What is a Social Enterprise?

Mark Horoszowski

Mark Horoszowski is the co-founder and CEO of MovingWorlds.org.

Over the last few months, we interviewed over 75 leaders from corporate social responsibility teams, social enterprises, impact investing firms, corporate boards, and more. We found a lot of really interesting themes, and some confounding ones, too.

(Want the definition without the background? Skip to the definition below)

One point of confusion that arose over the course of these conversations was the lack of a shared definition of the word “social enterprise.” How can you tell what is a social enterprise, and what isn’t? Different sources offer different definitions, a few of which include: 

  • A nonprofit
  • A for-profit that gives at least 50% of its profits to nonprofits
  • A for-profit that gives most of its money way
  • A hybrid organization that exists for social good using business
  • A business that optimizes social connections to foster innovation
  • A mom-and-pop business that cares for its community
  • A small business that invests in its workers

Ironically, in some conversations, we would hear people sing the praises of a certain organization as “a great example of a social enterprise,” and in the next conversation, someone would bash it. The most common example? Tom’s shoes. Here are some of the very different perspectives people offered on the same organization:

  • “Tom’s shoes is a good example of a social enterprise because it gives shoes to people in need, which is what it’s business model is based on”
  • “Tom’s shoes is not a social enterprise because the buy-one-give-one model is not world-positive”

So, what is a social enterprise? To get to the bottom of it, we’ll walk you through the history of the social enterprise movement, take a look at various definitions, and offer a modern definition that we use to guide our work here at MovingWorlds.

History of social enterprise

Last year, we published one of our most popular articles ever, the 600 year history of the social enterprise movement, and why the next 6 years are the most important. In short summary:

  1. The first social enterprise was most likely founded by Florence Nightingale, who started a nursing school and used her influence to also drive legislative improvements. Her work gave birth to the “Social Worker” movement.
  2. In 1951, Vinoba Bhave founded India’s Land Gift Movement, which inspired Bill Drayton to found Ashoka in 1981 with the purpose of scaling social enterprises (the first mention of social entrepreneur in text is from 1972 in The Sociology of Social Movements.)
  3. In 1998, the Schwab Center for Social Entrepreneurship was formed to bring the social enterprise movement to the center stage of the World Economic Forum.
  4. In 2007, Sally Osberg, the President of the Skoll Foundation, built the case for defining social enterprises in a Stanford Social Innovation Review article.
  5. In 2009, Muhammad Yunus published his book Creating a World Without Poverty: Social Business and the Future of Capitalism where he coined the term “social business.”

Many definitions of social enterprise

There are a lot of definitions for social enterprise, however the most popular are not so precise. Take Drayton’s famous quote from his 2004 book, Leading Social Entrepreneurs Changing the World: “Social entrepreneurs are not content just to give a fish or teach how to fish. They will not rest until they have revolutionized the fishing industry.” Sally Osberg has a definition that is more complete, but harder to remember: “The social entrepreneur should be understood as someone who targets an unfortunate but stable equilibrium that causes the neglect, marginalization, or suffering of a segment of humanity; who brings to bear on this situation his or her inspiration, direct action, creativity, courage, and fortitude; and who aims for and ultimately affects the establishment of a new stable equilibrium that secures permanent benefit for the targeted group and society at large.

Yunus defines social enterprise as a business that is “Created and designed to address a social problem, is a non-loss, non-dividend company, meaning that it is financially self-sustainable and profits realized by the business are reinvested in the business itself (or used to start other social businesses), with the aim of increasing social impact, for example expanding the company’s reach, improving the products or services or in other ways subsidizing the social mission.”

Yunus further broke his definition into two subtypes: 

  • Type 1: A business which is non-loss, non-dividend, and investor owned. It solves a social problem & is owned by investors who reinvest their profits in expanding & improving the business. The investors do not earn a profit or dividend and can take out the original investment over time, but dollar for dollar.
  • Type 2: A profit-making company owned by poor people, either directly or through a trust that is dedicated to a predefined social cause. Profits go to alleviating poverty.

Organizations promoting social enterprises

There are a lot of organizations promoting social entrepreneurship from a variety of angles:

At the global level, Schwab Center for Social Entrepreneurship, Village Capital, Yunus Social Business, Skoll Foundation, Acumen, Ashoka, B Lab / B Corporation, Impact Investment Exchange, SOCAP, Social Enterprise World Forum, Conveners, Duke’s The Center for the Advancement of Social Entrepreneurship, PCDN, Aspen Network of Development Entrepreneurs, as well as jour organization, MovingWorlds, work together to build more awareness, education, and support for social enterprises.

At the regional level, organizations like the Miller Center for Social Entrepreneurship, Fledge, Agora Partnerships, and Sankalp Forum all have a global audiences, but specialize in supporting social enterprises from specific regions.

At the national level, social enterprise support organizations like The Singapore Centre for Social Enterprise, Social Enterprise UK, and Social Traders in Australia foster social enterprises.

At the community and city levels, the Social Enterprise Alliance has localized chapters to foster social enterprise, as does Impact Hub.

A modern definition of social enterprise

In our research report about how social enterprises can become bigger players in the global economy and more integrated into the corporate sector, we settled on the following definition, which we also teach in the MovingWorlds Institute:

“A social enterprise is an organization that utilizes business principles, highly ethical internal operations, and the alignment of 100% of its resources to solve social and environmental challenges through the creation of sustainable earned revenue streams – while also positively influencing the larger systems around it.”

Simply stated, a social enterprise sells something that makes the world better, and in the act of making and selling, it ensures all its externalities are managed to also be world-positive. Beyond staying in business, the social enterprise must also push on the sector around it to improve and become more sustainable. In fact, one study from Social Enterprise Monitor 2020 shared that 96% aim to actively influence other organizations to act more sustainably.

Different types of social enterprises based on legal and tax requirements

In an article on Conscious Media, author Nicole Motter shares a diagram that we think does a good job capturing the fact that social enterprises exist on a spectrum when it comes to legal incorporation and taxation. This is important: a social enterprise isn’t just one type of legal entity. A non-profit can operate as a social enterprise, and so can a for-profit, university, or even governmental group:

Social Enterprise Spectrum developed by Nicole Motter
Nicole Motter’s Social Enterprise Spectrum

Who gets to decide if an organization is a social enterprise?

At MovingWorlds, we partner with thousands of social impact organizations around the world, and this is a common challenge as laws change across borders. We use the following criteria to discern whether an organization is a social enterprise or not, using an internal point scoring system. Our approach is not unlike the one used by B Labs, although we’ve simplified our approach in line with the goal of qualifying rather than certifying organizations as social enterprises:

  1. The company generates revenue be producing a service, product, or other offering that creates verifiable social good while protecting the planet
  2. Legal incorporation documents declare that the entity exists for a social mission while also preserving the environment
  3. The organization’s Board and Executives measure performance and make decisions, always integrating the social mission
  4. The organization has controls, process, and reports on internal factors, including care of employees and carbon emissions
  5. The company is built with equity and inclusion from day one, making it a safe, fair, and equitable place for all employees
  6. The company manages its externalities to protect against any environmental or social issues, like carbon emissions or pay inequity.

Internationally, B Lab has created a B Impact Assessment, which provides the most rigorous and complete assessment to evaluate if a company is a social enterprise or not. It uses the same principles as above, however asks a series of over 100 questions to then provide a B Impact Score, which can then earn an official designation as a Benefit Corporation.

Other organizations, like “Buy Social” or “Intentionalist” have also sought to give certifications to organizations that are small-business, minority-owned, and/or community minded, however, we do not qualify them as social enterprises as they do not have a rigorous vetting process to ensure that other critical components of social enterprise, like managing externalities, fair ownership for employees, and profit distributions, are managed.

Examples of social enterprises

In the MovingWorlds S-GRID program, we support a number of social enterprises, like:

  1. ThinkMD
  2. ARED
  3. Seabin
  4. Desolenator
  5. BEMPU Health
  6. Metis Consulting Group
  7. Belouga
  8. Vega Coffee
  9. Suyo
  10. Twiga
  11. Sokowatch
  12. Sanergy
  13. M-KOPA
  14. SunCulture
  15. Komaza
  16. I was a Sari

What are the best news and media sites to learn more about social enterprise?

In our #FollowSocEnt series we published last year, we share some of the best blogs and news outlets, Twitter accounts, podcasts, and online learning platforms to learn about the latest social enterprise trends and themes.

Here are a few of our favorites:

  1. Stanford Social Innovation Review, which covers more academic and research-based findings
  2. CauseArtist, which covers social impact lifestyles
  3. ImpactAlpha, which follows the impact investing fueling social enterprises
  4. SOCAP Global, which tracks how markets are becoming more social
  5. Rank & File Magazine, which highlights purpose-drive entrepreneurs
  6. The Good Trade, which features social enterprises tackling consumerism
  7. Pioneers Post, which explores the trends as well as the grassroots efforts leading the movement
  8. Sopact, which has a lot of great free courses to learn about measuring impact
  9. Yes! Magazine, which focuses a lot on the social justice and activist side of the social impact space
  10. DevEx, a global development news site that has been increasing attention on social entrepreneurship and its role in global and governmental development
  11. PCDN, a global network with a podcast closely following social enterprise

Other resources to learn about social enterprise

Review the free MovingWorlds guide on social enterprise.

Are you a social entrepreneur looking for support growing through revenue-based partnerships? Apply to S-GRID.

Are you a professional who wants to build a career in social enterprise? Apply to the MovingWorlds Institute social impact and career development program.