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Right now, you might be sipping a coffee from a company that sources fair-trade coffee beans or maybe your recent purchase of new shoes means someone else will receive a pair too. This is what many of us think of when we hear “social enterprise,” but these types of organizations can take many shapes and forms.
While there are no hard and fast rules governing the term social enterprise, it’s generally defined as a business model or practice that pursues business strategies to accomplish a social purpose. You’ll find nonprofit and for-profit enterprises across the country – including Starbucks, a public company that has engaged social enterprise models within its overall business portfolios to both do business and do good.
Social entrepreneurs and enterprises are often guided by common beliefs, including the use of proven practices from competitive business environments to advance a specific set of mission goals. Here’s a look at three common ways that mission is pursued through a business lens and quick facts on what donors should think about when supporting these models.
Three Social Enterprise Models to Know
Transformative Products/Services are typically based on an inspired idea to solve an intractable problem and can do a tremendous amount of social benefit with business-based solutions through the provision of goods and services. The Ocean Clean Up Project is a good example: The purpose of the project is to rid the planets oceans of all plastic by collecting and then selling plastic debris in a self-funding cycle. Another example is Community Servings in Boston, which provides medically tailored meals to low-income individuals as a mode of health care delivery.
What Donors Should Know: Organizations that utilize this model can have difficulty getting beyond the start-up phase, covering development costs, and ensuring the product or service appropriately meets the needs of the participants.
Give Back Models operate as a traditional commerce business but return either a portion of proceeds or profits to a designated mission organization. You’re likely familiar with the Newman’s Own line of groceries, where 100 percent of the profits support charity. This model allows for businesses to be unhindered in their operations and attain a social benefit through financial support of nonprofit work. While it sounds simple, there can be flaws: “Profits” can be ambiguously defined where no resources support community activity and the designated cause may not be clearly defined and thus can be misused without oversight. There is currently no rule or regulation ensuring that all steps in this model go beyond a marketing activity.
A popular alternative is the “buy one, give one” approach. Examples include Warby Parker, which provides a pair of glasses to low-income populations for every pair purchased, and Tom’s Shoes, which similarly provides a pair of shoes for each pair purchased. While this is a more direct method for social impact, critiques can be made when the free goods don’t match the recipient populations’ needs and donors may be better served by directly supporting community efforts.
What Donors/Consumers Should Know: Due diligence is necessary to ensure a company’s product is needed in the areas being served. The products and financial model should be well understood to ensure impact.
The Opportunity Employment Model allows an enterprise to engage in a typical business while providing supported on-the-job training for individuals experiencing barriers to employment. The types of industries and the populations being served can vary widely, but in all cases, the revenue-generating model covers both the operating costs and some support services. A long-standing example is Goodwill Industries. Through the goods donation/resale stores, Goodwill is able to provide not only a steady revenue stream but an unparalleled learning environment for a wide variety of job seekers who are seeking to skill up and find employment in a range of environments, from retail to technology. Another example – which will be the focus of this series – is Catalyst Kitchens and its member organization FareStart.
What Donors Should Know: The benefit of this model is the supported live classroom environment: Trainees who are seeking future jobs in similar roles have the opportunity to develop and practice skills with the support of mentors or trainers. The challenges an enterprise faces are both the same as other businesses in a similar sector: Revenue flow, marketing, profitability as well as the maintenance of a supportive learning environment through the service delivery; i.e. a social enterprise café not only has to make, market, and sell a great cup of coffee in a great location, they have to ensure that participants get a positive training opportunity at the same time.
The social enterprise landscape is an exciting (and evolving) space, especially as the next generation demands more impact from everyday goods and services. It’s also a complex and increasingly crowded space. What should donors know if they want to support social entrepreneurs and enterprises? This series will help answer those questions.
Original contribution by Matt Gurney, Vice President, Social Enterprise at FareStart.