Student’s

Primer

Dr.G.Venkatasamy

“II am not an idea man; the task is not to aspire to some heaven but to make everyday life divine."
divine

Doing Well While Doing Good

S.Rengasamy
Madurai Institute of Social Sciences
 S.Rengasamy. Introduction to Social Enterprises

“Social entrepreneurship” is one of the most misunderstood phrases in the nonprofit sector
today. Everybody, it seems, has a different definition of what it means. Twenty years ago the
idea of nonprofits acting in an entrepreneurial manner was anathema to most people in the
sector: The idea of merging mission and money filled them with distaste. But the phrase
“social entrepreneur” is bandied about freely these days.

Here is the gist of the problem: Unless a nonprofit organization is generating earned revenue
from its activities, it is not acting in an entrepreneurial manner. It may be doing good and
wonderful things, creating new and vibrant programs: But it is innovative, not
entrepreneurial.

Why is the distinction so important?

Because only earned income will ever allow a nonprofit to become sustainable or self
sufficient. Innovation is a precious resource and it served as the primary engine of nonprofit
growth through the 1970s and 1980s. But innovation can take a nonprofit only so far. It’s one
thing to design, develop and implement a new program -- and quite another to sustain it
without depending on charitable contributions and public sector subsidies.

The rules of the game for nonprofits have changed dramatically during the past 20 years.
Operating costs have soared, resources available from traditional sources have flattened, the
number of nonprofits competing for grants and subsidies has more than tripled, and the
number of people in need has escalated beyond our most troubling nightmares. Smart
nonprofit managers and Board members realize they must increasingly depend on themselves
to insure their survival . . . and that has led them naturally to the world of entrepreneurship.
Box: The paradox of Social Enterprise

The paradox of Social Enterprise

1. Those in the private sector wondering if social enterprises are a threat or an
opportunity
2. Those in the voluntary sector trying to work out their medium/long-term future, and
whether they should engage or resist the notion of social enterprise.
3. Those in the public sector being asked to develop, support or commission work from
social enterprises.
4. Those who self-define as part of the social enterprise sector
sector,
tor wondering how to
understand themselves and describe the value of their approach to others.

What is Social Enterprise? Definitions.

• Social enterprise is: “a business or service with primarily social objectives whose surpluses
are principally reinvested for that purpose in the community, rather than being driven by the
need to maximize profit for shareholders and owners”. UK Government

• Social enterprise as "a revenue generating venture founded to create economic

opportunities for very low income individuals, while simultaneously operating with
reference to the financial bottom-line." The Roberts Foundation Homeless Economic Development
Fund 1996

• Social enterprise refers to "the myriad of entrepreneurial or 'self-financing' methods used by

nonprofit organizations to generate some of their own income in support of their mission."
NESsT

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 S.Rengasamy. Introduction to Social Enterprises

Box: Third Sector - Social Enterprises

Third Sector - Social Enterprises

The problem with a three-sector analysis of the economy is that it tends to marginalize
organizations that transgress the boundaries of these dominant definitions. For example,
co-operative enterprises (owned by employees, producers or consumers) cross the
boundary between the private and voluntary sectors. They often have a social or
community goal, but are usually set up to negotiate and distribute social and financial
benefits equitably rather than prioritize the social and financial goals of the founders. In
addition, they frequently adopt the democratic practices of the state sector by having
elections for senior positions and assemblies of people who can directly question
executive authority.

The Emergence of the Third Sector

The continued growth and development of co-operative forms of enterprise, and ‘mutual
help’ as a commercial principle led to the emergence of a new term in the early 1990s -
Third Sector. This term covers more than voluntary bodies and charities to include
mutual organizations (e.g. building societies), social firms and producer, marketing and
consumer co-operatives. One social value that pervades the entire Third Sector is a
concern that modern private and public sector management principles have contributed
to the social exclusion of disadvantaged groups and vulnerable individuals. For some in
the sector, the goal is to address (and find alternatives to) powerful political and
financial interests that disempowered citizens.

Many Third Sector organizations, therefore, share a common goal of reducing social
exclusion. They may do this in a variety of ways: by providing services more cheaply to
disadvantaged groups; by using collective bargaining power to negotiate access to scarce
or expensive resources; by organizing themselves in a way that enfranchises and
empowers individual members (and gives them a collective political voice); by adopting
traditional approaches that redistribute surplus wealth to disadvantaged groups through
charitable practices and organizations.

The identification and growth of the Third Sector has been accelerated by changes in
the public sector. Since the early 1980s, there has been a shift away from welfare
through state institutions and increased use of agencies and contractors. The concept
of New Public Management underpins a commercialization agenda (attempts by
government to make greater use of markets and private sector thinking in public service
delivery to ‘save’ money). Accompanying this is the contentious belief that business
practices and managerial solutions will improve the ‘performance’ of both the public and
voluntary sectors. Given that many in the Third Sector regard private and public sector
management principles as the cause of social exclusion, it is no surprise that there is
resistance to the idea that the same techniques can solve contemporary social problems.

Nevertheless, it is this thinking that drives change in the UK National Health Service
(NHS). As in other parts of the world, the NHS exemplifies the trend towards a
“contracting culture” in which grants and state funding are replaced by commercial
contracts for service delivery. So, in recent years, the boundaries between the private
and public sector (in term of market thinking and managerial practices) have started to
blur traditional distinctions between different sectors of the economy. Secondly, the
emergence of radical business alternatives with a strong social orientation, democratic
organization, and positive attitude to profitable trading has led to a new language that
describes relationships and organization forms that bridge the boundaries between
sectors. 3
 S.Rengasamy. Introduction to Social Enterprises

Both definitions capture the social and financial characteristics of the social enterprise;
however, The Roberts Foundation's definition emphasizes social enterprise as a program
approach, whereas NESsT's definition stresses it as a funding approach.
Diagram: What is a Social Enterprise

Provides job & training Dynamic Business

opportunities & encourages local with Social Purpose
economic activity
Engages in Economic
Not for Profit Activity through trade
What is a Social
Organization
Enterprise?

Assets and Profits are retained &

Sustainable commercial used forfurther social benefit
enterprise – owned & controlled by the
local community

• "Social Enterprise is a nonprofit venture that combines the passion of a social mission with
the discipline, innovation and determination commonly associated with for-profit
businesses " The Nonprofit Good Practice Guide

• Social enterprise - as business trading for a social purpose - Social Enterprise Coalition UK
Box: What is a Social Enterprise?

What is a Social Enterprise?

* A not for profit organization, which has social aims that are met by economic and trading activities
* A sustainable community enterprise runs by the community for the community
* An organization that invests all surpluses back into the organization, in order to meet their stated
social objectives

• A social enterprise is any business venture created for a The main idea behind the term is
social purpose--mitigating/reducing a social problem or that where an organization engages
a market failure--and to generate social value while in some form of social enterprise
operating with the financial discipline, innovation and activity, the resulting product (or
determination of a private sector business. Virtue Ventures service being sold), process (the way
in which they produce or sell it) or
profit (what happens to the income
• Social enterprises are social purpose organizations that generated),is social. Social
use a business vehicle to fulfill their mission. They enterprise is not just about making
encompass a wide spectrum of business activities money, it is also about making sure
including, but not limited to: community owned there is a wider social (and/or
businesses, credit unions, mutual’s, not-for-profit environmental) benefit as a result of
business ventures, trading arms of charities, employee- the trading activity. This is
sometimes known as the double (or
owned businesses, co-operatives, community housing
triple) bottom line.
associations, social firms, micro-credit schemes, some
farmers’ markets, community settlement associations,
agricultural shows, arts festivals and indigenous arts groups.

4
 S.Rengasamy. Introduction to Social Enterprises
Box: More Definitions DEFINITIONS
Original definitions
“A revenue generating venture founded to
create economic opportunities for very low
income individuals, while simultaneously
operating with reference to the financial
bottom-line.”Jed Emerson and Fay Twersky,
1996
Recent definitions
“Double bottom-line businesses, social
purpose enterprises, nonprofit business
ventures and mission-based for-profit
businesses. Social Enterprises typically
pursue blended value returns that may
embrace the subjugation of a certain
amount of financial return or take on
added risk in pursuit of social and/or
environmental value creation.”
Jed Emerson, The Blended Value Map, 2004
“…businesses with primarily social
objectives whose surpluses are principally
reinvested for that purpose in the business
or in the community, rather than being
driven by the need to maximise profit for
shareholders and owners. “British
Government
Business ventures operated by non-profits,
whether they are societies, charities, or co-
operatives.” Enterprising Nonprofit, Canada
A social enterprise is simply a market-based
venture for a social purpose.” Social Enterprise
Partnerships, Australia
“The myriad of entrepreneurial or 'self-
financing' methods used by nonprofit
organizations to generate some of their own
income in support of their mission." Nonprofit
Enterprise and Self-sustainability Team (NESsT
“Any organization, in any sector, that uses
earned income strategies to pursue a double
bottom line or a triple bottom line, either alone
(as a social sector business) or as part of a
mixed revenue stream that includes charitable
contributions and public sector subsidies.”
The Institute for Social Entrepreneurs
Original definitions
Any earned-income business or
strategy undertaken by a nonprofit to
generate revenue in support of its
charitable mission.
Social Enterprise Alliance, before March
2006
Recent definitions
“An organization or venture that
advances its social mission through
entrepreneurial, earned income
strategies.”
Social Enterprise Alliance, as of March 2006
“The promotion and building of
enterprises or organizations that
create wealth with the intention of
benefiting not just one person or
family, but a defined constituency,
sector or community, usually
involving the public at large or the
marginalized sectors of society.”
Asian Institute of Management (AIM),
Philippines
Organizations with an explicit aim to
benefit the community, initiated by a
group of citizens and in which the
material interest of capital investors
is subject to limits. They place a high
value on their independence and on
economic risk-taking related to
ongoing socio-economic activity.“
European Research Network
“Social enterprise encompasses
nonprofit and public enterprise
management but also business
leadership in the social sector
through direct involvement and
corporate social responsibility;
cross-sector collaboration and the
interdependence of the business,
government, and social sectors; for-
profit social purpose companies;
socially focused private equity; high
engagement philanthropy and
social entrepreneurship.”
Harvard Business School, Social Enterprise
Initiative
5
 S.Rengasamy. Introduction to Social Enterprises

• Social Enterprise is a means by which people come together and use market based
ventures to achieve agreed social ends. It is characterized by creativity, entrepreneurship,
and a focus on community rather than individual profit. It is a creative endeavor that
results in social, financial, service, educational, employment, or other community benefits.
Talbot, Tregliga and Harrison 2002.
Box Diagram Social Enterprise and Triple Bottom Line

A “social enterprise” is any entity that uses earned revenue to pursue a double or triple bottom line
either alone (in a private sector or nonprofit business) or as a significant part of a nonprofit’s mixed
revenue stream that also includes philanthropy and government subsidies
Social enterprises directly confront social needs through their products and services rather than
indirectly through socially responsible business practices such as corporate philanthropy, equitable
wages and environmentally friendly operations – or through the unrelated business activities
mounted by nonprofits

• Social enterprises can be defined as "organizations with an explicit aim to benefit the
community, initiated by a group of citizens and in which the material interest of capital
investors is subject to limits. They place a high value on their independence and on
economic risk-taking related to ongoing socioeconomic activity."EMES:

• Social enterprises - defined simply - are organizations seeking business solutions to social
problems. They need to be distinguished from other socially-oriented organizations and
initiatives that bring (sometimes significant) benefits to communities but which are not
wanting or seeking to be "businesses". In this respect these latter organizations are more

6
 S.Rengasamy. Introduction to Social Enterprises

likely to remain dependent on gifts and grants rather than develop true paying customers.
Sometimes the market for the products or services is individual consuming customers,
people who are choosing their offerings in preference to those of rival organizations,
which may or may not share the same social commitment. In other instances, there are just
one or a few customers who offer the social business a commercial contract to deliver a
service, often using public funds to do this. This is actually a tricky one to categorize.
Whilst there are customers who must be satisfied if they are to remain committed into the
future - and a revenue stream as distinct to a grant - large contracts may not be renewed
because public funding dries up and not because the social business has delivered poor
service. In this respect it mimics a grant. In all cases, their employees or members can be
fully-paid at a typical market rate, paid more modest sums or even be volunteers ‘The
diverse world of social enterprise: A collection of social enterprise stories’ John
Thompson and Bob Doherty. (2006)

In its widespread usage, "social entrepreneur" is the individual and "social enterprise" is the
organization. Therefore, social enterprise is an institutional expression of the term social
entrepreneur.
Box: Ten Interesting Facts about Social Enterprise
Ten Interesting Facts about Social Enterprise
1. Social enterprise has galvanized a sizable global movement!
2. The crux of Mohammad Yunus Nobel Laureate speech was about “social business” [social enterprise]
not microfinance per se.
3. Social enterprise is attracting mega bucks from new break-out foundations (Clinton Foundation,
Gates Foundation, Omidyar Network, Skoll Foundation, etc.) and venture philanthropists (Bamboo
Fund, Acumen Funder, LGT, etc) as well as (little by little) the usual development aid donors (World
Bank, IFC, IADB, DFID, USAID missions, etc.)
4. Strong synergies overlap, value ad, and duplication of components exist between social enterprise and
microfinance, fair trade, base of the pyramid, enterprise development, and value chain approaches to
economic development.
5. The British Government deemed social enterprise as an essential strategic tool for the social sector
development and as a result created a special unit for social enterprise in the Department of Trade
and Industry and a legal designation (Community Interest Company.
6. Barack Obama presidential campaign also mentions social enterprise as part of its platform.
7. Over 80 universities around the world teach social entrepreneurship and social enterprise, many of
which have dedicated centers to further the study of social entrepreneurship (among them: Harvard,
Oxford, Stanford, NYU, Columbia, UC Berkeley, INSEAD, etc.)
8. Social enterprise has broad applications across sectors and thus can be used as an integrated
approach for economic development plus health, education, housing, water, etc.
9. In its relatively short history, social enterprise has been a regular featured in mainstream press
including, PBS series, “New Heroes” hosted by Robert Redford, Fast Company annual Social Capitalist
Awards, The Economist, The Guardian, etc.
10. Social enterprise methodology is premised on social sector organizations achieving financial
sustainability, high performance, and strategic social impact and engendering an entrepreneurial
culture.

Social enterprises are social mission driven organizations which apply market-based
strategies to achieve a social purpose. The movement includes both non-profits that use
business models to pursue their mission and for-profits whose primary purposes are social.
Their aim – to accomplish targets that are social and or environmental as well as financial – is
often referred to as the triple bottom line. Many commercial businesses would consider

7
 S.Rengasamy. Introduction to Social Enterprises

themselves to have social objectives, but social enterprises are distinctive because their social
or environmental purpose remains central to their operation.

Rather than maximizing shareholder value, the main aim of social enterprises is to generate
profit to further their social and or environmental goals. This can be accomplished through a
variety of ways and depends on the structure of the social enterprise. The profit from a
business could be used to support a social aim, such as funding the programming of a non-
profit organization. Moreover, a business could accomplish its social aim through its
operation by employing individuals from disadvantaged backgrounds or lending to micro-
businesses that have difficulty in securing investment from mainstream lenders.
Box: Types of social enterprise

Types of social enterprise

There are seven main types of social enterprise:
1. Social Firms: Businesses set up to create employment for those most severely disadvantaged in the
labour market.
2. Co-
Co-operatives: Co-operatives, and associations of people united to meet common economic and
social needs through jointly owned enterprises. Co-operatives are organized by and for their members,
who come together to provide a shared service from which they all benefit.
3. Development trusts: Development Trusts are businesses created to provide integrated employment
to people with disabilities and disadvantages. They are umbrella organizations under which different
regeneration activities can take place.
4. Intermediate labour market companies: These provide training and work experience for the long
term unemployed and other disadvantaged groups. The aim is to assist these groups to re-enter the
labour market through the provision of paid work together with high quality training, personal
development and active job-seeking.
5. Community business: These are social enterprises that have a strong geographical definition and
focus on local markets and services. They are trading organizations which are set up, owned and
controlled by the local community and which aim to be a focus for local development and ultimately
create self supporting jobs for local people.
6. Credit unions:
unions: Credit unions are finance co-operatives that help people save and borrow money.
They also provide access to community finance initiatives.
7. Charities trading arms: These enable charities to meet their objectives in innovated ways such as
restaurants, shops and fair trade companies.

Many non-profit organizations see social enterprise as a way to reduce their dependence on
charitable donations and grants while others view the business itself as the vehicle for social
change. Whether structured as nonprofits or for-profits, social enterprises are simply
launched by social entrepreneurs who want to
improve the common good and solve a social Think about this statement also
problem in a new, more lasting and effective way “Sometimes culture change is like
than traditional approaches. They are conceived and trying to put lipstick on a bulldog! It’s
operated by visionary entrepreneurs who recognize exhausting work, it doesn’t look right
potential where others may not see it and who apply and even if you can get the lipstick on,
discipline, pragmatism, courage and creativity to it’s still a bulldog!”
pursue their solution in spite of all obstacles, toward Liam Black/Jeremy Nicholls,
a world that is more abundant, secure and inclusive
for all.

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 S.Rengasamy. Introduction to Social Enterprises

Box: Social Enterprise & Non Profits Dimensions

“What is Social Enterprise?”

• Nonprofits have long used income generation to support their mission activities
• More recently, nonprofits have adopted business approaches to achieve their missions and achieve
sustainability through social enterprise
• No single definition of social enterprise exists
• Social enterprise is considered an earned-income activity that is planned as a business, with distinct
resources and a long-term vision
“Why do nonprofits consider social enterprise?”
• There are two main reasons an organization might pursue nonprofit enterprise:
• To further its social mission
• To create funding opportunities
• Social enterprises can create successful outcomes, significantly improving the lives of those affected
• Be aware of the myths of creating a social enterprise. Social enterprises require significant planning
and resources

Socially Charities &

Private Responsible Social Voluntary Sector Government
Sector Businesses Enterprises (inc NDGB’s)

Social Economy

Income from Sales Grants Taxes

Private Goals Social Goals Political Goals

Sole Trader/ Partnership/ Committee of Members

Limited Company (shareholders)

The Organisation The Organisation

Owned by the Entrepreneur/
Shareholders
Profits distributed to owners/
shareholders
Business decisions made by owner/
partners/ shareholders
Owned by the Community
Profits not distributed to members
Surpluses reinvested
Decisions made by Board/ Committee

Business Activity Business Activity

Profits/ Surpluses Profits/ Surpluses

Social Enterprise in India

In India, a social enterprise may be a non-profit Non-governmental organization (NGO),
often registered as a Society under Indian Societies Registration Act, 1860, a Trust registered
under various Indian State Trust Acts or a Section 25 Company registered under Indian
Companies Act, 1956. India has around 1-2 million NGOs, including number of religious
organizations, religious trust, like Temples, Mosque and Gurudwara associations etc, who are
not deemed as Social Enterprises.

A social enterprise in India is primarily NGOs, who raise funds through some services (often
fund raising events and community activities) and occasionally products. Despite this, in
India the term, Social Enterprise is not widely used, instead terms like NGOs and NPOs

9
 S.Rengasamy. Introduction to Social Enterprises

(Non-profit organizations) are used, where these kind of organizations are legally allowed to
raise fund for non-business activities. Child Rights and You and Youth United, are such
examples of Social

Box: History of Social Enterprise

History of Social Enterprise
First Wave: Co-operatives and Friendly Societies
Trading with a social purpose is probably as old as human society, but modern forms of social
enterprise begin with the co-operatives of the agricultural and industrial revolutions. The Fenwick
Weavers’ Society was an early grassroots trading organization with a collective social purpose.
Formed in 1761 to sell discounted oatmeal to local Scottish weavers, it quickly expanded to
include savings, loans and assistance with emigration and education. Gates (1998) has identified
forms of surplus-sharing arrangements between workers and employers back to 1795, but one of
the key drivers of the co-operative movement was the principled rejection of the British
government’s welfare reforms - the Poor Laws of 1834 - that divided the working class into the
deserving and non-deserving poor. Friendly societies, co-operatives, industrial unions and credit
unions based in the principle of mutuality emerged as a political and social challenge to residual
welfare and limited suffrage. The Rochdale Society of Equitable Pioneers, founded in 1844, was
one of the first modern co-operatives. It too was set up by a group of weavers for the supply and
sale of groceries. By the mid- 1850s there were more than 1000 co-operative societies in the UK,
and by the end of the century the co-operative movement emerged as an international
phenomenon.
Second Wave: New Social Movements
Co-operatives, mutuals and other civil society organizations were established and consolidated in
the UK, the US and most European countries throughout the 20th Century, but a new wave of
consumer co-operation and solidarity movements emerged in the 1970s and 1980s along with the
new ‘identity’ politics. Worker co-operatives and other forms of community enterprise, sometimes
with government support, spurred local employment creation.
Recent Developments
In Italy an historically strong co-operative movement was boosted by legislation in 1991 for ‘social
cooperatives’ and the growth of these was linked to inadequate public service provision. European
researchers identified similar initiatives and EMES began to document their growth in the
European Union. In the UK the Blair government created a Social Enterprise Unit and a new legal
form - the Community Interest Company (CIC) - in 2004. In the US the flavor of social enterprise
is more entrepreneurial. Organizations like Ashoka, for example, support individual entrepreneurs
with a social mission. Harvard Business School’s Social Enterprise Initiative ‘aims to inspire,
educate and support current and emerging leaders in all sectors to apply management skills to
create social value’.1 In Australia there is not yet a consensus on the meaning of social
enterprise/social entrepreneurship, but there is a number of resource organizations including the
Centre for Social Impact, Social Ventures Australia and its various state hubs, the Mercury Centre,
Social Enterprise Partnerships, the Centre for Community Organizations and Management at
University of Technology in Sydney, Social Firms Australia, Community Enterprise Connections and
Social Traders.

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 S.Rengasamy. Introduction to Social Enterprises

Box & Diagram Evolution of Social Enterprise

Evolution of Social Enterprise

Roots of Social Enterprise Recent history

Nonprofits employ income generation Nonprofits adopt business-like approaches
to support mission activities to achieve their missions and sustainability

Community Convergence of schools of thought:

Declining
Development Mixing new and proven models and
1970s support from Now
Corporations (CDCs) market-driven and social forces
traditional,
gained popularity in the Momentum around social enterprise
philanthropic, &
US Fee-income provided and social entrepreneurship but still
government
46% of total nonprofit confusion over their meaning
sources
revenue
US nonprofits began Social enterprise /
1960s using enterprises to entrepreneurship catch on
create jobs for Increasing internationally and sector
disadvantaged competition for 1990s boundaries continue to be blurred
populations available funds Popularity of cause-related
marketing partnerships grows
1920s Girl Guide Cookies first
baked and sold

The two main schools of practice

Late Shift from idea of charity Disappointment of social entrepreneurship
1800s as giving alms to means with the ability of formed:
for creating lasting large-scale Social Innovation School by Bill
change government 1980s Drayton who founded Ashoka
programs to Social Enterprise School by Ed
Mid In the UK, cooperatives solve social Skloot who assisted nonprofits
1800s funded socioeconomic problems in finding new streams of
agendas

The growth of social enterprises

The growth of this sector has been prompted by
• Changes in the Welfare State
• Market failures in certain activities
• New incentive schemes for employment & cooperation between economic and social players
• Increasing demand for social and community services
And may develop further
• The third sector can respond to this new situation by strengthening the links between the economy
and social objectives
• Its development is partly conditioned by the legal system, socio economic situation and government
policy in each country
Problems
• Need to assess the advantages and disadvantages of the “plural economy”
• Need to encourage partnerships with the sector and public bodies

11
 S.Rengasamy. Introduction to Social Enterprises

Diagram: The Position of Social Enterprises in the Economy

The Position of Social Enterprises in the Economy

Table: The social enterprise spectrum

12
 S.Rengasamy. Introduction to Social Enterprises

Enterprise, who raise funds through their services, fund raising activities (organizing events,
donations, and grants) or sometimes products, to further their social and environmental goals.
The key characteristics of a social enterprise are:
1. They trade i.e. sell goods and/or services and any profit or ‘surplus’ made as a result of
their trading activities is either ploughed back into the business or distributed to the
community they serve
2. They have a clear social purpose. This may include job creation, or the provision of local
facilities e.g. a nursery, community shop, or social care for the elderly.
3. They are owned and managed by the communities they serve

Different Types of Social Enterprise

Cooperatives & Democratically owned by

Mutuals Self Build community or employee
Cooperatives shares equity
Credit Unions Deals with
Financial services
Housing Associations Voluntarily managed
CIC’s organizations for the
provision of low cost
housing for rent or sale.
Different Types May have a commercial
Limited companies created for
the use of people who want to of Social Enterprise business arm attached
conduct business or other in the form of a building
activity for community benefit or company
Social Firms

Development Trusts
Commercial businesses whose social aims are provision of
employment of disabled or disadvantaged people
Community led businesses

Community Recycling initiatives often also

Engages in Economic Community acting as a social firm
Activity through trade Recycling

Some of the common characteristics that social enterprises display

1. Enterprise Orientation - they are directly involved in producing goods or providing
services to a market.
2. Social Aims - they have explicit social and/or environmental aims such as job creation,
training or the provision of local services. Their ethical values may include a commitment to
building skills in local communities. Their profits are principally reinvested to achieve their
social objectives.
3. Social Ownership - Many social enterprises are also characterized by their social
ownership.

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 S.Rengasamy. Introduction to Social Enterprises

They are autonomous organizations whose governance and ownership structures are normally
based on participation by stakeholder groups (eg employees, users, clients, local community
groups and social investors) or by trustees or directors who control the enterprise on behalf of
a wider group of stakeholders. They are accountable to their stakeholders and the wider
community for their social, environmental and economic impact. Profits can be distributed as
profit sharing to stakeholders or used for the benefit of the community.
Box: Main starting points for social enterprises

There are six main starting points for social enterprises

1. Community regeneration: Members of a local community come together to meet a specific need.
2. Employee buyout: Employees of a business that is already operating come together to buy out the
existing owner. Employee owned businesses are expected to grow rapidly in the next few years
following the introduction of tax credits in the All Employee Share Ownership Plan.
3. Local authority externalization of services: A local authority transfers one of its services to an
independent operation.
4. Individual social entrepreneur: An individual with a particular vision will create a business to meet
an identified need, often in an innovative way.
5. Voluntary organization transformations:
transformations: A voluntary organization that has been funded by
donations and grants decides to turn to trading. This may be driven by a desire to ensure its long-term
viability, or from a belief that its beneficiaries are better served by the transformation, or perhaps
both.
6. Voluntary organization spin-
spin-offs: A project housed by a voluntary organization may then be
transferred to a separate legal entity.

The best established European research network in the field, EMES, works with a more
articulated definition - a Weberian 'ideal type' rather than a prescriptive definition - which
relies on nine fuzzy criteria:
Economic criteria:
1. Continuous activity of the production and/or sale
of goods and services (rather than predominantly
advisory or grant-giving functions).
2. A high level of autonomy: social enterprises are
created voluntarily by groups of citizens and are
managed by them, and not directly or indirectly by
public authorities or private companies, even if
they may benefit from grants and donations. Their
shareholders have the right to participate ('voice')
and to leave the organization ('exit').
3. A significant economic risk: the financial
viability of social enterprises depends on the efforts
of their members, who have the responsibility of
ensuring adequate financial resources, unlike most
public institutions.
4. Social enterprises' activities require a minimum number of paid workers, although, like
traditional non-profit organizations, social enterprises may combine financial and non-
financial resources, voluntary and paid work.
Social criteria:
5. An explicit aim of community benefit: one of the principal aims of social enterprises is to
serve the community or a specific group of people. To the same end, they also promote a
sense of social responsibility at local level.

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 S.Rengasamy. Introduction to Social Enterprises

6. Citizen initiative: social enterprises are the result of collective dynamics involving people
belonging to a community or to a group that shares a certain need or aim. They must maintain
this dimension in one form or another.
Box: Socialism & Social Enterprise

Socialism & Social Enterprise

Jeff Trexler wrote on the history of social enterprise. He writes that a social enterprise is
essentially “a venture with a social purpose.” As many wrongly believe the ideas of social
enterprise did not come from capitalism or corporate business models at all.
(http://uncivilsociety.org/2009/05/socialism-and-social-enterpris.html)

“In socialist jurisprudence, social enterprise was a term designed to replace the capitalist notion of
businesses dedicated to the pursuit of profit. The social enterprise generated revenue in excess of
the costs of production, but profit-making was not the goal of socialist business–rather, its
fundamental organizational purpose was to serve collective benefit. Moreover, in keeping with
Marxist/Leninist ideology, the social enterprise was owned & controlled not by private
shareholders–a hallmark of bourgeoise capitalism–but by workers themselves, from the workers
immediately connected to the enterprise to society as a whole.”

Jeff continues to write that “social enterprise” migrated to Western minds and charities much the
same way that “civil society” was reborn and co-opted. Meaning “citizen’s society,” the term was
used to unite individuals against centralized government power. Now the term is best understood
as a descriptor of anything “non-governmental.” (In the 1960s and '70s, Stalin dissidents got the
clever idea of leveraging Marxist rhetoric to subvert the centralized Leninist state. One concept the
dissidents revived was "civil society"--grazhdanskoe obschestvo, equally translatable as "citizens'
society"--which the dissidents were able to use to challenge the concentration of power in a government
elite. Relatively moribund in Western political rhetoric for roughly a century (we had drifted to
"civilization" instead), the term "civil society" soon enjoyed an international revival as a term
synonymous with nongovernmental associations).

It seems that “social enterprise” has drifted just as far from its original conception. (Social
enterprise, in the sense of a venture with a social purpose, migrated to the West in a similar fashion. In
particular, in the late 1970s, the Polish labor union "Solidarity" became the subject of international
attention for its challenge to Communist Party and state control of labor unions. Having learned from
emulated the previous decade's dissident appropriation of civil society, Solidarity leaders put forth a
model of social enterprise that circumvented the state. Instead of being controlled by the government
and Party, the social enterprise would be run by its workers for the greater social good). As a social
venture that was meant to give power back to people and allow them ownership, much like a
cooperative, “social enterprise” has best come to represent corporate philanthropy and cause
marketing campaigns. Both of which are focused on turning profits and not helping people. Julia
Moulden asks, “is making a difference only for the rich?” She easily gives examples that it is not,
but is it? As far as the foreign aid/ international development arena it appears that social
enterprise is geared towards engaging wealthy Western populations in feel good campaigns, like
Product (RED), that are best defined as image marketing campaigns for corporations to try and
look better as a way to bring in more customers. Lucy Bernholz has termed this business model
“embedded giving” where “commerce is used to generate funds for a cause.” She writes:

“Embedded giving is just one more example of the blurring of sectors and roles between
commerce, philanthropy, and public good. [...] Maybe today’s teens and kids who have seen so
much embedded giving will grow up to expect that every product and every service comes with a
charitable affiliation.”

7. Decision making not based on capital ownership: this generally means the principle of 'one
member, one vote', or at least a voting power not based on capital shares. Although capital

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 S.Rengasamy. Introduction to Social Enterprises

owners in social enterprises play an important role, decision-making rights are shared with
other shareholders.
8. Participatory character, involving those affected by the activity: the users of social
enterprises' services are represented and participate in their structures. In many cases one of
the objectives is to strengthen democracy at local level through economic activity.
Charity Social Enterprise & Commerce

The Social Enterprise Way –The ethical Path between Charity & Commerce The mutuality Bridge

Business Non-profit Organization

Mission Profit maximization Primary mission is address a social ill or challenge
Funding Internally generated Able to attract resources to the cause.
through product or Funding from government, multilateral agencies,
service corporate foundations
Stakeholders Shareholders, customers, Beneficiaries, funding agencies, staff and volunteers,
employees GOs
Metrics Bottom line, market Double bottom line – social return on investment
share, growth rate
Relationship with other Competition Networking
organizations

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 S.Rengasamy. Introduction to Social Enterprises

Social Enterprises: have a primarily social and

environmental purpose; generate income by
trading, with surpluses principally re-
re-invested
for that purpose in the business or community

Typical businesses: many have social aims & Traditional Charities, Community and
benefits including donating to charity, but Voluntary organizations: primarily rely on
this is not central to what they do or why fund raising, grants & donations
they exist

Mission Orientation
Social enterprises, can be classified based on their mission orientation as well as the
integration
between social programmes and business activities . The diagram below illustrates this
continuum.
Mission Centric Mission Related Unrelated to mission

The relationship between
the business activities and
the social programs are
comprehensive: financial
and social benefits are
achieved simultaneously.
They are often mission-
centric and their business
activities are connected
to the organization’s
mission.
The relationship between
the business activities and
the social programs are
synergistic; adding value,
financial and social, to one
another.
Integrated social
enterprises are often
mission-related & their
business activities are
connected to the
organization’s mission.
The relationship between the
business activities and social
programs is supportive, providing
unrestricted funding to the
nonprofit parent organization.
External social enterprises are
often unrelated to mission; their
business activities are not required
to advance the organization’s
mission other than by generating
income for the its social programs
or overhead.

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 S.Rengasamy. Introduction to Social Enterprises

9. Limited distribution of profit: social enterprises include organizations that totally prohibit
profit distribution as well as organizations such as co-operatives, which may distribute their
profit only to a limited degree, thus avoiding profit maximizing behavior
Box: Frequently Asked Questions about Social Enterprises

Frequently Asked Questions about Social Enterprises

Is a social enterprise a non-profit making organization?
Social enterprises trade like any other business and aim to generate a profit. That profit is then
primarily reinvested into its social aim.
What types of businesses can be set up as social enterprises?
The social enterprise sector is extremely diverse and includes businesses such as childcare
facilities, cafes, food co-operatives, employment agencies, charity shops, housing associations,
theatre companies etc. There are no restrictions as long as the business has a social aim.
What is the difference between a community enterprise and social enterprise?
There is no difference. Often the terms are used interchangeably.
What is the difference between a community / voluntary organization and a social
enterprise?
A community/voluntary organization runs activities for the benefit of their communities. To finance
this, the organization raises funds through grants/funding and sometimes donations.
Social Enterprises rely principally on trading to maintain their sustainability, rather than on funding
and grants.
What legal structure does a social enterprise have?
It is what a business does with its profits and that determines whether or not it is a social
enterprise and not its legal structure and professional advise should be sought before deciding the
structure which is right for you.
Examples of different legal structure taken by social enterprises are:
Unincorporated associations *Trusts *Limited liability companies *Industrial and provident
societies
Community interest companies *Charities
What is a community interest company (CIC)?
Community Interest Companies (CICS) are limited companies, with special additional features,
created for the use of people who want to conduct a business or other activity for community
benefit, and not purely for private advantage. This is achieved by a "community interest test" and
"asset lock". Registration of a company as a CIC has to be approved by the Regulator who also
has a continuing monitoring and enforcement role. (See www.cicregulator.gov.uk for more
information).
How are social enterprises managed?
Social enterprises are often managed by steering groups or management groups made up of
community members, employees and other stakeholders. There is no specific management
structure.
Is there any financial support available for Social Enterprises?
Yes, there are businesses that specialize in providing finance for social enterprises and there are
grants and funding available.
Are there any well known examples of social enterprise?
You may be surprised to find out just how many businesses you have heard of that are actually
social enterprises. Below are a couple of examples.
The Big Issue: Magazine edited by professional journalists and sold by homeless people. It gives
homeless people the chance to make an income, voice their opinions and campaigns on their
behalf.
To become a vendor you must be homeless or vulnerably housed. However The Big Issue
recognizes that for many people, being housed is only the first stage in getting off the streets.
Therefore if a vendor needs to continue selling the The Big Issue, they may allow them to.
Fifteen: Chef Jamie Oliver set Fifteen up in 2002. It is a restaurant which doubles as a training
programme for disadvantaged young people interested in becoming chefs. Many of the 16 to 24-
year-olds accepted by the Fifteen Foundation have criminal backgrounds or have suffered from
addictions or homelessness, but those who prove themselves passionate about food, as well as
being committed and hard-working enough, are given a year-long work placement at the18
restaurant which if successfully completed can lead on to other opportunities.
 S.Rengasamy. Introduction to Social Enterprises

Table & Diagram: Social Enterprises - Hybrid Organizations

Social Enterprises - Hybrid Organizations

Dastkhar Andra, India

Dastkar Andhra promotes rural livelihoods
by providing technical training for handloom
weavers, and linking rural co-operative
institutions to marketing networks in urban
India.
This ensures sustainable livelihoods for
handloom weavers who face the threat of
large scale migration into urban slums, and
helps a generation of weavers to come out of
poverty.
Unlike government programs which treat
handloom work as a welfare activity, or
intermediaries and traders with unfair
practices, Dastkar Andhra sets up equitable,
sustainable, production marketing systems
which allow weavers to live with self respect
and dignity.

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 S.Rengasamy. Introduction to Social Enterprises

Characteristics of Social Enterprises

Premise Market-based approaches can provide solutions to social problems

Purpose To solve a social problem or social market failure
Approach Uses market-based approaches and business resources to create social and
economic value, improve organizational performance.
Social Goal social value creation, social change and ultimately social transformation
Economic Goals Financial viability, minimize subsidy, diversify sources of funds, profit
Model Socially-driven commercial model
Paradigm Organizational development and mission accomplishment methodology used
mainly by social sector organizations
Business model The enterprise itself is the vehicle/method by which social impact and change is
achieved
Capital / funding Mixed capital : grants, soft loans/Program Related Investments, patient capital,
commercial capital
Sectors All sectors
Role of informal Owners, employees, beneficiaries, clients, suppliers, contractors
sector
Legal form Exploits a range of legal forms: nonprofit, hybrid, commercial venture etc.
Poverty Inherent in process and outcomes
alleviation
Accountability Accountable to stakeholders and the wider community for their social,
environmental and economic impact
Measurements Social and environmental impact and financial performance vis-à-vis SROI
(monetized social return on investment), financial statements, and indications and
other social impact indicators
Scaling Emphasizes scaling strategies that increase social impact and/or stimulate
systemic social and economic change, over strategies that promote enhanced
profit or enterprise/business growth(i.e. societal or systemic transform) KA = all
okay.
Value creation Creates social/environmental and economic value concurrently

There’s no business like social business

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