The rise of social enterprises

After a week of conferences on philanthropy, impact investing and social enterprise, it’s time for a quick reflection.

Social enterprise is often heralded as the next breakthrough in both social science and business – we should do well and do good. It is better than the traditional non-profit model because it has a ‘business model’ and therefore making it ‘sustainable’. It is business 2.0 that sits between traditional evil businesses and the angel non-profits.

I think this is where EVERYONE has got it wrong.

Having a ‘business model’ doesn’t make a business (or a social enterprise) more sustainable. In fact, if a non-profit is able to secure consistent funding, it is far more sustainable (see the world’s famous foundations). The brutal market force is equally applicable to the funders as well as to the customers. And capital coming in either as donation or revenue (business transactions) is the same capital – it keeps the company afloat. That’s why claiming social enterprise is a new breakthrough because it is making money from the business operations is a fallacy in logic.

But one may ask, but traditional non-profits are not always effective? That is why we need social enterprise, right? This may be true but we need a better logic.

Traditional non-profits don’t often operate effectively NOT because it gets money from donations, but because they don’t usually use/attract top people to run their operations. There are many reasons why this is (blaming it’s donation money and therefore has to go cheap should not be one) but the reasoning we have around market force remains. It applies not only to the business operations but also to people. And this is the KEY.

Yes, we need businesses, whether social enterprises or just ‘regular’ business, to have a better focus on our society and environment. But the key should not be about how they get capital but rather, how they can get the best people in the market.

The best business model is simply about having the best people.

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