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What is?

DEFINING THE CONCEPT

What are social enterprises?[1]

A social enterprise is an operator in the social economy whose main objective is to have a social impact rather than make a profit for their owners or shareholders.

It operates by providing goods and services for the market in an entrepreneurial and innovative fashion and uses its profits primarily to achieve social objectives. It is managed in an open and responsible manner and, in particular, involves employees, consumers and stakeholders affected by its commercial activities.

There is, as of yet, no uniform language and understanding around the idea of social enterprise. Many definitions exist and a wide variety of organizational forms are adopted by social enterprises around the world. This makes it difficult to establish international comparisons.

The Organization for Economic Co-operation and Development (OECD) defines social enterprises as :

“any private activity conducted in the public interest, organised with an entrepreneurial strategy, but whose main purpose is not the maximisation of profit but the attainment of certain economic and social goals, and which has the capacity for bringing innovative solutions to the problems of social exclusion and unemployment” (OECD, 1999).

More recently, the European Commission has defined a social enterprise as being “an operator in the social economy whose main objective is to have a social impact rather than make a profit for their owners or shareholders. It operates by providing goods and services for the market in an entrepreneurial and innovative fashion and uses its profits primarily to achieve social objectives. It is managed in an open and responsi­ble manner and, in particular, involves employees, consum­ers and stakeholders affected by its commercial activities” (Communication from the Commission, 2011/682 final).

The different definitions of social enterprise underline different aspects of the same reality. In Europe, social enterprises are closely linked to, and emanate from, the tradition of the social economy, which is characterised by principles and values such as solidarity, the primacy of people over capital, and democratic and participa­tive governance. In Europe, the social economy gathers entities such as co-operatives, associations, mutuals and foundations.

There is no single legal form for social enterprises.

Many operate in the form of social cooperatives, some are registered as private companies limited by guarantee, some are mutual, and a lot of them are no-profit-distributing organisations like provident societies, associations, voluntary organisations, charities or foundations.

Social enterprises take various legal forms in different coun­tries across Europe. These forms include solidarity enterprises, co-operatives or limited liability social co-operatives, collective interest co-operatives, as have been adopted in Italy, France, Spain, Portugal and Greece, social purpose or collective interest companies in Belgium and community interest companies in the United Kingdom.

A review of the legal structures and legislation in a number of European countries that have adopted national laws regulating social enterprises (i.e. Belgium, Finland, France, Italy, Poland, Portugal and the United Kingdom) reveals that these laws address common issues including the definition of social enterprise; asset allocation; stakeholder and governance systems; and, accountability and responsibility towards internal and external stakeholders. These national laws provide different legal solutions based on specific cultural contexts (1). Three different models can be identified according to the various organisational forms that social enterprise can take: the “co-operative”, the “company” and the “open form”.

The Commission uses the term ‘social enterprise’ to cover the following types of business:

  • Those for who the social or societal objective of the common good is the reason for the commercial activity, often in the form of a high level of social innovation.
  • Those where profits are mainly reinvested with a view to achieving this social objective.
  • Those where the method of organisation or ownership system reflects the enterprise’s mission, using democratic or participatory principles or focusing on social justice.

Fields where social enterprises operate

Despite their diversity, social enterprises mainly operate in four fields:

  • Work integration– training and integration of people with disabilities and unemployed people.
  • Personal social services– health, well-being and medical care, professional training, education, health services, childcare services, services for elderly people, or aid for disadvantaged people.
  • Local development of disadvantaged areas– social enterprises in remote rural areas, neighbourhood development/rehabilitation schemes in urban areas, development aid and development cooperation with third countries.
  • Other– including recycling, environmental protection, sports, arts, culture or historical preservation, science, research and innovation, consumer protection and amateur sports.

Another definition on Social Entrepreneurship

Social entrepreneurship and its methods, borrowed from the world of business, are becoming more and more popular among morally conscious people itching to solve a particular social problem and possibly make money in the process. Social entrepreneurs execute innovative solutions to what they define as social problems — be they local, regional, national, or international.

An Introduction to Social Entrepreneurship (motivation, organization, and society)

In social entrepreneurship, people use the principles of enterprise — business principles and even capitalism itself — to create social change by establishing and managing a venture. Some are altruists. They set up small, medium, or large nonprofit groups designed to ameliorate a difficult situation threatening certain people, flora, fauna, or the environment — or sometimes a combination of these. Others are profit seekers with a heart, who manage to establish a money-making enterprise that improves a situation in one of these four areas. Whether starting and running a nonprofit or for-profit social enterprise, these entrepreneurs are usually practical.

Each entrepreneur has a mission, typically one that is powerfully felt with urgency and compassion, and each takes concrete action leading to solution of the problem targeted in that mission. We’ve just described the scope of social entrepreneurship, or what social entrepreneurs do. But what is the nature, or essence, of social entrepreneurship? One way to answer that question is to look at its three essential elements: motivation, organization, and society.

Social entrepreneurship is motivation

Any discussion of social entrepreneurship and its entrepreneurs must include why people get involved in it in the first place. Sure, they’re trying to solve a pressing problem, one that bothers them and probably other people. But look at the desire to be a social entrepreneur in still broader terms.

Some entrepreneurs hope to develop a for-profit social enterprise — they’re seeking a livelihood of some sort. It may not be much at first, but they hope it brings reasonable success in the long run. For other entrepreneurs, eventually becoming a for-profit social enterprise may be a side effect, even an unexpected one, of their first efforts. And some are only interested in working toward building a successful nonprofit enterprise.

These possibilities of for-profit and nonprofit organizations raise the question of what the entrepreneur gets out of all this, besides solving a problem and changing the world as a result of the solution. What is that person’s motivation? Motivation has long-term effects. Why you do something often determines how and how well you end up doing it. We discuss this matter of motivation in several ways throughout this book. It comes up when we consider the feelings or urgency and compassion that inspire social entrepreneurs. It comes up when we explain social entrepreneurship as either a special form of leisure (the nonprofit form) or a special form of work (the for-profit form). And it comes up when we look at commitment and obligation.

Social entrepreneurship is organization

A social enterprise is an organization, often one that is legally incorporated. As in all successful organizations, leaders of social enterprises must engage in careful planning, organizing, and building their group’s identity. They have to decide on the structure of the enterprise, the nature of its constitution, and the elements of its bureaucracy. Sooner or later, they have to decide whether to be a for-profit or nonprofit entity — a decision that has implications for the organization’s status as a tax-deductible charity.

The organization needs a mission statement, which sets out its vision, and a clear set of goals toward which to work. Those are the minimal things that must be done in order to have much of a chance at success.

The nature of organizations requires that there be leaders and followers. The principles of good leadership apply as much to social enterprises as to any other kind of organization. The same may be said for managing the people who participate in them. In for-profits, these people, or staff, are paid; whereas in nonprofits, they’re either paid or serve as volunteers. Some nonprofits rely on both paid staff and volunteers.

Social entrepreneurship is society

Social entrepreneurship doesn’t take place in a vacuum — far from it. Working with others is the whole idea, and not just internally within the organization itself. As with other organizations, social-enterprise leaders must adapt to and take advantage of the organization’s external environment.

In practice, this means publicizing the enterprise and establishing networks of communication and influence with like-minded groups and with private and governmental sources of power, all of which can help or hinder the enterprise’s goals.

A multitude of large-scale trends currently bear on social entrepreneurship. They include the international movement of national populations, decline in amount and sources of money, and patterns of communicable disease, among others. Trends can subtly or not so subtly influence how your own enterprise evolves, and even whether it eventually fails or succeeds. Note that for-profit social enterprises are, at bottom, capitalistic entities. Their leaders must necessarily be familiar with the fundamentals of capitalism, the need for innovation, and the need to remain abreast of relevant information about and knowledge of the world of business.

The biggest difference is that whereas normal businesses exist to serve one bottom line — profit — social businesses add two more: social and environmental impact.

The Beginnings of Social Enterprises

Why do some people devote huge amounts of time and sometimes personal funds to solving a social problem? You could argue that, in the case of forprofit entrepreneurs, the answer is obvious: They want to make money. But, if profit is the motive, keep in mind that nearly all social enterprises are substantially risky ventures. If you want to be sure to make even a modest amount of money, there are far more secure businesses than ones that try to solve social problems, too.

Social entrepreneurship becomes necessary when objectors find that appropriate governmental, private-sector, or nonprofit organizations for solving the problem don’t exist or are inadequate for the job. Objectors discover these weaknesses during phase 2, the action phase.

Making money may be a nice bonus, but it’s not what motivates social entrepreneurs in the first place.

The homeless and animal-neglect examples were local issues used to illustrate typical small-time social entrepreneurial action. Of course, many of the opportunities for social entrepreneurship are broader than that and of much greater import for humanity.

The founding of the Light Up the World Foundation (www.lutw.org) is an example. It’s a nonprofit humanitarian organization dedicated to providing lighting to poor people in remote areas who currently rely on kerosene lamps or even wood fires. In addition to improved nighttime lighting, this utility brings physical, educational, and financial benefits.

As you’re probably beginning to see, social entrepreneurship is, in some ways, limited only by your imagination and determination.

In which sectors can we group the SEs?

Social enterprises work in various fields of activity, providing services or engaging in production. According to the Europe-wide mapping study, they can be grouped into the following sectors:

  • Social and economic integration of the disadvantaged and excluded (such as work integration and sheltered employment)
  • Social services of general interest (such as long-term care for the elderly and for people with disabilities; education and child care; employment and training services; social housing; healthcare and medical services)
  • Other public services, such as community transport and the maintenance of public spaces
  • Strengthening democracy, civil rights and digital participation
  • Environmental activities, such as reducing emissions and waste or facilitating renewable energy
  • Practicing solidarity with developing countries (such as promoting fair trade)

Given that many social enterprises are innovative, it is not surprising that social enterprises are found in most areas of economic activity as we transition from the industrial world of the 20th century to an economy based on information and technology. Recent initiatives include ventures in ecotourism, information technology and financial services. Some countries limit the recognition of social enterprises to certain fields by defining a legal form which is only permitted to act in certain areas, for example, those deemed of public benefit or work integration social enterprises (WISEs).[2]

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[1] http://ec.europa.eu/growth/sectors/social-economy/enterprises_en

[2] European Commission, Directorate-General for Employment, Social Affairs and Inclusion (2016): A recipe book for social finance – A practical guide on designing and implementing initiatives to develop social finance instruments and markets. Varga, Eva and Hayday, Malcolm (authors). Luxembourg: Publications Office of the European Union .p.14