Why the model for philanthropy is evolving and why it matters.
There is little doubt that we are in the midst of a growing movement in entrepreneurship with an increased number of companies that have, at their core, a commitment to do good. Part of this movement is being driven by millennials who expect companies to be good corporate citizens. According to Nielson’s 2015 Global Corporate Sustainability Report, 81 percent of Millennials expect companies to be good corporate citizens.
Amid these changes, you’ve likely heard the term social enterprise mentioned, as this structure has fully entered the mainstream and allowed countless companies to make a positive impact. But, that doesn’t mean it is well understood. Its definition is not completely agreed upon, and the difference between social enterprise and corporate philanthropy is especially murky in the minds of many.
So, what is a social enterprise? And if you’re an entrepreneur or decision-maker wanting to make a social impact while turning a profit, is this the path you should take? As the executive director of a social enterprise non-profit, Michelson Found Animals Foundation, I have definite ideas based on years of experience, that I will share in another article. Here, I will attempt to explain exactly what social enterprise means to me.
A social enterprise is a business created to make a positive social impact in a way that is more financially sustainable than a traditional non-profit model. The social mission is foundational to the business, and a key differentiator is that it earns revenue to cover some (or all) program costs and reinvests any profits into the cause it supports.
Here are three examples of socially responsible organizations that make an impact in different ways – what they do, how they do it, and why they do it. Two of these meet my personal definition of a social enterprise and one does not.
- What they do: At Michelson Found Animals Foundation, we are driven by WHAT we do – which is, put simply, get shelter pets adopted. Among other programs, we have two stores called Adopt & Shop through which we sell everything you need for a pet, including products like dog food and cat toys and services like daycare and grooming, as well as providing microchipping and having pets for adoption. We like to call it a “pet store for good” where all the revenue earned goes back to help more pets.
- How they do it: Homeboy industries rehabilitates former gang members, but what’s unique is HOW they do it –they offer full-time employment to 200 men and women in an 18 month program making (delicious) food items and operating cafes along with a silk-screening business, with the proceeds going to run their support programs.
- Why they do it: You’ve likely dressed a salad, topped pasta or otherwise eaten or drank a Newman’s Own product with the namesake’s blue eye featured prominently on the package. One hundred percent of profits are donated to a range of charities and have been since it was founded.
All these examples are organizations creating good in our communities and giving back. But there is a distinct difference between the first two and the third. Michelson Found Animals and Homeboy Industries are both social enterprises, where the products they sell support the programs they are providing. Newman’s Own on the other hand is a stellar example of corporate philanthropy (most companies donate a portion of their profits, not the whole shebang).
Corporate philanthropy, which I’ll define as the way a company makes a positive impact in the world through finances, time, facilities or a percentage of proceeds from their products and services, is a great option for many entrepreneurs and business, and we need more of it in the world! But, it is not a social enterprise. I would argue that calling this a social enterprise dilutes the real meaning and can set unrealistic expectations.
A social enterprise, like the first two examples, need grant support, donations from individuals, investments from impact investors or other subsidies to survive because their revenue or cost structures are almost always fundamentally disadvantaged. In our case, we lose money on every animal we adopt. On average, our cost to help a homeless pet is $200 more than the adoption fees we charge. And while we make up some of that by selling products and services to pet owners, we don’t always sell enough kibble or daycare packages in a day or month to cover our adoption losses. Likewise, Homeboy Industries is only able to cover about a third of its program costs with revenue from their social enterprise businesses. While social enterprise models create more sustainability than a traditional nonprofit structure and can scale in ways those types of organizations often cannot, they have unique challenges and struggle to cover their program costs through earned revenue alone.
Supporting a cause through corporate philanthropy is incredibly admirable and worthwhile. But, even given the challenges, social enterprises are considered by many to be the social impact model of the future. It is worth considering if you’d like to embark on the adventure of starting a business and helping change the world, two things that are no longer mutually exclusive.
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