Social Enterprise

Social enterprise refers to a type of organization that uses commercial strategies to maximize improvements in social and environmental well-being. It combines the mission of addressing social problems with the principles of entrepreneurship, often reinvesting profits into their social causes.

Characteristics of Social Enterprises

• Social Mission: The primary purpose is to create social value rather than to maximize profit.
• Profit Generation: Social enterprises operate in a market-oriented way, selling goods or services.
• Reinvestment: A significant portion of the profits is reinvested into the social mission rather than distributed to shareholders.
• Innovation: Often these enterprises find innovative ways to address social and environmental challenges.

Types of Social Enterprises

• Sole traders or cooperatives: Small businesses run independently or by a group of individuals.
• Nonprofits with commercial arms: Organizations that operate a business venture to support their charitable goals.
• Community interest companies (CICs): A special type of limited company designed for social enterprises.

Example of a Social Enterprise

One notable example of a social enterprise is TOMS Shoes. The company has a business model that supports giving a pair of shoes to someone in need for every pair sold. This model directly addresses the issue of poverty and limited access to basic needs while operating a sustainable business.

Calculating the Impact of a Social Enterprise

To understand the impact of TOMS Shoes, we can look at a simplified example calculation:

1. Let’s say TOMS sells 1 million pairs of shoes in a year.
2. With a model of “one for one,” they would donate 1 million pairs of shoes to those in need.
3. If the average retail price of their shoes is $50, then their total revenue would be:
Revenue = Number of Shoes Sold × Price per Shoe
Revenue = 1,000,000 × $50 = $50,000,000

4. Assuming costs (production, marketing, etc.) are 60% of the revenue:
Costs = 60% of Revenue
Costs = 0.60 × $50,000,000 = $30,000,000

5. Profit before reinvestment in social causes would be:
Profit = Revenue – Costs
Profit = $50,000,000 – $30,000,000 = $20,000,000

This profit, instead of being distributed to shareholders, may be used to further expand their social mission, increase shoe donations, or invest in sustainable production methods, thus enhancing their social impact.

Social enterprises demonstrate how business practices can be effectively combined with a commitment to addressing social issues, creating both financial sustainability and positive community outcomes.