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Social Entrepreneurs Dilemma: Should the enterprise be profitable or non-profit?

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May 3, 2012

Undoubtedly entrepreneurship is risk taking endeavor. Every entrepreneur faces risks of his money, time, effort and life those are inherent uncertainty of an entrepreneurial mission. Entrepreneurs run after some goals-which can be economic goal or social or can be both. Although each and every entrepreneur walks in the unparallel streets-missions but all sorts of entrepreneurs aren’t considered parallel according to their missions. Actually, some types of entrepreneurs are only economic goal oriented who are considered as Business Entrepreneur, and some are inclined to social goals who are considered as social entrepreneur. Broadly, the entrepreneurs who run after solving social problems are social entrepreneurs. But a dilemma lies here that whether a social entrepreneur’s initiative (social enterprise) can be profit able? Usual philanthropy/charity based social enterprises are not profit oriented, but it doesn’t mean a social enterprise can’t be profit able (here the professional help from Labyrinth Inc is available). A social enterprise ‘can make profit solving social problems’ and its mission will be only ‘solving social problems and the service/product will be absolutely for the bottom line people. In Europe social enterprises are recognized as Non government Organizations (NGOs) and in USA it is called as non-profits (that means the enterprise can earn money which will be used for the enterprise not for any personal purpose).

Business Entrepreneur Vs Social Entrepreneur!

Just as business entrepreneurs change the face of business, social entrepreneurs act as the change agents for society, seizing opportunities others miss and improving systems, inventing new approaches and creating solutions to change society for the better. While a business entrepreneur might create entirely new industries, a social entrepreneur comes up with new solutions to social problems and then implements them on a large scale. It can be said to some extent ‘a social entrepreneur can be a business entrepreneur, but a business entrepreneur can’t be social entrepreneur’.

Ashoka: Innovators for the Public, a nonprofit organization, identifies and support leading social entrepreneurs through a Social Venture Capital approach, expounded social entrepreneurs asSocial entrepreneurs are individuals with innovative solutions to society’s most pressing social problems. They are ambitious and persistent, tackling major social issues and offering new ideas for wide-scale change. Rather than leaving societal needs to the government or business sectors, social entrepreneurs find what is not working and solve the problem by changing the system, spreading the solution and persuading entire societies to take new leaps”. Thus social entrepreneurs change the social problems and systems.

Social entrepreneur presents ideas that are user-friendly, understandable, and ethical and they engage widespread support in order to maximize the number of local people that will stand up, seize their idea and implement with it. In other words, every leading social entrepreneur is a mass recruiter of local change makers- a role model proving that citizens who direct their passion into action can do almost anything.

According to Ashoka: Innovators for the Public, “Social entrepreneurs often seem to be possessed by their ideas, committing their lives to changing the direction of their field. They are both visionaries and ultimate realists, concerned with the practical implementation of their vision above all else.”

Dilemma: Profitable or non-profit?

We usual social enterprises are non-profit or for charity. So it creates impediment in making a social enterprise as profitable. A social enterprise may not be founded for making profit but indeed it needs to be self sustained. But it creates dilemma while choosing its revenue model. So, before launching a social mission-based startup should be sure to ask these three questions to themselves:

1. Is it absolutely imperative that a social enterprise be a non-profit?

An industry can be a non-profit leading and history may exemplify so, like as schools or health center or sanitation service. But it doesn’t mean a new social enterprise should be charity/nonprofit, it can be profit able rendering core services. There is no actual imperative regarding social enterprises revenue model!

2. Does customer care whether it is non-profit or for-profit?

In most cases consumers choose products/services according to their quality level. They don’t care whether it is profitable or nonprofit enterprise. But, in some cases the services/products are inherently charity base (in case of natural disaster), so then the entrepreneur should care about consumers concern.

- Also learn: What Is A 501c3?

3. How far can it be profitable?

If a social enterprise can be a significant and realistic revenue generator over a sustained period of time, then it can be continued. Another group of social enterprise will be appeared through this!

Eventually, a social entrepreneur should keep in mind that the mission should be targeted to the bottom line people- serving them creating profit is globally acceptable.

Sources: www.ashoka.org and www.huffingtonpost.com


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6 comments on “Social Entrepreneurs Dilemma: Should the enterprise be profitable or non-profit?”

  1. We written. However, i have considerable doubt on the capability of a Non profit as you call it social enterprise's capability on making profit. Moreover, you blend both non-profit and social enterprise in your writing. Social enterprise often deals with products or services they produce and their focus often on social good instead of making profit. Example can, Arong in Bangladesh, Rages to Riches in Philippine.

    On the other hand, non profit organization like Action Aid, One degree initiative, they run with the donation of doners and they don't have a product/service and no business model too. And globally this type of organization do run same way. Though, this organizations can also turn themselves into a social enterprise if they can develop a business model! But that time they would not entitle for any donation, i think.

    However, this organizations are not social enterprise at all by definition.
    So, I think you might need to make some more clear declaration and should draw a line that about which organization you are talking about.

    1. Social entrepreneurship has different definition in different corner of the world. In Europe social enterprises are recognized as Non government Organizations (NGOs) and in USA it is called as non-profits ( Non profit implies the enterprise can make profit which will be used for the enterprise not for the entrepreneurs personal purpose) and In Asia social enterprises are called as both NGO and non profit (Action Aid/1di) and most of the cases such enterprises work for philanthropy or charity. Here, the problem is if any entrepreneur who ventures for solving social problem (like Grameen Bank/BRAC)  makes profit some people think its not fair. Its not like that!   
      Its not necessary that every social enterprise should be charitable or will be lived by funding, rather these can be self sustaining and profit making maintaining social goals....       

      1.  I agree, It's not necessary for every social enterprise should be charitable or will be lived by funding but organizations like Action Aid always do so and will do so because they are not by definition social enterprise either in USA, Europe or here in Bangladesh. If any organize wants to be a social enterprise it must have a viable business model that can also solve social problem. In case of Action Aid they do not entitled to be like that. So, i think there is some points you need to make clearer whether charitable organization without a business model can be social enterprise.    

        1. I think a person can't make any definition alone, if he isn't an applied economist or renowned entrepreneur! In case of definition of Social Enterprise, no where, you will get any phenomenon of 'Business Model'! You will find only to major phenomenon (o1) Mission of Solving Problems
          (02)Working for the bottom line people. If any venture continues doing any job maintaining these two principles will be considered as social enterprise. It doesn't matter whether you getting profit through a structured business model or providing charity. In the world of social enterprise you will get definition of  only one structured  business model that is 'Social Business' model. But, it is explained from different perspective. So, now if you think a social enterprise should have a business model, now you need to provide any newer definition like Dr. Yunus.  Will you?     

          1. This is worse! You just left the point of whether an organization that is solely based on charity can be a self sustaining organization or not. By the way you also completely wrong in case of accepted definition of social enterprise: see this-
            A social enterprise is an organization that applies commercial strategies to maximize improvements in human and environmental well-being, rather than maximising profits for external shareholders. Social enterprises can be structured as a for-profit or non-profit, and may take the form of a co-operative, mutual organization, a social business, or a charity organization.(Wikipedia). Yes, it is true that, the knowledge and edge of SE is evolving tremendously. Say for example TED they are Non-profit but not totally charity based, you have to pay around $7000 to attend a TED conference. 
            See these:
            http://www.skollfoundation.org 
            http://www.socialedge.org/discussions/social-entrepreneurship/defining-social-entrepreneurship/ 
            http://blog.guykawasaki.com/2007/09/social-entrepre.html#axzz1u4LRCfPq 

            I think you should make things more clear with more indepth understanding>  

          2. Earlier I have said, SE has different definitions from different perspective and it also varies as per region as well. Here goes debate on whether social enterprise is a business or non profit/charity venture? My article's aim was to divide the logic of the debates. My target was to persuade the persons, who think a social enterprise is only a non profit/charity organization, to change the notion.  But, here you just carried the age old debate, nothing else!  

            If you want to know the another definition of SE by Eur0pean Union: "‘Social enterprise’ means an enterprise whose primary objective is to
            achieve social impact rather than generate profit for owners and
            stakeholders. It operates in the market through the production of goods
            and services in an entrepreneurial and innovative way, and uses
            surpluses mainly to achieve social goals. It is managed in an
            accountable and transparent way, in particular by involving workers,
            customers and stakeholders affected by its business activity."

            But, Ashoka (www.ashoka.org) is the worlds largest social entrepreneurship
            patronizing organization which is itself an social enterprise. But it
            runs over charity. Now, according to

            the definiton of European Union Ashoka isn't  not so! So, debate will go on.....

            Now, my question is what actually you want to make clear understanding regarding Social Enterprise?  

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