Many Africans have seen huge sums of international aid money go down the drain in the name of development over the years, hence their skepticism about referring to their businesses as social enterprises
By EB Content Studio
“Social entrepreneurship” is one of the most misconstrued terminologies in the business and nonprofit sectors today. Everybody, it seems, has a different description of what it entails. This is our attempt to bring some clarity to the discussion. Over two decades ago, the thought of non-profits espousing entrepreneurship in their programmes was anathema to most people in the sector: The idea of integrating mission and funds filled was considered a thorn in ones flesh. However, the phrase “social entrepreneur” is bandied about without stinting today.
For instance, one CEO in Kenya was quoted as saying that there is no such thing as a social enterprise. If a company is making a profit, it benefits society (although he did make an exception for gambling). Clearly there is a stigma associated with the social enterprise brand in Kenya.
Beyond doubt, the phrase “social enterprise” could sound bamboozling, especially to those who work outside the impact investing space.
“We’re a business, first and foremost and so we avoid the term social enterprise given the connotation it brings in this market,” says Samir Ibrahim, CEO of SunCulture, a provider of low-cost irrigation solutions to Kenyan farmers. For him, too many social enterprises prioritize achieving social goals over profits, but he doesn’t see a contradiction. For him, the two go hand-in-hand.
William Githui, Investment Associate at Alpha Mundi, an impact investor, observes the expat community in Kenya has raised more money in the name of social entrepreneurship for businesses that are too early stage, noting that such people have not yet appreciated the local business dynamics and end up spending lots of money.
“As a result, the local population has come to see them as entirely expat run institutions with an NGO mentality as the sustainability part of it entirely escapes them,” he concludes.
Mahia-John Mahiani CFO of Twiga Foods, a company that is introducing modern distribution practices to the African fresh produce industry, shares a similar view. According to him, “the man-on-the-street’s perception of a social enterprise is a grant funded, non-profit, that’s run by well-intentioned expats, trying to make a difference, but not really thinking about long-term sustainability. Essentially it’s just aid.”
And this is not without merit. Many Africans have seen huge sums of international aid money go down the drain in the name of development over the years, hence their skepticism about referring to their businesses as social enterprises.
For this reason, it is really imperative for impact investors to keep this in perspective, and keep a weather eye on changing this perception.
“You haven’t yet seen any breakout successes from companies that are social enterprises or darlings of the impact investment world,” says Mahia-John, “that’s what will change the perception.”
What is a social enterprise?
The word “commerce” leaves a bad taste in a lot of people’s mouths, since it often gets lumped in with the ills of capitalism. But commerce is a natural feature of humanity, neither good nor bad.
When channeled through social entrepreneurship, commerce can become a force of good to build a business that helps create a better world. More and more consumers globally are demanding to know the true story behind the products and services of their choice, such as their impact on the environment and workers.
Not surprisingly, then, social enterprises – businesses that aim to have a positive social or environmental impact – are on the rise. Yet to many consumers and budding social entrepreneurs alike, it is still not clear how the ‘business’ of social enterprise actually works.
Social entrepreneurship is the organization of a business around specific social and environmental causes, and can include both nonprofit organizations and charities and for-profit social enterprises.
Social entrepreneurs differ from traditional entrepreneurs in that their main drive is to make a difference in the world or in their communities. They often have personal experience with the causes they support, which inspires their business’s mission.
While traditional businesses might measure success in terms of market share or year-over-year revenue growth, social entrepreneurs are more likely to focus on metrics like jobs created, trees planted, or donations made to a charitable arm that solves the problem they’ve invested in.
A social enterprise is a business designed around a core altruistic mission, which in turn influences how it’s managed, from product development to branding, from supply chain management to financial planning.
Instead of a single bottom line focused on earnings, many social enterprises measure success based on a triple bottom line:
- People. The human impact of your business, and your ability to affect social change, improve lives, and develop a community in a sustainable way.
- Planet. Your environmental impact—how you contribute to a sustainable planet or reduce the carbon footprint (CO2 emissions) of your business and customers.
- Profit. Like traditional businesses, social enterprises need to make money in order to sustain themselves, pay workers, and grow as an enterprise.
Unlike a traditional business where profit is reinvested into the business for the sake of its own growth, a social enterprise allocates a large portion of its profits to create positive change in the world.
Social enterprises are not necessarily the same as companies with corporate social responsibility (CSR) policies. “Doing good” isn’t a value-add for social enterprises. It’s the core value prop and the mission they organize themselves around.
Different types of social entrepreneurship
Just as there are near-infinite expressions of entrepreneurship, there are countless forms social entrepreneurship can take. You could start a nonprofit that provides funding for underserved entrepreneurs. Or you could launch a for-profit business that manufactures eco-friendly products.
No matter what type of social entrepreneurship you choose, you’ll need to be passionate about your cause and have a strong commitment to making a difference. With hard work and dedication, you can make a real impact on the world.
Different models in social entrepreneurship include:
- Nonprofit. A tax-exempt, non-business entity that invests excess funds back into the mission.
- Co-operative. A business organized by and for its members. Credit unions and community grocery stores are some examples of co-ops.
- Social purpose business. These businesses start on the foundation of addressing a social mission.
- Social firm. Social firms employ those in the community who need jobs, such as at-risk youth.
- Socially responsible business. These companies support social missions as a part of their day-to-day business operations.
- For-profit. Perhaps the vaguest category, these businesses are profit-first but donate funds, raise awareness, or otherwise support causes.
Arguably the most common social enterprise model is donating a portion of profits to a charity, but that’s not all there is to building an effective social enterprise.
Do social entrepreneurs make money?
Social entrepreneurs do indeed make money. While most social entrepreneurs start out with modest goals to prioritize their mission first, many are eventually able to achieve financial success similar to traditional entrepreneurs. Even founders of nonprofit organizations can eventually pay themselves a salary with certain limitations.
The pursuit of profit and purpose are not mutually exclusive in business, but for the social entrepreneur, it’s important that the former never cannibalizes the latter.
Benefits of building a social enterprise
A social enterprise’s mission is a competitive advantage that can help it stand out in a crowded market—if they can communicate their motivation and impact.
Building a social enterprise comes with its own unique benefits for the entrepreneur that are worth getting excited about if you plan to start your own:
- Alignment between your business’s mission and your personal one, fuelling you to show up every day and push through any obstacles
- Mission-based branding with a cause at its core that makes consumers feel good about every purchase they make.
- Access to more partnership opportunities as an altruistic business, such as other nonprofit organizations, influencers, and for-profit companies to leverage existing audiences and established reputations to create a presence in their market.
- More press coverage—publications and journalists love to cover social innovation and change-makers and share the stories of their impact to help social enterprises evangelize their efforts.
- “In kind” resources, sponsorships, and vendor discounts are often available to social enterprises, especially nonprofit charities, which may also be considered for tax-exempt status.
- Certifications and support systems. Social enterprises can be eligible for grants, “impact investing” opportunities that focus on job creation and sustainability, and special certifications such as a B Corporation status that make it easier to establish credibility, commit to transparency, and attract customers, employees, volunteers, and investors.
Transparency and sustainable impact are essential for a successful social enterprise. And these things are easier to achieve if your cause is close to your heart with impact you can measure.
Social entrepreneurship examples that balance purpose and profit
Below are some for-profit social enterprise examples based in Kenya and their missions that prove creating positive change and being profitable as a business don’t have to be mutually exclusive.
SunTransfer
SunTransfer is a leading supplier of solar lighting to Kenyans. For most Africans, grid electricity is not an option, forcing the use of kerosene lamps for lighting. Not only are the kerosene lamps dangerous, but they also cost rural Kenyans nearly US$4 each month to operate. Because the upfront cost of SunTransfer’s most popular solar lamp is high – nearly US$60 – SunTransfer offers consumers accessible financing options with microlending partners. For example, consumers can purchase the SunTransfer2 lamp via a payment plan issued by a microfinance institution like Faulu “Two of the benefits from my SunTransfer solar lamp are cost saving on kerosene consumption and more study time for my children in the evening,” said one SunTransfer consumer. Many families are willing to sign up for these financial plans because SunTransfer’s solar lamps offer safer, more affordable and 40 times more usable light than kerosene lamps.
Sanergy
Sanergy is working to make basic sanitation affordable and accessible to all of the world’s slum dwellers. Emerging from a development ventures course at MIT, Sanergy’s business model provides the twin benefit of creating micro-entrepreneurs and developing local supplies of affordable fertilizer. Sanergy provides an “affordable, accessible and hygienic sanitation” solution for millions that live in places without sewage or electricity. David Auerbach, one of Sanergy’s founders said: “In the developing world it’s flush and forget, but that’s not the case in much of the developed world.” According to a UN study, 2.5 billion people worldwide lack access to toilet and 1.1 billion defecate in the open. This unsafe waste disposal results in high levels of disease, notably diarrhoea and cholera. By creating a more permanent and personal toilet and tackling the issue of waste collection and disposal, Sanergy found its revenue generator. “The waste of each toilet generates Sanergy revenues of US$1,250 per year,” said Auerbach.
Jacaranda Health
Jacaranda Health is working to ensure that every Kenyan mother has access to the care and support needed to have a safe birth. Jacaranda offers obstetric care, safe delivery, family planning and postnatal care at one-fifth of the cost of other private hospitals. To address affordability, Jacaranda has developed an internal solution: MamaKiba, meaning “MotherSavings,” is a unique mobile service that allows clients to safely prepay towards delivery costs. Jacaranda is also utilizing mobile phone technology to input client data and track health trends and is developing electronic medical records that are context-appropriate. In their first year, Jacaranda has provided high-quality maternal health care to over 4,000 women at their maternity hospital and hundreds at their mobile van sites, impacting the lives of nearly 20,000 family members.
Finding a product to sell and a mission to lead
The mission might come first for social entrepreneurs, but that doesn’t eclipse the importance of choosing the right things to make and sell. When all is said and done, a for-profit social enterprise needs to make money to survive, just like any other business idea.
You could start a social enterprise selling physical or digital products, even services.
The one caveat is your product development process must align with your mission. The common trait among successful social enterprises is a “product-cause fit” that aligns their mission with what they sell.
Start by asking yourself:
- What social or environmental problems do you see in the world that you’re passionate about solving? The world is no doubt filled with many problems, but pick one you truly care about.
- Is there a way you can uplift your local community? You don’t need to change the world. You can change someone’s world in your own city.
- Is there a specific market you can sell to authentically? Authenticity is at the heart of social enterprises and that goes beyond the cause and applies to what you sell to customers too.
- Can you draw any connections between the causes and product categories you’re passionate about? You’ll likely be marketing the product first to your customer, not the cause, but it helps if customers can draw a clear line between the two.
