We are all familiar with for-profit companies, and most of us are relatively well-acquainted with charities and non-governmental organizations (NGOs). For-profit companies aim to make a profit, non-profit organizations make a positive social or environmental impact. In recent years, however, the line between for-profit companies and non-profit organizations has begun to blur. Enter the social enterprise model.
What are social enterprises?
There are many definitions, however, I’ve found this one to be the most accurate: “A social enterprise is an organization that applies commercial strategies to maximize improvements in financial, social and environmental well-being—this may include maximizing social impact alongside profits for external shareholders” (Wikipedia, 2019).
What does that look like in the real world?
As a Clinton Fellow, I’m working with Frontier Markets, a social enterprise. That means the company has a for-profit model but is simultaneously making a positive social impact. Profits are generated through the sale of solar products; social impact is generated through the type of people we employ and the places where we choose to sell.
Frontier Markets recruits women from villages in Rajasthan and invests in building their capacities to run a successful business. This means training them, providing them with marketing materials, and supporting them by supplying support staff and through mentorship schemes. As a result, these women are empowered to make sales and earn money. They operate in rural areas where regular companies don’t reach, offering quality products in a market that is generally underserved.
How is this different than a regular for-profit company?
If there are customers in rural areas and women with the potential to sell and distribute products, why don’t big companies enter these markets? One reason is an unfamiliarity with rural markets, which makes it a risky investment (Bersin, 2018). Distribution becomes more difficult because there aren’t supermarkets or shopping malls, and there aren’t well-established distribution routes or the infrastructure for cash collection. Due to these complexities, most companies prefer to operate in urban areas with better-established distribution options (Deloitte, 2018).
This means that rural areas don’t have access to a diverse range of products that would allow them to have an easier, safer, and healthier life.
Frontier Markets’ method of distributing products through a network of women requires a different mindset than other companies. It requires a belief that rural women are capable of being entrepreneurs and that they are bankable investments. Surprisingly few companies believe this, and even fewer are willing to invest the necessary funds to make the dream a reality.
There has been a shift away from viewing people living poverty as a group removed from the economy and only to be pitied, towards recognizing people living in poverty as independent agents who can make decisions (Torcher et al., 2015). In fact, when comparing rich markets to poor markets, there are significantly more consumers in poor markets and there is a lot more potential for growth. The “bottom of the pyramid”, as it’s been called by C.K. Prahalad, the author of The Fortune at the Bottom of the Pyramid, is also less crowded with competing firms. Companies who sell products designed for this market and can reach these consumers have a head start in a potentially highly profitable market.
Of course, there are other models for social entrepreneurship. Some companies donate a portion of their profits to non-profit organizations and others strive to protect the environment by reducing waste and pollution. The definition of a social enterprise is broad and continues to evolve (Weerawardena et al., 2010).
While I believe there will always be a place for civil society organizations that are not profit-driven (because some things are valuable to society but are simply not profitable), I see the potential of social enterprises to help alleviate global wealth inequality and raise the standard of living in rural areas that typically aren’t touched by large companies.
Bersin, J. (2018). The Rise of the Social Enterprise: A New Paradigm for Business. Forbes. [online] Available at: https://www.forbes.com/sites/joshbersin/2018/04/03/the-rise-of-the-social-enterprise-a-new-paradigm-for-business/#6d0d3f4f71f0 [Accessed 15 Feb. 2019].
Deloitte (2018). The rise of the social enterprise. [online] Www2.deloitte.com. Available at: https://www2.deloitte.com/content/dam/insights/us/articles/HCTrends2018/2018-HCtrends_Rise-of-the-social-enterprise.pdf [Accessed 15 Feb. 2019].
Prahalad, C.K. (2004). The Fortune at the Bottom of the Pyramid, Revised and Updated 5th Anniversary Edition: Eradicating Poverty Through Profits
Tocher, N., Oswald, S. and Hall, D. (2015). Proposing Social Resources as the Fundamental Catalyst Toward Opportunity Creation. Strategic Entrepreneurship Journal, 9(2), pp.119-135.
Weerawardena, J., McDonald, R. and Mort, G. (2010). Sustainability of nonprofit organizations: An empirical investigation. Journal of World Business, 45(4), pp.346-356.
Wikipedia (2019). Social enterprise. [online] Available at: https://en.wikipedia.org/wiki/Social_enterprise [Accessed 15 Feb. 2019].