Social enterprise is a growing and innovative business model that combines the power of entrepreneurship to create positive social and environmental impact. This guide delves into the key concepts, challenges, and opportunities of social enterprise, providing insights and resources for anyone interested in supporting or starting a mission-driven business.
Social Enterprise is a business model that aims to create social impact while generating revenue. At Sopact, we are passionate about helping social enterprises measure their impact and achieve their goals. Through our partnership with Miller Center for Social Enterprise, we have helped over 1300 social enterprises develop impact measurement strategies and certifications to raise capital and grow.
Measuring social impact is crucial for social enterprises as it helps them to understand their strengths and areas for improvement. With Sopact's actionable approach, social enterprises can easily create and track their impact goals, leading to better decision making, increased transparency, and, ultimately, more effective solutions for social challenges. However, developing an impact measurement strategy can be daunting for some social enterprises, and that's where our partnership with Miller Center for Social Enterprise comes in.
We invite you to start your journey towards creating a meaningful social impact with Sopact's impact strategy app. Explore our library of strategies, training, and examples, and review our impact strategy video to learn how to get started. Let's work together to make a positive impact in the world.
Social Enterprise Guide
Impact of Social Enterprises:
Social enterprises can have a significant impact on society and the environment. This can include creating jobs and economic opportunities, promoting sustainable development, and addressing social and environmental issues such as poverty, inequality, and climate change. The Body Shop has a long-standing commitment to the ethical sourcing of ingredients and campaigns on issues such as animal testing and human rights.
Challenges and Opportunities for Social Enterprise:
Social enterprises face unique challenges, such as balancing financial and social/environmental goals and measuring their impact. However, there are also many opportunities, such as access to impact investment, government funding, and growing consumer demand for socially and environmentally responsible products and services. Real-world example: Patagonia, a clothing company that donates 1% of its sales to environmental causes and is a leader in sustainable business practices.
Financing and Investment in Social Enterprise:
Financing and investment are crucial for the growth and development of social enterprises. Impact investors, such as venture capitalists and philanthropic foundations, provide financial support for social enterprises in exchange for a social or environmental return. Government funding and grants, as well as crowdfunding, are also available for social enterprises. Real-world example: Kiva, a microfinance organization that allows individuals to lend small amounts of money to entrepreneurs in developing countries through an online platform.
Government Support for Social Enterprise:
Governments worldwide recognize the potential of social enterprise to create economic opportunities and address social and environmental issues. As a result, many governments support social enterprise through funding, policy, and regulatory frameworks. Real-world example: The UK's Social Value Act, which requires public sector organizations to consider the social, economic, and environmental benefits of their procurement decisions.
Case Studies of Successful Social Enterprises:
Many social enterprises have achieved significant social and environmental impact while generating financial returns. There are many examples of successful social enterprises from around the world, spanning various industries and addressing various social and environmental issues.
A real-world example is Greyston Bakery. Grayston bakery hires and trains individuals from marginalized communities, such as the homeless and previously incarcerated. The bakery operates a community center providing job training and childcare services.
How to Start a Social Enterprise:
Starting a social enterprise requires a combination of business acumen and a passion for social and environmental impact. This can include researching potential market opportunities, developing a business plan, and securing funding.
A real-world example here is the Eden Project. Eden Project is an educational charity that operates visitor attractions in Cornwall, UK, and uses the revenue generated to promote sustainable living and conservation.
Social Enterprise Impact - Training and Case Study
Measuring and Communicating Impact in Social Enterprise:
Measuring and communicating the impact of a social enterprise is essential for demonstrating the value of the business to stakeholders and potential investors. This can include using impact metrics, such as the number of jobs created or reduced carbon emissions. It can also share qualitative results by sharing stories of the social and environmental impact the enterprise has had.
A real-world example is B Lab, a nonprofit organization. B Lab certifies and supports B Corporations and helps them measure, compare and improve their social and environmental performance using standardized Impact Assessment.
Miller Centered teamed up with Sopact to help social enterprises become impact management ready to make data-driven decisions. Social enterprises present their outcome-based dashboards, impact learning, and impact thesis.
The workshop series will take a step-by-step approach to learn how to map the data to prioritized outcomes, collect or connect data sources, and get material insight into the enterprises.
Social Enterprise Objectives
All social enterprises' modus operandi is to achieve a financial goal, along with social and environmental goals. Still, they can adopt any legal form and are generally classified by the categories listed below :
- Trading enterprises
- Financial institutions
- Community-based organizations
- Non-governmental organizations with the commercial arm
Types of Social Enterprises:
Social enterprises can b for-profit, nonprofit, or hybrid. Cooperative and B-Corporations are also one type of social enterprise. Cooperatives have been around for decades, with many successful such as Amul in Dairy. An excellent example of a social enterprise is the Self Employment Women Association (SEWA), a trade union of 2.5 million underprivileged women.
B-Corps are the fastest-growing examples of social enterprises. A real-world example is Warby Parker, which donates a pair of glasses for every pair it sells.
The Business Model of Social Enterprise:
Social enterprises use a variety of business models to generate revenue and achieve social or environmental impact. These include social entrepreneurship, impact investing, and the triple bottom line. Social entrepreneurship is creating a new business or organization to address a social or environmental problem.
Impact investing is investing in companies, organizations, and funds to generate measurable social and environmental impact alongside financial returns. The triple bottom line is a framework that considers a business's financial, social, and environmental impacts. Real-world example: Grameen Bank, which pioneered the concept of microfinance and has provided small loans to millions of low-income entrepreneurs in developing countries.
- 01 Trading Enterprises
- 02 Financial Institutions
- 03 Community-Based Organizations
- 04 Non-Governmental Organisations with commercial arms
Definition: Trading enterprises are a type of social enterprise in which associations of people are united to meet common economic and social needs through jointly owned enterprises. These enterprises are organized by and for their members by providing a shared service with which they benefit. They may vary in size and may be large enterprises such as John Lewis Partnership in the UK, to medium-sized enterprises owned by their staff to very small co-operatives. Besides their size, they may differ based on employee-owned or membership-owned enterprises.
Definition : Financial institutions are social enterprises that help their members to save and borrow money as well as provide loans like banks. These institutions are owned by members and exist to serve their members to support community development on a local level to improve financial inclusion rather than seeking to earn a profit. These institutions may take the form of credit unions, micro-credit, co-operative banks.
Community-based organizations are local membership based registered groups that work for the benefit of the community at the local level. These organizations trade commercially and are owned, set up and managed by the local community. They are locally formed, locally staffed and usually exist for specific purposes that are specific to the location they operate in. Being local, they have access to limited resources depending on the geographical location of the CBO and the community it serves.
Definition: Non-Governmental Organization are non-profit organisation that does not rely on grants and donations, but instead earn income through selling goods and services.
Social Enterprise Examples
Social enterprises are broadly applied to business, focusing mission a driven approach. You can find them in various structures, themes, and profitability alignments. Here are a few examples for your reference.
1. Fairtrade organizations or Microfinance organizations are examples of Trading Enterprises.
Divine Chocolate is the world's first farmer-owned fair trade chocolate brand, established in 1998. It aims to deliver irresistible treats made from Ghana's "best of the best" cocoa. It is a social business to support the kaupapa Kokoro cocoa farmers to receive a fair trade price and premiums.
2. Financial institutions can take the form of credit unions, micro-credit, and cooperative banks.
Trade Union and Coop
SEWA Bank is a cooperative bank based in India that works with poor self-employed women to provide credit to empower them and reduce their dependence on money lenders.
3. The “Recycled Orchestra” is a Community-Based Organization developed in one of the poorest slums in Latin America, Cautera (Asuncion, Paraguay). They aim to develop the area and provide opportunities for the local community. Since the creation of the project, they have set up a music school and a youth orchestra that performs internationally.
4. BRAC is an example of Non- a governmental organization with commercial arms. It is an international organization based in Bangladesh that works with isolated people in poverty by finding practical ways to increase their access to resources, support their entrepreneurship, and empower them to become change agents.
Read More: The Impact Management Journey of Sustainable Social Enterprises
Social Enterprise and Corporate Social Responsibility:
Corporate social responsibility (CSR) is the commitment of businesses to contribute to sustainable development by considering economic, social, and environmental impacts. Social enterprise takes CSR one step further by embedding social and environmental impact into the core business model and strategy.
A real-world example is Ben & Jerry’s, a popular ice cream franchise. Ben & Jerry's is a Certified B Corporation. It also has a history of using its business as a force for good by addressing issues such as climate change and racial and social justice.
Social Enterprise and Sustainable Development Goals:
The United Nations' Sustainable Development Goals (SDGs) provide a framework for addressing the world's most pressing social and environmental issues. Social enterprises can play a significant role in achieving the SDGs by using business as a force for good. They can create economic opportunities while addressing poverty, inequality, and climate change. Real-world example: D-Rev, a non-profit product design company that designs and delivers medical technologies to improve the health of people living in poverty.
Inclusion and diversity in Social Enterprise:
Social enterprises can promote inclusion and diversity by creating economic opportunities and addressing marginalized communities' specific needs and challenges. Real-world example: The Greenbelt Microgreens, a social enterprise that trains and employs people with disabilities to grow and sell microgreens.
Social enterprise and public policy:
Social enterprise can play an essential role in shaping public policy. Social entrepreneurs and organizations can engage with policymakers to advocate for policies that support the growth and development of social enterprises. In addition, they often share their experiences and insights on addressing social and environmental issues.
A real-world example here is Ashoka. Ashoka is a global organization that supports social entrepreneurs and engages with governments and other organizations to promote policies supporting social enterprise and social innovation.
Social enterprise and cooperatives:
Cooperatives are a type of social enterprise owned and controlled by their members, who share a joint social or environmental mission. Cooperatives can be an effective model for social enterprise, as they can promote economic democracy and community ownership.
A real-world example in this category is Mondragon Corporation. They are a federation of worker cooperatives based in the Basque Country, Spain. Mondragon operates in various industries and is one of the largest business groups in Spain.
Social Enterprise vs Nonprofits
A social enterprise is an organization or venture (within an organization) that advances a social mission through market-based strategies. These strategies include receiving earned income in direct exchange for a product, service, or privilege.
Nonprofits and social enterprises seek to serve community needs and create social impact. However, the fundamental difference between both is the source of funding. A non-profit is an entity that works for the benefit of the people and environment without making any money with its endeavors. They rely on funds from companies, individuals, and governments.
In contrast, social enterprises are not dependent on outside donations for their cause but generate revenue from their product/services. This defines the commercial nature of the social enterprise. In essence, a social enterprise is an entity that achieves its social mission through market-based strategies. These strategies include generating revenue in direct exchange for a product or service. This unique feature of social enterprise makes it more sustainable rather than being dependent solely on external donations for its existence. Social purpose organizations (both nonprofits and social enterprises) should develop a theory of change based on the guidelines designed here.
The recent economic downturn has to lead a decline in funding for nonprofits, and they are finding it extremely difficult to access grants and funding for their programs. Some nonprofits are adopting social enterprise models to create self-sustaining programs by charging fees for their services as well as selling products. This model allows them to diversify their funding, improve their sustainability, and support them in pursuing their social mission. However, nonprofit social enterprises have the risk of balancing their nonprofit mission with their profit-driven goals and being realistic about their organizational capacity to initiate a business endeavor.
Social Enterprise Funding
Social enterprises are fuelled by the desire to change the world for the better.The funding landscape differs from one social enterprise to another based on its operating model combined with a set of constraints, opportunities, and vision for growth. Besides this, they also face various constraints from potential funders based on jurisdiction, specific focus, or work in a particular geography or area of impact. Despite this, it is quite essential to build a sustainable funding model to realize the social impact on a meaningful scale. However, raising funds can be a challenge for these social enterprises.
Let’s evaluate potential sources of funds for social enterprises. The funding sources differ based on the stage of the social enterprise.
- 01 Boot-strapping
- 02 Crowd-funding
- 03 Competitions
- 04 Grants
- 05 Venture Debt Funding
- 06 Angel Investment
- 07 Venture Capital Funds
- 08 Impact Investing
- 09 Accelerators & Incubators
This type of funding from competitions can be a great opportunity for both exposure and funding for a social enterprise even if they do not qualify for the prize money and make it ‘investment ready’.These competitions provide a platform for greater exposure to the community(if local), as well as potential funders, supporters, and partners. They generally include judging criteria that forces participants to clearly articulates the core elements of business,
While all the above funding options are for startups already doing business, incubators and accelerators resemble prep schools for early-stage social enterprise. These programs run for four to eight months, where they provide entrepreneurs with funding and a platform to connect with investors, mentors, and other startups. On the flip side, accelerators are not free. The charges may vary from a fixed amount of startup funding for a small percentage of equity, or a nominal fee. Unlike Accelerators, incubators have a shared space in a coworking location, a month-to-month lease program, and mentoring with some connection to the local community. Incubators may not offer any direct startup funding but form an integral part of starting your business through their mentoring and logistical support.
Measuring social impact in social enterprise
As a social enterprise, your mission and purpose are central to your existence and reason for being. Delivering on that mission is extremely important for your work, so having definite proof of how you are achieving your mission is paramount. Social impact measurement is defined - as the measurement of social change to show the value your social enterprise is delivering to its beneficiary and society. This change could be positive or negative or an unintended consequence of an action that needs to be considered.
Impact measurement focuses on commonly accepted evaluation techniques such as social return on investments, outcome-based data reporting, and randomized controlled trials. While methods and resources to measure impact vary, this approach requires systematic data collection from stakeholders. The only way to understand the impact is to communicate with the stakeholders. Sometimes social enterprises even adopt top-down solutions that are pushed onto the stakeholders without communicating with them. This forms a recipe for impact washing.
Centering stakeholders necessarily means centering their experience. Successful social enterprises adopt this methodology to get a strong understanding of their impact through their stakeholder’s eyes by adopting bottom-up solutions.
Impact measurement and management (IMM) done right must always include the stakeholder’s voice. If done correctly, it highlights areas where improvements are required and helps you understand, manage and communicate the social value that your work creates clearly and consistently. This increases the engagement from external donors and volunteers to see the progress they are contributing towards. Unfortunately, it may also lead to impact justification rather than continuous learning and improvement.
Sustainable Social Enterprise
Impact measurement and management is a valuable tool for social enterprises to achieve faster growth in improving product-market fit, services-market fit, and program-market fit. This approach is centered around stakeholders by collecting data to get an understanding of their needs, ensuring that the investment focuses on the right demographics, outcomes, contribution, and scale/ depth of impact.
Impact measurement and management is beneficial to social enterprises that believes in a data-driven approach to ensure faster success. Using data that is compelling and convincing is a huge advantage to convey the essence of social, economic, and environmental impact of work of social enterprise. However, most social enterprises often struggle with a number of challenges, like data manipulation, data unification and integration with data sitting all over the place. For example - google spreadsheets, CRM and marketing systems, donor or case management systems. The real challenge comes when trying to interpret data from these multiple sources and most of the time fail to convey the full impact of their work.
Having unified data is one of the most efficient ways to drive and demonstrate social enterprise growth. Social enterprise growth also depends on investment.
Even Investors and funders want clear data that demonstrates your organization's impact. Impact management and measurement goes hand-in-hand with other business data when creating centralized enterprise dashboards to demonstrate this social impact that you are creating on the society and environment. These tools allow you to make smart, data-based decisions and understand the value you’re creating for the stakeholders you serve helping your social enterprise to grow.
Sopact recommends social enterprises to adopt an impact experiment-based approach to achieve the most effective results. The figure below explains how you can start this process by connecting existing data to dashboards, identifying gaps, and focusing on key outcomes to improve outcomes continuously.
Read More: How can clean energy social enterprises boost their impact?
Social Enterprise Consulting
Impact Measurement Management is quite challenging for social enterprises with limited expertise and resources as tracking and management of impact factors consume a lot of time and resources. There is an ever increasing demand to demonstrate social impact to both funders and stakeholders.
Most often Social Enterprises seek help only when they aren’t able to measure the impact which begins with identifying outcomes, designing a survey for collecting data using appropriate tools, and then reporting the results efficiently.
Social impact consulting using appropriate technological tools and advisory can help social enterprises to save time and effort in the long run. It also helps them to measure the effect they have on the community and environment. Social impact consultants can be helpful to social enterprise development as they combine strategic and technical expertise by providing high-quality advisory in impact management and measurement (IMM) to optimize impact for continued growth.
Social Enterprise Case Study
ABALOBI helps small-scale fishers to participate meaningfully in the seafood value chain to promote digital and financial inclusion. ABALOBI achieves its mission through the joint development of Technology for Social Good.
Social Impact Accelerator
Demonstrating social impact is critical to any social enterprise. Social enterprises can be mired in creating complex theories of change, indicators, and reporting requirements of various donors. With limited resources, young social enterprises face challenges where to start impact measurement and management.
Social impact incubators and Social impact Accelerator support social enterprises in various stages to foster growth. Social impact incubators (SIIs) support social enterprises (SEs) in their early business stages to foster and develop their hybrid objectives whereas Social Impact Accelerators focus on financial and business support. They play a critical role to create impact management capacity for the social enterprise ecosystem and work with social enterprises that have moved beyond the idea stage and have already set up their business or perhaps may have some programs/ services in the community. Social Impact Accelerators provide a breeding ground for early or growth-stage social enterprises to create a holistic ecosystem to accelerate their social impact and benefits to society and the environment by providing the tools and training as well as connecting them with funders, and technical expertise, mentorship.
Read More: Accelerating Change for Social Enterprises: The Miller Center
Social Enterprise Accelerator Programs
The Miller Center for Social Entrepreneurship is one such social impact accelerator. The Miller Center works to foster IMM capacity. In August 2021, the Miller Center in conjunction with Sopact launched a pilot program focusing on IMM for 10 social enterprises. This support has helped these social enterprises to have impact evidence rolling in, on-demand, and ready for future investment decisions.
Procurement is the process of acquiring goods and services from another business. Increasingly, more corporate intend/forced to adopt practices of using goods and services that mitigate harm and create more good. For example, the procurement team of Starbucks is forced to find alternatives to plastic straws, integrating recyclable cups into stores and sourcing coffee from regenerative farms. This team makes every effort to make their business more green and sustainable making it a perfect example of “Social procurement”. Another example is IKEA, IKEA began working with the Indian social enterprise “Rangsutra” in 2013, procuring small batches of handcrafted cushions. Now, Rangsutra provides IKEA with more than 400,000 pieces a year, working with 2,000 artisans.
Social procurement can be defined as the process of purchasing goods or services from social enterprises (SE) rather than traditional sources. (Yunus)
Social procurement is practiced when the organizations use their buying power to generate social value above and beyond the value of the goods and services being procured. It begins with responsible suppliers as the starting point which ideally in most cases is the social enterprises like RangSutra.
Social enterprises are key creators of social value as they are local, directly in touch with stakeholders, and capable of innovating business practices. The social enterprises integrate local community capacity as a key mechanism for fulfilling business needs and generating social value.
There are number of reports that indicate substantial success with social procurement by partnering with social enterprises as suppliers. Social enterprises as suppliers can :
- Assure supply
- Deliver on time
- Be competitive on quality, price and volume
Having a focus on win/win social & business value combined with the discipline of measured impact are the keys when thinking about optimizing social & business outcomes from social procurement. This practice re-envisions a core business function as a way to generate a positive impact for society and the environment, not just shareholders. Social procurement is about driving sustainable business value by upending this business practice to make socially driven vendor decisions. This practice re-envisions a core business function as a way to generate a positive impact for society and the environment, not just shareholders. Social procurement is about driving sustainable business value by upending this business practice to make socially driven vendor decisions.
Read More - How the UN's sustainable development goals (SDG) affect enterprise?
Best Social Enterprise Accelerators
- The Yield Lab
- European Innovation Council
- Echoing Green
- Techstars Sustainability, in partnership with The Nature Conservancy
- Bridgeway Capital
- Kauffman Foundation
- Women's Startup Lab
- Hult Prize Foundation
- World Startup Factory
- Spring Activator
- Tony Elumelu Foundation
- Upaya Social Ventures
Social Enterprise Impact Resources
- Understanding Social Enterprises
- Social enterprises can change entire industries. This is how
- 6 Trends In Social Enterprise And Impact Investing In 2020
- Social enterprise business models - MaRS Startup Toolkit
- Two Keys to Sustainable Social Enterprise
- How to start up a social enterprise in 10 steps
- 5 Resources for Budding Social Entrepreneurs
- Guide: Startup Funding for Social Entrepreneurs
- Global Trends in Social Entrepreneurship: Developments in a COVID-19 World
- Social Enterprise – Harvard Business School
- Stanford Social Innovation Review
What is the main goal of social enterprise?
Social enterprises are defined as businesses with specific social objectives. Profits of social enterprises are primarily used to fund social programs and to maximize social and environmental impact.
How do you think social enterprise monitor their success and impact?
The purpose of social enterprise is to create a combination of economic, social and environmental outcomes.The social enterprise differs from commercial enterprises which focus on pure financial value.
Profitability and social commitment are both important indicators of social enterprise success. This concept is commonly referred to as the "triple bottom line" - people, planet and profit.
Measuring social impact: ROI vs. SROI
A Return on Investment (ROI) measure is used to analyze financial results based on such metrics as revenue, profit margins, staff turnover, and customer satisfaction. These are measurable metrics that have been used and reported after the enterprise has been established.
By combining traditional qualitative measures with quantitative representation, Social return on investments (SROI) attracts investors seeking the bottom line as well as funders, entrepreneurs, and community players interested in the triple bottom line. As SROI unites financial, social, and environmental value, it is more difficult to measure than ROI.
Social Impact measurement and management:
For impact measurement, commonly used evaluation techniques such as social return on investments, outcome-based data reporting, and randomized control trials. Key to effective impact measurement is a well-defined data collection strategy, a stakeholder survey aligned to five dimensions of impact from Impact Management Project, proper data collection techniques aligned to different enterprise and stakeholder needs, and practical analysis to understand the longitudinal study.
This approach provides a constant understanding of program needs, ensuring that the investment focuses on the right demographics, outcome, contribution, scale/depth of impact, and impact risk.
What are the top two challenges faced by social enterprises?
Social enterprises are creating their mark in the International and local marketplaces. While more people are getting familiar with some of these enterprises—which value profit as well as the environment and stakeholders including customers, workers, and community—they remain undiscovered by many, although they can affect this same crowd in a positive way.
People are becoming aware of social enterprises that value social (stakeholders including customers, workers, and community) and environmental impact as well as financial returns. They are not recognized by many yet they can impact these people in a positive manner. Social enterprises face unique challenges as they aim to reach out to the masses.
- Having access to funding
- Scaling up the social enterprise
- Achieving product-market fit
- Doing Impact Measurement & Management properly
Why is it important for a social enterprise to measure its impact?
The social impact of an organization refers to the changes it has created or implemented over time. There could be a social, economic, or environmental change. You must know, understand and capture the full impact of what you do as a social enterprise in order to create a positive social impact.
Impact measurement and management as well as communicating your story of impact is essential for marketing, scaling the enterprise, and retaining existing funders and customers. Additionally, the impact is at the core of your organization's strategy, since it indicates whether you are achieving your vision and mission.
Measuring social impact in social enterprise is important to understand, manage and communicate the social value that your enterprise creates in a consistent and effective manner. Impact measurement can be used by social enterprises for many valuable purposes, the principle of which is:
- Improving product-market fit:
Impact measurement and management are helpful for enterprises interested in improving product-market fit, services-market fit, and program-market fit. It is a valuable tool to achieve faster growth and success. This approach often requires collecting data from stakeholders (direct and indirect). This approach provides a constant understanding of program needs, ensuring that the investment focuses on the right demographics, outcome, contribution, scale/depth of impact, and impact risk.
- Attracting investors and retaining investor confidence:
Many investors have high hopes for social investment, but if it is to keep investor confidence, it must demonstrate measurable returns comparable to those in the financial sector. Impact measurement must become less complex to understand and communicate if social investment is to be as important as financial returns.
- Bidding for public sector contracts, social procurement, and selling goods and services:
Marketing should be done in such a way that social enterprises' brand is easily understood by all stakeholders. Simple and effective messaging to convey social value.
- Improving product-market fit: