What is ‘social enterprise’ anyway?

Will Dayble
Jan 23, 2018 · 11 min read

This is our #1 FAQ. Finding a singular definition of Social Enterprise is a seemingly impossible task. Maybe that’s the whole point.

The term is thrown around a lot. The industry seems to love debating the merits of various models, legal structures and approaches.

The short answer (from a teachers point of view) is frustratingly simple:

In reality, there are some standards. Here’s a short, 11 minute video with animations that explains some of the more common ones:

11 minute video covering the most common social enterprise models.

The definitions we left out (and why):

First up meet Bill Drayton, founder and chair of Ashoka, the ‘grandfather of social enterprise’, usually considered as the inventor of the term.

Thanks Bill!

He succinctly defines it as:

“Innovation initiative for the common good.”

What I love most about Bill’s approach that it’s more about practice than any particular model. It’s personal. It’s about your own sense of agency.

In a 2018 interview, Drayton asks parents: “Does your daughter know that she is a changemaker? Is she practicing changemaking?” He tells them: “If you can’t answer ‘yes’ to these questions, you have urgent work to do.”

So if you hear the term ‘changemaker’, you owe something to Bill.

We’ve found that within semi-structured education, people like to learn structures and frameworks and facts. The process of unlearning allows people to get to their own definition in their own time.

The territory between activism, business, and political movements is hazy, and certainty is a life raft for folks who aren’t already comfortably adrift.

But if you’re like Bill, changemaking is a deeply personal, human endeavour. It’s a social category not a business model. Go do it.

But let’s counterpoint that with the systematic elephant in the room, Skoll.

The Skoll World Forum, the who’s who of social enterprise.

The Skoll Foundation was founded by the first full-time employee and first President of eBay, Jeffrey Skoll. Super rich, committed to making the world better, interest in (and obviously quite good at) entrepreneurship. Bam!

Importantly: Skoll has a very ‘fix it at scale’ approach to social enterprise, which some people can find a bit highfalutin. I think it’s kickass.

“Direct action that replaces an existing, stable but unjust equilibrium with a new, more just equilibrium.”

Clear as mud. Let’s pull it apart with the question from their book:

Which of these people were social entrepreneurs?

Mother Teresa, Martin Luther King Jr, or Andrew Carnegie?

Mother Teresa works with some of the lepers in Calcutta, 1971.

Anjezë Gonxhe Bojaxhiu, aka ‘Saint Teresa of Calcutta’ was a nun that did up a bunch of classic do-gooder charitable stuff: Orphanages, soup kitchens and schools. For the most part, direct action. Tick.

So was she a… nunpreneur? saintpreneur?

Harry + Roger say no.
She wasn’t a social entrepreneur because while those soup kitchens and things were desperately needed, they didn’t change the existing equilibrium.

Making a home for people with HIV / Aids is really important, and it directly affects the people that are suffering, but it doesn’t get rid of Aids.

Not replacing the status quote with a new, better status quo = not social entrepreneurship.

By comparison, think about Uber — they are definitely replacing the status quo; old school taxis with ride sharing. Big tick for entrepreneurship. Pretty questionable ethics and imperatives however, so no tick for the ‘social’ bit.

“Darkness cannot drive out darkness; only light can do that.”

Martin was awesome. Activist, rabble-rouser, did the whole “I have a dream” thing… crucial in getting the Civil Rights Act passed, which outlawed discrimination based on race, colour, religion, sex or national origin.

Is that social entrepreneurship? He did work to replace an existing unjust equilibrium — racism — with a new, more just equilibrium. Tick.

But, unlike Mother Teresa, his work convinced other people — the American government — to make change. His influence was huge, yet indirect.

So, swing and a miss on two incredible historical figures.

Steel tycoon, book lover and all-round good guy.

Carnegie was a Scottish-American industrialist that made the steel industry go absolutely bonkers in the 19th century. Arguably one of the richest people ever, who also gave away almost 90 percent of his fortune.

The cool thing our boy Andy did was build a system for building libraries, called the ‘Carnegie Library’. He created 3,000+ libraries — 1600-ish in the US, 660 in the UK and Ireland, and a bunch elsewhere around the world.

So what makes Andy a social entrepreneur, according to Skoll?

He directly changed an unjust equilibrium. For ever.

In this case the unjust equilibrium was that only rich people had libraries in wings of their giant ridiculous houses, while poor people didn’t.

Book contain knowledge, knowledge is power. Power inequality is bad.

The Carnegie library system was a sort of formula — where he’d hit up a town and say something like:

“if you show that your community needs a library, get a building, pay some staff, and provide 10% of the building cost to maintain it each year, I’ll give you a bunch of cash to make a library”.

He made a system that made it really easy for people to build libraries off the back of his philanthropic dollars.

Those libraries tended to stay after his intervention, which means that he directly replaced an existing, unjust equilibrium with a more just equilibrium.

Alternatively: He made a scaleable system that made the world better, specifically helping people who needed change and couldn’t do it themselves.

This is a bit like open source software: which can create a huge impact when anyone else can copy the system, modify it a bit to suit their needs, and uses it.

That’s a very short version. There’s a lot more detail in the book and it’s definitely worth having a read.

But what about the bit where Carnegie made a squillion bucks in the steel industry? What if he made all his money through manufacturing guns, or clubbing seals or something nasty? Would he still be a social entrepreneur?

Difficult question. Let’s look out another definition next…

Blended returns.

You may have heard of triple bottom line before. It’s a blended returns thing, which can be traced to Jed Emerson, who put together a framework in 2000 that’s really about the idea of value.

Value is a tricky one, because it’s not easy to measure.

E.g: A plunger costs about $5.

If your toilet is blocked, holy moly is that plunger is worth more than $5.

Same deal with other forms of value that aren’t measured in dollars. Clean air and not dying from Malaria are pretty priceless, right?

To oversimplify: Blended value is this idea that you can create social value, and financial value at the same time, without compromising on either goal. It argues that doing both at the same time actually increases the amount of both you get!

Think of Jessica Alba’s Honest company, which (controversy included) was valued at one billion dollars, or Melbourne-born legends Who Gives a Crap, who sell toilet paper and use 50% of profits to build toilets where they’re needed most.

If you can build a system where farmers get a fair, consistent price for their beans they can lift themselves out of poverty. The company that sells them makes a profit, everyone wins.

In fact, the more beans you sell, the more everyone wins. That’s pretty central to this idea — it has to be win-win, where the money and the social impact is inextricably interlinked.

Solar panels are another good example here — more solar panels means cleaner electricity and more profit at the same time. A blended return.

Isaac Jeffries — who teaches our Business Model Canvas lesson — has a thoughtful post on his blog about this where he argues that experienced people often get this wrong:

“… because they believe that you can’t do good and make money at the same time.”

This critique can be valid, it can be hard to ensure a company is doing no harm while making giant piles of cash. One of our most respected teachers, Kevin Starr, argues that it’s impossible to optimise for profit and purpose at the same time.

So is SpaceX a social enterprise because they’re trying to make humans a multiplanetary species? Is that a ‘valid’ social mission? Or are they wasting money on rocket fuel that could be better used to alleviate poverty?

Is eBay the biggest distributed recycling system on the planet, or is it a website that actually encourages consumerism?

The fuzziness of this stuff means some people prefer tighter definitions…

A more local definition.

In Australia the only real census (so far) on social enterprise was done by a Melbourne non-profit organisation called Social Traders, who strictly define a social enterprise as:

  • Led by a mission consistent with a public or community benefit;
  • Trade to fulfil their mission;
  • Derive a substantial portion of their income from trade; (not grants or donations) and
  • Reinvest the majority of their profit/surplus in the fulfilment of their mission.
E.g. STREAT, a famous and beloved social enterprise cafe in Collingwood, Melbourne.

“Reinvest the majority of their profit/surplus in the fulfilment of their mission.”

According to ST, if you don’t use at least 50% of your profits to ‘work towards your social mission’, you’re not a social enterprise.

This is a narrow definition, which to its credit makes it very accessible to non-profit organisations who find adventuring into social enterprise scary.

It’s also much easier to understand than the Skoll definition, and that works really well for social procurement, which is where government is encouraged to purchase stuff from smaller, local social enterprises.

Government likes clear definitions, and more social procurement is a good thing, so a clear definition that government understands is good, right?

Like Australia, most countries have their own particular flavour of social impact.

The USA is big on triple bottom line, and loves the B-Corp movement, whereas Canada likes the idea that a social enterprise is a business owned by a non-profit. So a “socially responsible for-profit” business in Canada isn’t a social enterprise in Canada!

Search engine popularity for the term shows Singapore surging ahead, with Hong Kong nudging ahead of the UK and Uganda.

The Middle East has no real government definition, while South Korea has a Social Enterprise Promotion Act, and the EMES research network in Europe has an “ideal type” instead of a prescriptive definition like Australia does, with 9 criteria spread across economic and social impact, including:

  • Production,
  • autonomy,
  • risk,
  • paid workers,
  • community benefit,
  • citizen initiative,
  • participatory character,
  • limited distribution of profit, and
  • decision making that isn’t based on capital ownership.
Thanks, EU.

Confused yet? That’s probably good.

Confusion is the first step towards forming your own opinion, which is a good step towards deciding what you want do with your business.

What’s even more frustrating is that most of these definitions are about a social enterprise — like… a company — not the social entrepreneur herself.

It’s a pretty profound question:

“What is the most social impact I can create in my life?”

It’s such a profound question that an organisation in London, 80,000 hours, was created to address exactly that question.

The name comes from the idea that you have about 80,000 working hours in your career, so it’s worth figuring out how to use that time well.

Their approach focuses on the individual. What skills and capabilities do you have, and how can you max out your personal impact. This approach of using reason and evidence is best know as effective altruism.

The personal, rational approach to impact:

Say you’re really talented at investment banking, and you’re already making $400K+ every year at a top tier firm in New York. Should you quit your job and fly to sub-saharan Africa to hand out malaria nets?

Malaria… banking… seems pretty clear which does the most good, right?

Maybe not.

If you’re a great banker, and kept doing what you’re good at, while donating half of your huge salary to an organisation who’s really talented at getting malaria nets to people who need them, the total overall impact you’d create would be much higher.

In fact, if you took the time to find a very efficient organisation the same money could be used even more efficiently.

What’s even more confronting is that by jumping on a plane to Ghana, you could potentially cause more harm than good, by getting in the way of people who already know what they’re doing and don’t need you getting in the way.

The effective altruist’s conclusion:
Do something you’re personally good at, use your spare cash to invest in people that are better than you at the impact bit.

We can’t all join Doctors Without Borders, or become human rights activists. If we did, there’d be no investment bankers left! That would be… bad?

Either way, it forces us to ask ourselves an important question:

“Is entrepreneurship — let alone social entrepreneurship — really something I should invest my time in?”

Or more specifically — are there other people that will do entrepreneurship better than you? Are you so terribly unemployable that entrepreneurship is your only option?

Paul Graham has a good article about this, where he argues that it’s smarter to be an employee at a startup than to try and found your own, as the risk of failure is so high.

Arguably, you should only ever start a business if:

  1. No-one else is working on the problem.
  2. You’re convinced that no-one else can solve it better than you.
  3. You’re brave or stupid enough to devote your life to solving that problem.

Ironically, many successful entrepreneurs are too impatient to actually spend the time asking themselves questions like this.

What does this have to do with social enterprise?

Like charity, business starts at home, and most businesses start as the time, talent and energy of an individual or small group.

For the early-stage entrepreneur it all comes full circle.

What do you want to do with your life? An social entrepreneur may answer:

“I don’t know yet. Let’s find out together…”

Fitzroy Academy

Insights on entrepreneurship, education, and social impact.

Will Dayble

Written by

Founder @fitzroyacademy, on education, social enterprise and startups.

Fitzroy Academy

Insights on entrepreneurship, education, and social impact.