I wrote a little bit on this topic previously but this is the right time to revisit it. Yesterday I met someone who told me he would like to start a social enterprise and among other things, it involves hiring disadvantaged people as staff. While this is truly an admirable vision/plan, it itself does not define what a social enterprise is.
Conceptually, social enterprises sit between for-profit companies (their aim is to maximising shareholders values) and non-profit companies (their aim is to serve the groups in society who may not have the equal opportunities or abilities to enjoy what the average people can). And to better understand how this works in reality, let’s use the example above, i.e. hiring disadvantaged people as staff.
Since for-profit companies care about cost efficiencies, and that because sometimes (not always) disadvantaged people may not be as efficient functioning as an operational staff (e.g. it’s difficult for visually impaired people to work in a kitchen), that is why generally these companies are less inclined to hire them (yes I understand there are many cases where the inefficiency is perceived only, or is even untrue, but we will leave this out of the discussion for now and assume the inefficiency is there). For non-profit companies who hire disadvantaged people, they subsidise the inefficiency through capital (i.e. donations).
Social enterprises tackle the issue by trying to come up with a solution that can reduce or eliminate the “inefficiency”. In fact, the most successful social enterprises focus on turning the exact reasons that cause the inefficiency into their unique advantages. This is crucial – socially enterprises don’t solve problems by (ignoring it or) pouring capital into it, they solve the problem by innovations (which makes them theoretically financially sustainable). But don’t get scared off by the term “innovation”. It does not always have to be Nobel Prize winning ideas; it simply refers to the social enterprises’ unique approach in addressing social problems.
There is another way to explain their differences (my thought experiment). I like to classify companies that are “socially responsible” and ones that are “socially driven” (societal?). If we look at for-profit companies, whilst most are not, many are trying to become more “socially responsible” (making tactical decisions in certain circumstances). And if we look at non-profit companies, they are generally “socially driven” (self explanatory). And I believe social enterprises are companies that have this dual focus – by being “socially driven” using “socially responsible” innovations. Yes, some may have a bias to one of them but it is essential for them to have both at their strategic and operational levels. Otherwise they would just be either only a socially responsible for-profit company, or a socially driven non-profit company that require on-going financial support.