The 6 Common Myths About Social Enterprises
In an episode of Dragon’s Den (UK’s Shark Tank), an investor says to the founder of a an ethical business pitching for investment - “I am not sure if you are a business or a social enterprise”. The founder also gets certain similar questions asking if she is focused on making profits or making a difference, her personal preference to scale the business globally or focus on community impact.
So what's common to all these questions? In fact, these are some of the commonly heard misconceptions regarding social enterprises.
In this golden era of entrepreneurship, where from Silicon valley to Bali, young minds continue to work on various ideas solving one problem or the other, one group of companies is often debated and misunderstood but has been lot on the spotlight - the social entrepreneur.
However, outside the social enterprise sector, there are still a lot of people who have a lot of myths about the sector. Let’s discuss some of these myths here.
This article is specific to for-profit social enterprises.
1. Social enterprises are about social work only
Not at all. This is the most common misconception that social enterprises are basically non-profit organisations that do social work or social service, and the people working in them are basically volunteers. Social enterprises are mission driven organisations which look to be financially sustainable while creating sustainable impact. However the mission may range from energy efficiency, to financing to sustainable ecommerce. Members of The Green Collective SG such as La Tierra, Olive Ankara & Coopita are perfect examples of enterprises which are impacting lives of artisans while focusing on for profit ecommerce business model.
2. Social enterprise are non-profit organisations which don’t care about making profits
Oh no! Sorry, you are wrong again!. Social enterprises do care about generating revenues and making profits. Unlike non-profits which are dependent mainly on donations and philanthropic funding, social enterprise model looks to be financially sustainable by having a monetisation model attached to the service or the product provided by the social enterprise.
3. Social enterprises cannot be tech startups and are mostly focused on solving social problems at grassroot level
Not at all! In fact, technology is one of the most important tools that social enterprises today use in order to create impact. Social enterprises such as change.org have used the power of technology to change the way activists campaigned for causes and garnered responses. In fact, some crowdfunding platforms such as Start Some Good are solely focused on raising funds for social enterprises. In fact the list of social enterprises using technology as a ‘Force of Good’ is never ending!
4. Social enterprises are niche businesses that are not scalable
While social enterprises mostly start off with solving a specific problem for a community(ies), many of these solutions like any other business model. Let’s take the example of Whole Foods, a global social enterprise is Whole Foods market which was bought by Amazon for US$13.7 bn. Models like these are testament to the fact that social enterprise solutions can be scalable and profitable at the same time.
5. Social enterprises find it tougher to get investments
Leaving aside regular investors, there has been a huge growth in portfolio of impact investors who target social enterprise. As per GIIN, Impact investments in 2017 increased by 58% from 2016 with US$ 35.5bn being invested across more than 11,136 deals.
Increasingly corporate foundations, other foundations, family offices and many conventional investors such as KKR, TPG, Bain Capital are also opening up impact focused funds. Sounds like a wave of change doesn’t it?
6. Social enterprises are a marketing strategy only with no established certification
This is one of the negatives associated with social enterprises in many cases. Though not every country has certifications for social enterprise, countries like Singapore and UK have dedicated bodies like RAISE in Singapore, Social Enterprise UK bodies etc. assess enterprises, their impact model before garnering investment before granting them a status of social enterprise.
In addition to these country specific bodies, certifications such as B-Corp have also emerged as credible and exhaustive measures for social enterprises to develop mission driven organisations within the legal framework.
In its essence, a social enterprise is an organisation which looks to tackle a social problem and create an impact while being financially sustainable. As the world gets complicated and as businesses, governments and civil society combine their efforts to achieve the 17 UN Sustainable Development goals - the social enterprise models across the world will emerge, grow and hopefully manage to create a world where “no one is left behind”.
Written by Mayur Singh