What Is a Social Enterprise?

A social enterprise or social business is defined as a business that has specific social objectives that serve its primary purpose. Social enterprises seek to maximize profits while maximizing benefits to society and the environment. Their profits are principally used to fund social programs.

Understanding Social Enterprises

The concept of a social enterprise was developed in the UK in the late 1970s to counter the traditional commercial enterprise. Social enterprises exist at the intersection of the private and volunteer sectors. They seek to balance activities that provide financial benefits with social goals, such as providing housing to low-income families or job training.

Funding is obtained primarily by selling goods and services to consumers, although some funding is obtained through grants. Because profit-maximization is not the primary goal, a social enterprise operates differently than a standard company.

While earning profits is not the primary motivation behind a social enterprise, revenue still plays an essential role in the sustainability of the venture. Sustainable revenue differentiates a social enterprise from a traditional charity that relies on outside funding to fulfill its social mission. This goal does not mean social enterprises cannot be profitable; it's simply that their priority is to reinvest profits into their social mission, rather than fund payouts to shareholders. 

The Organization for Economic Cooperation and Development (OECD) identifies social enterprises as being highly participatory, with stakeholders actively involved and a minimum number of paid employees.

Key Takeaways

  • A social enterprise is a business with social objectives that serve its primary purpose.
  • Maximizing profits is not the primary goal of a social enterprise as is with a traditional business.
  • Unlike a charity, social enterprises pursue endeavors that generate revenues, which fund their social causes.
  • Regarding employment, preference is given to job-seekers from at-risk communities.

Special Considerations

Employees of social enterprises come from many backgrounds, but priority is given to those who are from at-risk sections of the community. These include long-term unemployed workers, those who have historically worked in jobs where they were informally paid, and members of marginalized groups. The social enterprise may seek to provide a living wage, which in most cities is above the minimum wage. Sometimes, drawing employees from at-risk groups may be the stated social goal of the enterprise.

Social Enterprise vs. Social Entrepreneurship

A social enterprise is not to be confused with social entrepreneurship, which tends to focus on individuals who develop solutions to social and environmental problems using existing business techniques and strategies. Social entrepreneurs seek innovative ways and operate to drive change, whereas social enterprises form to fulfill a business purpose and solve societal needs through its commercial activities.

Examples of a Social Enterprise

Many social enterprises successfully maximize improvements in social well-being. For example, Warby Parker is an American eyeglass retailer that donates a pair of glasses to someone in need for every pair sold. Tom's, a California-based retailer, similarly has pledged to donate a pair of shoes or sunglasses for every pair sold. Also, Climate Smart trains businesses and gives them software tools that let them track and cut their greenhouse gas emissions.