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Social Enterprise

Impact of Social Enterprise
Social Enterprise Defined

Social Enterprise Guide

The world is facing all kinds of social and environmental issues today, and social enterprises emerging to address them. A social enterprise is defined as an initiative taken by an entrepreneur to address social and environmental problems, whereas a company primarily aims at making profits. In social enterprises, the mission is to contribute to social good in a sustainable manner without relying solely on grants, government funds, donations, etc. Due to this, social enterprises must focus on both impact and profitability. Grameen Bank founded by Muhammad Yunus is an example of a social business that met both goals. 

Social enterprises measuring impact is as important as their quarterly or annual to financial reporting for running the organization. Since the social business's primary focus is on creating an impact on their stakeholders, therefore, it is important to listen to them and modify their impact strategies at regular intervals.

With time, there is an increase in impact accelerators and impact funders not only helping social enterprises with financial resources but also building impact measurement and management capacity for social enterprises' growth.

Social Impact Enterprise Definition

WHAT IS A SOCIAL ENTERPRISE?

Enterprise as the name states is often associated with entrepreneurial ventures, and for-profit businesses, typically for maximizing their own benefit/profit. But when the business seeks to maximize profits while maximizing benefits to society and the environment, and the profits are principally used to fund social programs then it is called “Social enterprise”. 

A social enterprise can be defined as a business with social objectives. Their primary goal is not to maximize profits like traditional businesses but pursue entrepreneurial activities that generate revenues ( although some funding can be from grants also ) to fund their social causes to drive positive social impact in society rather than fund payouts to shareholders.

Social enterprises exist at the intersection of nonprofits and traditional businesses.  They emerge from a desire to solve a social problem and have a positive social impact on society similar to how nonprofit organizations do their beginning. However, these social enterprises seek to balance activities that provide financial benefits with social goals, such as affordable healthcare to low-income families differentiating them from nonprofit organizations. Generating revenue is never the primary motivation but it plays an essential role in its sustainability making it more sustainable rather than being dependent solely on corporate or individual donations for its existence.

Social Business Alliance defines social enterprise  

“Organizations that address a basic unmet need or solve a social problem through a market-driven approach.”

Are Social Enterprises Not For Profit?

Many people ask “are social enterprises not for profit? The primary purpose of social enterprises is to solve social problems, yet they operate just like any other business. Since social enterprises are self-sustaining, they must generate steady revenue.  Profits from social impact enterprises are reinvested back into the organization. Impact investors and others can provide funding for social enterprises. The main objective of social impact enterprises is to solve social problems through their business operations. Maximizing the impact of the business is achieved by using revenue generated from the business.

Key Features of Social Enterprise

  • A defined social cause is the main objective of a social enterprise.
  • Funds are generated by their business activities.
  • Revenue & profits are reused for the social cause.
  • Goods and services have market demand like traditional businesses.
  • Social enterprises operate similarly to companies and corporates, but with a focus on a social cause.
Business Models

Types of Social Enterprises

All social enterprises' modus operandi is to achieve a financial goal, along with social and environmental goals but they can adopt any legal form and are generally classified by the categories listed below : 

  1. Trading enterprises
  2. Financial institutions
  3. Community-based organizations 
  4. Non-governmental organizations with the commercial arm
  • 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.

Download Ebook

SCALE YOUR SOCIAL IMPACT

Social impact measurement framework allows a mission-driven organization to provide a step by step approach to a clear impact thesis, impact map between partners, data capacity, data collection and demonstrate impact effectively. 
Impact Social Enterprise

EXAMPLES OF SOCIAL ENTERPRISE

1.  Fairtrade organizations or Microfinance organizations are examples of Trading Enterprises. 

Divine Chocolate is the world's first farmer-owned fair trade chocolate brand company established in 1998 It aims to deliver irresistible treats made from the "best of the best" cocoa from Ghana and is a social business to support the kuapa kokoo 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.

 SEWA Bank is a cooperative bank based in India that works with poor self-employed women with the specific objective to provide credit with the view 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). Their aim is 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 which 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 agents of change.

Read More: The Impact Management Journey of Sustainable Social Enterprises

DIFFERENCE BETWEEN

SOCIAL ENTERPRISE vs SOCIAL IMPACT

Social enterprises aim to create positive social outcomes/change while generating financial returns to fund social programs.Social impact refers to the overall effects of any enterprise on society and the environment, however it is not necessary that an enterprise that has a social impact must be a social enterprise. A social enterprise is bound by social mission and works towards achieving the goal of solving a social problem as a part of its mission. 



DIFFERENCE BETWEEN

SOCIAL ENTERPRISE vs NON PROFITS

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 both seek to serve community needs and create social impact. However, the fundamental difference between both is 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 for their operations. 

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, and or service.  This unique feature of social enterprise makes it more sustainable rather than being dependent solely on external donations for its existence.

DIFFERENCE BETWEEN

NONPROFIT SOCIAL ENTERPRISE vs FOR-PROFIT SOCIAL ENTERPRISE

The recent economic downturn has lead a decline to the funding for nonprofits, and they are finding it extremely difficult to access grant and funding for their programs. Some nonprofits are adopting social enterprise models to creating self-sustaining programs by charging fee for their services as well as selling products. This model allows them to diversify their funding and improving their sustainability, and support them in the pursuit of their social mission. However, nonprofit social enterprise have the risk of balancing their nonprofit mission with their profit-driven goals and realistic about their organizational capacity to initiate a business endeavor.

A “forprofit social enterprise” bakes social impact objectives directly into its business model. For them, doing good is the core of their business and exists to address a social problem. Being built on the business model makes a social enterprise more sustainable than a nonprofit organization that must rely on grant money, and donations for its existence.  Contrary to the popular belief that profitability and positive social impact cannot go hand-in-hand, social enterprises aim to achieve this by building a successful for-profit business to change the world for the better. 

Funding for Social Enterprises

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 term is used when the social enterprises  are founded or scaled without taking no outside funding. Instead, founders self-fund the business with their saving or revenue from other sources.  This type of funding is often essential when the entity is in early stage of  and is in  the process of proving its credibility and creating marketing demand. This type of funding allows time for these social enterprises to make a strong case to outside funders. It allows founders to keep full ownership of the company. The speed and scale of growth is much slower as it is limited to founders' saving and also tends to miss out on the advice, mentorship from external advisors to which the capital may be attached. Raising funds from relatives and friends or personal networks is an extension to Boot-strapping. This type of funding gives flexibility and ignites spark but requires more fuel to keep it going.
This type of funding can supply the capital needed to become ‘investment-ready’ . Crowdfunding is the process by collecting small amounts of capital from a large number of individuals towards funding a social enterprise. In this process, it builds the fund as well as creates a lot of excitement and interest in your enterprise proving market demand. This type of funding can play a pivotal role in social enterprises' early development. There are many crowdfunding sites that are dedicated to raising money for social enterprises.

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,

Government disburses grants to support social enterprises in a nascent stage. Securing these grants from governments, foundations, or corporations can be a great option for startups as it is not repaid and also does not require giving up equity. Applications, as well as reporting post-application stages, can be a time-consuming process .
This type of funding helps a social enterprise to scale up.  The social enterprise is required to pay back to the lender, with the total amount borrowed along with interest accrued throughout the lending period. This funding may be in form of term loans or credit cards. etc. The terms of repayment are similar to traditional financing. Venture Debt Funds are being offered by a few non-banking financial corporations that offer venture debt funds to VC-backed startups as bank loans. Venture lenders provide lending by assessing the business plans, capital strategy, team quality, and technology. These lenders are very conservative in their approach so most early-stage enterprises don’t fit the analysis making debt financing difficult to access. 
Angel Investment is an equity capital that can be availed in exchange for a share of the social enterprise which is quite in contrast to debt capital financing. This type of investment is provided by Angel investors who are people willing to put time and money into your idea. They may have family connections or experience to start a business. They generally expect high returns but invest a lesser amount and also prove as great mentors. Having an angel investor can boost your business with their knowledge and industry access. Angel networks & platforms is where angel investors pool their funds to invest in startups. As they operate as a group, these investors can provide larger funds and hedge risks. The platform gets equity ownership of the startup, and they benefit if the startup prospers.   There are also angel investing networks and websites such as AngelList, Venture Catalysts, LetsVenture.
Venture Capital funds are also Equity capital that is availed in exchange for a share of the social enterprise. These funds are provided by an institution whose business is to provide capital to promising startups for growth and expansion and monitor their progress to ensure their investment delivers sustainable development. They get equity in return to their funding. They are quite similar to angel investment but it is more structured. It provides large capital boosters that are required for the social enterprise to scale and take it to the next level but at the cost of giving up shares / some level of ownership in exchange for funding.
Impact Investing is a recent development in the funding space. The Global Impact Investing Network defines impact investment as “investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return. According to the GIIN’s Impact Investing Market report, the global impact investing market is estimated to be USD $502 billion, managed by over 1,340 organizations. The market has grown by 10 times since 2009 when funds under impact investment were $50 billion (Investopedia).  Impact Investors unlike traditional investors focuses on terms of geography, various stages of business, or impact area where they share the common objective that is making an impact. This type of funding also works in a similar fashion for other non-impact startups. However, accessing this capital requires measuring and demonstrating the impact, building relationships, and perfecting the pitch to impact investors.

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.

Impact Measurement

MEASURING SOCIAL IMPACT IN SOCIAL ENTERPRISE

As a social enterprise, your mission and purpose is central to your existence and reason for being. Delivering on that mission is extremely important for the work you carry out, so having definite proof of how you are achieving your mission is paramount. Social impact measurement is defined - as the measurement of social change as a way to show the value your social enterprise is delivering to its beneficiary and society as a whole.  This change could be positive or negative or it could be 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 a systematic collection of data from stakeholders as the only way to understand impact is to communicate with the stakeholders. Sometimes social enterprises even tend to adopt top-down solutions that are pushed on to 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 it is done correctly, it highlights areas where improvements are required and also help you understand, manage and communicate the social value that your work creates in a clear and consistent way. 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.

impact of social enterprise

Impact of Social Enterprise

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. 

social enterprise consulting firms

Social Enterprise 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. 

Scaling Impact with Sopact

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.

EXPLORE THE CASE STUDY

Social Enterprise Accelerator Program

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.

Miller Center Case Study

 

Social Enterprise Procurement

SOCIAL PROCUREMENT

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. 

Benefits of Social ProcurementSocial 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 :

  1. Assure supply
  2. Deliver on time
  3. 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. 

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.