What is a Social Business

What is a Social Business
Social Bite
16.08.12

What is a Social Business?

Simply put, a Social Business is a non-loss, non-dividend company designed to address a social objective. Social Business is a cause-driven business rather than profit driven.

How does Social Business Differ from Traditional Business?

A Social Business differs from a traditional profit maximising business because the end goal is not to maximise profits. The company’s shareholders and investors can gradually re-coup their initial investment, however they do not receive a penny more and they do not receive dividends. The reason for starting or investing in the business is to achieve a social objective through the operation of the company – no personal gain is desired by the investors. The company must cover all costs and make profit, at the same time achieve the social objective, such as, healthcare for the poor, housing for the poor, financial services for the poor, nutrition for malnourished children, providing safe drinking water, introducing renewable energy etc in a business way.

Social Business is a new category of business. It does not stipulate the end of the existing type of profit making business. It widens the market by giving a new option to consumers. It adds to the competition. Social business expands the traditional concept of business to incorporate other motivations rather than solely profit maximising. It provides a conceptual framework for entrepreneurs to use their skills in enterprise to tackle humanities most pressing needs.

How does Social Business Differ from Charity?

A Social Business differs from a charity because it operates as a business, selling a product or service, and generating enough revenue to cover its costs. Because of this, a social business never has to spend its time on fund-raising or has to rely on donations. Where-as a charity dollar only has one life, a social business dollar is recycled endlessly. The social business runs from its own steam, propelling itself forward by generating revenue and re-investing profits in the business to expand the social mission. When we approach the concept of social business from the philanthropy side it looks very convincing and logical. If a social goal can be achieved more efficiently and sustainably in a business format, then Social business provides an attractive option for philanthropists to solve social problems.

The Difference Between Social Business and Social Enterprise

Social business is a business, where you don’t want to make money for yourself, but you solve the problem with the business model. This is different from social entrepreneurship. A social entrepreneur may not be involved in a business at all, it could be just helping your neighbourhood, improving healthcare, helping people to do that in a new way.

Social Enterprise describes broadly ‘commercial activity by socially minded organizations’. Charities may engage in social enterprise in order to generate funds; a social enterprise model may also be used to provide supported employment to those with barriers to work. Social business is therefore a subset of social enterprise, with the specific characteristic that, whereas a social enterprise can be funded by philanthropy or government grant, a true social business should be self-sufficient.

The Seven Principles of Social Business

The business objective will be to overcome poverty, or one or more problems (such as education, health, technology access, and environment) which threaten people and society; not profit maximization
Financial and economic sustainability
Investors get back their investment amount only; no dividend is given beyond investment money
When investment amount is paid back, company profit stays with the company for expansion and improvement
Environmentally conscious
Workforce get market wage with better working conditions
Do it with joy!

The Two Types of Social Business

There are two types of Social Business:

Type I : The business itself tackles a social problem through its product or service. Grameen-Danone is an example of Type I social business. The yogurt produced by this business in Bangladesh is fortified with micronutrients that are missing in the poor children and it is targeted to fight malnutrition. If malnourished children eat two cups of Shokti Doi per week for approximately 8-10 months, they grow healthy.
Type II : Can take up any profit maximizing business so long as it is owned by the poor and the disadvantaged, or all of the profits go towards a charitable trust or fund. Examples of Type II social business are Social Bite and Social Gigs.