Social Entrepreneurship and Its Many Forms
Social entrepreneurship is all the buzz these days. Businesses focused on social impact are popping up everywhere; students are flocking to schools that provide opportunities to learn about social entrepreneurship and thus many universities across the nation, especially MBA programs, are investing in departments to meet this need.
Social entrepreneurship is defined in many ways, with experts in the field disagreeing on the boundaries and what distinguishes one organization from being identified as a social enterprise versus another.
In May 2011, Inc. magazine themed its issue “Six ways to save the world: a practical guide to social entrepreneurship.” The issue identified six models that make up the universe of social entrepreneurship, with one side of the spectrum dependent on profits while the other isn’t. They include:
- Traditional Nonprofit refers to the typical nonprofit model which is highly dependent on grants and donations.
- Nonprofit with Earned Income are nonprofits like the Girl Scouts that earn a significant percentage of their revenues from selling a product or service.
- The Hybrid are organizations that have a mix of both for-profit and non-profit activities. In order to maintain the 501(c)3 status, the for-profit side is legally separated from non-profit activities; however profits are used to support the nonprofit.
- Impact Investing is an investment strategy in which both social impact and financial returns are important.
- B Corporations, which I’ve written about before, are businesses that must prove that they care as much about society and the environment as they do about profits.
- For-Profit with a Social Mission is your typical legal corporation which also aims to make a positive impact on society. Ben and Jerrys is an example, as it has always been determined to “make the best ice cream in the best possible way.”
What does it mean?
While the field has been around for over 20 years, the focus on defining social entrepreneurship is important. The boundaries applied to what is or isn't a social enterprise will ultimately help shape the direction of the field and the development of an ecosystem that supports the success of such organizations. However, it’s a debate that I don’t think will end anytime soon.
What has become apparent to me is that there is no right model for change. It used to be that “doing good” meant that you start a nonprofit. Social entrepreneurs are proving everyday that this is no longer true. And with over 100 new nonprofits being filed with the IRS each day, the sector could use the relief as social organizations become more and more creative in their search for financial resources.