Putting the words “social” and “business” together in the same sentence might lead a few to think Facebook, Twitter, or Google+ in this day and age. But what about the other social business? By definition, the one where a company seeks to achieve societal goals rather than to make profit hence the name social business? Under a social business model, companies would run similar to profit-making organizations yet are not profit driven. Rather, their goal is to bring an end to social problems including poverty, illiteracy, hunger, or climate change.
Social Business Defined
Similar to profit-making businesses, a social business may have investors. Investors, however, do not receive dividend in a social business. They will only get back their original investment. If investors put $1 in the company they will receive $1 back on agreed terms. Because a social business is not looking to make a profit but rather sustain itself to achieve social goals, there is less emphasis on how big the return on investment is for each decision or project they undertake but rather, does it help them achieve their social goals. Naturally, any modest surpluses the social business generates will go back to the company and expand their initiatives for society.
A profit-seeking company may have investors and issue dividend. They may select projects more carefully based on the return they receive for each investment. Some profit-seeking companies include corporate social responsibility (CSR) in their initiatives. However these take second priority. Profit comes first. Their decisions for CSR must not interfere with their ability to make profit. When tradeoffs happen, these companies may have to select the option that keep investors satisfied at the cost of the benefit to society. A social business does not need to worry about this dilemma.
Non-profit foundations typically create social benefits. If that were the case, why do we need social businesses? Foundations, such as charities, receive funds from donors and disperse them to achieve philanthropic goals. When crises happen, charities are capable of redistributing their resources to the needy with relative ease. They do not generate income from business activities and therefore are not financially self-sustaining. Social businesses are self-sustaining but take time to develop just as any other business. Over time, they are able to grow at a quicker pace than non-profit foundations and solve problems more effectively. Because funding for social businesses remain an issue, it is possible for non-profit foundations to invest in social businesses.
On such comparisons, social businesses are different from profit-making companies or non-profit foundations, yet they complement each other perfectly in a free-market economy by creating value of their own.
An Increasing Phenomenon
What makes social businesses appealing is that people feel good by doing good, all while making humanity better. People hope to lead fulfilling, happy lives but when they are placed in a capitalist world whose biggest flaw is to get people to pursue economic goals single-mindedly, the happy life is hard to achieve. Wealth might have been a major focus but it may no longer be the case.
Many new graduates realize their need select more fulfilling paths. Teach For America, an organization that seeks to improve access to education for low-income communities in the United States, saw its applicants skyrocket in 2006. There were more than 19,000 high-GPA college graduates including those from Yale and Dartmouth applying for these teaching positions. IDEO.org, a non-profit organization of IDEO that uses design to eradicate poverty, received more than 500 fellowship applications for 8 positions in their class of 2013.
The Future of Social Business
If social business is that important, why is it only taking off now? A combination of reasons explains why the time is right now. First, money is needed to support these initiatives. The economy in the developed world has generated enough wealth, especially over the 1960s and 1970s, to make it possible to devote resources to improve life. Along with that, education was extended to the wide middle class that helped people pocket knowledge and high-paying jobs. People were living longer lives than their ancestors. Technology made it easier to move around, communicate, and connect cheaper than ever before. To sum up, the barriers that made addressing social problems a difficult undertaking are removed. Social businesses have the opportunity to thrive because more people are financially stable, knowledgeable, aware and have good health, more time, and the ability to tackle these problems.
It is now a process of bridging the supply with the demand. So long as children still go to bed hungry, there is still poverty, or pollution remains a threat, there is a need for social business. Of course, this is referring to the other social business.