‘Social enterprise’ is fast becoming one of this generation’s most popular business buzzwords. But within this broad title, there are vast distinctions – and if they’re not properly recognised, a lack of clarity can hinder social impact organisations. The Marshall Institute’s Tom Rippin investigates the history of social enterprise, revealing the surprising differences within them.

In the last two decades, the magic of social enterprise has pulled more and more people under its spell. Harnessing business’s commercial engine for social good is an attractive vocation. Just like in the 1990s, working for a social enterprise has become one of the most sought-after careers for (especially) early-career professionals.

This is no doubt a good thing. But in the scramble to celebrate this movement, little clarity has developed on what the term social enterprise actually means.

Although organisations we would consider to be social enterprises have existed for centuries, the term only came into wider usage in the UK in the late 1990s. The timing isn’t accidental. The traditional language of co-ops, mutuals and credit unions became less fashionable in the era of New Labour. Social enterprise, however, stands firmly on the centre ground and has since been embraced enthusiastically by both Labour and Conservative governments. Perhaps it is unsurprising that it is many things to many people.

The debate surrounding the definition of social enterprise has raged for years with little clarity to show for it. And yet, clarity matters. Without it, we spread confusion and, more importantly, struggle to make a persuasive case for why social enterprise matters.

What people agree on is that social enterprises generate social (or environmental) value by selling a service or product. Unlike traditionally funded charities, social enterprises do not depend on grants or donations to operate but are able to keep themselves afloat through a commercial business model.

So far so simple. The confusion lies in the detail: What if an organisation’s income is partly commercial and partly donated? What if the person paying for the service is not the recipient of the service? What is an acceptable balance between generating social value and generating financial reward for the founders? Who should own and govern a social enterprise and how do we measure its success?

These questions require a more sophisticated approach – not asking a crude in-or-out question, but rather segmenting organisations more thoughtfully. The important question is not is this a social enterprise but rather in what ways is this a social enterprise. To start thinking in a more nuanced way, ask yourself three questions:

1. What intrinsic social value does this organisation’s service or product provide?
2. What social value is generated, through bringing this service or product to its consumer?
3. How does the money circulate – where does it come from, how is it used and where does it go to?

Some organisations provide a product or service that has intrinsic social value: think education or healthcare. Others generate social value through how they source, produce or distribute their service or product: for example, sourcing Fairtrade ingredients, using carbon-neutral manufacturing processes or distributing a magazine through a network of homeless street vendors. What happens to the money not only tells you how commercial (i.e. enterprising) an organisation is, but can also be a way of generating social value – for example, bottled water companies that give their profits to fund water projects in Africa.

There are countless ways of being a social enterprise, each with its own set of challenges and opportunities. A soap manufacturer that employs blind people in its production facilities has very little in common with a chain of schools bringing affordable education to developing countries. Lumping these very different organisations together under one all-encompassing social enterprise banner is therefore only marginally useful.

As new generations question traditional business models, social enterprises will continue to grow and evolve. For the movement to harness this momentum successfully, we need to refine the quality of our collective conversation.

That way, not only can we understand social enterprises better – we can help intensify their impact.

ABOUT THE AUTHOR

Tom Rippin is a practitioner in residence at the Marshall Institute. After some years researching cancer, Tom started his non-academic career at management consultants McKinsey & Company, where he worked across the private, public and non-profit sectors. He transitioned into the social enterprise space, first advising the CEO of Comic Relief on private sector matters and then working at (RED), the business founded by Bono and Bobby Shriver to help eliminate AIDS in Africa. As well as running On Purpose, Tom is a Trustee of The Global Action Plan and has been the Chair of Spice and an Advisory Board Member of Big Society Capital.