Social Enterprise 2: To Profit Or Not To Profit

Last week, Enternships asked a question that continues to leave many scratching their heads: “What is Social Enterprise?”

Our first in a four post series discussed some confusion behind the term, looking at how both do-good and for-profit businesses use it for their own various benefits. This week, we break down how the goals of fixing social problems intersect with the practical need for business revenue—and how the blurred line between the two has led to new confusion.

According to Social Enterprise UK, who led the charge against Salesforce.com’s attempt to trademark “the social enterprise” last year:

A social enterprise is a business that trades for a social and/or environmental purpose. It will have a clear sense of its ‘social mission’: which means it will know what difference it is trying to make, who it aims to help, and how it plans to do it. It will bring in most or all of its income through selling goods or services. And it will also have clear rules about what it does with its profits, reinvesting these to further the ‘social mission’.

With over 68,000 social enterprises in the UK and growing, some of your favourite brands, such as Divine Chocolate and Jamie Oliver’s Fifteen Restaurant, fall under this category of do-good business.

But if this month’s McKinsey panel we spoke of in our first post is any indication, the term is no longer limited to trading that more closely resembles charity. As Sophie McGrath explains, the line between business for good vs. business for profit can- and has-quickly become blurred. A lack of legal structure for social enterprise further complicates things; because the concept of social enterprise is entrepreneurial at its core, the practicality of needing money to run a do-good business enters the picture.

For social startups and corporate conglomerates alike, a need for business structure is essential. Not only does it determine how the company will grow via investments and partnerships; it also solves the basic business need of returning value both to the entrepreneurs who begin these ventures and the investors who fund them.

McGrath cites Morrison & Foerster’s recent partnership with TrustLaw of the Thomson Reuters Foundation to publish a free legal structure guide for social entrepreneurs as a step in the right direction. But when cloud computing company salesforce.com tried to turn the concept of social enterprise into a trademarked term in the EU, US, Australia, and Jamaica, reaction was swift and angry. Salesforce wanted to turn the concept of do- good business into a patented phrase referring to businesses that use social media to engage with customers in a profitable manner.

But whilst there are several examples of this practice in the digital age—notably the National Zoo’s use of social media to track the birth and ultimate passing of a new panda cub earlier this year -several high profile entrepreneurs, including Nobel Peace Prize laureate Professor Muhammad Yunus, wrote a letter to Salesforce Chief Executive Marc Benoiff condemning his attempt to remove social enterprise from its philanthropic roots to further increase revenue.

“The [social enterprise] movement is achieving so much and growing rapidly but is still in its relative infancy. Its potential for future generations has yet to be realised. Diluting the term and confusing its meaning is only going to be harmful and any successful attempts to trademark the term will close doors for genuine social enterprises.”

The third instalment of our social enterprise series will examine how social engagement is being used in the corporate world—and question whether profiting from community interaction is adding to broader question of market/commodity boundaries.

Author: Lauren Maffeo, Enternships Assistant Community Manager

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