What is a social enterprise?

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Social enterprise is a business model that balances making a profit with a social purpose. It is a more ethical and sustainable way of doing business. The core mission of a social enterprise business plan is to create positive impact and improve society.

Unlike charities or not-for profits, these socially responsible businesses still make profit and aim to grow independently to increase their impact.

There is no legal definition of social enterprise. They trade in different sectors and industries around the world with the intention of using business as a force for good to have a positive impact on community problems.

In simple terms, a social enterprise can be defined as a business that reinvests profits into its social or environmental mission, rather than stakeholder gain.

This handy infographic explains the different types of social purpose businesses:

What is social enterprise?

“What is a social purpose business?” infographic from Pinterest, author unknown.

Private businesses are owned by shareholders and exist to make a profit for those who own shares in the company. They may engage in “Corporate Social Responsibility” activities, such as supporting chosen charities or implementing sustainability policies to reduce waste. Many businesses and corporations take CSR very seriously, but their primary mission in this traditional business model is to make profit.

The difference between private corporations and social enterprises is that social enterprise businesses reinvest their profits with their primary focus on social or environmental impact.

Alternatively, traditional charity and not-for-profit business models focus purely on addressing social need. Charities traditionally raise money to fund their social mission through grants and donations and are eligible for some tax reliefs, whereas social enterprises raise money through trade – by selling products or services, and pay the same taxes as for-profit corporations (depending on their legal structure).

The truth is, there’s a sliding scale of socially responsible businesses. The marketplace for ethical business is growing, with the value of ethical consumer spending growing to £38 billion in the UK in 2015 – an average growth of 8.5%. According to Social Enterprise UK, there are around 70,000 social enterprises in the UK alone.

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The term “social enterprise” refers to the purpose of the business, not its legal structure. The UK Government define social enterprise as:

“A business 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.”

Social Enterprise UK, the national body for social enterprise say that in order to be a social enterprise a business must:

  • Have a clear social and/or environmental mission
  • Set out their social purpose in their governing documents
  • Generate the majority of their income through trade
  • Reinvest the majority of profits into their social mission
  • Be majority controlled in the interests of the social mission
  • Be transparent and accountable
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Like social enterprises, there is no legal definition for an “ethical business”.

An ethical business considers the impact of its actions, products and services on people, animals and the environment. This includes their manufacturing processes, supply chains, packaging and distribution. Ethical businesses are ‘socially responsible’ as they attempt to minimise any negative impact on society or the environment.

Not all ethical businesses are social enterprises.

Social enterprise primarily focuses on the benefits they bring to society or the environment and exist to create a positive impact, whereas an ethical business that isn’t a social enterprise just seeks to reduce any negative impact.

There is a lot of opportunity for ethical businesses and social enterprises. Recent research by Unilever showed that 50% of shoppers in the UK and USA say they feel better when they buy sustainable products, and a third of consumers say the social and environmental impact of a product directly influences their buying decision.

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The Triple Bottom Line is a framework that applies to ethical business, CSR and social enterprise.

The ‘Triple Bottom Line’ was developed in 1994 by John Elkington, founder of consultancy firm SustainAbility.

He believed that companies should be measured against three separate bottom lines. The first is the traditional measure – “Profit”. Secondly, companies must be measured on how socially responsible they are across their operations, and should be measured on “People”. Finally, they should be held accountable for how environmentally responsible they are – giving the third bottom line of “Planet”.

The Triple Bottom Line - People, Planet, Profit
Image credit: CSR Ambassadors

Social enterprise business models focus on the triple bottom line. They seek to make a profit and grow their business in order to further their social and/or environmental mission.

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If you’re starting a social enterprise, running an ethical business or blogging about ethical issues, then you’ve come to the right place. #EthicalHour is the world’s first comprehensive support network for social purpose businesses.

We connect social enterprises and ethical businesses and bloggers all over the world to support each other, learn from each other and maximise the positive social impact they make.

If you’re serious about taking your social enterprise, ethical business or blog to the next level, join our exclusive free Growth Network on Facebook where you’ll have access to premium support and resources.

Connect with a global network of ethically-focused businesses and bloggers during the #EthicalHour Twitter chat every Monday 8pm (GMT) using the hashtag – or catch up on previous chats here.

#EthicalHour gives social entrepreneurs the platform to connect, learn and grow. Working together to reach our full potential, we can be the change we wish to see in the world.

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