As early as 1996 The Roberts Foundation Homeless Economic Development Fund1 defined social enterprise as "a revenue generating venture founded to create economic opportunities for very low income individuals, while simultaneously operating with reference to the financial bottom-line."2

NESsT, on the other hand, uses the term social enterprise to refer to "the myriad of entrepreneurial or 'self-financing' methods used by nonprofit organizations to generate some of their own income in support of their mission."3

Both definitions capture the social and financial characteristics of the social enterprise; however, The Roberts Foundation's definition emphasizes social enterprise as a program approach, whereas NESsT's definition stresses it as a funding approach.

The Nonprofit Good Practice Guide offers a holistic definition: "A nonprofit venture that combines the passion of a social mission with the discipline, innovation and determination commonly associated with for-profit businesses [...]"

The UK-based Social Enterprise Coalition reminds us that the simplest definition of social enterprise - as business trading for a social purpose - allows for a wide range of interpretations and there is still an ongoing debate among practitioners and academics over the exact definition of social enterprise.

The Coalition invites us to consider some of the common characteristics that social enterprises display:4

1. Enterprise Orientation - they are directly involved in producing goods or providing services to a market.
2. Social Aims - they have explicit social and/or environmental aims such as job creation, training or the provision of local services. Their ethical values may include a commitment to building skills in local communities. Their profits are principally reinvested to achieve their social objectives.
3. Social Ownership - Many social enterprises are also characterised by their social ownership. They are autonomous organisations whose governance and ownership structures are normally based on participation by stakeholder groups (eg employees, users, clients, local community groups and social investors) or by trustees or directors who control the enterprise on behalf of a wider group of stakeholders. They are accountable to their stakeholders and the wider community for their social, environmental and economic impact. Profits can be distributed as profit sharing to stakeholders or used for the benefit of the community.

The Coalition also supports the UK Government definition which many of its members were actively involved in helping to develop5 : "A social enterprise is a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners. [...]"

Virtue Ventures proposes the following working definition of social enterprise, inspired by these definitions and others, that captures the specificity of purpose and approach while encompassing the broad range of practical applications:

A social enterprise is any business venture created for a social purpose--mitigating/reducing a social problem or a market failure--and to generate social value while operating with the financial discipline, innovation and determination of a private sector business.

In its widespread usage, "social entrepreneur" is the individual and "social enterprise" is the organization. Therefore, social enterprise is an institutional expression of the term social entrepreneur.

Additional information available on the World Wide Web:

• An Exploration of Contemporary Meanings of Social Enterprise, by Leo Bartlett, Australasian Institute for Social Entrepreneurship;
• A glossary of useful terms (PDF), from the Institute of Social Entrepreneurs;
• Toward a better understanding of social entrepreneurship: Some important distinctions (PDF), by Jerr Boschee and Jim McClurg.
• The Blended Value Glossary (PDF), by Elizabeth Bibb, Michelle Fishberg, Jacob Harold, and Erin Layburn

• 1The name was changed from The Roberts Foundation Homeless Economic Development Fund (HEDF) to The Roberts Enterprise Development Fund (REDF) in 1997.
• 2Jed Emerson and Fay Twersky, New Social Entrepreneurs: The Success, Challenge and Lessons of Nonprofit Enterprise Creation, The Roberts Foundation Homeless Economic Development Fund, 1996.
• 3Definition provided by NESsT (www.nesst.org); in 1997 NESsT began referring to self-financing--what today is referred to as social enterprise.
• 4Social Enterprise Definitions, Social Enterprise Coalition website
• 5Social Enterprise - a strategy for success DTI, 2004

Social enterprise has a lengthy private history, but a short public one. Nonprofit organizations have long engaged in income generation and businesses to either supplement or complement their mission activities. 1

In the United Kingdom, cooperatives functioned as a means to fund socioeconomic agendas as early as the mid-1800s. Beginning in the 1960s, US nonprofits experimented with enterprises to create jobs for disadvantaged populations. Micro-credit organizations made their appearance in developing countries by the 1970s, at about the same time Community Development Corporations (CDCs) were gaining popularity in the United States. Yet it is only in the last 15 or 20 years that academics, practitioners, and donors have been studying and recording cases of nonprofits adopting market-based approaches to achieve their missions.

The growing practice of social enterprise is fueled by nonprofit organizations’ quest for sustainability, particularly in current times when support from traditional, philanthropic, and government sources is declining and competition for available funds is increasing. Social enterprise enables nonprofits to expand vital services to their constituents while moving the organization toward self-sufficiency. Nonprofit organization leaders understand that only by establishing an independent means of financing can they become a going concern.

The Pioneers

John Durand began working with seven mentally retarded people in 1964, today Minnesota Diversified Industries is a for-profit social enterprise which employs over 500 disabled people. In 2000 the company reported $54 million dollars in annual revenues with only half a million coming from grants.

In 1971 with a $1,000 loan from a moneylender, Mimi Silbert began a program for recovering drug addicts and ex-convicts. Since its inception Delancey Street has successfully mainstreamed over 15,000 former clients on self-generated resources from its numerous businesses: restaurant, moving company and construction, which cumulatively net revenues of over $6 million a year (2001).

In 1963, Jack Dalton opened Pioneer Fellowship House as a residence for recovering alcoholics, he required each resident to pay $25 per week for room and board, perform house chores and attend nightly meetings.2 Today, through its employment, training, and behavioral health and community corrections programs, Pioneer Human Services (PHS) serves over 5,000 clients a year, 1,300 at any given time. PHS employs a staff of approximately 900, and has an annual budget of roughly $55 million, 99.6 percent of which is earned through sales of its products and services from its eight businesses which run the gamut from manufacturing, food service, distribution and logistics, real estate asset management, and printing.

Professor Muhammad Yunus, Head of the Rural Economics Program at the University of Chittagong, Bangladesh, began a research project in 1976 to explore the possibility of providing banking services to the rural poor. The Grameen Bank Project (Grameen means "village" in Bangla language) was piloted in three villages neighboring the University with the following objectives: to extend banking facilities to poor men and women; to eliminate the exploitation of the poor by money lenders; to create opportunities for self-employment for the multitude of unemployed people in rural Bangladesh; and to enable disadvantaged (mostly women from the poorest households) to self-manage money and business. Based on its success, the project expanded in 1979 to several locations throughout Bangadesh including Dhaka, the capital. By October 1983, the Grameen Bank Project was transformed into an independent bank by government legislation.

Today Grameen Bank serves over 2.4 million borrowers and has over 20 businesses including:

• Grameen Shakti (GS), a not-for-profit rural power company whose purpose is to supply renewable energy to unelectrified villages in Bangladesh as well as create employment and income-generation opportunities in rural Bangladesh;
• Grameen Telecom whose objective is to provide mobile phone service to 100 million inhabitants in rural Bangladesh by financing members of Grameen Bank to provide village pay phone service and by providing direct phones to potential subscribers;
• Grameen Knitwear Limited, a 100% export-oriented composite knitwear factory.

• 1Adapted from Sealey, Sealey, Boschee and Emerson, A Reader in Social Enterprise, 2000.
• 2Powering Social Change: Lessons on Community Wealth Generation for Nonprofit Sustainability, Community Wealth Ventures, 2003.

Since it is not possible to detail a comprehensive history of social entrepreneurship movement and all those that have made contributions to its evolution in this report, this section provides a brief historical overview of some key players and events that have contributed to shaping the field of social entrepreneurship.

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.

• 1Etchart, Nicole and Lee Davis, Unique and Universal: Lessons from the Emerging Field of Social Enterprise in the Emerging Market Countries, NESsT, 2003.
• 2Spinali, 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.

The raison d’être of social enterprise practitioners is to create and sustain social value. Social value creation speaks directly to accomplishing a social mission and achieving social program objectives, while sustainability requires organizational and leadership capacity, business-oriented culture and financial viability. Thus, a social enterprise is more likely to achieve sustained social value when the enterprise is integrated within program, operations, culture, and finance.

Rick Aubry1 , Executive Director of Rubicon Programs, says of his organization’s social enterprises, “we are not in the business of baking cakes; we are in the business of transforming lives. We see business as the primary vehicle for achieving this change, but social enterprise is comprehensive and must be integrated into the whole [organizational] package.”2

Regardless of its degree of integration, a social enterprise catalyzes organizational change whether invited or not. Examples of organizations
whose social enterprises have survived, and gone on to thrive, recognize this—often after substantial trauma—and have ultimately integrated the enterprise throughout the organization and worked to manage this change.

The hypothesis follows: when integrated within an organization, social enterprise is a transformation and strengthening strategy that can increase mission accomplishment and social impact, improve organizational and financial performance and health, and engender a more entrepreneurial culture.

This “integrated approach” to social enterprise offers practitioners a new paradigm to create and transform enterprises into High Performance Organizations, organizations capable of achieving sustainability, appropriate scale, significant impact, and providing blueprints for replication.
However, the opportunity to realize social enterprise’s promise—High Performance Organizations—is being missed.

Fragmentation and Myopia

There is a lack of wholeness and integration in the social entrepreneurship field, evidenced by the divergence of players and three schools of thought—leadership, funding, and program.

• The “leadership approach” supports professional development efforts for individual “social entrepreneurs”. The shortcoming of this approach is that individuals are not replicable and too often their “social change innovations” have not been used to build the practice or replicate their successes.
• The “funding approach” advocates that nonprofits start commercial ventures to diversify their funding. Typically, the venture is structured as an auxiliary project of the organization. The funding approach to social entrepreneurship has increased the number of nonprofits incorporating market discipline and income-generating activities into their organizations, yet problems arise from disappointing financial returns, harder than expected implementation, complex legal and tax issues, organizational discord and mission dissonance.
• The “program approach” to social entrepreneurship is when business activities and social programs are one and the same, typically in cases where business activities are central to, or compatible with, the organization’s mission. The program approach suffers from the opposite problem of the funding approach—relying too heavily on social sector resources and lacking business acumen. Practitioners of the program approach are fragmented or “siloed” by sector, geography, and barred by industry vernacular thus, little sharing of knowledge and experience occurs between silos.

Bias Toward Funding

Among North American organizations there is a bias toward the funding approach.

Currently, the majority of the literature and public forums speak to helping nonprofits start earned income ventures. This is likely more of a PR issue than a practice issue—nonprofits need funding, grants or otherwise, and the promise of earned-income is the allure that leads nonprofits down the garden path.

This dangerously narrow view shifts attention away from the ultimate goal of any self-respecting social entrepreneur, namely social impact, and focuses it on one particular method of generating resources.3 Though profit is a sexy proposition for practitioners, the reality is that social enterprise as a funding mechanism has not paid off for many who have hungrily followed its lure.

Missing an Opportunity To Do More Mission

The emphasis on funding means that opportunities are being missed to realize other benefits that social enterprise offers. A recent Harvard Business Review article instructs nonprofits to “put their missions first rather than starting with a venture’s financial potential,” citing that “a
mission-first assessment of earned income opportunities returns the nonprofit sector to its fundamental principles.4 ”

Sadly, few recognize social enterprise as a deliberate method to accomplish social mission, achieve social impact, create a stronger organizations and affect a more entrepreneurial culture. Financial aspects of resource management are an integral part of the social enterprise
paradigm, hence the issue is less of perpetuating a money myth than missing a mission opportunity.

Resource Management—Not “Profit”

The perception that social enterprise is strictly about earned-income or profit is misleading. No amount of profit makes up for failure on the social impact side of the equation. Any social entrepreneur who generates profits, but then fails to convert them into meaningful social impact in a cost effective way has wasted valuable resources.5

Social enterprise requires effective resource management, which must go beyond the narrow view that financial resources are the only resources. Typically, nonprofits most valuable resources are their people, networks or members, and intangible assets such as methodologies, content, reputation and social impact. An integrated approach to social enterprise recognizes the financial as well as non-financial capital (human, social, environmental and physical) and motivates practitioners to productively employ and manage these assets.

Underestimating the Challenges, Risks and Learnings

Little research has been conducted to ascertain why social enterprises fail, however, the practice speaks volumes—cultural tension and low capacity are the main offenders. Change is hard and resistance to change is human nature, present in both for-profit and nonprofit sectors.

Social enterprise challenges the traditional concept of charitable action and its implications on social structures—do we (western society) really
want the poor no longer poor, or the homeless no longer homeless?

These potential institutional benefits of social enterprise, if left unmanaged, are equally a source of institutional risk. Authors and practitioners have shared many a cautionary tale of mission creep, cultural strife, stakeholder and/or staff tensions, lack of vision or capable leadership, financial losses, operational inefficiencies, weak marketing, and threats to an organization’s reputation.

Much of the value of social enterprise is in the process‑for example, the learning gained developing a business plan often exceeds the value of the plan itself. Social enterprise is an organizational change and transformation process, therefore there is a need to define a framework for monitoring the impacts that the process of developing and managing enterprise activities has on nonprofits themselves.

Lack of Inclusion of International Organizations

Microfinance institutions (MFI) are quintessential social enterprises and their leaders are some of the world’s most formidable social entrepreneurs, yet they have largely absent from the conversation.

From early on microfinance practitioners implemented MFIs as a vehicle by which to achieve wide-scale sustainable social impact. The microfinance methodology takes a holistic approach, its ethos is that the “social programs” (micro-credit services) must be institutionalized in order to be a going concern. Social programs and impact are not disaggregated from business activities and financial aspects of the organization, rather they are an integral part of the business model.

Capacity building is an enduring process and central to implementation and development of the MFI. Last year’s Micro Credit Summit celebrated reaching 100 million poor borrowers. This is success, yet little has been done to learn from their experience or share their immense intellectual capital with other practitioners.

A New Social Enterprise Paradigm

The reality of the current state of practice is that social enterprises are often executed in isolation—treated as a distinct project or activity—when in fact social enterprise has profound effects on the whole organization. The three approaches to social entrepreneurship (funding, leadership and programmatic), alone or in combination, do not go far enough. The true opportunity for social enterprise as an agent of organizational transformation lies in integrating these approaches in a way that builds high performance organizations.

An integrated approach takes the best of business and marries it to social interest. It is strategic, requiring a long-term vision and clear objectives in order to manage performance and change, and to measure results across the organization. Capacity building is tied to objectives and is systematically incorporated across the organization to strengthen it and support cultural shifts related to the enterprise. This approach recognizes resources inherent both to the organization and the external environment, and mobilizes and manages these resources to increase organizational productivity and yield. Mission is the cornerstone, and serving it, the impetus for venturing. The social enterprise is first and foremost a vehicle to accomplish, strengthen, enhance or expand the organization’s mission.

An integrated approach challenges the notion that unrelated business ventures are social enterprises, believing that if business activities are not central or strongly related to the social mission then it is pure business undertaken by a nonprofit, and not social enterprise. An integrated approach gives us a social enterprise methodology that helps practitioners do what they do better—innovate, increase impact and effectiveness, and improve performance.

• 1Rick Aubry received the Klaus Schwab Foundation “Social Entrepreneur of the Year” award in 2001
• 2Interview with Rick Aubry, Executive Director, Rubicon Programs, Richmond, California, March 19, 2005.
• 3Dees, Gregory, Social Entrepreneurship Is About Innovation and Impact, Not Income, Skoll Foundation Social Edge, September 2003.
• 4“Should Nonprofits Seek Profits” (January 2004)
• 5Dees, op.cit