24 October 2014 | Kelly Brownell | Opinion
What does a successful social business model look like?
Although there are a host of definitions for SEs, there are two dominant features of social-purpose businesses, namely:
- Social contribution is prioritised over profit accumulation
- The goods or services that are offered to the market are a means to an end in order to allow for self-sustainability while delivering social value (Alternative Income Streams for Social Purpose Organisations: Insights and Perspectives, D Hand, 2014)
In order for SEs to gain access to financing (whether it be grants, equity, venture capital, angel investors, etc.), it is important to establish a clear and defendable definition as to what an SE is, and to articulate the components of a successful SE within the market place. As there are many definitions out there, organisations may have very different notions as to what an SE is and what a successful SE represents, and it is important to understand these views, perceptions and parameters in order to inform any conversations regarding potential financing or partnerships.
While social-purpose businesses have the potential to add huge value to society, they simultaneously need to be financially robust. Although the former should be the priority of the business (its reason for existence), the latter cannot be given less attention, as this allows the SE to deliver on its purpose, provides the SE with autonomy, and attracts like-minded partners.
The context of SEs in South Africa
As stated, there isn’t a concrete definition for SEs. This lack of clarity is further aggravated within the South African context as locally there is no legal definition of an SE. This is one of the reasons that there are few funding opportunities explicitly made available for the social enterprise. The lack of a legal definition results in a host of options in terms of legal structures available, and each choice determines the type of financing, social investment options and potential partners available.
Understanding the context in which an SE finds itself is imperative to establishing when and who should be approached as potential financers and/or partners. Part of establishing this view of the local context is determining motivations – that is, are potential corporate partners motivated to engage with SEs due to cynical factors (e.g. regulatory pressures) or is the motivation, perhaps, one of a mutually beneficial relationship?
Intricately linked to this notion of motivation is the concept of value. In 2013, Tshikululu Social Investments undertook a research study aiming to understand corporate South Africa’s motivations to participate in corporate citizenship.
Tshikululu found that leading South African companies are primarily driven to participate in corporate social investment (Social Investment) programmes by the concept of “shared value”. In the article, “Creating Shared Value: How to Reinvent Capitalism – and Unleash a Wave of Innovation and Growth (2011)”, Porter and Kramer defined shared value as the intersection of business and societal interests, with increased value to both.
The view held by the majority of the Tshikululu study’s respondents was that their business success was intimately linked to the health of the South African society in which they exist, and that this, in itself, represented strategic business value for them.
Although this is an interpretation of the shared-value concept proposed by Porter and Kramer, these authors argue that the most fertile opportunities for creating shared value will always be closely related to a company’s particular business and in areas most important to the business. They propose that SEs and corporates adopt an approach that is much more focused on tangible corporate imperatives and strategic dividends.
The Tshikululu research provides insight into the reasons why corporate South Africa engages with various corporate citizenship programmes. However, if we move more toward the idea that real social entrepreneurship should be measured by its ability to create shared value and not social benefits alone, as suggested by Porter and Kramer, the next steps will be to establish and understand if corporate South Africa would participate in and finance SEs, and, if so, what their primary motivators would be.
Understanding these frameworks and motivation is critical to unlocking the potential social development capacity held by SEs and helping them reach the maturity where these vital contributions can be realised.