3 types of social enterprise

There are three types of social enterprises:

  1. Stand-alone businesses who make it part of their mission to donate funds to a cause
  2. Businesses that are affiliated with a not-for-profit
  3. The sustainable social enterprise

Let’s look at each one:

Type 1: Stand-alone social enterprises:

A good example is Tom’s Shoes – a shoe manufacturer and retailer who donate 30% of their profits to global development causes such as Covid-19 relief, water provision, healthcare, and others.

Tom’s is a for-profit entity that works with registered not-for-profit partners who administer the funds that they donate (from the sale of their shoes).

Tom’s proudly – loudly – proclaims their cause-support, and gives it equal billing with their products, to the extent that any buyer of their product does so because of a belief in the cause.

It’s courageous.

Under the Type 1 Model, any business can be a social enterprise.

Type 2: Affiliated-with-Sponsoring Not-for-Profit agency

In Canada, WE Charity is the most well-known brand in this sector.  But there are many others out there.

Typically, we see a well-meaning not-for-profit – often stretched for funds – cobbling together a service that they offer to the local community to generate modest income.  Often, the service is either provided by or to the core constituency of the not-for-profit, providing a secondary benefit of employment or related benefits.

The positive aspect of this model is that it is consistently outward-facing.  It forces the not-for-profit to develop and improve skills such as social media marketing, direct marketing, partner marketing, etc.

The two significant down-sides with this model are that:

  1. It’s difficult to achieve sustainable profitability, because it is often operated as an afterthought – “a nice to have”, and
  2. It can expose the not for profit to unacceptable risk if not structured properly.
TYPE 3: THE SUSTAINABLE SOCIAL ENTERPRISE

Sustainable social enterprises are sometimes difficult to immediately recognize, because they operate at arm’s length from the sponsoring not-for-profit, usually under a separate brand or even multiple brands.

Let’s take a closer look:

  • The reason they operate at arm’s length is to shield the not-for-profit from liability.  Properly incorporated, the benefit of this structure can be significant.  Should a liability be incurred by the social enterprise, it will remain with the enterprise, and not be payable by the not-for-profit.
  • Operating as a quasi-independent entity (the sponsor remains the beneficiary shareholder), provides the benefit of professional management, multiple brands, and the flexibility to exploit bona fide market opportunities (rather than just those aligned with the core constituency)
  • The enterprise will require a strong board, professional management, and a willingness to manage the enterprise like a business, and set achievable goals to build a sustainable business

Whichever Type is best for you, we’re happy to help you evaluate the journey ahead.