Running Head: #BUSINESSFORGOOD: SOCIAL ENTERPRISE TRENDING 1

#BusinessforGood: Social Enterprise Trending

Tirrah Switzer

Webster University

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Abstract

Social enterprises are innovative businesses that address the long-term needs of our

world. Social enterprises can be structured in several ways – non-profit, for-profit or hybrid.

Echoing Green, a seed-stage funder of social enterprises has seen an increase in applications of

both for-profit and hybrid models. An emerging trend for hybrid social enterprises is building a

for-profit and non-profit arm of the social enterprise that furthers the organization’s social

agenda. The social enterprise sector in the United States is estimated to be double the size of the

mining industry and three to five percent of the United States total gross domestic product. The

social enterprise movement soared in 2006 with sixty percent of today’s social enterprises

founded after 2006. Social enterprises are tackling the world’s problems. Last year, poverty

alleviation and economic development were the top program areas for hybrid and for-profit

funding applicants. As the social enterprise sector continues to grow, a trend we see more of is

more defined social and/or environmental impact. Tom Shoes, a well-known social enterprise,

has received much media attention and criticism of their business structure. Not only has TOMS

learned from the criticism but it has assisting in building structures for other social enterprises.

Funding is often referred to as an obstacle for social enterprises. New funding sources are

allowing social enterprises the ability to be original and ground-breaking in their funding pursuit.

Social enterprises are trending worldwide; something is happening in every corner of the world

regarding social enterprises. Consumers are willing to match their wallets and hearts when it

comes to spending money with social enterprises. Based on the activities of stakeholders,

entrepreneurs, investors, governments, media and consumers, we should continue to see the

movement of social enterprises advance.

Keywords: Social Enterprise, Business for Good, Corporate Social Responsibility, Trends

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Corporate Social Responsibility and social impact plans have become the norm in

business today. Corporate Social Responsibility is taught in classrooms and discussed in

boardrooms around the world. Social enterprises take the concept of Corporate Social

Responsibility a few steps further by conducting business for good.

What is a social enterprise? There are about as many definitions as there are people

pursuing social enterprises. One of many definitions is “Social enterprises are for-purpose

businesses (for-profit or nonprofit) that use the methods and disciplines of business to advance

their social, environmental and human justice agendas” (Cabrera, 2014). Social enterprises are

innovative businesses that address the long-term needs of our world. Social enterprises “are

working in close collaboration with local communications, incubating groundbreaking (and often

lifesaving) innovations; modeling synergistic partnerships with governments, companies and

traditional charities; and building business models that deploy technology and enable networking

to creative wins for investors and clients alike” (Murphy & Sachs, 2013).

A social enterprise can be structured in several ways – non-profit, for-profit or hybrid.

The most popular non-profit structure for social enterprise in the United States is a 501C3 non-

profit. Some examples of non-profit social enterprises are Krochet Kids, The Empowerment Plan

and The Global Soap Project. A social enterprise that is structured as a for-profit business have a

multitude of business structures to choose from. Some newer structure options that are geared

towards social enterprises include a low-profit limited liability company (L3C), certified Benefit

Corporation and registered Benefit Corporation. The Honest Company, One Earth Designs and

Tom Shoes are examples are for-profit social enterprises. Echoing Green, a seed-stage funder of

social entrepreneurs for more than twenty-five years, continues to see an increase in for-profit

models seeking funding. In 2006, only fifteen percent of their applications were a for-profit

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model. Today, applications with for-profit aspects account for nearly fifty percent of applications

(Echoing Green, 2015). A hybrid social enterprise contains both for-profit and non-profit

attributes. Story Pirates, Parent Earth and Mozilla Corporation are examples of hybrid social

enterprises. Echoing Green continues to see an increase in hybrid applications and last year saw

an increase of seven percent over the last year with hybrid funding applications (Echoing Green,

2015).

An emerging trend for hybrid social enterprises is building a for-profit and non-profit arm

of the social enterprise that furthers the organization’s social agenda. In a 2009 Community

Wealth Survey, 32 percent of surveyors had both a for-profit and non-profit business in their

social enterprise (Young, 2001). This model works best when the for-profit helps manage the

non-profit’s philanthropy and each entity needs something offered by the other. Deux Main and

REBUILD Globally are a prime example of utilizing a for-profit and non-profit business to

further a social cause.

REBUILD Globally is a non-profit organization that was founded after the devastating

2010 Haiti earthquake. REBUILD Globally’s mission is to implement “long-term solutions to

ending poverty by establishing an innovative social business ecosystem” (rebuildglobally.org,

n.d.). Deux Mains is the for-profit arm of REBUILD Globally that supports the social cause of

poverty in Haiti. In collaboration with REBUILD Globally, the non-profit arm, Deux Mains

employs Haitian artisans to manufacture handmade sandals from recycled tires. The sandals are

then sold throughout the world.

According to the REBUILD Globally website, Deux Mains “employees receive equity in

the company and employment that pays an average of 225 percent more than Haitian minimum

wage. Seventy-four women, men, and children who became homeless as a result of the

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earthquake have permanent roofs over their heads due to their employment. The business

structure of Deux Main addresses some of the root causes of poverty furthering REBUILD

Globally’s mission and impact. Not only are the two organizations impacting a social issue,

Deux Main shoes have an environmental impact as well. As stated by REBUILD Globally, 6,000

discarded tires have been recycled into sandals, saving the Earth’s atmosphere from 480,000 kg

of co2” (rebuildglobally.org, n.d.).

Although the social enterprise sector is still in its infancy stages, it is projected that social

enterprises in the United States employ more than 10 million people and generate annual

revenues of $500 billion. That is double the size of the mining industry and three to five percent

of the United States total gross domestic product. Approximately forty percent of social

enterprises have fewer than five employees. Only eight percent have more than 100 employees.

Approximately half of social enterprises generate revenues of less than $250,000 a year and one

fifth are larger than $2 million (Khan, Menon, Nicholson & Swarup, 2015).

Social enterprises experienced steady growth throughout the 1970s in the United States.

Some of the first social enterprises consumers experienced were Goodwill, Ben and Jerry’s Ice

Cream and The Body Shop. During the 1990s and 2000s, the United States saw a rapid increase

in social enterprises. As described by Young, there were five interrelated trends from the

previous two decades that started driving social issues into the marketplace and providing the

concept of social enterprise. Those trends included: slowing of government support, nonprofit

organizations utilizing more business and earned income models and corporate philanthropies

(Young, 2001). The movement of social enterprises really took off in 2006. Sixty percent of

social enterprises were founded after 2006 and twenty-nine percent since 2011 (Thornley, 2012).

Two international headlines helped fuel the increase of social enterprises in 2006. Bill Gates

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announced he was moving to his foundation full-time thus prioritizing social impact and

Mohammed Yunus and the Grameen Bank won the Nobel Peace Prize. 2006 also saw the release

of Civic Ventures first survey of baby boomers concluding that at least half were interested in

“encore careers” helping others (Smith Milway, 2014).

Social enterprises are tackling the world’s problems. Last year, poverty alleviation and

economic development were the top program areas for hybrid and for-profit applicants seeking

funding from Echoing Green. For-profit applicants are also focused on environmental issues

(Echoing Green, 2015). Although social enterprises are tackling the world’s problems and the

sector continues to grow, a struggle for social enterprises is expressing and/or quantifying the

social and/or environmental benefits of the social enterprises. Some social enterprises measure

the number of lives impacted by their organization, others measure their environmental impacts

such as lower emissions. There is a variety of measurements done by social enterprises which

makes the impact fuzzy. As social enterprises continue to grow, a trend we will begin to see is

more clarity of the social and/or environmental impact. The British Council predicts that in

Europe by 2020 “people will no longer care what sector your organization notionally sits in, they

will care only about the long-term results that you produce and how much it costs to deliver

those. Also, by 2020 all social enterprises “will produce an annual impact statement covering

social, environmental and economic impact” (Catherall and Richardson, 2014).

Tom Shoes is one of today’s most well-known social enterprises. TOMS is built on a buy

one, give one philosophy. The buy one, give one philosophy has been debated by economists and

philanthropists. TOMS has received public criticism for the model and the societal and economic

impact of the model. Does the buy one, give one model actually fight the root cause of the social

issue? Does the buy one, give one model hurt the local economy? These questions have been

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argued from all sides and leans toward the negative effects of the model. Not only has TOMS

learned from the criticism but it has assisted in building structures for other social enterprises.

In 2014, TOMS expanded their social impact model to address the root causes of poverty

by providing more employment opportunities and started to manufacture some of its shoes in

Haiti. TOMS also pledged that by the end of 2015, one third of their shoes would be produced

overseas (Hackel, 2013). Water for People works with local governments and communities to

install water pipes, latrines and other sanitation infrastructures to impact the root cause of water

issues. “What we’re really challenging is the endless project-by-project approach of

philanthropy. The point of our investment is not to do another project. It’s to get the water

flowing at scale so they never need another project” said Ned Breslin, CEO (Murphy & Sachs,

2013).

TOMS was also in the spotlight for their relationship with their partner non-profit

organizations that distribute the shoes. TOMS was largely criticized for utilizing religious

organizations that only distributed the shoes to children of that religion. Mealshare, a Canadian

buy one, give one company has used the woes of TOMS in building their partner programs.

“TOMS was definitely one of the innovations we looked at as we were coming up with our own

model” (Townsend, 2014). Proof and transparency with collaborative partners is one of the

newest trends that social enterprises are embracing. Mealshare requires that all partner charities

share their impact monthly. Many social enterprises are built on a model that includes working

collaboratively with partners. Making sure the values of each partner is aligned helps built a

partnership with shared values and vision and provides the accountability and transparency that

stakeholders are requiring.

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Funding is often cited as a barrier to launching and/or growth for social enterprises. An

increase in funding sources for social enterprises has occurred around the world. Traditional

funding from foundations, donations, and grants are typically the first sources of funding for

social enterprises, but can be limiting in its funding. Overhead costs are typically not included in

these funds. There are many organizations that do provide seed funds for social enterprises.

Echoing Green is just one example of a seed funder. Echoing Green has assisted approximately

600 social enterprise leaders and dispersed more than $33 million in funding through their

fellowship program over the past 25 years (Echoing Green, 2015).

With new funding sources emerging, social enterprises have the ability to be creative and

innovative in their funding pursuit. Up nineteen percent from the previous year, roughly $12.7

billion in “impact investing funds were looking for investment-worthy social ventures” in 2014.

Although there is an increase in funds available, the majority of investments are looking for

social enterprises with a track record. Start-ups are not on the radar for investment funders

(Khan, Menon, Nicholson & Swarup, 2015). Overseas Private Investment Corporation recently

adjusted their funding programs to allow for funding for small, early stage social enterprises

which they have not supported in the past. Banks are also changing their policies to open funding

to social enterprises. Chase Bank Kenya announced in 2015 that it was pledging $600 million to

fund small to medium sized social enterprises, with an emphasis on those lead by women and

young people (Saldinger, 2015).

“Triggering a sustainable social enterprise ecosystem should be at the heart of policy

making for governments worldwide” (Khan, Menon, Nicholson & Swarup, 2015). Government

agencies in Australia, Canada, Israel and the United Kingdom have been researching the

potential of social impact bonds. Social impact bonds would “pay an investor if the costs or

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incidence of something (foster care or prisoner recidivism) is reduced, with comparable or better

results, than a government program” (Cohen and Sahlman, 2013). The U.S. Agency for

International Development in 2014 launched the Partnering to Accelerate Entrepreneurship

initiative, investing $10 million in social entrepreneurship. The U.S. Overseas Private

Investment Corp is building a program to incentivize local banks to lend to small to medium size

social enterprises (Saldinger, 2015). In January 2015, the United Nations began the United

Nations Social Impact Fund to assist building sustainable social enterprises. Investment

opportunities up to $5 million are available through the fund (unsef.org, n.d.).

An alternative financial source that is trending for social enterprises is collaborative

funding otherwise known as crowdfunding. Crowdfunding allows social enterprises to raise

funds online through a large amount of people. There are a multitude of websites dedicated to

crowdfunding. In 2012, $2.7 billion was raised for more than one million individual campaigns

around the world and 2013 saw $5.1 billion raised (Barnett, 2013). Kickstarter, Indiegogo and

others have utilized crowdfunding to fund their enterprises. Crowdfunding allows flexibility and

freedom in the use of funds raised to be utilized at the discretion of the social enterprise

(Chaudhary, 2014).

The British Council believes that social finance will soon become the mainstream in

Europe. By 2020 the traditional foundation investment model will become outdated and

unnecessary. Hybrid funding sources will increase available money for social enterprises that

reduce the risk to both the public and the social enterprise. Although the shift from grants to

investment will be positive, a danger is that funding will shift back towards those proven ideas

and concepts opposed to new innovative ideas (Catherall and Richarson, 2014).

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Social enterprises might not be trending at the scale of the hashtag, but social enterprises

are trending worldwide. Something is going on in practically every country regarding social

enterprises. Since 2011’s political uprising in Egypt, more young Egyptians are leaving

traditional career paths and running towards careers in social enterprises; fueling the increase in

social enterprises in the country (Younis, 2015). It is estimated that sixty percent of the best jobs

in the next ten years in Africa haven’t been invented yet and a driver of those jobs will be social

enterprises (Hatira, 2014). In 2012, Australia reported that social enterprises had grown thirty-

seven percent in the previous five years, “making it one of the fastest growing sectors of the

Australian economy” (Baldassarre, 2012).

The United Kingdom has been an international leader in social enterprises. There are

more than 700,000 social enterprises that employ almost one million people in the United

Kingdom. Social enterprises have contributed more than $40 billion to the United Kingdom

economy. In 2012, social enterprises outperformed the small and medium sized enterprise

segment. One third more social enterprises than small and medium sized enterprises increased

their revenue in 2012 (Khan, Menon, Nicholson & Swarup, 2015). The United Kingdom is also

taking an active role in becoming a leader in financing for social enterprises. In 2012 Big Society

Capital was launched with unclaimed bank funds with the purpose of developing a “sustainable

social impact investment market” in the United Kingdom (Guillaume, 2015). By the end of 2014,

Big Society Capital had $150 million of investment commitments. Besides Big Society Capital,

there are also a multitude of both for-profit and non-profit organizations providing opportunities

for social impact investments.

China is still in the infancy stage of social enterprises, but really experienced an influx in

social enterprises after a 2008 earthquake. Some social investors have predicted that social

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enterprises in China will soar over the next five to ten years mostly due to the aging population,

massive rural population and the education gap between rural and urban China. It is forecasted

that many social enterprises in China will address elderly services and special education as these

sectors can deliver the largest social impact and financial return. For a little more than five years

through a partnership between the Chinese government, social investors and the British Council,

training, mentoring and funding opportunities have been available to social enterprises in China.

In the beginning, their clients were mostly non-profit organizations. Today, there has been an

increase in for-profit businesses. “At the beginning the needs were very one-way: how to change

from non-profit to social enterprise. As more participants from the business sector joined,

another need emerged: changing from a commercial organization to a social enterprise. The

needs changed from a ‘one-way street to a two-way highway’” (British Council, 2015).

The continued influx of social enterprises around the world have moved social enterprises

into a movement, not a fad. Consumers are willing to match their wallets and hearts when it

comes to social enterprises. In a recent Nielsen study, “fifty-five percent of global online

consumers across sixty countries say they are more willing to pay more for products and services

provided by companies that are committed to positive social and environmental impact – Asia

(64%), Latin American (63%), North America (42%) and Europe (40%)” (Nielsen, 2014).

Ninety-one percent of global consumers are likely to switch brands to one associated with a good

cause, given comparable price and quality (Cone Communications, 2013).

It has been said that for Millennials social responsibility is their new religion. Millennials

will comprise more than one in three adult Americans by 2020 and eighty-nine percent have

expressed that they will buy from companies that support solutions to social issues (Cone

Communications, 2013). According to a 2011 study, seven in ten millennials considered

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themselves a social activist; double from 2010. One in three millennials boycott or support

businesses based on the social issues they care about and three in four believe that business

“should create economic value for society by addressing its needs” (Swinand, 2014).

Social enterprises are a complete 180 degrees from Milton Friedman’s 1970 New York

Times Magazine article The Social Responsibility of Business is to Increase its Profits. Social

enterprises challenge Friedman’s notion that business is only social responsibility is to make a

profit for shareholders. Social enterprises are built to affect the bottom line while making an

impact. You could say that social enterprises have a double impact on the bottom-line when the

benefit is social and financial and a triple impact on the bottom-line when the benefit is social,

financial and environmental. Based on the activities of market and nonmarket stakeholders, we

should continue to see the movement of social enterprises advance. Sir Richard Branson, CEO of

Virgin Atlantic stated, “Only businesses with a purpose beyond profit will succeed” (Wong,

2015).

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