The State of the Practice

Multi Sector - Social enterprise transcends traditional nonprofit sectors and applies as equally to health, environment, education and social welfare as it does to economic development or job creation programs. The motivation--mission or money--for engaging in social enterprise may differs between sectors. Economic and employment development organizations are a natural fit with social enterprise, and therefore frequently integrate social enterprise as a program strategy. Other social sectors tend to incorporate social enterprise as a financing mechanism, though in both cases programmatic and financial benefits can be realized.

Adaptive Design - A social enterprise is a mechanism for both accomplishing a nonprofit’s mission and generating funds for its social programs, therefore social enterprises must be designed to meet social needs as well as to achieve commercial viability. Similar to the private sector, business plans and other market research tools can be used to inform social enterprise design by analyzing an organization’s internal factors: core competencies, weaknesses, needs of its clients, etc.; and external market forces: legal and regulatory environments, markets, demand, access to capital. Thus, social enterprise operational models are customized to accommodate market realities, organizational capabilities and social needs.

Global Application - Although contemporary methodology is credited to the West, notably the United States and United Kingdom, nonprofit businesses, self-financing schemes, and earned-income activities have been practiced by nonprofit organizations around the globe for years. In emerging markets and transitional economies social enterprise has made the strongest showing to date. This is due in part to the rapid development and proliferation of nonprofit organizations, followed by a drop-off in donor support; thus nonprofit organizations have had tremendous pressure to look for alternative sources of funding or self-financing. Developing countries, however, should not be overlooked for examples, some of the most innovative and entrepreneurial cases of social enterprise can be attributed to nonprofits operating under some of the direst circumstances.1 In both industrialized and lesser developed country contexts, practitioners face advantages and disadvantages. In developed countries, market economies are mature and business know-how is readily available, yet distribution channels may be restricted, and competition is sophisticated and well-capitalized, which poses challenges to nonprofit-run businesses. In developing countries markets are opened but the legal environment often creates obstacles; as well, corruption and low business acumen may present constraints.

Outlook...

Today we stand at a juncture: the market for social enterprise is vast, yet the current pool of self-identified social enterprises is small, fragmented, and somewhat elite. A large group of nonprofit leaders and donors are either unfamiliar with the term or do not see the validity of analyzing the market for potential social enterprises.2

Paradoxically, at the practitioner level, whether born out of financial necessity or program innovation, the phenomenon of social enterprise is exploding. Herein lies an extraordinary opportunity to build the field. At this juncture practitioners and thought leaders alike are working to advance this emerging field, distilling "good practices" and sharing lessons among organizations committed to developing the social enterprise practice.

Practitioners globally agree however that they lack access to sufficient funding. Gains have been made internationally in a subset of social enterprise--microfinance, where there is now broad acceptance of nonprofits’ borrowing capital to facilitate business growth. Although social investors and foundation Program Related Investments (PRI) that fund social enterprise endeavors are on the rise, for the majority of social enterprises operating in other program areas, access to capital, whether loans or grants, is limited.

Social enterprise is a means to a more just and equitable society. Through its value maximization properties, social enterprise addresses one of the most pressing issues facing nonprofits today--how to achieve ongoing sustainable impact. This prospect is social enterprise’s promise as well as its future. Whether or not social enterprise is brought to bear as a mainstream nonprofit strategy rests on the participation and commitment of practitioners and funders. In a word, it will take a substantial investment of time, resources, and money along with the willingness to expand horizons into unknown territories.

As seen in this typology, many social enterprises defy neatly labeled boxes. The sprawling nature and diversity of the field could easily intimidate the risk adverse implementer yet delight the intrepid architect. The current state of the social enterprise field is not unlike that of early micro-credit and employment development programs: many of the obstacles and challenges it faces are similar. Dovetailing on the success of more than 30 years of microfinance, and employment creation, social enterprise is poised to enter the market in full swing.

  • 1. Etchart, Nicole and Lee Davis, Unique and Universal: Lessons from the Emerging Field of Social Enterprise in the Emerging Market Countries, NESsT, 2003.
  • 2. Spinali, Lisa and Hayley Mortimer, A Scan of the Not-For-Profit Entrepreneurship: Status of the Field and Recommendations for Action, Kauffman Center of Entrepreneurial Leadership, January 2001.