Introduction to Social Enterprises
Social enterprise is another way of doing business, and it is not always a charity. It is a business with purpose that is set up with a legal structure to ensure that profits are reinvested in its social purpose.
Defining social enterprises as not-for-profits should be avoided – there’s nothing wrong with profits. It’s what you do with those profits that makes the difference.
The social enterprise sector exists by generating profits that are then reinvested by an organisation to meet its social mission.
In Northern Ireland, social enterprises contribute £625 million to the local economy each year and employ over 24,000 people.
You can buy almost anything you want through a social enterprise - they come in all shapes and sizes, selling anything from wool to kebabs.
They often exist in areas of market failure, and are more equitable than private businesses, with the highest earner in a social enterprise only being paid two and a half times the lowest earner. In the private sector, this figure is 20 times higher than the lowest earner.
- Sole trader - typically not suited to social enterprise trading as an appropriate legal structure helps to define the venture as being socially focused. This requires a legal entity such as:
- Community Interest Company
- Industrial & Provident Society
A CIC is a special type of limited company which exists to benefit the community rather than private shareholders. A CIC has:
- a ‘community interest statement’, explaining what your business plans do;
- an ‘asset lock’- a legal promise stating that the company’s assets will only be used for its social objectives, and sets limits to the money it can pay to shareholders;
- a constitution; and is
- approved by the community interest company regulator
The decision on what legal structure you choose should be influenced by:
- What type of activities you are going to do?
- What are the skills gaps needed (do you need to be an employer or co-opt to your Board of Trustees)?
- Where will your income come from (now and in future)?
- What sort of governance will suit your enterprise (ownership & rights)?
- Who your potential networks, customers and partners may be and how you will reach them?
Successful social enterprises operate in different ways. Stephen highlighted a few examples:
Beneficiaries as customers
Here the customers are the ones who benefit from the social enterprises activities, services and products such as with the local award-winning Puddleducks nursery who provide childcare.
Beneficiaries vs customers
- In this model, you would treat customers and beneficiaries as separate entities. This means you sell a product or a service to customers before channelling your profits into directly supporting your beneficiaries. Refuge Chocolate, based in Belfast, supports survivors of modern slavery by selling hot chocolate from ethically sourced ingredients. Refuge donates proceeds to Flourish NI (a Northern Ireland based anti-human trafficking charity and Flourish then gives survivors of human trafficking an opportunity to get involved in the business.
Buy one, Give one
- TOMS founder pioneered the One for One® model— for every pair of shoes that you buy, they’ll donate another pair to a child in a developing country. Northern Ireland based Madlug – does the same with backpacks. Each backpack bought means another goes to a child leaving the care system so that “no child should carry their life in a binbag or plastic shopping bag”. Madlug have now partnered with the Welcome Organisation to start employing homeless people.
- Here social enterprises support local communities by enabling their ownership of the company and even having a democratic role in its decision-making and operations. Spanish owned, "The Mondragon Corporation is a global phenomenon existing on 5 continents, with over 95 coops, and employing over 82,000 employees. Originally a fruit producing cooperative, they have expanded to include retail, finance and banking, and education divisions including establishing their own university, Mondragon Unibertsitatea, serving over 5000 students.
It’s a key question to ask yourself because finding and growing the number of customers is important to your long-term sustainability and creating social impact. There are opportunities.
Stephen highlighted how companies in the UK are expected to demonstrate social value to win and maintain procurement contracts. For example, a local construction company could show they are building ethical and sustainable supply chains if they partner with a social enterprise who provides them with recycled products or meets their need to increase secure employment and skills by teaming with a social enterprise working with young offenders and providing employment pathways.
Social enterprises are like any other business. While their profits are reinvested to create social impact and value, they are still a business and need to use the same essential skills and tools to market and sell their products or services.
So, profit is important, but it also means being able to manage your finances. For example, can you do a basic budget or do you understand cashflow. Stephen discussed the importance of research and planning. Spend time researching the market you operate in, how you communicate your mission and its activities so you can reach potential customers, consider what you offer that’s unique in comparison to your competitors, and what channels and routes do you have to reach potential customers, beneficiaries, and investors?
Stephen highlighted that the path to success isn’t always linear. You may have to take risks, revisit another area of development, push forward with a new marketing campaign, etc, but you are not alone.
There is a wide range of support available to the social economy in Northern Ireland including Social Enterprise NI, UnLtd, Community Finance Ireland, the Business Development teams within local authorities, and enterprise support bodies in your local area.
Stephen encouraged participants to reach out to the wide range of local sources for help including Work West.
For further advice and guidance Stephen McGarry can be contacted at: