What is Social Enterprise?

Some people who hear the increasingly familiar terms “social enterprise” or “impact investing” may not know what such words mean. So what exactly are you getting into if you are going to go work for one of these types of organizations?

While there are a host of definitions, here at IBL we keep it simple: social enterprises are businesses or non-profits that directly address social needs through revenue-generating commercial activity. So there are two key components of social enterprise: a focus on social impact (the common good) and revenue generation (leading to greater sustainability). On the revenue side, the organizations should be generating substantial earned revenue even if they are non-profit, and of course for-profit social enterprises aim for revenue large enough to cover all expenses and make a profit.

The measure of social impact could be a wide variety of outcomes. It could mean providing better healthcare at a low cost, improving education quality for the poor, providing alternative energy sources in rural areas, supporting livelihoods for women and girls, or increasing yields for small farmers while reducing environmental degradation. The key point is that social enterprises try to “do good” in the world while also “doing well” for themselves operationally by ensuring financial sustainability from strong revenue streams that cover company expenses.

In much of the developing world, this means serving customers in the Bottom/Base of the Pyramid (BOP). Again, definitions abound, but the key point is that the BOP includes the poorest populations in the world, which are greatly underserved by traditional business. As a result this customer segment offers huge potential for business development at the same time as huge potential for improved lives and livelihoods. For example, cheap solar lighting–which has spawned a large number of social enterprises–can dramatically improve the lives of the poor living off the grid in Africa, Asia, and Latin America. At the same time, with such an enormous market, providing that improvement in access to energy can reap financial rewards for the companies who figure out the low expense structure business model needed to make it happen. One of our company partners, One Degree Solar, is one such social enterprise improving lives with its innovative solar electricity and lighting systems.

However, this does not require that a company actually think of itself as a social enterprise. In fact, we have encountered many businesses around the world that simply saw an opportunity to make money providing goods or services to the BOP and pursued it. Such businesses know the social benefits of their work, but their goal is simply to make money. For instance, a company that provides mobile banking services to anyone with a cellphone may greatly improve the lives of its customers by giving them access to financial services they could never access before, and yet, perhaps the company just saw the potential for a high-volume, low-margin business and went after it. Nonetheless, such a business would be deeply founded on improving the lives of the poor.

And some of the most effective social enterprises are not glamorous. This is because helping low-income workers do what they do better—to simply increase their income—can be life-changing. For example, millions of small farmers in the BOP have trouble making ends meet because of a lack of access to farming equipment, inputs, and markets. A social enterprise providing these simple elements can raise income and revolutionize the lives of the poor while still being fully compensated for the value it provides. Another of our partners, Juhudi Kilimo, addresses this type of need by financing specific assets for smallholder farmers in Kenya.

Please also check out our Placement Partners page for other examples of the social enterprises we work with.