Friday, 1 August 2014

Social Enterprises – and why we must stop romanticising them

That we need to find alternatives to the current capitalist system does not come as a surprise to anyone. Bankers and multinationals are organising events like the recent ‘inclusive capitalism’ conference held in London a few months ago; economist Thomas Picketty is being compared to a ‘rock star’ because of the success of his latest book on inequality. In this current context, the idea of starting a company which main goal is to achieve social impact while being financially sustainable has gained recognition over the past 20 years…

Wait, what? A business that aims to create social value…?

When I mention the term ‘social enterprise’ reactions vary from total excitement to not having heard of it before, others reject the idea that ‘enterprise’ and ‘social’ could ever go together.

During the last few years, the term has acquired a lot of hype, being portrayed as a ‘one size fits all’ solution, which integrates non-profit organisation ideals, social change and business mindsets to develop sustainable solutions. The Skoll World Forum, a yearly event organised by the Skoll Foundation, praises social entrepreneurs and attracts more than 1,000 people from the social, finance, private and public sectors, including the World Bank, McKinsey or Citigroup as their partners. Others portray social entrepreneurs as heroes and enlightened human beings by telling their stories as ‘people that can change the world’.

Credit: Flickr 2014 014 Skoll World Forum

The problem with this type of narrative is that it creates an utopian idea about social enterprises, that shifts the conversation to a simple yes or no question, rather than creating the space to discuss the real opportunities and limitations that social enterprises offer.

This is why we have to stop idealising social enterprises, and start analysing them as a means to achieve a social goal, rather than as the goal itself. I have seen social enterprises offer platforms to reach goals, and the conversation should not stop here because few overhype them.

Social enterprise as a means and not a goal

I became familiar with social enterprises while living in the Philippines in 2009, where I co-organised a social business-training program for 30 female social entrepreneurs, together with the University of Asia & the Pacific. The social enterprises ranged from a local eco tourism company in Palawan to Microventures, a social enterprise that supplies sari-sari store owners** with products that offer social value to the community, such as health, water, solar and technology solutions.

There are many unanswered questions around the social enterprise model, and the act of balancing social and profit goals is not exempt of challenges. Nevertheless, from these and other initiatives, I have observed three common principles that successful social enterprises followed:
  1. ‘Bottom – up’ initiatives – understanding the root of the problem and building up the business model to address it; in order to create the systemic change sought, the social enterprise has to find its root cause, so it can address the problem rather than create a temporary fix.
  2. ‘Co-created’ and ‘Empowering’ - developing the social enterprise together with the potential customers or participants of the business (co-creating it), by including the voices of all stakeholders from the beginning, helping define the problems and build the solutions. Social enterprises that are ‘co-created’ with the community are more likely to be empowering, supported by the community and successful.  
  3. Financial stability - building a business model that searches for ways to generate income as the means to sustain the social goal in the long term.
These principles lay out a way social enterprises can be viable initiatives that look for sustainable, market-based solutions, grown from the communities that try to solve development issues previously unmet by other actors.

Still, they have limited capacity to achieve large-scale impact. So, how can other actors continue to support these interventions, taking into consideration their limitations?

Going Forward  

Governments can promote policies that demand accountability and transparency to social enterprises, so as to improve the metrics in the sector; they can also promote policies that encourage inclusive social enterprises, which leverage on the communities’ existing skills, as a way of providing sustainable livelihoods.

On the other hand, the private sector can benefit from the local knowledge of social enterprises by partnering or supporting them, as a way of entering markets already established by them, or as a way of having reliable suppliers. Moreover, social enterprises can be initiatives for businesses to achieve their CSR goals.

For development practitioners, social enterprises offer another tool to work with, in order to achieve their goals. Additionally, they can influence social enterprises to integrate best practices from the non-profit sector in their business model, such as participatory and inclusive methodologies or human development approaches. Support from other groups, such as impact investors or research centres, is also essential.

It is not an easy task, and, in the end, it will be up to each individual to decide their own agenda and limits of their support.

  ** A sari-sari is the smallest unit of retail in the Philippines, usually owned by women and of informal nature.

About the author
Maria del Mar Maestre Morales is a Research Assistant with the IDS Globalisation Team. She is currently working on a project examining 'Public Private Partnerships (PPPs) in Agriculture: Enabling Factors and Impact on the Rural Poor'


Henrique Bussacos said...

Thanks Maria for sharing your reflections. I totally agree that we should not read social enterprise as The solution for all social and environmental issues. It has a role to play and it should be integrated with other players in the development endeavor. I've been working with social enterprises in the past 8 years and I have a lot of concerns when I see too much expectations around it. My studies at IDS were focused on understanding how these social enterprises can work together with other development players.

Ewan said...

Thanks for this thoughtful piece. I agree we need to look at what individual social enterprises achieve in practice. We need to ask the same questions as of any kind of organisation. I'd like to know more about the context they operate in. To whom do they have to be accountable when they make decisions? Maybe that depends on where their seed funding and revenue come from? Or their relationships with donors/corporations/governments/community groups? At a certain point, do they start to look like NGOs?

Mar Maestre said...

Hi Henrique,

Thank you for your comment. I’ll be happy to hear about your work and the findings of social enterprises ecosystems. You may like this blog, from Pamela Hartigan, published a few days ago, she writes “we forget that it [microfinance] took 30 years and an estimated US$20 billion in subsidies from major foundations and individual philanthropists to transform microfinance from an undefined effort … to something much closer to mainstream investing”.
I think we still need to understand what can we expect social enterprises to achieve and what should be left to other players.

Mar Maestre said...

Ewan, thanks for this, very relevant questions.
You raise very good points, and I’m afraid there is not only one answer. In my opinion, there is a big evidence gap on what are the key elements that will guarantee that the social enterprise maximises its social objectives, while raising profits, and that these social objectives will not change in the future. One of the greatest challenges for social enterprise is creating this ‘blended value’ - finding the right balance between their social and profit goals. There are great examples of how you can do this; however, they are still examples and have not been mainstreamed.
On your last point, I certainly hope they do not start to look like NGOs, since that is not their role to play. To me, this is the way all businesses should look like.

Shazar said...

Thoughtful and interesting article. I am currently very excited about the work of Paul Polak and his writings - The Business Solution to Poverty - as he addresses the subject in depth of scaling up design and business for those who live on under $2 a day - and in fact creating global business with the aim of bringing these people out of the poverty cycle - but also with the intention of making a profit for all involved.

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