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Mar 11, 2015

Should We Get Picky about Who is a Social Enterprise?

Carla Javits wrote a provocative article a few months back titled “What’s in a Name?“.  It is not long, and it ties to a much longer “Social Messaging Guidelines” report based on surveys and interviews by APCO Worldwide.  One of the conclusions was to narrow the definition of social enterprise to “enterprises that leverage a business approach to address a social issue.”  More importantly they chose to define who did NOT get to call itself a social enterprise:  not any nonprofit doing innovative work nor all businesses with charitable campaigns or with social outcomes.

I have a problem with drawing a boundary in an area where it is crucial that we build more momentum and more activity than currently exists in our local communities.  It is much too soon to pick the favored few.

It is true that there is a continuum of “doing good”.

  • Socially responsible investing is a time-tested approach to EXCLUDE investing in companies that are perceived as not socially helpful: tobacco, military goods, polluters, etc.
  • More positively, there has emerged ESG (environmental, social, governance) investment criteria to INCLUDE investing in companies that focus on environmental  products, promote workplace diversity or employee health,   or have good corporate governance practices.
  • Many companies are socially responsible by donating a portion of their net or gross proceeds to charities or by promoting volunteerism among their employees.
  • Other companies (often owned by nonprofits) donate all of their net proceeds to a charity as a way to supplement the charity’s fundraising.
  • An emerging class of companies produce a service or product that creates a social benefit directly.

I personally think that all approaches to “doing good” should be encouraged. They all contribute in various ways to making the world a better place.

But rather than picking a category, I would rather focus on which companies most need our help in order to become viable companies.

I believe those companies that most need our help are the ones that focus on local needs and solving local problems.  There already are investors and programs that funnel millions of dollars into globally-scaled new ventures.  While that is certainly good, they rarely help solve problems in our local communities.  And there are well-organized programs and investment funds to support high growth companies, especially in technology.

So, rather than using the term “social enterprise” to determine which companies we should exclude from our efforts, I think we should let in any start-up that seeks to address a social issue but does not fit into the current categories that already have a lot of government and business support.

  • Companies that do not fit into qualified Census tracts that make them eligible for Impact SBIC investment or bank community reinvestment act (CRA) loans.
  • Companies that do not aim for high growth and high double-digit investment return targets that are increasingly the norm for many angel investors.
  • Companies with founders who don’t want to exit and sell in three to five years but rather want to stay with the business for the long-term.

These are the reasons why we need more local efforts to support socially-oriented start-ups and we need more investment funds that intend to invest in modest-scale or locally-focused start-ups.  That is precisely why we started the Center for Social Enterprise Development and we are working to build the locally-focused CINCO fund — to supplement current economic development structures by supporting business creation that can have a direct benefit for our local communities.

Do you think we should draw a circle around which businesses get to call themselves social enterprises?  Who would you let into the circle?