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Introduction to Social Enterprises

Introduction to Social Enterprises

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Student’s Primer

Dr.G.Venkatasamy “I am not an idea man; the task is not to aspire to some heaven but to make everyday life divine." I divine

Doing Well While Doing Good
S.Rengasamy Madurai Institute of Social Sciences

S.Rengasamy. Introduction to Social Enterprises “Social entrepreneurship” is one of the most misunderstood phrases in the nonprofit sector today. Everybody, it seems, has a different definition of what it means. Twenty years ago the idea of nonprofits acting in an entrepreneurial manner was anathema to most people in the sector: The idea of merging mission and money filled them with distaste. But the phrase “social entrepreneur” is bandied about freely these days. Here is the gist of the problem: Unless a nonprofit organization is generating earned revenue from its activities, it is not acting in an entrepreneurial manner. It may be doing good and wonderful things, creating new and vibrant programs: But it is innovative, not entrepreneurial. Why is the distinction so important? Because only earned income will ever allow a nonprofit to become sustainable or self sufficient. Innovation is a precious resource and it served as the primary engine of nonprofit growth through the 1970s and 1980s. But innovation can take a nonprofit only so far. It’s one thing to design, develop and implement a new program -- and quite another to sustain it without depending on charitable contributions and public sector subsidies. The rules of the game for nonprofits have changed dramatically during the past 20 years. Operating costs have soared, resources available from traditional sources have flattened, the number of nonprofits competing for grants and subsidies has more than tripled, and the number of people in need has escalated beyond our most troubling nightmares. Smart nonprofit managers and Board members realize they must increasingly depend on themselves to insure their survival . . . and that has led them naturally to the world of entrepreneurship.
Box: The paradox of Social Enterprise

The paradox of Social Enterprise 1. Those in the private sector wondering if social enterprises are a threat or an opportunity 2. Those in the voluntary sector trying to work out their medium/long-term future, and whether they should engage or resist the notion of social enterprise. 3. Those in the public sector being asked to develop, support or commission work from social enterprises. 4. Those who self-define as part of the social enterprise sector wondering how to sector tor, understand themselves and describe the value of their approach to others.

What is Social Enterprise? Definitions. • Social enterprise is: “a business or service with primarily social objectives whose surpluses are principally reinvested for that purpose in the community, rather than being driven by the need to maximize profit for shareholders and owners”. UK Government

Social enterprise as "a revenue generating venture founded to create economic opportunities for very low income individuals, while simultaneously operating with reference to the financial bottom-line." The Roberts Foundation Homeless Economic Development
Fund 1996

Social enterprise refers to "the myriad of entrepreneurial or 'self-financing' methods used by nonprofit organizations to generate some of their own income in support of their mission."


S.Rengasamy. Introduction to Social Enterprises Box: Third Sector - Social Enterprises
Third Sector - Social Enterprises
The problem with a three-sector analysis of the economy is that it tends to marginalize organizations that transgress the boundaries of these dominant definitions. For example, co-operative enterprises (owned by employees, producers or consumers) cross the boundary between the private and voluntary sectors. They often have a social or community goal, but are usually set up to negotiate and distribute social and financial benefits equitably rather than prioritize the social and financial goals of the founders. In addition, they frequently adopt the democratic practices of the state sector by having elections for senior positions and assemblies of people who can directly question executive authority. The Emergence of the Third Sector The continued growth and development of co-operative forms of enterprise, and ‘mutual help’ as a commercial principle led to the emergence of a new term in the early 1990s Third Sector. This term covers more than voluntary bodies and charities to include mutual organizations (e.g. building societies), social firms and producer, marketing and consumer co-operatives. One social value that pervades the entire Third Sector is a concern that modern private and public sector management principles have contributed to the social exclusion of disadvantaged groups and vulnerable individuals. For some in the sector, the goal is to address (and find alternatives to) powerful political and financial interests that disempowered citizens. Many Third Sector organizations, therefore, share a common goal of reducing social exclusion. They may do this in a variety of ways: by providing services more cheaply to disadvantaged groups; by using collective bargaining power to negotiate access to scarce or expensive resources; by organizing themselves in a way that enfranchises and empowers individual members (and gives them a collective political voice); by adopting traditional approaches that redistribute surplus wealth to disadvantaged groups through charitable practices and organizations. The identification and growth of the Third Sector has been accelerated by changes in the public sector. Since the early 1980s, there has been a shift away from welfare through state institutions and increased use of agencies and contractors. The concept of New Public Management underpins a commercialization agenda (attempts by government to make greater use of markets and private sector thinking in public service delivery to ‘save’ money). Accompanying this is the contentious belief that business practices and managerial solutions will improve the ‘performance’ of both the public and voluntary sectors. Given that many in the Third Sector regard private and public sector management principles as the cause of social exclusion, it is no surprise that there is resistance to the idea that the same techniques can solve contemporary social problems. Nevertheless, it is this thinking that drives change in the UK National Health Service (NHS). As in other parts of the world, the NHS exemplifies the trend towards a “contracting culture” in which grants and state funding are replaced by commercial contracts for service delivery. So, in recent years, the boundaries between the private and public sector (in term of market thinking and managerial practices) have started to blur traditional distinctions between different sectors of the economy. Secondly, the emergence of radical business alternatives with a strong social orientation, democratic organization, and positive attitude to profitable trading has led to a new language that describes relationships and organization forms that bridge the boundaries between sectors.


S.Rengasamy. Introduction to Social Enterprises Both definitions capture the social and financial characteristics of the social enterprise; however, The Roberts Foundation's definition emphasizes social enterprise as a program approach, whereas NESsT's definition stresses it as a funding approach.
Diagram: What is a Social Enterprise Provides job & training opportunities & encourages local economic activity Not for Profit Organization Dynamic Business with Social Purpose Engages in Economic Activity through trade

What is a Social Enterprise?

Sustainable commercial enterprise – owned & controlled by the local community

Assets and Profits are retained & used forfurther social benefit

• "Social Enterprise is a nonprofit venture that combines the passion of a social mission with the discipline, innovation and determination commonly associated with for-profit businesses " The Nonprofit Good Practice Guide • Social enterprise - as business trading for a social purpose - Social Enterprise Coalition UK
Box: What is a Social Enterprise?
What is a Social Enterprise? * A not for profit organization, which has social aims that are met by economic and trading activities * A sustainable community enterprise runs by the community for the community * An organization that invests all surpluses back into the organization, in order to meet their stated social objectives

• A social enterprise is any business venture created for a social purpose--mitigating/reducing a social problem or a market failure--and to generate social value while operating with the financial discipline, innovation and determination of a private sector business. Virtue Ventures • Social enterprises are social purpose organizations that use a business vehicle to fulfill their mission. They encompass a wide spectrum of business activities including, but not limited to: community owned businesses, credit unions, mutual’s, not-for-profit business ventures, trading arms of charities, employeeowned businesses, co-operatives, community housing associations, social firms, micro-credit schemes, some farmers’ markets, community settlement associations, agricultural shows, arts festivals and indigenous arts groups.

The main idea behind the term is that where an organization engages in some form of social enterprise activity, the resulting product (or service being sold), process (the way in which they produce or sell it) or profit (what happens to the income generated),is social. Social enterprise is not just about making money, it is also about making sure there is a wider social (and/or environmental) benefit as a result of the trading activity. This is sometimes known as the double (or triple) bottom line.


S.Rengasamy. Introduction to Social Enterprises
Box: More Definitions

Original definitions Any earned-income business or strategy undertaken by a nonprofit to generate revenue in support of its charitable mission. Social Enterprise Alliance, before March 2006 Recent definitions “An organization or venture that advances its social mission through entrepreneurial, earned income strategies.” Social Enterprise Alliance, as of March 2006

Original definitions “A revenue generating venture founded to create economic opportunities for very low income individuals, while simultaneously operating with reference to the financial bottom-line.”Jed Emerson and Fay Twersky, 1996 Recent definitions “Double bottom-line businesses, social purpose enterprises, nonprofit business ventures and mission-based for-profit businesses. Social Enterprises typically pursue blended value returns that may embrace the subjugation of a certain amount of financial return or take on added risk in pursuit of social and/or environmental value creation.” Jed Emerson, The Blended Value Map, 2004

“…businesses with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners. “British Government Business ventures operated by non-profits, whether they are societies, charities, or cooperatives.” Enterprising Nonprofit, Canada A social enterprise is simply a market-based venture for a social purpose.” Social Enterprise
Partnerships, Australia

“The promotion and building of enterprises or organizations that create wealth with the intention of benefiting not just one person or family, but a defined constituency, sector or community, usually involving the public at large or the marginalized sectors of society.” Asian Institute of Management (AIM), Philippines

Organizations with an explicit aim to benefit the community, initiated by a group of citizens and in which the material interest of capital investors is subject to limits. They place a high value on their independence and on economic risk-taking related to ongoing socio-economic activity.“
European Research Network

“The myriad of entrepreneurial or 'selffinancing' methods used by nonprofit organizations to generate some of their own income in support of their mission." Nonprofit
Enterprise and Self-sustainability Team (NESsT

“Any organization, in any sector, that uses earned income strategies to pursue a double bottom line or a triple bottom line, either alone (as a social sector business) or as part of a mixed revenue stream that includes charitable contributions and public sector subsidies.”
The Institute for Social Entrepreneurs

“Social enterprise encompasses nonprofit and public enterprise management but also business leadership in the social sector through direct involvement and corporate social responsibility; cross-sector collaboration and the interdependence of the business, government, and social sectors; forprofit social purpose companies; socially focused private equity; high engagement philanthropy and social entrepreneurship.”
Harvard Business School, Social Enterprise Initiative


S.Rengasamy. Introduction to Social Enterprises

Social Enterprise is a means by which people come together and use market based ventures to achieve agreed social ends. It is characterized by creativity, entrepreneurship, and a focus on community rather than individual profit. It is a creative endeavor that results in social, financial, service, educational, employment, or other community benefits.
Talbot, Tregliga and Harrison 2002.

Box Diagram Social Enterprise and Triple Bottom Line A “social enterprise” is any entity that uses earned revenue to pursue a double or triple bottom line either alone (in a private sector or nonprofit business) or as a significant part of a nonprofit’s mixed revenue stream that also includes philanthropy and government subsidies Social enterprises directly confront social needs through their products and services rather than indirectly through socially responsible business practices such as corporate philanthropy, equitable wages and environmentally friendly operations – or through the unrelated business activities mounted by nonprofits

• Social enterprises can be defined as "organizations with an explicit aim to benefit the community, initiated by a group of citizens and in which the material interest of capital investors is subject to limits. They place a high value on their independence and on economic risk-taking related to ongoing socioeconomic activity."EMES:

Social enterprises - defined simply - are organizations seeking business solutions to social problems. They need to be distinguished from other socially-oriented organizations and initiatives that bring (sometimes significant) benefits to communities but which are not wanting or seeking to be "businesses". In this respect these latter organizations are more 6

S.Rengasamy. Introduction to Social Enterprises likely to remain dependent on gifts and grants rather than develop true paying customers. Sometimes the market for the products or services is individual consuming customers, people who are choosing their offerings in preference to those of rival organizations, which may or may not share the same social commitment. In other instances, there are just one or a few customers who offer the social business a commercial contract to deliver a service, often using public funds to do this. This is actually a tricky one to categorize. Whilst there are customers who must be satisfied if they are to remain committed into the future - and a revenue stream as distinct to a grant - large contracts may not be renewed because public funding dries up and not because the social business has delivered poor service. In this respect it mimics a grant. In all cases, their employees or members can be fully-paid at a typical market rate, paid more modest sums or even be volunteers ‘The diverse world of social enterprise: A collection of social enterprise stories’ John Thompson and Bob Doherty. (2006) In its widespread usage, "social entrepreneur" is the individual and "social enterprise" is the organization. Therefore, social enterprise is an institutional expression of the term social entrepreneur.
Box: Ten Interesting Facts about Social Enterprise
Ten Interesting Facts about Social Enterprise 1. Social enterprise has galvanized a sizable global movement! 2. The crux of Mohammad Yunus Nobel Laureate speech was about “social business” [social enterprise] not microfinance per se. 3. Social enterprise is attracting mega bucks from new break-out foundations (Clinton Foundation, Gates Foundation, Omidyar Network, Skoll Foundation, etc.) and venture philanthropists (Bamboo Fund, Acumen Funder, LGT, etc) as well as (little by little) the usual development aid donors (World Bank, IFC, IADB, DFID, USAID missions, etc.) 4. Strong synergies overlap, value ad, and duplication of components exist between social enterprise and microfinance, fair trade, base of the pyramid, enterprise development, and value chain approaches to economic development. 5. The British Government deemed social enterprise as an essential strategic tool for the social sector development and as a result created a special unit for social enterprise in the Department of Trade and Industry and a legal designation (Community Interest Company. 6. Barack Obama presidential campaign also mentions social enterprise as part of its platform. 7. Over 80 universities around the world teach social entrepreneurship and social enterprise, many of which have dedicated centers to further the study of social entrepreneurship (among them: Harvard, Oxford, Stanford, NYU, Columbia, UC Berkeley, INSEAD, etc.) 8. Social enterprise has broad applications across sectors and thus can be used as an integrated approach for economic development plus health, education, housing, water, etc. 9. In its relatively short history, social enterprise has been a regular featured in mainstream press including, PBS series, “New Heroes” hosted by Robert Redford, Fast Company annual Social Capitalist Awards, The Economist, The Guardian, etc. 10. Social enterprise methodology is premised on social sector organizations achieving financial sustainability, high performance, and strategic social impact and engendering an entrepreneurial culture.

Social enterprises are social mission driven organizations which apply market-based strategies to achieve a social purpose. The movement includes both non-profits that use business models to pursue their mission and for-profits whose primary purposes are social. Their aim – to accomplish targets that are social and or environmental as well as financial – is often referred to as the triple bottom line. Many commercial businesses would consider 7

S.Rengasamy. Introduction to Social Enterprises themselves to have social objectives, but social enterprises are distinctive because their social or environmental purpose remains central to their operation. Rather than maximizing shareholder value, the main aim of social enterprises is to generate profit to further their social and or environmental goals. This can be accomplished through a variety of ways and depends on the structure of the social enterprise. The profit from a business could be used to support a social aim, such as funding the programming of a nonprofit organization. Moreover, a business could accomplish its social aim through its operation by employing individuals from disadvantaged backgrounds or lending to microbusinesses that have difficulty in securing investment from mainstream lenders.
Box: Types of social enterprise
Types of social enterprise There are seven main types of social enterprise: 1. Social Firms: Businesses set up to create employment for those most severely disadvantaged in the labour market. Co2. Co-operatives: Co-operatives, and associations of people united to meet common economic and social needs through jointly owned enterprises. Co-operatives are organized by and for their members, who come together to provide a shared service from which they all benefit. 3. Development trusts: Development Trusts are businesses created to provide integrated employment to people with disabilities and disadvantages. They are umbrella organizations under which different regeneration activities can take place. 4. Intermediate labour market companies: These provide training and work experience for the long term unemployed and other disadvantaged groups. The aim is to assist these groups to re-enter the labour market through the provision of paid work together with high quality training, personal development and active job-seeking. 5. Community business: These are social enterprises that have a strong geographical definition and focus on local markets and services. They are trading organizations which are set up, owned and controlled by the local community and which aim to be a focus for local development and ultimately create self supporting jobs for local people. unions: 6. Credit unions: Credit unions are finance co-operatives that help people save and borrow money. They also provide access to community finance initiatives. 7. Charities trading arms: These enable charities to meet their objectives in innovated ways such as restaurants, shops and fair trade companies.

Many non-profit organizations see social enterprise as a way to reduce their dependence on charitable donations and grants while others view the business itself as the vehicle for social change. Whether structured as nonprofits or for-profits, social enterprises are simply launched by social entrepreneurs who want to improve the common good and solve a social Think about this statement also problem in a new, more lasting and effective way “Sometimes culture change is like than traditional approaches. They are conceived and trying to put lipstick on a bulldog! It’s operated by visionary entrepreneurs who recognize exhausting work, it doesn’t look right potential where others may not see it and who apply and even if you can get the lipstick on, discipline, pragmatism, courage and creativity to it’s still a bulldog!” pursue their solution in spite of all obstacles, toward Liam Black/Jeremy Nicholls, a world that is more abundant, secure and inclusive for all.


S.Rengasamy. Introduction to Social Enterprises
Box: Social Enterprise & Non Profits Dimensions
“What is Social Enterprise?” • Nonprofits have long used income generation to support their mission activities • More recently, nonprofits have adopted business approaches to achieve their missions and achieve sustainability through social enterprise • No single definition of social enterprise exists • Social enterprise is considered an earned-income activity that is planned as a business, with distinct resources and a long-term vision “Why do nonprofits consider social enterprise?” • There are two main reasons an organization might pursue nonprofit enterprise: • To further its social mission • To create funding opportunities • Social enterprises can create successful outcomes, significantly improving the lives of those affected • Be aware of the myths of creating a social enterprise. Social enterprises require significant planning and resources

Private Sector

Socially Responsible Businesses

Social Enterprises Social Economy

Charities & Voluntary Sector

Government (inc NDGB’s)

Income from Sales Private Goals Social Goals


Taxes Political Goals

Sole Trader/ Partnership/ Limited Company (shareholders) The Organisation Owned by the Entrepreneur/ Shareholders Profits distributed to owners/ shareholders Business decisions made by owner/ partners/ shareholders Business Activity Profits/ Surpluses

Committee of Members

The Organisation Owned by the Community Profits not distributed to members Surpluses reinvested Decisions made by Board/ Committee

Business Activity Profits/ Surpluses

Social Enterprise in India In India, a social enterprise may be a non-profit Non-governmental organization (NGO), often registered as a Society under Indian Societies Registration Act, 1860, a Trust registered under various Indian State Trust Acts or a Section 25 Company registered under Indian Companies Act, 1956. India has around 1-2 million NGOs, including number of religious organizations, religious trust, like Temples, Mosque and Gurudwara associations etc, who are not deemed as Social Enterprises. A social enterprise in India is primarily NGOs, who raise funds through some services (often fund raising events and community activities) and occasionally products. Despite this, in India the term, Social Enterprise is not widely used, instead terms like NGOs and NPOs 9

S.Rengasamy. Introduction to Social Enterprises (Non-profit organizations) are used, where these kind of organizations are legally allowed to raise fund for non-business activities. Child Rights and You and Youth United, are such examples of Social

Box: History of Social Enterprise
History of Social Enterprise First Wave: Co-operatives and Friendly Societies Trading with a social purpose is probably as old as human society, but modern forms of social enterprise begin with the co-operatives of the agricultural and industrial revolutions. The Fenwick Weavers’ Society was an early grassroots trading organization with a collective social purpose. Formed in 1761 to sell discounted oatmeal to local Scottish weavers, it quickly expanded to include savings, loans and assistance with emigration and education. Gates (1998) has identified forms of surplus-sharing arrangements between workers and employers back to 1795, but one of the key drivers of the co-operative movement was the principled rejection of the British government’s welfare reforms - the Poor Laws of 1834 - that divided the working class into the deserving and non-deserving poor. Friendly societies, co-operatives, industrial unions and credit unions based in the principle of mutuality emerged as a political and social challenge to residual welfare and limited suffrage. The Rochdale Society of Equitable Pioneers, founded in 1844, was one of the first modern co-operatives. It too was set up by a group of weavers for the supply and sale of groceries. By the mid- 1850s there were more than 1000 co-operative societies in the UK, and by the end of the century the co-operative movement emerged as an international phenomenon. Second Wave: New Social Movements Co-operatives, mutuals and other civil society organizations were established and consolidated in the UK, the US and most European countries throughout the 20th Century, but a new wave of consumer co-operation and solidarity movements emerged in the 1970s and 1980s along with the new ‘identity’ politics. Worker co-operatives and other forms of community enterprise, sometimes with government support, spurred local employment creation. Recent Developments In Italy an historically strong co-operative movement was boosted by legislation in 1991 for ‘social cooperatives’ and the growth of these was linked to inadequate public service provision. European researchers identified similar initiatives and EMES began to document their growth in the European Union. In the UK the Blair government created a Social Enterprise Unit and a new legal form - the Community Interest Company (CIC) - in 2004. In the US the flavor of social enterprise is more entrepreneurial. Organizations like Ashoka, for example, support individual entrepreneurs with a social mission. Harvard Business School’s Social Enterprise Initiative ‘aims to inspire, educate and support current and emerging leaders in all sectors to apply management skills to create social value’.1 In Australia there is not yet a consensus on the meaning of social enterprise/social entrepreneurship, but there is a number of resource organizations including the Centre for Social Impact, Social Ventures Australia and its various state hubs, the Mercury Centre, Social Enterprise Partnerships, the Centre for Community Organizations and Management at University of Technology in Sydney, Social Firms Australia, Community Enterprise Connections and Social Traders.


S.Rengasamy. Introduction to Social Enterprises
Box & Diagram Evolution of Social Enterprise

Evolution of Social Enterprise
Roots of Social Enterprise Nonprofits employ income generation to support mission activities Community Development Corporations (CDCs) gained popularity in the US Fee-income provided 46% of total nonprofit revenue US nonprofits began using enterprises to create jobs for disadvantaged populations Girl Guide Cookies first baked and sold Shift from idea of charity as giving alms to means for creating lasting change In the UK, cooperatives funded socioeconomic agendas Disappointment with the ability of large-scale government programs to solve social problems Recent history Nonprofits adopt business-like approaches to achieve their missions and sustainability Convergence of schools of thought: Mixing new and proven models and Now market-driven and social forces Momentum around social enterprise and social entrepreneurship but still confusion over their meaning Social enterprise / entrepreneurship catch on internationally and sector boundaries continue to be blurred Popularity of cause-related marketing partnerships grows


Declining support from traditional, philanthropic, & government sources


Increasing competition for available funds



Late 1800s


Mid 1800s

The two main schools of practice of social entrepreneurship formed: Social Innovation School by Bill Drayton who founded Ashoka Social Enterprise School by Ed Skloot who assisted nonprofits in finding new streams of

The growth of social enterprises The growth of this sector has been prompted by • Changes in the Welfare State • Market failures in certain activities • New incentive schemes for employment & cooperation between economic and social players • Increasing demand for social and community services And may develop further • The third sector can respond to this new situation by strengthening the links between the economy and social objectives • Its development is partly conditioned by the legal system, socio economic situation and government policy in each country Problems • Need to assess the advantages and disadvantages of the “plural economy” • Need to encourage partnerships with the sector and public bodies


S.Rengasamy. Introduction to Social Enterprises
Diagram: The Position of Social Enterprises in the Economy 

The Position of Social Enterprises in the Economy

Table: The social enterprise spectrum


S.Rengasamy. Introduction to Social Enterprises Enterprise, who raise funds through their services, fund raising activities (organizing events, donations, and grants) or sometimes products, to further their social and environmental goals. The key characteristics of a social enterprise are: 1. They trade i.e. sell goods and/or services and any profit or ‘surplus’ made as a result of their trading activities is either ploughed back into the business or distributed to the community they serve 2. They have a clear social purpose. This may include job creation, or the provision of local facilities e.g. a nursery, community shop, or social care for the elderly. 3. They are owned and managed by the communities they serve Different Types of Social Enterprise
Cooperatives & Mutuals Credit Unions Deals with Financial services Housing Associations CIC’s Voluntarily managed organizations for the provision of low cost housing for rent or sale. May have a commercial business arm attached in the form of a building or company Democratically owned by community or employee shares equity

Self Build Cooperatives

Limited companies created for the use of people who want to conduct business or other activity for community benefit Development Trusts Community led businesses Engages in Economic Activity through trade

Different Types of Social Enterprise
Social Firms

Commercial businesses whose social aims are provision of employment of disabled or disadvantaged people Community Recycling initiatives often also acting as a social firm

Community Recycling

Some of the common characteristics that social enterprises display 1. Enterprise Orientation - they are directly involved in producing goods or providing services to a market. 2. Social Aims - they have explicit social and/or environmental aims such as job creation, training or the provision of local services. Their ethical values may include a commitment to building skills in local communities. Their profits are principally reinvested to achieve their social objectives. 3. Social Ownership - Many social enterprises are also characterized by their social ownership.


S.Rengasamy. Introduction to Social Enterprises They are autonomous organizations whose governance and ownership structures are normally based on participation by stakeholder groups (eg employees, users, clients, local community groups and social investors) or by trustees or directors who control the enterprise on behalf of a wider group of stakeholders. They are accountable to their stakeholders and the wider community for their social, environmental and economic impact. Profits can be distributed as profit sharing to stakeholders or used for the benefit of the community.
Box: Main starting points for social enterprises There are six main starting points for social enterprises 1. Community regeneration: Members of a local community come together to meet a specific need. 2. Employee buyout: Employees of a business that is already operating come together to buy out the existing owner. Employee owned businesses are expected to grow rapidly in the next few years following the introduction of tax credits in the All Employee Share Ownership Plan. 3. Local authority externalization of services: A local authority transfers one of its services to an independent operation. 4. Individual social entrepreneur: An individual with a particular vision will create a business to meet an identified need, often in an innovative way. transformations: 5. Voluntary organization transformations: A voluntary organization that has been funded by donations and grants decides to turn to trading. This may be driven by a desire to ensure its long-term viability, or from a belief that its beneficiaries are better served by the transformation, or perhaps both. spin6. Voluntary organization spin-offs: A project housed by a voluntary organization may then be transferred to a separate legal entity.

The best established European research network in the field, EMES, works with a more articulated definition - a Weberian 'ideal type' rather than a prescriptive definition - which relies on nine fuzzy criteria: Economic criteria: 1. Continuous activity of the production and/or sale of goods and services (rather than predominantly advisory or grant-giving functions). 2. A high level of autonomy: social enterprises are created voluntarily by groups of citizens and are managed by them, and not directly or indirectly by public authorities or private companies, even if they may benefit from grants and donations. Their shareholders have the right to participate ('voice') and to leave the organization ('exit'). 3. A significant economic risk: the financial viability of social enterprises depends on the efforts of their members, who have the responsibility of ensuring adequate financial resources, unlike most public institutions. 4. Social enterprises' activities require a minimum number of paid workers, although, like traditional non-profit organizations, social enterprises may combine financial and nonfinancial resources, voluntary and paid work. Social criteria: 5. An explicit aim of community benefit: one of the principal aims of social enterprises is to serve the community or a specific group of people. To the same end, they also promote a sense of social responsibility at local level. 14

S.Rengasamy. Introduction to Social Enterprises 6. Citizen initiative: social enterprises are the result of collective dynamics involving people belonging to a community or to a group that shares a certain need or aim. They must maintain this dimension in one form or another.
Box: Socialism & Social Enterprise Socialism & Social Enterprise Jeff Trexler wrote on the history of social enterprise. He writes that a social enterprise is essentially “a venture with a social purpose.” As many wrongly believe the ideas of social enterprise did not come from capitalism or corporate business models at all. (http://uncivilsociety.org/2009/05/socialism-and-social-enterpris.html) “In socialist jurisprudence, social enterprise was a term designed to replace the capitalist notion of businesses dedicated to the pursuit of profit. The social enterprise generated revenue in excess of the costs of production, but profit-making was not the goal of socialist business–rather, its fundamental organizational purpose was to serve collective benefit. Moreover, in keeping with Marxist/Leninist ideology, the social enterprise was owned & controlled not by private shareholders–a hallmark of bourgeoise capitalism–but by workers themselves, from the workers immediately connected to the enterprise to society as a whole.” Jeff continues to write that “social enterprise” migrated to Western minds and charities much the same way that “civil society” was reborn and co-opted. Meaning “citizen’s society,” the term was used to unite individuals against centralized government power. Now the term is best understood as a descriptor of anything “non-governmental.” (In the 1960s and '70s, Stalin dissidents got the clever idea of leveraging Marxist rhetoric to subvert the centralized Leninist state. One concept the dissidents revived was "civil society"--grazhdanskoe obschestvo, equally translatable as "citizens' society"--which the dissidents were able to use to challenge the concentration of power in a government elite. Relatively moribund in Western political rhetoric for roughly a century (we had drifted to "civilization" instead), the term "civil society" soon enjoyed an international revival as a term synonymous with nongovernmental associations). It seems that “social enterprise” has drifted just as far from its original conception. (Social enterprise, in the sense of a venture with a social purpose, migrated to the West in a similar fashion. In particular, in the late 1970s, the Polish labor union "Solidarity" became the subject of international attention for its challenge to Communist Party and state control of labor unions. Having learned from emulated the previous decade's dissident appropriation of civil society, Solidarity leaders put forth a model of social enterprise that circumvented the state. Instead of being controlled by the government and Party, the social enterprise would be run by its workers for the greater social good). As a social venture that was meant to give power back to people and allow them ownership, much like a cooperative, “social enterprise” has best come to represent corporate philanthropy and cause marketing campaigns. Both of which are focused on turning profits and not helping people. Julia Moulden asks, “is making a difference only for the rich?” She easily gives examples that it is not, but is it? As far as the foreign aid/ international development arena it appears that social enterprise is geared towards engaging wealthy Western populations in feel good campaigns, like Product (RED), that are best defined as image marketing campaigns for corporations to try and look better as a way to bring in more customers. Lucy Bernholz has termed this business model “embedded giving” where “commerce is used to generate funds for a cause.” She writes: “Embedded giving is just one more example of the blurring of sectors and roles between commerce, philanthropy, and public good. [...] Maybe today’s teens and kids who have seen so much embedded giving will grow up to expect that every product and every service comes with a charitable affiliation.”

7. Decision making not based on capital ownership: this generally means the principle of 'one member, one vote', or at least a voting power not based on capital shares. Although capital


S.Rengasamy. Introduction to Social Enterprises owners in social enterprises play an important role, decision-making rights are shared with other shareholders. 8. Participatory character, involving those affected by the activity: the users of social enterprises' services are represented and participate in their structures. In many cases one of the objectives is to strengthen democracy at local level through economic activity. Charity Social Enterprise & Commerce

The Social Enterprise Way –The ethical Path between Charity & Commerce The mutuality Bridge

Mission Funding

Stakeholders Metrics Relationship with other organizations

Business Profit maximization Internally generated through product or service Shareholders, customers, employees Bottom line, market share, growth rate Competition

Non-profit Organization Primary mission is address a social ill or challenge Able to attract resources to the cause. Funding from government, multilateral agencies, corporate foundations Beneficiaries, funding agencies, staff and volunteers, GOs Double bottom line – social return on investment Networking


S.Rengasamy. Introduction to Social Enterprises

Social Enterprises: have a primarily social and environmental purpose; generate income by retrading, with surpluses principally re-invested for that purpose in the business or community

Typical businesses: many have social aims & benefits including donating to charity, but this is not central to what they do or why they exist

Traditional Charities, Community and Voluntary organizations: primarily rely on fund raising, grants & donations

Mission Orientation Social enterprises, can be classified based on their mission orientation as well as the integration between social programmes and business activities . The diagram below illustrates this continuum. Mission Centric Mission Related Unrelated to mission

The relationship between the business activities and the social programs are comprehensive: financial and social benefits are achieved simultaneously. They are often missioncentric and their business activities are connected to the organization’s mission.

The relationship between the business activities and the social programs are synergistic; adding value, financial and social, to one another. Integrated social enterprises are often mission-related & their business activities are connected to the organization’s mission.

The relationship between the business activities and social programs is supportive, providing unrestricted funding to the nonprofit parent organization. External social enterprises are often unrelated to mission; their business activities are not required to advance the organization’s mission other than by generating income for the its social programs or overhead.


S.Rengasamy. Introduction to Social Enterprises

9. Limited distribution of profit: social enterprises include organizations that totally prohibit profit distribution as well as organizations such as co-operatives, which may distribute their profit only to a limited degree, thus avoiding profit maximizing behavior
Box: Frequently Asked Questions about Social Enterprises

Frequently Asked Questions about Social Enterprises
Is a social enterprise a non-profit making organization? Social enterprises trade like any other business and aim to generate a profit. That profit is then primarily reinvested into its social aim. What types of businesses can be set up as social enterprises? The social enterprise sector is extremely diverse and includes businesses such as childcare facilities, cafes, food co-operatives, employment agencies, charity shops, housing associations, theatre companies etc. There are no restrictions as long as the business has a social aim. What is the difference between a community enterprise and social enterprise? There is no difference. Often the terms are used interchangeably. What is the difference between a community / voluntary organization and a social enterprise? A community/voluntary organization runs activities for the benefit of their communities. To finance this, the organization raises funds through grants/funding and sometimes donations. Social Enterprises rely principally on trading to maintain their sustainability, rather than on funding and grants. What legal structure does a social enterprise have? It is what a business does with its profits and that determines whether or not it is a social enterprise and not its legal structure and professional advise should be sought before deciding the structure which is right for you. Examples of different legal structure taken by social enterprises are: Unincorporated associations *Trusts *Limited liability companies *Industrial and provident societies Community interest companies *Charities What is a community interest company (CIC)? Community Interest Companies (CICS) are limited companies, with special additional features, created for the use of people who want to conduct a business or other activity for community benefit, and not purely for private advantage. This is achieved by a "community interest test" and "asset lock". Registration of a company as a CIC has to be approved by the Regulator who also has a continuing monitoring and enforcement role. (See www.cicregulator.gov.uk for more information). How are social enterprises managed? Social enterprises are often managed by steering groups or management groups made up of community members, employees and other stakeholders. There is no specific management structure. Is there any financial support available for Social Enterprises? Yes, there are businesses that specialize in providing finance for social enterprises and there are grants and funding available. Are there any well known examples of social enterprise? You may be surprised to find out just how many businesses you have heard of that are actually social enterprises. Below are a couple of examples. The Big Issue: Magazine edited by professional journalists and sold by homeless people. It gives homeless people the chance to make an income, voice their opinions and campaigns on their behalf. To become a vendor you must be homeless or vulnerably housed. However The Big Issue recognizes that for many people, being housed is only the first stage in getting off the streets. Therefore if a vendor needs to continue selling the The Big Issue, they may allow them to. Fifteen: Chef Jamie Oliver set Fifteen up in 2002. It is a restaurant which doubles as a training programme for disadvantaged young people interested in becoming chefs. Many of the 16 to 24year-olds accepted by the Fifteen Foundation have criminal backgrounds or have suffered from addictions or homelessness, but those who prove themselves passionate about food, as well as being committed and hard-working enough, are given a year-long work placement at the 18 restaurant which if successfully completed can lead on to other opportunities.

S.Rengasamy. Introduction to Social Enterprises Table & Diagram: Social Enterprises - Hybrid Organizations Social Enterprises - Hybrid Organizations

Dastkhar Andra, India Dastkar Andhra promotes rural livelihoods by providing technical training for handloom weavers, and linking rural co-operative institutions to marketing networks in urban India. This ensures sustainable livelihoods for handloom weavers who face the threat of large scale migration into urban slums, and helps a generation of weavers to come out of poverty. Unlike government programs which treat handloom work as a welfare activity, or intermediaries and traders with unfair practices, Dastkar Andhra sets up equitable, sustainable, production marketing systems which allow weavers to live with self respect and dignity.


S.Rengasamy. Introduction to Social Enterprises Characteristics of Social Enterprises
Premise Purpose Approach Social Goal Economic Goals Model Paradigm Business model Capital / funding Sectors Role of informal sector Legal form Poverty alleviation Accountability Measurements Market-based approaches can provide solutions to social problems To solve a social problem or social market failure Uses market-based approaches and business resources to create social and economic value, improve organizational performance. social value creation, social change and ultimately social transformation Financial viability, minimize subsidy, diversify sources of funds, profit Socially-driven commercial model Organizational development and mission accomplishment methodology used mainly by social sector organizations The enterprise itself is the vehicle/method by which social impact and change is achieved Mixed capital : grants, soft loans/Program Related Investments, patient capital, commercial capital All sectors Owners, employees, beneficiaries, clients, suppliers, contractors Exploits a range of legal forms: nonprofit, hybrid, commercial venture etc. Inherent in process and outcomes Accountable to stakeholders and the wider community for their social, environmental and economic impact Social and environmental impact and financial performance vis-à-vis SROI (monetized social return on investment), financial statements, and indications and other social impact indicators Emphasizes scaling strategies that increase social impact and/or stimulate systemic social and economic change, over strategies that promote enhanced profit or enterprise/business growth(i.e. societal or systemic transform) KA = all okay. Creates social/environmental and economic value concurrently


Value creation

There’s no business like social business


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