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.
Aging populations in developed countries is a problem social enterprises can solve. Photo: ell brown
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
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