There have always been individuals and groups who have made it their mission to solve the world’s many (and changing) problems, but it is only in recent years that a trend has grown for for-profit businesses to pursue a social or environmental mission. What has driven this trend, and what can we expect to see from it in the coming years?
WHAT IS SOCIAL ENTREPRENEURSHIP?
The term “social entrepreneurship” came into popular use in the 1980s. Traditionally, the work of social entrepreneurs involved some amount of risk and little profit. Yet recently, for-profit companies with a “double bottom line” or “triple bottom line” have emerged, bringing new attention and investment to the sector. “We found and liked the term ‘not-just-for-profit,’ and that was our beginning as a social impact venture,” says Mauricio Meza, co-founder of Komodo, a company which creates products that allow disabled users to use mainstream technology more easily.Companies started by social entrepreneurs might do anything from running a network of free coding clubs for kids to creating durable, affordable vehicles for Africa’s mass market. The motivation usually comes from seeing a social need that coincides with a gap in the market. Social entrepreneur Chris Janssen founded Textbooks for Change when he saw a need in Rwanda and a way to combine his passion for entrepreneurship with a social mission. “I believe that using the power of business as a force for good will ultimately change the world,” he said, “this trend is on the rise and will continue to be for the foreseeable future. I believe the triple bottom line (people, planet, profit) will be expected of every company, and those who do not adapt will be left behind.”
THE RISE OF THE DOUBLE BOTTOM LINE
Companies with a double bottom line (DBL) focus on both financial profit as well as social profit while triple bottom line (TBL) companies additionally focus on environmental profit. These companies make money and benefit their shareholders, while at the same time keeping a strong commitment to social and/or environmental benefits.
Two US business classifications that have come into use in recent years have made having a DBL/TBL easier—Benefit Corporation and L3C designations allow companies to not only solve social problems, but also gain customer loyalty and trust, and more easily attract social impact investors. Additionally, a Pennsylvania non-profit, B Lab offers third-party certification of B-Corp status to businesses around the world. Recently Etsy, one of New York’s largest B-Corps, filed for IPO, making it the city’s only publicly listed B-Corp so far.
Benefit Corporation Status, first passed in Maryland in 2010, is a legal classification for businesses with a triple bottom line. The company receives certain levels of control a normal corporation might not have—such as the ability to make decisions that benefit the company’s nonfinancial interests at the expense of financial returns to shareholders. Transparency in financial reporting allows shareholders to judge the company’s performance based on its benefit to society and environment, not simply financial gain.
L3C, which stands for “low-profit limited liability company,” is a legal classification created to make investing in these socially focused for-profit companies easier and more lucrative while providing the L3C with the same protections as a traditional LLC.
CHALLENGES TO SOCIAL ENTREPRENEURSHIP
Social enterprises cross all sectors, from healthcare to manufacturing, and face challenges in each. Yet, beyond that, they also face a unique set of challenges.
Funding is a difficulty for many as the perception of social enterprises often straddles a line between being a non-profit and a for-profit business. Investors may be reluctant to put money into a business that seems as if the focus is on social profit more than financial profit. “One of the biggest challenges is that people often confuse the terms social enterprise or social impact with a not-for-profit or charity and disregard the market potential of some of these ventures,” says Meza.
Keeping on-mission is another challenge for social enterprises, as they are ultimately for-profit businesses. Janssen says that it is often difficult to balance the bottom lines. “A big challenge for Textbooks for Change is balancing the social impact we create with the bottom line. We became a social enterprise to ultimately have a long-term focus on the impact we create. It is more effective for us to re-invest profits to grow the company and support charities as a whole than to be a not-for-profit ourselves.”
So, how can governments help social entrepreneurs to grow? “City/National governments should continue to invest in social entrepreneurship by providing hiring incentives, grants, and support to fuel the growth and impact these social organizations are making. Additionally, affordable office spaces/collaborative work environments for social entrepreneurs should be available in every major city to be a catalyst for social innovation,” said Janssen.
While social entrepreneurship has been on the radar of investors and entrepreneurs since the early 90s, it is experiencing an uptick in recent years that doesn’t seem set to slow down anytime soon.
Impact investing is on the rise and designations such as L3C and Benefit Corporation are making it easier for investors to put money into social enterprises. A recent announcement of a $1.5 billion investment by more than twenty US banks, foundations and individuals hopes to boost social enterprises and encourage further investors to follow in these footsteps. A hopeful sign for social entrepreneurs.
Another indicator that social entrepreneurship will continue to rise is the shift in priorities of the upcoming generation of leaders. According to The 2015 Deloitte Millennial Survey, 60% of millennials said a sense of purpose is part of the reason they chose to work for their current employer. The survey also showed the personal reward and short-term financial goals were far less important than employee well-being and employee growth and development. Jason Gray, founder of SunFarmer, a company which allows people to rent-to-own solar energy systems, believes this shift in focus toward human investment and a sense of purpose bodes well for social enterprises, “Many have made their money in running startups or businesses and have seen firsthand the innovation that can occur when a business sets it mind to solving a problem. Many startup founders are young adults and part of a generation who measure value in more than dollars and cents; others are pivoting from established careers to an area where profits and impact are better balanced.”