“Social business” is a term found in both the for-profit and not-for-profit worlds and can be a confusing concept for one to wrap their head around. In this post, we will explore the basics of social businesses, including what they are, how they differ from traditional businesses and social enterprises, why they are important, and some examples of successful social businesses.
What is a social business?
A social business is a type of business that is designed to address a specific social or environmental problem. In many ways, it is like a hybrid between a traditional business and a nonprofit organisation. Like a traditional business, a social business generates revenue and is financially self-sufficient. However, like a nonprofit organisation, a social business’ primary goal is to achieve a social or environmental impact, not to make a profit.
The concept of social business was first introduced by Nobel Peace Prize laureate Muhammad Yunus. In his book Creating a World Without Poverty: Social Business and the Future of Capitalism (2009), Professor Yunus defines a social business as:
- Created and designed to address a social problem
- A non-loss, non-dividend company, i.e.
- It is financially self-sustainable and
- Profits realised by the business are reinvested in the business itself (or used to start other social businesses), with the aim of increasing social impact, for example expanding the company’s reach, improving the products or services or in other ways subsidizing the social mission.”
What is the difference between a social business and social enterprise?
The terms “social business” and “social enterprise” are often used interchangeably, but there are some key differences between the two:
A social business is specifically designed to solve a social or environmental problem.
A social enterprise, on the other hand, is a broader term that refers to any business that has a social or environmental mission. Social enterprises can be for-profit or nonprofit, and they can operate in a variety of sectors.
Yunus Social Business defines seven principles to help distinguish a social business from a social enterprise:
- 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
- Gender sensitive and environmentally conscious
- Workforce gets market wage with better working conditions
- …Do it with joy
Dana Asia follows these seven principles in the design and development of their social business models.
Why is social business important?
Social businesses can have a significant impact on society. They can help to solve social and environmental problems, and they can create jobs and opportunities for people in need. Second, social businesses can be financially successful. They can generate revenue from their products or services, and they can use these profits to further their social mission. Third, social businesses can be an attractive investment for investors. Investors who are interested in social impact can invest in social businesses and earn a financial return while also helping to make a difference in the world.
What is the difference between a social business and a traditional business?
Here are some of the key differences between a business and a social business:
- Purpose: The primary purpose of a business is to make a profit, while the primary purpose of a social business is to solve a social or environmental problem.
- Profit: A business is driven by profit, while a social business is not. A social business may generate profits, but these profits are reinvested in the business or used to further its social mission.
- Governance: A business is typically governed by a board of directors that is responsible to shareholders. A social business is typically governed by a board of directors that is responsible for its social mission.
- Measurement: A business is typically measured by its financial performance. A social business is typically measured by its social impact.
What are some characteristics of a social business?
Social businesses are a growing trend, and they are playing an increasingly important role in solving social and environmental problems. Below are some characteristics that make social businesses unique and effective:
- Social mission: A social business has a clear social mission that is aligned with its business activities. The social mission should be something that the business is passionate about and that it believes can make a positive impact on the world.
- Sustainability: A social business should be financially sustainable. This means that the business should be able to generate enough revenue to cover its costs and to reinvest in its social mission.
- Transparency: A social business should be transparent about its social impact. This means that the business should publish reports that track its progress in achieving its social mission.
- Innovation: A social business should be innovative. This means that the business should be constantly looking for new ways to improve its social impact and to make its business more sustainable.
- Collaboration: A social business should collaborate with other organizations that share its social mission. This can help the business to achieve its social impact more effectively.
Social businesses are a valuable asset to society. They can help to solve social and environmental problems, create jobs, and empower people.
What are some examples of social businesses?
Social businesses can operate in a variety of sectors, including healthcare, education, environmental protection, and microfinance. Some well-known examples of social businesses include:Grameen Bank, which provides microloans to poor people in Bangladesh
Danone, a multinational food company committed to improve nutrition, empower people, and protect the environment.
TOMS Shoes, which donates a pair of shoes to a child in need for every pair of shoes sold.
Grameen Bank is a social business because it is a for-profit bank that has a social mission. The bank’s mission is to “alleviate poverty by providing financial services to the poor”. Grameen Bank provides microcredit loans to poor people in Bangladesh, who would otherwise be unable to access traditional forms of credit.
Grameen Bank’s business model is based on the principle of “social collateral”. This means that the bank does not require collateral from its borrowers, but instead relies on the borrowers’ social networks to ensure that the loans are repaid. The bank’s borrowers are organized into groups of five, and each group is responsible for ensuring that the loans of its members are repaid.
Grameen Bank’s social business model has been successful in alleviating poverty in Bangladesh. The bank has over 9 million borrowers, and it has helped to lift millions of people out of poverty. Grameen Bank is a good example of how a for-profit company can use its business to make a positive impact on the world.
Danone is a multinational food company that has been committed to social responsibility for many years. The company’s mission is “to bring health through food to as many people as possible.” Danone’s social business initiatives focus on three areas:
- Improving nutrition: Danone works to improve the nutritional quality of its products and to make them more accessible to people in need. For example, the company has developed a line of yogurts that are specifically designed for children in developing countries.
- Empowering people: Danone works to empower people by providing them with the skills and resources they need to improve their lives. For example, the company has a program that trains women in Bangladesh to become yogurt producers.
- Protecting the environment: Danone works to protect the environment by reducing its environmental impact and by promoting sustainable agriculture. For example, the company has a program that helps farmers in India to adopt more sustainable farming practices.
Danone’s social business initiatives have had a significant impact on people’s lives around the world. The company’s work has helped to improve nutrition, empower people, and protect the environment. Danone is a good example of a social business that is committed to making a positive impact on the world.
TOMS Shoes is a social business because it is a for-profit company that has a social mission. The company’s mission is to “provide shoes for the world’s neediest children”. For every pair of shoes that TOMS sells, the company donates a pair of shoes to a child in need.
TOMS’ business model is known as the “one for one concept”. This means that for every product that is sold, a corresponding social impact is created. In the case of TOMS, this social impact is the donation of a pair of shoes to a child in need.
TOMS’ social business model has been successful in generating awareness of the problem of shoelessness and in providing shoes to children in need. The company has donated over 100 million pairs of shoes to children in over 70 countries.
TOMS has also been criticized for its business model. Some critics argue that the company’s one for one concept is not sustainable and that it does not address the root causes of shoelessness. Others argue that the company’s marketing practices are misleading and that they create the impression that TOMS is a charity, when in fact it is a for-profit company. Despite these criticisms, TOMS remains a popular company and its social business model has inspired other companies to adopt similar models.
TOMS Shoes is a good example of a social business that is committed to making a positive impact on the world. The company’s one for one concept has helped to provide shoes to millions of children in need, and its transparency practices have helped to ensure that its social impact is real and lasting.