assets. For instance, a social entrepreneur may create a mobile application that enables communities to crowdsource information about infrastructure to alert city officials of any issues and establish a pipeline for addressing these challenges.

Social entrepreneurs may leverage pre-existing business infrastructure to give rise to special initiatives that address pressing social issues. For example, some social entrepreneurs have created systems that allow school-aged children to access distance-learning classes by providing them with high-speed internet, mobile devices, and personal computers.

Social responsibility and ethics

The term “ethics” refers to a set of moral principles that govern a business's or an individual's behaviour. Businesses can integrate ethics into their daily operations, especially those that affect other people or the environment. It's important to follow a code of social responsibility and ethical behaviour in interactions within and outside of an organization.

If a business upholds strong ethical standards and maintains a culture of social responsibility within the organization, both the environment and employees may benefit. If a business disregards its ethical standards and engages in socially irresponsible behaviour, such as flouting environmental regulations to increase its profitability, government intervention is often necessary.

Examples of social responsibility in corporations

The following are a few examples of corporate social responsibility initiatives undertaken by businesses:

  • Promoting charitable giving and volunteer efforts: Each year, businesses may provide employees with an opportunity to volunteer with paid time off or donate a portion of their revenue to a charitable organization.

  • Changing corporate policies to benefit the environment: Businesses may modify their policies to benefit employees or their environment. For example, businesses may organize tree planting events, reduce paper waste, switch to energy-efficient bulbs, establish recycling bins, and allow remote work to mitigate the negative affects of commuter traffic.

  • Improving labour policies and embracing fair trade: Businesses may make strenuous efforts to improve working conditions and employee wellbeing. They may provide paid leave and unlimited vacation time to parents.

Examples of social businesses

The business sector has seen the growth of many social businesses that use their daily operations to address various societal needs. To help you better understand the concept, here are some examples of how social businesses might operate:

Microfinancing

Here's an example of a social business that involves microfinancing:

YellowLoan, a subsidiary of a large bank, established itself with the express purpose of providing micro-loans and other forms of financing to those who might not otherwise qualify. YellowLoan places a premium on giving small loans to disenfranchised individuals interested in starting energy-efficient small businesses. The current model, which employs established market strategies, demonstrates the pre-existing importance of providing financial services to underserved communities. By financing these communities it may allow them to achieve upward financial mobility.

Employing formerly incarcerated individuals

Here's an example of a business that hires formerly incarcerated people to provide a public service:

Blue's Kitchen, a locally owned chain restaurant, exclusively employs formerly incarcerated individuals who may have difficulty finding sustainable employment. This company funds culinary-related educational opportunities for their employees, which equip them with the necessary skills to succeed in their roles and elsewhere. Blue's Kitchen sells prepared meals and menu items created by its employees. It also hosts philanthropic events dedicated to uplifting and assisting its employees.

Upcycling materials

Here's an example of a business that benefits the community by upcycling materials:

CoCycle, a raw materials manufacturer, upcycles consumer waste packaging and non-recyclable materials to create new products and materials. The company's primary mission is to reduce consumer waste through smart and innovative product reuse. It sells these materials to businesses looking to acquire low-cost materials while also reducing their carbon footprint. Its recycling network has grown to over 200 corporate relationships over the last few years, resulting in the production of 100% recycled goods.

Offering buy one, give one

This example social business involves a buy one, get one model of business:

Extra Eyes, a glasses company, operates on a donation model, donating one pair of glasses for every pair purchased by a consumer. This company's contributions address disparities in access to vision care and affordable prescription glasses worldwide. It incorporates the cost of the donated pair of glasses into the price of the original pair purchased by the consumer. This means that when Extra Eyes sells its goods to consumers, it can also fund its social business of providing eyeglasses to underserved communities, particularly in developing countries.

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