There is a misconception about social entrepreneurship, in the sense that most see it more as a social venture than an actual business. In fact, the stereotype of a social entrepreneur is someone who is trying to make a social change and impact and is struggling to raise enough money to cover the costs. However, being a social enterprise does not have to be unprofitable; in fact, generating a profit can contribute to the long-term sustainability of the organisation.

The difference between a social enterprise and a traditional business lies in its social impact. While more traditional businesses can certainly do good, this is not at the core of their existence or mission. Social enterprises, by contrast, feature the generation of social impact at their core. In this sense, it is what they do with their profits that differentiates them from traditional businesses. Like traditional businesses, they sell products or services in an open market, but by reinvesting the profits or benefits in the business or local community, they help to create job opportunities (especially for groups that are at a disadvantage in the labour market), support local communities and tackle social problems.

To borrow from the words of author Thomas L. Friedman: ‘Social entrepreneurs combine a business school brain with a social worker’s heart.’ Any successful social entrepreneur thus needs to accept and embrace both sides of the coin, i.e. to do good and to make money. This is not always easy for many – making money is considered less important than the social objective, while making a profit is considered at the least to be uncomfortable. Especially for those coming from a primarily social background, having a real commercial operation can pose an enormous challenge.

One enterprise, two customers

A social enterprise needs to find a balance between two types of customers – the social one and the economic one. The mission of your social enterprise is to serve your social customer, e.g. a specific local community or disadvantaged group, while the economic customer is the one who buys the products or services and thus pays for your mission. The latter, on many occasions, cares about your mission or social objective, which is part of the underlying reason for them being your customer, and thus generates more loyalty. However, not all may care in this way. Yet even with the more loyal customers who support your mission, it is clear that providing a good service or product is key.

Shared value

Following the same line of thought, in a world where social entrepreneurs are idolised for wanting to make a social impact or bring about a social change, and eyebrows are raised when they admit to running a business that seeks to make money/profit, traditional businesses that seek profit while wanting to be seen to do good are approached with scepticism.

This second misconception stems from the ‘false’ debate about business versus social responsibility, whereby a business is either profitable or socially responsible. Fortunately, the idea of businesses being there only to create profit or shareholder value and not to create value for society is changing.

The concept of ‘shared value’ was introduced by Michael Porter who stated that ‘The purpose of the corporation must be redefined as creating shared value, not just profit per se. This will drive the next wave of innovation and productivity growth in the global economy.’

In this setting, businesses become more competitive at the same time as tackling or at least reducing social problems in the environment or communities they operate in.

In this reality, businesses understand that to thrive, the environment in which they are situated and the communities (and thus the clients) they serve need to prosper. Shareholder value is thus not based solely on profitability, but also through the actions that have a social or environmental impact.

The concept of ‘shared value’ is thus equally valid and applicable to social enterprises as to any type of business that wishes to thrive both today and in the future, where clients/customers place ever greater value on the social and environmental impacts of their buying and consumption patterns.

Shared value in practice

The question remains in practice, however, of how to ‘marry’ both sides of the coin. For social enterprises this means balancing their social mission with making money, while for traditional businesses it is about creating shareholder value at the same time as making a meaningful contribution to the solving of social problems or challenges.

There are many examples of shared value. One of the most enduring among social enterprises since 1980 is Ashoka: Innovators for the Public which supports social entrepreneurs across the globe. Another example is Ellison Eyewear, an eyewear company that helps build homes around the world and offers eyesight care to those living in impoverished communities.

In the more traditional business world a very good example is the partnering of Cisco Systems with schools in Latin America and Africa, where, through its Networking Academy, it works with schools, governments and other non-profit organisations to provide education for ICT careers for students.

Adidas has established a partnership with the micro-finance organisation Grameen Bank to produce a low-cost, affordable shoe for the poor in India.

The boundaries and frontiers between social enterprises and traditional businesses doing good are becoming more ambiguous, with the latter connecting the success of their business and its economic value with social impact and/or progress. It will be interesting to see how this develops as the conception of the final goal of a traditional business seems to be moving more towards the social enterprises in terms of integrating social impact. At the same time, social enterprises are becoming aware that their social mission is perfectly compatible with generating economic value. Could it be that in the future there will be no distinction between the two types?

Learn more at Social Innovation Academy

For this to become a reality, a change in mindset is needed, and all stakeholders in the business ecosystem are required to understand social change, social innovation and social impact. To provide an answer to this challenge, EOLAS and Limitless, together with 3 other partners, have recently started a project aiming to develop the first online Social Innovation Academy in Europe. The Social Innovation Academy will be the first fully online management training programme focusing exclusively on social innovation.

Why Social Innovation Academy? Social innovation is increasingly being perceived as the answer to the rising number of European societal challenges. While the European authorities, leading academics, policy experts, business people and activists agree that social innovation is the key to a better future for Europe and the world, it is extremely difficult for professionals to obtain high-quality training on what social innovation actually offers and, more importantly, how it can be done in practice. The Social Innovation Academy is aiming to change this situation in Europe and beyond. If you are interested in keeping up with this project, you can subscribe to our newsletter, become one of our friends or follow us on social media (LinkedIn, Twitter and Facebook). We welcome all requests for collaboration here.