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What exactly is a social enterprise?
In Iceland, social enterprise is still a very new term. In 2013, we agreed upon on the Icelandic expression which going forward will be ” Samfélagslegt Framtak” (directly translated as social initiative). We are currently, through the Summer 2014 project, in the process of creating a definition of social enterprise in Iceland. With that said, we have looked at how it’s being defined in countries where the social enterprise sector is more established. As with Corporate Social Responsibility (CSR), the social enterprise definitions worldwide are work in progress. It’s a growing field, and so the definition is growing and adopting to the way it’s being applied.
For our purposes we have looked at European and more specifically the definition currently used in the UK (one of the more mature markets of social enterprise). Accordingly to Social Enterprise UK (From the paper: “What makes a social enterprise a social enterprise.”), the definition has a few key characteristics:
Social enterprises should:
1) Have a clear social and/or environmental mission set out in their governing documents
2) Generate the majority of their income through trade
3) Reinvest the majority of their profits
4) Be autonomous of state
5) Be majority controlled in the interests of the social mission
6) Be accountable and transparent
Through the Summer Project 2014, we are in the process of interviewing Icelandic social entrepreneurs, to understand if this definition is applicable to the actual practice of social initiatives in Iceland. We aim to publish a definition approved by various professors from Iceland’s Universities by the end of the summer.
Business structure vs. Business model
With the rise of social enterprise models, many have been confused whether the legal structure of social enterprise is the defining factor of the organization. In fact, social enterprises could be
- limited companies (“Einkahlutafélag” (ehf) or “Hlutafélag” (hf)),
- an income generating charity or Non Goverment Organzation (NGO) (“Góðgerðarfélag”)
- a cooperative (“Samvinnufélag”)
- a foundation (“Sjálfseignarstofnun”)
The social enterprise is a business model with purpose at its core. The organization has a social or environmental mission that shows a positive impact on society and/or the environment. As opposed to CSR which is usually a department added onto the organization with practices in place to be a more responsible corporate citizen, social enterprises are the marriage between purpose organizations and profit making organizations. They live and breathe their purpose for the betterment of society in which ever area they have chosen to impact.
An example that is easy to understand is the US company called TOMS. The story behind this organization began with the life experience of the founder, Blake Mycoskie, who when visiting poverty stricken areas in South America noticed children often got ill due to lack of access to shoes. He founded a company that sold shoes to the US market, and with each shoe sold, one was donated to a child in the poor areas of South America (coined the One-for-One principle). Here clearly the company has a purpose of making sure poor societies have access to basic needs such as shoes to alleviate illnesses, whilst still running a profitable business that could sustain the philanthropic efforts. This is only one example of many different types of business models applied in the social enterprise community.
What benefit do social enterprises bring to society?
Social enterprises can offer solutions to society, where previously an over reliance on governments to such problems, is now in the hands of individuals and organizations. We in Iceland, as with most Scandinavian countries, have a very good social structure where government agencies cover areas such as health and education, that many other countries rely on private funding to access. However, there are always areas where the governments due to their limited resources cannot possibly fill all the gaps. This is where social entrepreneurs have found their calling.
They have seen the needs within their respective societies where a sustainable business can be established to meet the needs of individuals and communities. Just as in the NGO sector it is good practice to evaluate your effectiveness of your service within the society, social enterprises continuously evaluate whether their services/products provide: better access to education, health care, job opportunities or skills development, basically any area one could think of that would enhance the quality of life of individuals within our society. Impact is often shown in number of individuals assisted, how their lives have been improved; or in terms of environmental organizations how much they have either reduced negative impacts and increased positive impacts on the environment through the application of their products or services.
With such powerful data in hand, social enterprises can show their stakeholders what benefit their existence has added to society in general. What is therefore clear is that they are the meeting ground of where the public, private and volunteer sectors meet, and are able to sustain their impact through an income generating product or service. Social entrepreneurs are the individuals who do not complain what the government or an organization isn’t doing, they are taking the challenge head on and looking at how to serve the need with a sustainable business model.
How would you identify a social enterprise?
The characteristics identified above would be one way to identify social enterprises, specifically if they have a social and environmental mission at their core and reinvest the majority (51%) of their profits back into their social/environmental mission. They run their business with the social purpose of alleviating some kind of problem in society or aim to improve an area; usually both go hand-in-hand.
Currently, there are very few who would call themselves social enterprises in Iceland. This could merely be due to the fact that it means little as the term is very new. It would not add anything to the business, as public awareness of the benefits of social enterprises to the society is small to none. So too, anyone could call themselves a social enterprise without a clear definition, and soon that would lead to very muddy waters of uncertainty of what it actually represents. We aim to change that with the growth of socent.is, as the awareness of the business model and a clear defined set of principles becomes more common with our efforts.
Is there money to be made in social enterprise?
Even though social enterprises do not start their businesses with ‘making money’ in mind, they are aware it is required to create, sustain and grow their organization. In fact, without a clear income generating business plan, their desired impact in society will never be met, and therefore they are very aware of the need to create a desirable product or service for the community.
In a given scenario where a consumers generally speaking is given a choice between 2 products with a similar pricing structure, one that is produced from a social enterprise and the other not, the customer armed with more information about the respective companies would more likely choose the ‘feel good’ purchase. In essence, this makes good business sense to create companies that ‘do good’ and are able to give customers the ability to vote with their money.
If we take the definition of 49% of profits being available for shareholders within the organization, as 51% is reinvested back into the business purpose, you can clearly see there is enough in the pie for investors and business owners. Again, not intending to repeat myself, all stakeholders in the organization, and that includes investors, are involved in the business because they believe in the ability of the business to be sustainable and also create a positive social impact. The investors in this area are called impact investors, they are a new breed of investors that want to know their money is being used for the good of society, just as the customers described above. Impact investors would likely be in it for the long term as again they are more interested in seeing results for society rather than solely the bottom line.
Have any questions you would like answered, just email us at socentis[at]socent.is, we like to receive fan mail.