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What a Social Enterprise Is… And Isn’t

By September 30, 2020No Comments

In 2019 the Business Roundtable, an influential think tank of CEOs from many of the largest U.S. corporations, issued a statement on corporate purpose that reshaped decades of business thinking. The statement seemed to reject the longstanding principle that a company’s leadership had one duty: to increase profits for shareholders, a concept referred to as “shareholder primacy.”

Instead, these leaders declared that “each of our stakeholders [including customers, employees, suppliers, investors, and the environment] is essential” and they committed “to deliver value to all of them, for the future success of our companies, our communities and our country.”

This development is a continuation of a massive rethink over the past two decades of the roles of and relationships between businesses, nonprofits, governments, and communities. One outcome of this has been the advent of the concept of a “social enterprise,” entities that have grown sharply in number and have attracted increasing talent and capital.

And what exactly is a social enterprise? Because the concept is so new and its iterations numerous, there are many definitions circulating. Some are (mostly) accurate and helpful, but many are not. In light of that confusion, this article aims to clarify what a social enterprise is and how it operates.

Not Just A Socially Responsible Enterprise

While the idea of corporate social responsibility (“CSR”) has been around for decades, not every corporation that exhibits some form of “social responsibility” is a social enterprise. Why? Because not every company engaged in commerce is primarily solving a social or environmental problem.

As an example, a company that sells widgets might engage in CSR by, for instance, making corporate donations to the local food bank, but it was not incorporated for the purpose of eradicating hunger in its community by selling those widgets. It is therefore not a social enterprise. A social enterprise goes further than that––its very existence is based on solving a particular social problem.

The Social Enterprise Alliance suggests this basic working definition: “a social enterprise is an organization that addresses a basic unmet need or solves a social or environmental problem through a market-driven approach.” This is helpful for several reasons, as the definition prioritizes the social/environmental impact, and allows for both for-profit and nonprofit entities to fit within it.

But while a helpful guidepost, the definition lacks one key element of a social enterprise: intentionality. Thus, we offer the following definition: a social enterprise is an organization that has some type of social or environmental impact (e.g., poverty alleviation, reduction of social inequality, improving the environment, creating economic opportunity) intentionally built into its corporate structure, its company culture, and its business model. This means the organization has developed a business that facilitates social/environmental good through its operations so that as the company grows, the impact grows commensurately.

This definition specifically helps founders and seed round investors assess their startup by prompting several guiding questions: Is the social/environmental impact stated in the corporate charter? Are the early people and policies in place to achieve that impact? As sales increase will it necessarily increase the impact? If not, the goal of building a social enterprise may not be met.

A Case Study In Building a Social Enterprise

In 2018, Savhera was incorporated with the intent of operating as a for-profit social enterprise, and those three questions have guided the leadership’s strategic decision-making.

The company’s origin was in a dialogue between Dr. Vanessa Bouché and a woman who had been trafficked into the brothels of Delhi, India. The woman expressed passionately that she was tired of politicians, journalists, researchers, and NGO workers coming to talk to them and nothing changing, and when asked, she said: “I want dignified employment to get out of this dirty business!”

In response to this, Dr. Bouché and co-founders formed Savhera as a public benefit corporation, a new corporate structure that allows the social/environmental purpose of the company to be put on par with the traditional duty of returning a profit to its shareholders in managerial decision-making. Its certificate of formation specifically states that it is “a public benefit wellness company that creates dignified employment opportunities for women exiting prostitution.”

The early hires, policy formation, and product decisions were all made in line with the desired social impact of dignified employment. The hiring process, HR policies, office environment, uniform design, and product focus was all done in a trauma-informed manner, to foster the employees’ growth while producing, distributing, and selling goods that had a solid business case behind them and growing market space in front of them. Additionally, the first employees were given the opportunity to select the name of the enterprise, as a means of solidifying their position as primary stakeholders. They chose Savhera, which in Hindi means “morning” or “new beginning.”

And once the company got to market and reached the post-revenue stage, the third question was answered quickly, as sales growth required more investment in both products and people, which created more hires and more dignified employment for formerly trafficked women.

The intentionality is what has successfully linked together the social mission and the business model for Savhera. Its revenue from sales of premium aromatherapy products and organic essential oils sustains the company’s operations, which provide dignified employment to women in India and the U.S. who are overcoming the trauma of sexual exploitation. There is both a social good and a commercially viable business model built into its very existence, and the company intentionally prioritizes the intersection of both components in its daily operations and its long-term strategy.

Toward An Ever More Enterprising Future

Companies like Savhera stand on the shoulders of many policymakers, executives, entrepreneurs, and consumers who have spurred incredible progress in our society’s understanding of commerce, social impact, and how markets can be harnessed to provide opportunity, undo injustice, reduce inequality, and care for people and the planet through profitable enterprise.

Not every corporation engaged in CSR is a social enterprise, yet we applaud the contribution. Not every founder of a startup that is adding value to society is a social entrepreneur, but we cheer the benefits. It is our specific hope, however, that the next decade will see an explosion of social enterprises built by talented, visionary social entrepreneurs and funded by passionate, visionary impact investors that will have transformational effects on society and even solve many of our world’s most pressing problems.

We look forward to going boldly into this future with you!

Noel Bouché is a graduate of The University of Texas School of Law. With previous experience as a classroom educator, trial attorney, and nonprofit executive, he is a co-founder of Savhera and is passionate about creating a more just, equitable, safe, and sustainable future for his daughters and daughters everywhere.

Michael Woodnorth earned his MBA from Vanderbilt University and has a background in investment banking, portfolio management, and nonprofit management. He founded Woodnorth Advisory LLC to help social impact organizations achieve sustainability and scale through strategic growth consulting and capital advisory services.

Bruce Allen

Author Bruce Allen

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