Social enterprises are a growing force in the global economy and a fierce catalyst for social change. One third of startups globally have social good as their core mission. In the United Kingdom, the startup rate for social enterprises is three times that of mainstream small and medium-sized enterprises (SMEs).
Social businesses focus on providing market-driven solutions that address a social, economic or environmental problem. One Good Thing, for example, sells high-end gifts made from recycled material while empowering the livelihoods of artisans that have made them; Alterna is a non-profit accelerator for social businesses in Guatemala; and MUrgency is an online platform in India that connects people who need emergency medical help with the closest doctor, ambulance, paramedic, nurse or hospital emergency room in 15 cities. Conversations with the founders of these companies and insights from a few others provide an outlook into the future of this space.
Despite the growth in number of social enterprises over the last few decades, like any new business, scaling is difficult. Social impact management consultant Lynn Thurston believes that moving forward, the call for scaling social businesses will lessen as governments and investors acknowledge that many enterprises will simply remain small, or niche.
How does “not-scaling” affect the competitiveness of a business? It means the company cannot reduce the price of its products without losing revenue. Although there is a notable shift in consumer mindset as they increasingly demand companies to be socially responsible, the decrease in disposable income during economic slowdowns reduces the inclination to buy social products, says Michael Cooke, co-founder of One Good Thing.
“For example, everyone will support the idea of a fairly traded t-shirt where part of the proceeds goes back to the community in which it is made, but when times are tough and there is a choice to be made between that t-shirt and the much cheaper, mass-produced alternative, people will still opt for the quick satisfaction of a bargain” explains Cooke. “It means that the job of social enterprises will be to highlight the additional value in the socio-environmental benefit that justifies the extra cost.”
In emerging markets like India, scaling may not be an issue: “With over a billion people facing diverse issues, India has become a hotbed for social entrepreneurship,” says Sweta Mangal, co-founder and director of MUrgency. “With an estimated two million social enterprises, India has enough socio-economic challenges that require attention, and investors are coming forward to help scale innovation in the social sector.”
“More companies will enter the social impact space as environmental pressure on their industry intensifies. For example, the global movement to ban or limit single-use plastics, along with China's recent decision to no longer accept plastic waste, will generate new products and unleash more aggressive clean-up efforts,” says Thurston.
Michael shares the same view: “We will see a lot more activity from bigger companies because of the positive response that initiatives such as the Adidas UltraBoost trainers made from ocean plastic, and the Sky News ‘Ocean Rescue’ campaign. Long may this trend continue because it is these companies that ultimately have the clout to make the big changes.”
In 2017, Adidas sold one million pairs of shoes made with ocean plastic; each pair used 11 plastic bottles. Sky News has committed to invest £25 million over five years in social ideas that tackle the plastic pollution problem.
“We´ll see more activity of established traditional companies adapting practices to introduce impact models within their original business models,” says Daniel Buchbinder, founder of Guatemala based social enterprise accelerator Alterna. “We will begin to see more cases of corporations having mergers & acquisitions, or joint ventures with impact driven businesses.”
Consumer demand for increased emphasis on social and environmental values has resulted in the establishment and rise of B Corporations - businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose. Warby Parker, Danone North America, Patagonia, Natura, Etsy and Ben & Jerry’s are some examples. Today there are over 2,655 certified B Corporations across 150 industries in 60 countries.
Research by B Corp shows that its members in the U.K. have experienced an average year-on-year growth rate of 14 percent, 28 times higher than the national average, and B Corp-certified consumer goods brands grew on average 21 percent in 2017, compared to a national average of 3 percent across their respective sectors.
In addition to grants and donations, social enterprises will start seeing more impact investments to help them scale. Over the next five to 10 years, such blended finance models will become business as usual, says Ryan Little, co-founder of the Canadian charitable giving platform CanadaHelps, and project manager at the BMW Foundation.
Daniel Buchbinder concurs: “Impact investing is having exponential growth in Latin America. Also, international aid has taken solid steps to position themselves as impact investors and key actors in the social enterprise ecosystem. This should be a big booster for the sector due to their influence especially in Central America and the Caribbean.”
Public-private partnerships will also come together to fund social causes, as demonstrated by Sky News teaming up with government on their Ocean Rescue innovation fund where they will match £2 million in grants to companies that receive investment from Sky Ocean Ventures.
We can expect to see socially focused businesses collaborate more with governments to achieve systemic change.
“Now, many social entrepreneurs aren’t asking anymore whether they should work with government, but rather how. If you think of solving a problem on a national level, you cannot avoid or escape public institutions as key partners,” says Katherine Milligan, Director and Head of the Schwab Foundation for Social Entrepreneurship.
“India with its various issues and with the population not confident in the political leadership is now relying more on business to solve the key issues, so I think the role of social enterprises in India will become more important over time,” says Mangal.
A new report by Deloitte on the rise of the social enterprise discusses how technological advances in artificial intelligence (AI), machine learning and big data will present new opportunities for businesses to have a positive impact on society. This technology is fundamentally changing how work gets done, who does it, and how it influences society, and will open up new opportunities for businesses to have a positive impact on society.
Thurston believes that the cost of data will continue to fall which will help social impact entrepreneurs design information and financial services more accurately tailored to the needs of disadvantaged communities.
Whether social enterprises will thrive, or if larger corporations become more socially responsible, what remains without a doubt is that the future of businesses depends on their ability to have a triple bottom line, whether they are classified as a social enterprise or not. New partnerships, market-driven products, technology and funding models will help drive the social business agenda.
Image credits: One Good Thing/Facebook