The Myths of Social Enterprises

The concept of social enterprises has a long history, albeit manifested under different names and orientations. The backlash against the deficiencies of capitalism in recent years has accentuated the development of social enterprises around the world. However, there is still not a shared consensus of what essentially a social enterprise is.

Social enterprise has philanthropic roots in the US and cooperative origins in the UK.  More recently, some governments are also trying to encourage the third sector to take a more market-driven approach in providing social goods.  Social enterprises are therefore often narrowly seen as organisations seeking to solve the problems of the bottom of the pyramid or challenges in developing economies.

According to the wiki definition, a social enterprise is “an organisation that applies commercial strategies to maximise improvements in human and environmental well being, rather than maximising profits for external shareholders”. Social and environmental challenges are obviously not confined to the have-nots. Developed economies also have their challenges. Pollution, wastes, obesity, stress-related diseases, aging population, education, housing, workplace relations and work-life balance are but a few examples. Therefore it is conceptually inappropriate to limit the scope of social enterprises.

The second fallacy is that social enterprises must be non-profit organisations. To repute this argument, it is essential to understand what non-profit and for-profit mean. A non-profit organization is an organization that does not distribute its surplus funds to its owners or shareholders; whereas a for-profit organization can do so. It is also important to differentiate between the concepts of for-profit and profit maximization. Whilst the latter should be condemned, there is nothing wrong for an organization to provide incentives to its investors through the distribution of dividends. The distribution of profits should not compromise the enterprises' social benefits. Indeed if we want more private investors to be involved in the delivery of social goods, instead of just relying on government funds and subsidies, there is every justification that a social enterprise can be for-profit.

The social and environmental challenges that we are facing today are enormous, and in order to solve these problems, a social enterprise also has to be an innovative enterprise as well.  The innovation can be in the technology, product, service, delivery process, customer experience or in how the enterprise is managed.  Scalability is another issue, in order that the enterprise can attain maximum impact on the society.  

All in all, social enterprises should be a lot more than non-profit organisations serving the needs of or creating employment opportunities for the disadvantaged segments of the society.  And social enterprises should definitely not be a euphemism for non-profit organisations struggling to develop a viable business model with no or limited innovation.

Many of the enterprises that do not name themselves as social enterprises are also creating enormous benefits to our society. Many technology ventures are cases in point.  My favorite example is LinkedIn.  Most people will not associate LinkedIn as a social enterprise. But it is certainly doing a lot of good in connecting professionals around the world. Another example is Zappos. The happiness culture advocated by Tony Hsieh is creating a lot of good to its employees and customers. By demonstrating the crucial link between the purpose of an organization and sustainable growth, the Zappos culture is also influencing companies around the world in a big way. But I do not think Tony will ever call himself a social entrepreneur.

Because of the confusion and sometimes the unfortunately negative associations of a social enterprise, some organisations and advocates in social innovation have stopped using the term. We are seeing more and more people making references to “impact ventures” or “for purpose” organisations instead.

As Juliet says, "What's in a name? That which we call a rose
by any other name would smell as sweet." So long as the enterprise is making a difference and creating positive value to the society, there is actually no point in debating whether it is a social enterprise. This is the approach we take in the Make a Difference (MaD) Venture Fellows Programme. We are inviting young, innovative, do good and do well entrepreneurs to join the Programme in Hong Kong on 24-27 Jan 2013. They can work in diverse sectors from environment, energy, education, medical and health care to technology that enhances productivity and connectivity and management practices that build happy teams and customers. This Programme aims to celebrate and support entrepreneurs who are making a difference to scale new heights by connecting them with capital, networks and market knowledge in Asia. If you are MaD enough, please apply via www.MaD.asia by 28 Oct 2012.