Back to Basics: What is Social Entrepreneurship, and Why Does It Matter?
By Devin Hibbard
It’s not as easy to define social entrepreneurship as you might think. Social enterprises can be for-profit or non-profit, big or small, multinational or hyper-local. But all social enterprises and social entrepreneurs all have a few things in common: They apply market-driven principles to solve social or environmental problems, and they balance revenue growth with a motivation to have a positive impact on the world.
Given the modern boon of purpose-driven businesses, this concept may not sound out of the ordinary, but not long ago it was virtually inconceivable.
In his most famous essay, published in the New York Times in 1970, Nobel Prize-winning economist Milton Friedman asserted: “The social responsibility of business is to increase its profits.” This so-called Friedman Doctrine defined capitalism for decades, with two generations of business leaders upholding the premise that earning the maximum possible profit for shareholders was their most sacred obligation.
Increasingly, those conventions are shifting. In August 2019, 181 CEOs affiliated with the Business Roundtable — a powerful collective of U.S.-based multinationals — set out to “redefine the purpose of a corporation” in direct contrast to the Friedman Doctrine. In an open letter, they argued that executives must consider how their companies impact all stakeholders, including customers, employees, suppliers and communities as well as shareholders. By April 2020, only 7 percent of Fortune 500 CEOs said their companies should “mainly focus on making profits and not be distracted by social goals,” according to polling from McKinsey.
This nod from the biggest of big business offers a compelling sign that times are changing. Market-driven principles can do a whole lot more than help the rich get richer — and people are realizing this more and more. With this in mind, it’s not surprising that social entrepreneurship and social enterprise are booming around the world.
Social entrepreneurship is on the rise worldwide
The social entrepreneurship sector employs about 40 million people and engages more than 200 million volunteers globally, with rapid growth in both developed and emerging economies. The sector accounts for more than 10 percent of employment in France and over 8 percent of gross domestic product (GDP) in the U.K., for example, while more than 18 percent of people in Senegal and over 10 percent of people in Peru are pursuing some sort of social entrepreneurial activity.
“In the future, we expect the fundamental values of social entrepreneurship to become incorporated into mainstream business practice,” Soushiant Zanganehpour, an expert on social entrepreneurship in the Middle East and North Africa (MENA) region, told Entrepreneur magazine. “The implications of this for large businesses and brands will vary; some may see it as a threat while others will see this as an opportunity to reinvent themselves — to redefine purpose, responsibility and expectations in order to build loyalty with a new emerging consumer demographic.”
This scenario isn’t all that far off. Experts now identify up to six distinct types of social enterprises — nonprofits using market principles to maximize impact on one end of the spectrum and mainstream brands with an eye toward purpose at the other.
Those large purpose-driven brands continue to edge out market share and build consumer trust when they align themselves with mission and values. But for nonprofits, smaller social enterprises and upstart social entrepreneurs, scaling reach and impact remains a key challenge.
“Social enterprises are mainly concentrated in specific niches — particularly in local contexts — and are not evenly spread within and across countries,” the European Commission and OECD explain in a policy brief on scaling the impact of social enterprises. “Not only is their potential far from fully realized, but fast-growing and increasingly diversified social needs and environmental concerns call for a bolder presence of social enterprises.”
Social franchising: A powerful tool to help social enterprises scale up
Social franchising is one promising method for maximizing the impact of social enterprises and scaling their work to more communities around the world.
Social franchises build on the commercial franchise strategies that helped countless restaurants and retailers grow from regional chains to multinational businesses, but instead of scaling for profit, they’re scaling for impact.
Hundreds of social enterprises use social franchising to grow their reach, and Street Business School is one of them. A nonprofit social enterprise focused on women empowerment, Street Business School trains women living on less than $2 a day to start their own businesses and lift themselves and their families from poverty. After working in Uganda for over a decade, where we helped thousands of women entrepreneurs increase their incomes by an average of 211 percent, we have expanded to Africa, Asia, and Latin America by training other non-profit organizations so we can deliver SBS to the women in their communities.
Our women’s entrepreneurial training curriculum made specifically for women living in poverty is now used in 25 countries with the help of more than 100 NGO partners. This approach combines the successful SBS women entrepreneurial training model with each NGO partner’s expertise in their communities, creating a program that is locally-led, highly impactful and cost-effective to deliver at scale.
By launching a global expansion with a social franchise model, we’re creating new opportunities for NGOs to create powerful income generation and amplify their impact. So far, the women our partners trained have increased their incomes by an average of 163 percent. By starting their own businesses, these women entrepreneurs can now afford to send their children to school, pay for medical care and ensure food is always on the table — and, most importantly, they’re building self confidence, which altogether has ripple effects on their families and communities.
At its core, social franchising is about partnership, and at SBS we know the power of partnerships is what will get us to our goal to ignite entrepreneurial potential in 1 million women by 2027. While the exact model we used may not work for everyone, social franchising is a concept that deserves a closer look from any social entrepreneur.
Self-replication, where organizations rent offices and hire their own staff to implement their work in new communities, can be cumbersome and costly — not to mention the monumental challenge of entering a new community you know very little about. Social franchising not only cuts startup costs, leaving more funds for your impact work, but it also leverages the expertise of local leaders and brings NGOs together around a shared goal.
“SBS is a best-in-class example of how to leverage tried and tested social franchising models from the commercial sector for creating true social impact at scale,” says Dan Berelowitz, CEO and founder of Spring Impact (formerly the International Centre for Social Franchising). “In social franchising, they have found the engine for growth that will allow them to change lives at an ever exponential rate in the coming years.”
To learn more about how SBS is using social franchising to scale, check out our latest Monitoring an Evaluation report.