In the words of Blake Mycoskie, owner of TOMS and creator of the “one for one” business model, “Start something that matters!” Businesses can be designed so that making a social impact doesn’t diminish revenue or profit.
What Is Social Enterprise?
A social enterprise is a business that has specific social objectives in addition to maximizing the profits of the business. Social enterprises seek to maximize profits while maximizing benefits to society and the environment. In my opinion, the most amazing business models are those where profit and impact live in harmony. A social enterprise is a business that embraces both financial and social goals simultaneously.
Notable Social Enterprises
Warby Parker is an American eyeglass retailer that donates a pair of glasses to someone in need for every pair sold. Tom’s, a California-based retailer, similarly has pledged to donate a pair of shoes or sunglasses for every pair sold. Here in Columbus we have Hot Chicken Takeover which employs individuals who have had barriers to previous employment such as incarceration. We also have Food for Good Thought, which employs individuals with autism, providing them the chance to increase their personal and financial capacities.
How do you become a successful social enterprise?
- Identify a social issue to target.
- Make the business case.
- Track progress to determine whether the cost of resources to pursue the social goal produces sufficient social and business value.
Social enterprises are organized in two main ways—for-profit and non-profit. Non-profits have two main advantages: they can accept tax deductible donations and they are tax exempt. However, non-profits have limits on compensation and they are not permitted to operate to enrich individuals. In contrast, for-profits can issue shares to raise equity capital and incentivize employees with compensation that would be considered excessive if paid by a non-profit. However, directors in a for-profit have an obligation to maximize profits for shareholders and sometimes, within social enterprise, there can be a question about whether a director’s placing priority on a social good instead of solely on profits constitutes a violation of the fiduciary duties that directors have to shareholders of a corporation.
Most social enterprises use one of three legal forms. C Corporation, S Corporation, or a Limited Liability Company. All three legal forms protect owners from personal liability, and the differences lie primarily in how the organizations are taxed. There are certain implications entity selection has on fundraising and equity financing as well.
Successful social enterprises do the following:
- Set and monitor social goals alongside financial ones. They do the research and develop a deep understanding of the specific social aim they hope to address and then they monitor for progress.
- Structure the organization to support both social and financial activities. Sometimes this means an integrated structure where profits and social responsibility aspects are managed together, and other times, activities are best managed separately.
- They hire and socialize employees to embrace both social and financial aspects of the business
- They implement dual purpose leadership.
Are you considering starting up your own Social Enterprise? I’d be happy to answer any questions you might have and help with the initial legal paperwork. Contact me to setup an appointment…