Myths about social enterprises
September 24, 2012 by Guest Contributor
A version of this article was first published on The Catalysts. The author, Rachel Chan, is a co-founder of MaD, a program that promotes innovation in Asia.
The concept of social enterprises has a long history, albeit manifested under different names and forms.
The backlash against the deficiencies of capitalism in recent years has accentuated the development of social enterprises around the world. However, there is still not a shared consensus on what social enterprises are.
Myth #1: Social enterprises are confined to helping the have-nots
Social enterprise has philanthropic roots in the US and cooperative origins in the UK. More recently, some governments are also trying to encourage the third sector to take a more market-driven approach in providing social goods. Social enterprises are therefore often narrowly seen as organisations seeking to solve the problems of the bottom of the pyramid or challenges in developing economies.
According to the wiki definition, a social enterprise is “an organisation that applies commercial strategies to maximise improvements in human and environmental well being, rather than maximising profits for external shareholders”. Social and environmental challenges are obviously not confined to the have-nots.
Developed economies also have their challenges. Pollution, wastes, obesity, stress-related diseases, aging population, education, housing, workplace relations and work-life balance are a few examples. Therefore it is conceptually inappropriate to limit the scope of social enterprises.
Myth #2: Social enterprise is an euphemism for non-profit
The second fallacy is that social enterprises must be non-profit organisations. To refute this argument, we must understand what non-profit and for-profit mean. A non-profit organization is an organization that does not distribute its surplus funds to its owners or shareholders. A for-profit organization, on the other hand, can do so.
We must also differentiate between ‘for-profit’ and ‘profit maximization’. Whilst the latter should be condemned, there is nothing wrong for organizations to incentivize investors through the distribution of dividends. The distribution of profits should not compromise the enterprises’ social benefits. Since we want more private investors to be involved in the delivery of social goods instead of just relying on government funds and subsidies, there is every justification that a social enterprise can be for-profit.
The social and environmental challenges that we are facing today are enormous. To solve these problems, a social enterprise must be innovative. It can be in the form of technology, product, service, delivery process, customer experience or management. Scalability is another issue, in order that the enterprise can attain maximum impact on the society.
Social enterprises should be a lot more than non-profit organisations in serving the needs of or creating employment opportunities for the disadvantaged. Social enterprises should definitely not be a euphemism for non-profit organisations struggling to develop a viable business model with none or limited innovation.
Myth #3: Social enterprises should always brand themselves as such
Many tech enterprises that do not name themselves as social enterprises are benefiting society tremendously. My favorite example is LinkedIn. Most people will not associate it as a social enterprise. But it is certainly doing a lot of good in connecting professionals around the world.
Another example is Zappos. The happiness culture advocated by Tony Hsieh is creating a lot of good to its employees and customers. By demonstrating the crucial link between the purpose of an organization and sustainable growth, the Zappos culture is also influencing companies around the world in a big way. But I do not think Tony will ever call himself a social entrepreneur.
Because of the confusion and sometimes the unfortunately negative associations of a social enterprise, some organisations and advocates in social innovation have stopped using the term. We are seeing more and more people making references to “impact ventures” or “for purpose” organisations instead.
As Juliet says, “What’s in a name? That which we call a rose by any other name would smell as sweet.” So long as the enterprise is making a difference and creating positive value to the society, there is actually no point in debating whether it is a social enterprise.
This is the approach we take in the Make a Difference (MaD) Venture Fellows Programme. We are inviting young, innovative, do good and do well entrepreneurs to join the Programme in Hong Kong on 24-27 Jan 2013. They can work in diverse sectors from environment, energy, education, medical and health care to technology that enhances productivity and connectivity and management practices that build happy teams and customers.
This Programme aims to celebrate and support difference-making entrepreneurs to scale new heights by connecting them with capital, networks and market knowledge in Asia. If you are MaD enough, please apply via www.MaD.asia by 28 Oct 2012.
About the author
Rachel is the Founder and Chief Catalyst of InnoFoco, a multidisciplinary network of catalysts aspiring to making a meaningful difference to business and to the world through service design and innovation. She is also a co-founder of MaD, a public-private-NGO partnership based in Hong Kong that promotes innovation in Asia.
Find out more about SGE’s research arm: SGE Insights, providing customized in-depth research reports to help you navigate the business of technology in Asia.
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