What they are
Let’s be honest here. The world is changing. It may be hard to tell if it’s changing for better or worse, but one area that is seeing continual progress is the business landscape. As people around the world adopt a more global perspective, we see and hear more about social entrepreneurship (SE). But what does this buzzword mean?
Social entrepreneurship is an impact-oriented approach to business adopted by individuals and organizations where they pursue solutions to social issues such as poverty, hunger, education, and the environment in a sustainable, market-driven manner. SEs can take various structures, including co-ops, NFPs and for-profits, to name a few.
Why they matter
This unique drive to create social change with its lasting, positive benefit to society, helps set SEs apart. This drive has a trickle-down effect, providing intrinsic motivation and satisfaction for employees. With millennials composing 50% of the workforce in 2020, research conducted by the Cone Millennial Cause group found that 80% of a sample of 1,800 young adults ages 13–25 wanted to work for a company that benefits society. Employee support, however, is only one facet of a successful business. Consumer engagement is also necessary, which often comes naturally for SEs. Two major factors influencing consumer engagement are personal choices and affinity to celebrity endorsements. A survey conducted by Clutch in 2019 found that 56% of US consumers indicate social responsibility is more significant to them than price. Celebrities such as Hugh Jackman have used their stardom to launch companies such as Laughing Man Coffee — a company that sells coffee in the United States. The proceeds directly support the same farmers that produce coffee in developing countries through sustainable wages and community development programs.
SE’s are also more likely to obtain government funding. In 2016, the main sources of funding for social enterprises in Canada were provincial (49%), federal (30%) and municipal governments (29%).
How they are reshaping the traditional business model
The diagram above illustrates a shift from traditional organizations to ones with an increased external focus and collaboration within the organization. According to SocialChangeCentral, currently, over half of all American SEs were created in 2006 or later, while in India, more than 89% of SEs are less than 12 years old. Here in Canada, more than 57% of SEs were founded in the last eight years. In Ontario alone, there are now over 10,000 social enterprises. Why, then, are some businesses reluctant to enter this space? The primary obstacle is the common misconception that it is difficult to do well by doing good, or in other words, pursuing solutions to social issues cannot be profitable.
The reason SE’s can reshape the traditional business landscape is that many of them have worked to combat this misconception successfully. For instance, Ontario’s social enterprises generate an average of $1.2 million in revenues and employ an average of 38 individuals, providing stable jobs.
Let’s take a look at SolarShare and Outland Denim. Founded in 2010, SolarShare is Canada’s leading renewable energy co-op that uses investments from its members to fund solar projects throughout Ontario. To date, members have invested $39 million and have earned over $5 million in returns. Members invest in competitive 4%, 5-year bonds which provide semi-annual interest payments. Moreover, investments are secured by SolarShare’s assets and 20-year contracts with the province.
Outland Denim is an Australian for-profit SE that operates like a traditional retailer, but with a social focus. This business was founded in 2008 by James Bartle, who was inspired to tackle the $150 billion human trafficking industry after travelling to Asia and speaking with survivors. Outland Denim empowers women from Cambodia who have experienced or are at risk of experiencing sex trafficking by providing training, fair-wage employment, and career progression opportunities. They even benefit the environment by using organic cotton, which uses 91% less water than conventional cotton, and their Australian offices are all powered by renewable energy. Their first factory in rural Cambodia started with five employees and grew to 65. In 2018, when Meghan Markle, the Duchess of Sussex, wore one of their jeans on a trip to Australia, orders for Outland Denim products rose 948%, which directly fueled their growth and allowed the company to hire 46 new employees.
How students are taking initiative
The beauty of social entrepreneurship is that it is sector agnostic. Take, for example, the National Social Value Fund (NSVF). The NSVF is a registered Canadian NFP with social value funds spread throughout Canada in Vancouver, Calgary, Kingston, London and Montreal. These SVFs are the bridges between capital investors and local social enterprises. NSVF stemmed from a desire to provide students with an opportunity within the social finance space while creating an organization that could better allocate capital to social enterprises. Very Good Butchers is a socially driven business that creates healthy plant-based meat products. The Vancouver Social Value Fund invested in this company to set up a production facility in Vancouver. As of June 2020, just over a year from their initial investment, Very Good Butchers launched a successful IPO with the Vancouver SVF looking at an exit opportunity in excess of 10x ROI.
The world is changing every day, and so is the business landscape. Recent consumer trends and other market factors have shown that we, as a community, are starting to support businesses that focus on helping society. No matter your stance on social entrepreneurship and enterprises, one thing is certain: social enterprises definitely have the potential and capacity to do well by doing good.
By Darsh Patel