13 Mar

Social Entrepreneurship: Efficient Compassion

The core principle of social entrepreneurship is that every life has an equal value.
Social entrepreneurship is an enterprise that is built for positive social, humanitarian or environmental impact.

Social enterprises are:

i. Mission and impact driven rather than profit-motivated

ii. For social and not financial returns

iii. Not a charity or corporate social responsibility

What distinguishes social entrepreneurship is the primacy of social benefit. Simply put, entrepreneurs in this field create products and services that help other people. Ventures created by social entrepreneurs can certainly generate income, and they can be organized as either not-for-profits or for-profits. For example, Warby Parker is a certified for profit B-Corp organization that gifts glasses to under privileged rural communities in India every time a pair is purchased. It is proof that you are able to be both profitable and charitable as the company is reported to be worth around $1.75 billion.

Social businesses are crucial in civil society as they act on opportunity; filling the gap that would otherwise be void due to lack of government intervention in social problems or the ignorance of large multi-national corporations. Compassionate capitalism is a promising force to heal the world from present greed, corruption and environmental exploitation.

Charities, on the other hand, depend solely on donations and are not time effective in raising the necessary funds to implement social programs. If the charity is unable to generate enough donations every year – programs could be halted or aborted. Some charities also create a dependency cycle on communities they wished to help; it is not always about giving a hand out, but a hand up, that distinguishes charities to social businesses. Empowerment is often a key element that is missed out with standard charity organizations. While distributing food or clothes to the needy provides short-term instant relief and is crucial in emergency situations, it does not create a long-term sustainable model. Moreover, “a nonprofit’s financial report reveals virtually nothing about its effectiveness or efficiency in creating social value”.

Unlike charities, social businesses work with a business mind set. They operate in an efficient manner to decrease costs and increase profits. This cost-effective approach leads to a self-sustaining enterprise, reliant on the continuous generation of revenue necessary for its survival, growth and impact.

Profit Vs. Non Profit Social Enterprises

In my opinion, for profit B-corps are more likely to be productive and sustainable because they rely on more than one income generating activity to carry out the mission. Growth and scaling are two important elements that generate more wealth with the primary incentive to reinvest profits back into the social mission.

When a company relies solely on donors or grants, non-profits face a higher risk of failure because the mission often fluctuates depending on the availability of budget. Non-profits do not attract as many investors (restricting or impeding growth) and are sometimes not as efficient as a for profit businesses. Fundraising can be costly, time consuming and especially in the UAE – highly regulated. On the flip side, non-profits can be exempt from taxation and deem beneficial when raising awareness on a certain issue.

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Written by Abdulla Khoory
Image: CC
Publication date: March 12, 2020

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