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How Social Entrepreneurs Make a Social Impact and a Profit

Two hands touching in front of the ocean

Social entrepreneurs—driven less by profit and loss margins and more by a philanthropic desire to improve their communities, society, or the world as a whole—emphasize aid to poverty-stricken or otherwise marginalized populations. Social enterprises often begin with a community- or region-focused idea, but founders tend to have a global platform in mind. Social entrepreneurs are innovators in fields such as environmental protection, health care, education and poverty alleviation, among many others. In order for social entrepreneurs to create systemic change in these fields, social entrepreneurs need to create unique services, products or techniques that solve existing social problems—and in order to be sustainable, they must also make a profit.

What Is a Social Entrepreneur?

Social entrepreneurship in the United States generally “reflects a focus on generating income for organizations that provide services typically thought of as being provided by the nonprofit sector,” according to Matthew F. Doeringer in his 2010 publication, “Fostering Social Enterprise: A Historical and International Analysis.” From alleviating poverty to providing the underemployed with jobs and finding accessibility solutions for people with disabilities, there are myriad ways social entrepreneurs can make an impact. “Social Enterprise: A Portrait of the Field,” a 2009 study, published by Community Wealth Ventures, The Social Enterprise Alliance, and the Center for the Advancement of Social Entrepreneurship, that polled 400 social entrepreneurs, found that the main sectors in which social entrepreneurs tend to venture are workforce development, housing, community and economic development, education, and health. No matter what the focus, successful social entrepreneurs measure their impact not by the increasing size of their organizations but by their ability to bring attention to and solve problems for marginalized people they’re trying to help.

“The social entrepreneur needs to create ways for their constituents to have influence and ownership over the solutions,” according to scholar Katie Smith Wilway, who’s served on nonprofit management teams and authored two books on sustainable development. Sally Osberg and Roger L. Martin, in a 2007 article in the Stanford Social Innovation Review, wrote that a “successful social entrepreneur takes direct action and generates a new and sustained equilibrium.” Osberg and Martin also differentiate social entrepreneurs from both social service providers (individuals who identify existing needs within social services and work with individuals, families, and communities to address it) and social activists (individuals who attempt to create change through influencing governments, workers and consumers). Though both social activists and social service providers can be entrepreneurs, Martin and Osberg argue, they’re lacking one facet the social entrepreneur must keep in mind: a business plan and a goal of earning a profit.

What Makes a Social Enterprise a Success?

Successful social entrepreneurs apply capitalistic business methods in order to deliver on their stated social missions. Jan Matern of Emerge Venture Labs advises social entrepreneurs to be flexible with their business plans in order to ensure the business turns a profit. She says many social entrepreneurs can be reluctant to even create a business plan, because doing so in order to make money feels suspiciously like selling out. But concern for making a social impact shouldn’t hinder an entrepreneur’s secondary goal of earning a profit. The 2015 State of Social Enterprise Survey found that 50 percent of social enterprises earned a profit in the preceding year, and social enterprises were leading the economic recovery.

Other statistics gathered in the Great Social Enterprise Census—administered by Pacific Community Ventures in order to clarify the size, structure, and geographic diversity of the U.S.’ social enterprise sector—determined that 34 percent of United States-based social enterprises reported an income of at least $1 million, while 25 percent earned less than $100,000. The survey found that profits were hindered by sales and marketing efforts, which can be more expensive for social enterprises than for traditional start-up businesses. The surveyed companies reported that the greatest need for support was in the realm of market research and analysis, accessing capital, training in social entrepreneurship, and business plan development.

Unique Challenges Social Entrepreneurs Face

Social entrepreneurs often have to find imaginative solutions to everyday challenges, such as finding and pleasing investors. Conventional entrepreneurs often approach banks, secure crowdfunding, tap into equity debt, or pursue other traditional means of securing startup funds, but social entrepreneurs cannot always go after tried-and-true sources of funding. Instead, many seek donations, grants, or corporate investors. Because social enterprises need to make money, but don’t necessarily make their bottom line the top priority, it can be difficult to communicate to investors and donors why they should put up financial resources to support the venture. As noted previously, by attempting to keep the money coming in by making sure investors and donors are pleased, social entrepreneurs run the risk of “mission creep”—meaning their original vision and goals shift in order to retain a profit margin. One way to keep this from happening is to have a solid business plan and review it regularly with employees, administrators, and investors to ensure that the company doesn’t stray too far from the original mission and overarching plan of action.

Where Are Social Enterprises Succeeding?

The Great Social Enterprise Census—a relatively new U.S. initiative aiming to pinpoint how and in what industries successful social enterprises exist—began in 2012 and is still compiling data from social enterprises, but it has released some numbers regarding where the money is and how it’s being earned. The survey found that 12 percent of social entrepreneurs aim to impact the environment or the energy industry, 11 percent focus on education, and 7 percent are tackling international issues.

The results reported that 35 percent of U.S.-based social enterprises are nonprofits, and 31 percent are “C” corporations—which are entities that are taxed separately from their owners. In the United States, 16 percent focus on workforce development. One example, the Colorado-based Women’s Bean Project, hires chronically underemployed women—often recovering addicts, convicted felons and victims of domestic violence—and teaches them the skills needed for entering and remaining in the working world.

Examples of Successful Social Enterprises

MyBnk is among the 20 percent of social enterprises the census reported are impacting economic development. MyBnk helps potential entrepreneurs gain access to financing for starting up a new business venture. In fiscal year 2015-16, the company helped more than 15,000 people via financial education, enterprise education and Money Advice Service, according to its annual report. Since its inception in 2007, MyBnk has helped 160,000 young entrepreneurs receive the necessary funds required to start new businesses.

NetSuite offers software donation and pro bono services to nonprofit organizations and social enterprise companies to help them improve their services and products and social impact. Like most companies, nonprofits rely on tech to accomplish their day-to-day businesses goals, but since nonprofits often operate on a shoestring budget, acquiring the latest tech can be challenging. NetSuite’s approach helps nonprofits to stay on the cutting-edge: in fact, the company has donated more than $70 million worth of software, worked on 286 pro bono projects and donated 9,745 pro bono hours, and employs 730 people.

As the financial and philanthropic success of NetSuite, MyBnk, and other social enterprises illustrate: with the right business plan and clearly defined goals, social entrepreneur leaders generate profits while simultaneously solving some of the world’s most pressing social problems.

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Leading with Generational Differences in Mind
The Top 4 Careers in Leadership
6 Ways Leaders Can Improve Team Productivity

Sources:

http://www.schwabfound.org/content/what-social-entrepreneur
https://hbr.org/2014/05/how-social-entrepreneurs-can-have-the-most-impact
https://ssir.org/articles/entry/social_entrepreneurship_the_case_for_definition
https://www.theguardian.com/social-enterprise-network/2012/oct/22/build-social-enterprise-make-money
https://www.theguardian.com/small-business-network/2015/oct/14/social-enterprises-mission-money-change-lives
http://www.socialventurers.com/field-study-us/
https://www.womensbeanproject.com/
http://yourbusiness.azcentral.com/top-challenges-facing-social-entrepreneurs-11115.html
http://www.growingsocialventures.org/en/partners/emerge-venture-lab
http://mybnk.org/wp-content/uploads/2014/01/Annual-Report-2016-Low-Res.pdf
http://www.babson.edu/Academics/centers/the-lewis-institute/fellows/Pages/smith-katie.aspx
https://www.entrepreneur.com/article/242206

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October 2017