For-Profit Social Enterprises: A Sustainable Business Model

Social Enterprise: A social enterprise is an entity that is run like a business but has the quality of incorporating a social mission. This business model allows a company to sell products / services to fund economic, social and often environmental goals.

 

Grameen Bank

Grameen Bank, founded by Muhammad Yunus is an example of a successful nonprofit social enterprise. The mission of the company is to challenge and alter the traditional methods of banking by eliminating the need for collateral when giving out loans. Instead, Grameen Bank relies simply on “mutual trust, accountability, participation, and creativity.” As a result, the bank has been able to serve as a micro finance institution for impoverished borrowers, giving the underprivileged masses a chance for social mobility since 1983.
( http://www.grameen.com )

 

Marie-Stella-Maris

Marie-Stella-Maris is a home and body product line founded in Amsterdam, Netherlands. For every product that Marie-Stella-Maris sells, they promise to donate a fixed portion of profits towards clean water projects worldwide. As a FPSE, it is a prime example of a company that has realized success by effectively incorporating a meaningful social mission into its business model from its inception.
( https://www.marie-stella-maris.com )

 

Image from Marie-Stella-Maris Foundation ad campaign

Reformation

Reformation is an eco-conscious “triple-bottom-line” (see definitions at end of article) clothing brand founded by former model Yael Aflalo. The company is known for aggressively seeking to mathematically track the environmental impact of their clothing from the making of the materials to the finished product. On their website, under each of their products, you can find an exact number of pounds of emitted carbon dioxide, gallons of water used, and pounds of generated waste associated with each item. While they acknowledge that they are not entirely “clean” they work to offset their negative environmental impact by investing in clean water solutions and purchasing landfill gas offsets, as well as other social initiatives.
( https://www.thereformation.com )

 

Patagonia

Patagonia, a company familiar to many, is another example of a triple-bottom-line company. Unlike reformation, however, Patagonia’s social and environmental missions were added on post-conception. Founder Yvon Chouinard, through his interests in outdoorsy activities like rock climbing and surfing, developed a profound respect for nature and thus nature preservation from a young age. The company started by accident when he began making his own climbing pitons and word of the quality got out to other climbers who began to purchase the pitons from Chouinard. Not until years after the foundation of Patagonia, did Chouinard notice that the pitons were actually destroying the rock walls, so, by 1970, he re-engineered them maintaining their effectiveness and quality while also preserving the integrity of the natural formations they were used on. From there, Chouinard would reinvent his company to focus heavily on social and environmental impact. Since, Patagonia has “donated over $89 million in cash to thousands of community-based groups working to create positive change for the planet in their own backyards” according to their site.
( http://www.patagonia.com/home/ )

 

Image taken from patagonia.com as part of their “What if Running Could save a Rainforest” ad campaign.

 

Today, when you look at a lot of companies that you interact with, you may or may not be aware that many have taken the initiative to incorporate some type of social mission into their core values. For larger enterprises, having a social mission has become almost necessary to attract investors and employees alike. In an increasingly populated and competitive world where people are given more and more options regarding what they can invest in and where they can work, businesses are forced to compete for their employees and investors. Social mission incorporation has become a prime method of attraction as employees and investors have begun searching for companies that function not only for profits but that have a sense of moral values as well.

 

According to Prayag Narula in Forbes’ article “The Forprofit Social Enterprise is the Impact Model of the Future,” there are four reasons that the FPSE model has become crucial to company sustainability. For one, Narula argues, FPSEs are more sustainable than nonprofit organizations because they circumvent the complex reliance that nonprofits have on charitable donations, grants, etc. for money. Next, a FPSE can measure scale (or growth) by looking at profit gains AND social impact. Third, customers, investors, and business partners today are more incentivized to work with companies that support and uphold similar social values. Narula’s fourth argument for the FPSE model is that “social impact companies have an advantage in hiring and retaining staff.”

 

While Narula merely lists the benefits of a FPSE business model, in another Forbes’ article, “Five Essential Qualities for Social Enterprise Success” Wayne Elsey gives an abridged list on how to effectively build a FPSE. Elsey declares that leadership, creativity, temperament, belief and persistence are the key qualities of a successful FPSE. In summary, Elsey asserts that in order to build a flourishing FPSE, an entrepreneur must be confident in their mission, able to find and build a passionate team that can come up with unusual and multi-faceted solutions to a specific social problem, and be determined enough to keep the company and mission afloat.

 

I only mentioned a few of hundreds of companies that are popping up with both social and environmental missions. More and more established enterprises are changing their foundations and business cores to reflect a more socially conscious path. In an era where we have had the means to uncover vast amounts of information regarding our exponentially growing social and environmental footprint, we inevitably need to start incorporating the triple-bottom-line business model into our everyday lives. For company owners and entrepreneurs alike, it is necessary that the businesspeople of our future recognize that the only sustainable companies are going to be those that concern themselves with not only profits but with social and environmental enhancement as well.

 

social enterprises logos

 

Clarifying Definitions:

Business / Enterprise: An entity that sells products or services for the purpose of making money.

 

Nonprofit or Not-for-Profit: Nonprofits are tax exempt. They function to make money for religious, charitable or educational social missions. The way in which they are run differs from a business in that they do not merely sell goods and services but rely heavily on donations, government stipends, fundraising, etc. for the majority of their income.

 

A nonprofit social enterprise restructures the classic nonprofit model to be more efficient and self-sustainable by making their own money rather than relying on being given money.

 

A for-profit social enterprise (FPSE) is a typical business that measures success BOTH in terms of profits AND in terms of social impact and frequently in terms of environmental impact as well.

 

The Triple Bottom Line: The triple bottom line is a goal for many FPSEs where the three main targets guiding the business model of the company are: profits, social impact, and environmental impact.

 

All definitions are summarized from investopedia.com.

 

Articles Mentioned:

https://www.forbes.com/sites/forbestechcouncil/2017/12/22/the-forprofit-social-enterprise-is-the-impact-model-of-the-future/#2292e80a5571

https://www.forbes.com/sites/forbesbusinessdevelopmentcouncil/2017/10/24/five-essential-qualities-for-social-enterprise-success/#47f9fd53e168

Bella

About the Author

Isabella contributes to the DesignUps team with her ability to write in-depth articles and and provide analysis. She is a talented intern from Vanderbilt who is interested in art and travel.