Social enterprises. What business does best.

At the 2015 Shared Value Forum in Australia, Mark Kramer said,

“80 per cent of the time, what [people are] describing to me, is philanthropy, not shared value and another third of the time, it’s about corporate social responsibility, not shared value… At its core, shared value is about business strategy…The purpose of a strategy in business is to create a superior economic return by creating a sustainable competitive advantage”

His message in front of leading Australian businesspersons and CEOs, was about the ability of businesses to solve social problems by doing what it does best – by acting as businesses. By identifying social problems and developing solutions, companies can generate profit, improve brand identity, reduce costs and improve the conditions in which they operate – all leading to long-term competitive advantage.

There are two ways that businesses can create Shared Value. The first is to adapt existing processes and business systems. The other, is to operate a social enterprise.

What is a social enterprise?

A social enterprise is a business, either for profit or not-for-profit that is brought into existence to solve a social problem. It focuses on a social problem, and addresses the issue by using business methods to create impact and reach. Again, the way that social enterprises operate is no different to other businesses – it operates according to a planned business model.

Research shows that there are a number of issues that remain in Australian society today: homelessness, disability, environmental problems, ageing, health, unemployment, affordable housing and indigenous issues. Traditionally, Government and philanthropic organisations have worked to alleviate these problems. Today, social enterprises are also developing solutions – drawing on highly skilled workers, knowledge and resources to maximise impact.

Starting up a social enterprise.

Naturally, developing a social enterprise involves the same method as developing a business model. When developing a social enterprise, entrepreneurs, investors, and advisors carefully consider:

  • Customer segments – The groups of people the enterprise aims to serve.
  • Value proposition – The way that the organisation serves a customer need or problem.
  • Channels – How the enterprise will reach its customers.
  • Customer relationships – The relationship that the organisation has with each customer segment.
  • Revenue streams – How much customers are willing to pay for the services.
  • Key resources – The physical, intellectual, human and financial resources required to server customers’ needs.
  • Key activities – The key activities required by the organisation in order to deliver value ie problem solving, website development.
  • Partnerships – Analysing what key partners bring to the enterprise ie. expertise, resources.

Again, the elements of the business model are exactly the same when compared to a traditional business model – the only difference is that a social enterprise focuses solely on a solving a social problem. For example, if the social enterprise was set up to distribute solar power, the social benefit is reduced electricity costs and environmental conservation, and the return to the company is profit. Other businesses may focus solely on generating profit and return to shareholders as its primary goal.

Why investors, philanthropists, Government are supporting social enterprises.

Funds and support for social enterprises are growing in Australia because investors, philanthropists and Governments recognise the ability of social enterprises to solve social issues.

For example, the recent the NAB Impact Investment Readiness Fund offers grants of up to $100,000. It is designed to not-for-profit organisations and social enterprises to obtain specialised capacity building support from providers such as advisory, financial, intermediary or legal services. The fund was established “in recognition of the potential of impact investing to change the way Australia addresses social issues and the important role that access to capital can play in delivering better outcomes for people and communities.”

Investors, philanthropists and Government all have something to gain from impact investment. According to Impact Investing Australia’s Delivering on Impact report, investors, philanthropists and Government benefit from social enterprises in Australia:

  • Philanthropists benefit with options to generate greater impact and leverage through their activities;
  • Investors have greater choice and new opportunities to put their money to use in ways that make a financial return and also benefit society;
  • Governments achieve better outcomes and greater flexibility to target spending and encourage more private capital into areas where there is a need for new solutions.

Throughout history, businesses have applied skill, expertise and resources to address human needs. Today, the social enterprise researches prevalent social problems and uses business methods to deliver solutions.

Social enterprises in Australia are gaining the interest of multiple stakeholders. Know that you are partnering with the right people and maximising your impact.

Read more from our blog here about funding a social impact investment.

Talk to us about social enterprises. We can help.

Image credit: Guido Heitkoetter via Flickr Creative Commons