Important Distinctions in the Social Enterprise Field

When talking about social enterprise, how do we distinguish between the several kinds of organizations that exist? Kim Alter in her paper on Social Enterprise Typology plotted enterprises along a hybrid spectrum, classifying practitioners into four types: non-profit with income generating activities, social enterprise, socially responsible business and corporation practicing social responsibility.

However, within the realm of the social enterprise itself there is much misunderstanding about what the term means. Organizations are quick to label themselves as a social enterprise without fully understanding the distinctions that need to be drawn.

In an article published on Social Enterprise Alliance, authors Jerr Boschee and Jim McClurg run us through some important distinctions to be made. The paper is geared towards helping non-profits identify the lines of distinction between themselves and traditional for-profit enterprises. Both the authors have considerable experience in the social enterprise world, and draw on this in their paper.

They point to four crucial distinctions.

1. The differences between “entrepreneurship” and “social entrepreneurship.”

A traditional entrepreneur, they point out have “the ability to take a business to the point at which it can sustain itself on internally generated cash flow.” A traditional entrepreneur may engage in activities that are socially relevant, but not core to the businesses operations. For example, donating to charity.

A social entrepreneur on the other hand, is anyone who “uses earned income strategies to pursue a social objective.” As opposed to traditional entrepreneurs who use profit as an indicator of success or failure, a social entrepreneur is driven by a double — sometimes triple — bottom line. His or her success is defined by a blend of financial and social returns.

2. The differences between “sustainability” and “self-sufficiency.”

While traditional non-profits have used philanthropy, subsidies and earned revenue to achieve sustainability, a social enterprise, while it may welcome philanthropy and subsidies, relies wholly on earned income.

3. The differences between “earned income strategies” and “social purpose business ventures”

Typically non-profits enter carry out strategies to cover program costs, and increase revenue. These are referred to “earned income strategies.” Example of these may be in membership fees, or program registrations.  A “social purpose business venture” is sometimes the next step that non-profits take. This often means starting a whole new business, which is legal and operationally separate from the parent organization.

Of course for many the “social purpose business venture” route is the first option. But for those who wish to create impact without engaging in the rigor of a business venture, “earned income strategies” offer a sustainable option.

4. The differences between “innovators,” “entrepreneurs” and “professional managers”

The last point of differentiation is made to enable non-profits to correctly identify the kind of people it needs at different stages at growth. Drawing from their experience, the authors point out that often non-profits realize that their efforts are doomed because they are being lead by the wrong kinds of people.

They draw the following lines of distinction:

Innovators, who are dreamers. They “create prototypes, work out the kinks” often with little emphasis on the financial viability of what they do.

Entrepreneurs who are builders. They turn the prototypes into businesses. Financial viability is key to what they do.

Professional managers are akin to trustees. They “secure the future by installing and overseeing systems and infrastructure” needed to keep things going.

This distinction could perhaps be useful in helping non-profits identify the right resources for their projects.

Overall the paper serves as a good guide for those thinking of starting an enterprise, and for those non-profits considering a for-profit model. It helps clear the lines of confusion that might exist.