Social Enterprises Will Become the Next Big Global Brands. But Not All Social Enterprises Are the Same

futurelab default header

Let me make a prediction, 10 of the top 100 most popular brands in 5 years time will be Social Enterprise Brands. What are they? They are a new form of organizations. We see more and more development of a mixed economy of companies coming together to further progress on social, economic & environmental well being. Expect to plenty of innovation where Social Technologies meet Social Enterprises.

What exactly is a social enterprise? A social enterprise is a BUSINESS with primarily social objectives whose profits are reinvested for that purpose in the business or the community, rather than being driven by the need to maximize profit for shareholders. But it doesn’t mean that they are not maximizing their effort to create competitive advantages to create economical value in addition to social value. There are many ways to do this but they should not mean just non-profits business:

  1. Create economic value in the form of profits and use 100% of that to benefit larger purposes. Often include community-based services such as community banking etc.
  2. Create economic value by emphasizing double or triple bottom line and use that as a core element of the business model such as value based goods/services esp. fair trade etc. A business that, beyond the profit motive, has a social mission built into its business model or strategy.
  3. Create economic value in the form of transforming current business model to include social components in a meaningful way.
  4. Create value in terms of jobs and some revenue to sustain operations by specifically targeting groups with challenges and to provide training and job opportunities (this employment model is closer to non-profit).

I don’t think Social Enterprises should compete based on lower cost (salaries or subsidized rent etc.). They cannot just rely on a lower cost structure and compete with for-profit businesses with a lower quality product/services, but instead they need to focus on creating an innovative business model that allows them to compete just as any regular businesses.

They should not just exist to provide jobs, that’s a pure non-profit’s role, they should be creating value by developing human capital and skilled labor just as regular businesses. The model of many employment-based social enterprise is not 100% Social Enterprises. They provide employment opportunities and job training to its target populations or "clients," that are people with high barriers to employment such as disabled, homeless, at-risk youth, and ex-offenders.

Generally this model is predicated on the appropriateness of jobs it creates for its clients, regarding skills development, and consistency with clients’ capabilities and limitations, as well as its commercial viability. This model is usually embedded: the social program is the business, its mission centers on creating employment opportunities for clients. I hope to see more innovative Social Enterprises that can take this further by innovating more and be able to produce a decent return on capital deployed. It needs to move away from a traditional non-profit model to becoming a doubled-bottom line Social Ventures.

There should be a commitment to both investors and the capacity of individuals and communities to help themselves. Social Enterprises should empower communities and build social capital; you CANNOT take financial capital out of the equation. Not sure if you think this makes any sense to you.

Scott Griffith (CEO, Zipcar) was asked the question by Qn (A Yale School of Management publication) on, as the CEO of a social enterprise, how does he make the call when his social goals and profit motive conflict? This is his response:

“Just by the nature of our business model, the social benefits are accruing as we grow. Most of our members don’t own cars. As a result of that, every car we put on, we know through surveys, takes about 20 personal cars away, because people choose not to buy a car or they sell a car. “

“That 20-for-1 ratio also benefits household discretionary income. Through surveys we know that between $6,000 and $7,000 a year of transportation spending comes back into the household after they’ve spent on Zipcar. A clear social and economic benefit to the community that accrues as that happens. “

“As a lot of the economists will tell you, any time you start to pay for something per unit as opposed to a fixed cost, you get much smarter about how you spend your money. So as you transition car transportation from a fixed cost, being car ownership, to a variable or a unit cost, like Zipcar, people get a lot smarter about grouping their trips. And they just make the trade-off: Should I walk? Should I take public transit? Should I use the Zipcar? Their vehicle miles travelled get cut in half. The big purchasing driver, in our case, is economics. That’s the stake, and the sizzle is the social good that comes with it, and the sense that they’re doing something good for the environment and for the community as a result of their behavior shift toward Zipcar.”

Original Post: