Along with consumers having more influence than ever on products and brands, and the ways in which technology and social media are impacting on customer/business relationships, new business models are also playing a big role in shaping Small and Medium-sized Enterprises (SMEs). It’s not just establishing new business models, either; it’s also about challenging traditional approaches and redefining what it means to be successful.
Recently, the Brite Blog has looked into different businesses that have been influenced by the sharing economy model and the One-for-One business model made popular by TOMS. From a business perspective, the TOMS example is fascinating because it shows how companies can shape their purpose around serving people in need or supporting initiatives that encourage positive change in the world while still turning a profit. In this regard, in addition to being premised on the One-for-One model, TOMS can indeed be classified as a social enterprise. Social enterprises are revenue-generating businesses with a twist. Beyond that, the definitions one can find to account for social enterprises or social entrepreneurship are actually quite broad in scope, and can include many different types of businesses.
For Michael Porter and Mark Kramer, co-authors of the article Shared Value, there has been a looming need to reconnect the success of companies with social progress. They believe that, “Companies could bring business and society back together if they redefined their purpose as creating shared value – generating economic value in a way that also produces value for society by addressing its challenges.” The pair asserts that a shared value approach to business can drive innovation and productivity while creating competitive advantages and addressing human needs. What they are ultimately alluding to is what many social enterprises are doing through their business models.
Investopedia defines a social enterprise as, “An organization that is directly involved in the sale of goods and services to a market, but that also has specific social objectives that serve as its primary purpose.” This seems pretty straightforward; however, the definition continues to include, “Profits are principally used to fund social programs.” This is where things get tricky, as there are many examples of businesses centered on social causes that might not necessarily use profits to fund social programs. Moreover, there are businesses that might not identify as social enterprises that still use some of their profits to support social programs, or that actively engage in Corporate Social Responsibility initiatives.
A great example of a social enterprise that does use profits to fund specific programs is Soma, a company selling filtered water pitchers and carafes, as well as reusable water bottles. The idea is to provide customers with clean drinking water while promoting the importance of access to the same quality of water as a basic human right around the world. Every time someone buys one of their filters, which are made of 60% renewable, plant-based materials, Soma donates money to charities focused on drinking water. The company’s contributions support sustainable, community-based water projects in developing countries. Soma also engages employees to launch their own fundraising campaigns, and commits to matching the donations they raise.
Soma’s products are sleek and well designed, and by selling them in more developed parts of the global market, they can use profits to stimulate smaller economies in underdeveloped markets. As such, their customers can buy high-end products knowing that some of the premium they pay contributes to a worthy cause. Not only is Soma creating shared value with their products and business model, they are also catering to a consumer base that is more likely to buy from and work with a company driven by a social mission.
Bringing business and society back together in the name of creating shared value has a lot to do with ethics. Social enterprises are by nature ethical, and beyond supporting specific causes and social initiatives, these businesses are also responding to consumers who are more informed and empowered than ever. Mintel released a report with some pretty telling stats about the nature of the consumer/social enterprise relationship. The report revealed that over half of US consumer stopped buying from companies they believe are unethical, and that 63% of consumers feel that ethical issues are becoming more important. Given these outlooks, and the transparency that the internet and social media gives consumers, it would seem as though businesses creating shared value might have a step up on their traditional counterparts.
Shared value doesn’t have to be as tangible as the One-for-One model or a company donating profits to a social program (as noted above). This is why a broader definition of ‘social enterprise’ could be applicable in certain circumstances. The BC Center for Social Enterprise in Canada provides what it calls complimentary definitions of the term, including, “Social enterprise applies to an entrepreneurial approach to addressing social issues and creating positive community change.” This definition allows for certain companies to be regarded as social enterprises even if they don’t necessarily fulfill the second part of Investopedia’s definition mentioned above.
M4ID aims to deliver people-centered design and creative communication solutions for global development and health challenges. They work with international development organizations, helping them build, design and promote a variety of health-related development initiatives. M4ID doesn’t necessarily need to invest profits back into these types of initiatives to be considered a social enterprise because they built a strong business model that serves as a valuable tool at the disposal of NGOs, charities and non-profit organizations. Their work has supported the likes of UN Women, the World Health Organization and the Bill & Melinda Gates Foundation, to name a few.
M4ID refers to itself as a social impact company, but at its core it generates economic value in a way that also produces value for society by addressing societal challenges. Yes, shared value! The point is, if an SME has a specific cause in mind, or a social problem it wants to address and help solve through the social enterprise model, there are indeed several ways to go about it.
Regardless of which form of social enterprise a business adopts, there are still certain things to keep in mind. Just cause you want to give back doesn’t mean you’ll have a successful business. A social enterprise still needs to have a sound and effective business plan and still needs to develop relationships with customers, especially within the digital realm, which has already become a critical area for any business. And remember, creating shared value through a social enterprise is not only about challenging traditional business norms; it’s also about seeing success in a new light.
Bradley Castelli
Bradley Castelli is Content Manager at Brite