The rise (and rise) of social business models is sparking a revolution across many traditional markets. This is quite remarkable considering that only 10 years ago – no-one really talked about social businesses! Back then, when it was very much considered an alternative business model, you would often only hear references of it in relation to developing country contexts or in community development circles (ie. the Grameen Bank micro-finance model – which has become a very over-used example I might add..). Now however, the term social business is becoming more mainstream and is growing in momentum and popularity within first world countries. I have a feeling that this trend will continue with the rise of social business models gaining prominence over the next decade.
Why do I believe this? For a number of reasons: 1) Consumers are seeking more meaningful value propositions; 2) Inequality is increasing so the mandate will increase for business to give more back to solve social problems; 3) As Gen Y move into leadership roles within business – we will naturally see more focus on social justice, equality and social forms of doing business.
First, what is a social business model? There is quite a lot of confusion out there – due to so many references with the term social in it! For instance – these are just some of the many references I have come across over the years: corporate social responsibility, social innovation, social enterprise, social business, community-based social enterprises, social ventures, social-purpose businesses, mission-driven businesses, social co-operatives, and social entrepreneurs (incl. social entrepreneurship)… Argh!! .. So many references with little clarity about what each one actually means!
Just focusing on the one term social business for this blog post – even with this term, there are different definitions that can apply. For example, some people use the term social business and mean: A business that is leading the market in digitisation, social technologies and processes with a focus on improving overall social connectivity among staff, management, suppliers and customers to improve business performance and profitability. These businesses are typically known for promoting co-working spaces, online community / forum platforms, co-creation processes / design labs with customers, using social media platforms as means of facilitating information flow, etc. (For more on this definition of a social business – refer to: http://sloanreview.mit.edu/article/finding-the-value-in-social-business/ )
So, to be clear: what I am referring to here – when I talk about a social business, I mean a business that…
- is a functional business with paying customers and a viable product / service model;
- seeks to be profitable (ie. has a clear profit motive – with these profits directed in full or in part to a specific social cause),
- is serving a specific social cause through its business activities (whether through direct employment of disadvantaged people, via its supply chain, or through using profits to fund a specific cause or mission), and
- has integrity of mission, vision and values aligned to its social cause.
So, thinking about the above definition – I get many people who ask what is the difference then between a social business and a social enterprise? These terms are often used to describe the same type of entity, but there are some differences.
Lets start with the term social enterprise: Sometimes, the difference is purely one of legal structure (which can vary depending on what country we are talking about). For instance, there are many social enterprises that are run under the umbrella of a Not-For-Profit or charity organisation – of which there are limitations on the profit motive for these types of social enterprises due to the legal and governance structures of the parent entity. These types of enterprises mainly focus on generating revenues sufficient only to cover their operational expenses and do not exist with a profit motive. However, there are also many social enterprises that exist with a profit motive and have a corresponding commercial/ legal structure that allows profits to be generated from the enterprise activities.
When it comes to the term social business however, I know of very few that would say they do not exist to make a profit from their operations. Most social businesses exist to create profits (aligned to the social cause / mission) and have the appropriate legal/ company structure to support a profit generating model.
So, in simple terms – there are for-profit social enterprises (those that support a social cause and exist with a profit motive), while others exist without the profit motive as non-profit social enterprises (due to limitations of their legal structure or NFP status).
[Of note: There are also certain hybrid social enterprise structures – which is one for another post!. There are also grey zones of course, just like most things in life. I have also come across my fair share of enterprises that use the term / branding of social business or social enterprise – yet the actual social value-added in the enterprise is minimal at best; and in some cases even quite sinister or dubious – to the point that you could say they are simply profiteering through using a social business label)]
Some further unpacking of relevant definitions can be found via these links:
Over the next few blog posts, I will profile some recent examples of innovative of creative approaches to social business models in Australia and across Asia. Stay tuned!