Social entrepreneurship combines business goals with a commitment to addressing social or environmental problems.
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- Also Known As:
- social enterprise
The goal of most businesses is to make money, but social entrepreneurs have another goal as well: to address a social or environmental problem. They pursue that goal by developing products or services that meet a need while finding ways to keep their enterprises financially viable.
This approach, known as social entrepreneurship, can take many forms, including for-profit businesses, nonprofits, and organizations that combine elements of both. Regardless of how theyâre structured, social enterprises use business principles to pursue goals that go beyond financial results.
How does social entrepreneurship work?
What is a social enterprise?
A social enterprise is an organization that uses business methods to pursue a social or environmental mission. It may be organized as a for-profit business, a nonprofit, or a combination of the two. The term describes what the organization is trying to accomplish rather than a particular legal structure.
Social entrepreneurship starts much like traditional entrepreneurship: Someone identifies a need and develops a product or service to address it. The difference is that a social entrepreneur builds a social or environmental goal into the organization itself. Revenue helps keep the organization operating, but profit isnât its only measure of success.
A social enterprise might sell affordable products or services to people who otherwise have limited access to them, create jobs for people who have difficulty finding work, or develop products that address environmental problems. Some do more than one of these things.
Grameen Bank in Bangladesh is a notable example. Economist Muhammad Yunus founded the bank to provide microcredit, or small loans, to poor people who lacked access to traditional bank credit. The bank helped popularize microcredit as a way to fight poverty worldwide.
How social enterprises make money
Many social enterprises make money by selling products or services, just as traditional businesses do. A social enterprise might sell affordable solar-powered lamps to households without reliable electricity or provide services such as health care or financial counseling at a lower cost. The revenue helps pay expenses and support the organizationâs social or environmental mission. Social enterprises may also turn to outside sources of funding, particularly as they start or expand.
Other ways social enterprises raise money
- Grants: Funding that generally doesnât have to be repaid.
- Angel investors: Individuals who invest their own money in young companies, often in exchange for equity.
- Venture capital: Funding from firms that pool investorsâ money to invest in young companies with significant growth potential, typically in exchange for equity.
- Loans: Money borrowed from a bank or other lender that must be repaid, usually with interest.
- Crowdfunding: Raising relatively small amounts of money from many people, typically online.
- Impact investing: Investing with the intention of generating social or environmental benefits as well as financial returns.
Social entrepreneurship vs. traditional entrepreneurship
Social and traditional entrepreneurs do many of the same things: They identify opportunities, develop products or services, find customers, and raise money. The main difference is how they define success.
| Factor | Traditional entrepreneurship | Social entrepreneurship |
|---|
| Primary goal | Financial success | Financial sustainability plus social or environmental impact |
| Measure of success | Revenue, profit, growth | Financial results plus progress toward the mission |
| Importance of mission | May have a social or environmental mission | Social or environmental mission is central to the enterprise |
Social enterprises, PBCs, and B corps
A social enterprise can be organized much like any other enterprise. It might be a sole proprietorship, partnership, limited liability company (LLC), corporation, or nonprofit. The term social enterprise describes an organizationâs mission and approach, not its particular legal structure.
Some for-profit social enterprises are organized as public benefit corporations (PBCs), a legal structure available in many U.S. states that allows a business to pursue a stated public benefit alongside financial returns.
A certified B corporation, or B corp, is different. Itâs a certification awarded by the nonprofit B Lab to companies that meet its standards for social and environmental performance, accountability, and transparency. A company can be both a PBC and a certified B corp, but the terms arenât interchangeable.
Challenges of social entrepreneurship
Running a social enterprise can mean balancing goals that donât always align with each other. An organization needs enough revenue to pay its bills and grow, but decisions that increase profits may not always advance its social or environmental mission. The reverse can also be true: Pursuing the mission may increase costs or limit opportunities to make money.
Measuring success can be another challenge because social enterprises must consider both financial performance and social or environmental impact. Financial performance can be tracked through revenue, expenses, and profits, but impact can be harder to quantify. Measuring impact means determining whether the people or communities a social enterprise aims to help are actually better off because of its workâand whether any improvements will last.
Growth can add another layer of difficulty. An approach that works in one community or market may not work as well somewhere else, and expanding can require outside funding or partnerships. As social enterprises grow, they may also face pressure to make choices that favor financial results over their original mission.
Special thanks to Estela Morais Westphalen for research assistance with this article.
This article was most recently revised and updated by David Schepp
