Help make a difference with a social enterprise

The rise of social enterprise has been nothing short of remarkable.

As awareness of global crises reaches an all-time high - thanks in part to scientific progress, the situation’s severity and social media reach – the number of people deciding to run a business to try and help counter the problems has surged.

Today there are more than 100,000 social enterprises in the UK. They contribute £60bn to the economy and employ some two million people.

Their growth is being driven by a huge change in consumer culture, one that rewards companies willing to focus on more than profit and play a part in solving society’s ills and protecting the planet.

And the list of global issues to address is long - from climate change to poverty, inequality to humanitarian catastrophes, terrorism to cyber-fraud, animal welfare, health care crises and a pandemic to name just a few.

With more companies tapping into customer behaviour that demands a more responsible commercial approach to these problems before they’ll part with their cash, the opportunities for social enterprise look set to grow further.

If you’re keen to embrace a social purpose in a new business you’re planning, or considering how to adapt your existing company practices, our guide explains what it means and what you need to do.

What exactly is a social enterprise?

In many ways, a social enterprise is the same as any other – it’s run to make a profit and hires employees to try and generate revenues.

But rather than focus exclusively on the bottom line, it also aims to make a positive social or environmental impact – this is its social purpose, a mission at the very core of its business model.

It’s worth noting there’s no hard and fast legal definition or structure for what actually constitutes a social enterprise.

For example, the term ‘social enterprise’ is often interchanged with ‘social business’ to describe the same thing.

A clear definition is offered by Social Enterprise UK, an industry network, strategic partner to government departments and public policy leader.

It says: ‘By selling goods and services in the open market, social enterprises create employment and reinvest their profits back into their business or the local community.

‘This allows them to tackle social problems, improve people’s life chances, provide training and employment opportunities for those furthest from the market, support communities and help the environment.’

If you’re thinking about setting up or joining a social enterprise, or want to pivot your existing business towards this aim, it gives this guidance:

• Your business has a clear social or environmental mission that is set out in its governing documents.
• You are an independent business and earn more than half of your income through trading (or are working towards this)
• You are controlled or owned in the interests of your social mission
• You reinvest or give away at least half your profits or surpluses towards your social purpose
• You are transparent about how you operate and the impact that you have
  
  

It describes The Big Issue, Divine Chocolate and the Eden Project as high-profile examples.

However, it also emphasises that the sector’s growth is now being powered at a smaller scale on high streets and in communities across a vast number of sectors including coffee shops, cinemas, leisure centres, travel firms, restaurants and healthcare to name just a few.

Separately, it’ll be worth considering Social Enterprise Mark.

This is a social enterprise ‘accreditation authority’ whose aim is to ensure that the business model of a qualifying business remains ethical, credible and commercial.

To be accredited with its Social Enterprise Mark, your business needs to meet its set criteria:

• It must be primarily dedicated to social objectives (or dedicate profits to an organisation that is)
• It must be an independent business
• It must earn at least 50% of income through trading
• A principal proportion of profits (at least 51%) must be dedicated to social purposes
• It must commit to distributing residual assets for social aims if the organisation is dissolved
• It must demonstrate that social objectives are being achieved
  
  

Don’t worry if you’re still committed to benefiting society but are nowhere near reaching these criteria.

Alongside specific social enterprises, there are many other businesses that are conscious of social issues and are striving to improve the communities they operate in.

There are many ways you can make a mark.

These include partnering with a charity, supporting a specific cause through donations, being committed to a sustainable way of working or raising awareness of a particular issue in society.

What’s driving its growth and why is it important?

In a nutshell, there’s been a huge shift in sentiment towards our planet’s fragility, how we exploit its finite natural resources and the way government policies affect global poverty and inequality.

A mix of shifting socioeconomic and geopolitical factors now places much more emphasis on the impact of our behaviour – and what responsible actions we can take to limit its damage.

In particular, a rise in public awareness of environmental and humanitarian crises has been aided by scientific progress, greater technical prowess and the reach of social media.

Over the past decade, this has begun to have a major impact on many government actions, policy makers and business practices.

It’s led to today’s consumers demanding companies do more to help society if they want their money.

This effect on sales of goods and services has been huge.

In 2019, ethical consumer spending rose to £41bn in the UK – a new record and contributing to the almost four-fold increase seen over the last 20 years.

As for behaviour, the numbers who actively decide to use shops and services with more ethical or sustainable practices is also on the up – up by third last year.

Perhaps unsurprisingly, it’s the younger generations such as Millennials and Generation Z who are helping most to drive change. 

As those who will have to live longest with the impact of today’s decisions, they’re intent on buying those goods and services with as much of a social purpose as possible.

And critically, it means more companies will need to adapt because this behavioural change today will feed forcefully into future consumer habits.

Five types of social enterprise you could consider

Although there’s no precise definition of what a business must do to count as one with a social purpose, here are five broad categorisations that can help to illustrate some common models.

1 ‘Buy one, give one’: your business donates a product or service to the less well-off every time a customer buys something new. A good example is Toms, which donates a pair of shoes to a child without footwear, usually in a poor community, every time a new pair is bought. Eyewear retailer Warby Parker uses a similar model, and has donated over 7m pairs of glasses to individuals unable to afford the cost of looking after their eyes.

2 Employment: you aim to help the less fortunate in society by employing those with disadvantages. Take the Soap Co, which creates employment opportunities for visually impaired people. Today, eight in ten of its staff are blind, disabled or otherwise disadvantaged.

3 Ethical supply chain: your business takes steps to ensure it operates an ethical supply chain. For example Café Direct negotiates directly with suppliers in South America to ensure farmers are appropriately paid.

4 ‘Impact through service’: your direct aim is to help make a positive impact to society through your services. For instance, Leading Lives provides home care and social care support for people with learning disabilities, autism, and complex needs.

5 ‘Impact through profits’: you deliberately donate a percentage of your profits to ‘doing good’. Sustainable luxury goods brand Elvis & Kresse takes waste materials such as fire hoses, coffee sacks and parachute silk and uses them to help make its products – a process known as ‘upcycling’. It then donates up to 50% of its profits to charities relevant to where it reclaimed those materials.

Want to get started? Work out what really gives you a strong sense of social purpose

If you’re considering launching a business with social purpose at its heart, or want to reorganise an existing one to focus on additional social priorities, it’s vital to pinpoint exactly what you want to achieve.

Authenticity is absolutely key.

This is not least because customers will likely detect a commitment that isn’t 100% genuine and it could end up backfiring with drastic impact on your business.

So look to set out exactly why you want to run a social business in the first place:

• Is there an issue you feel particularly strongly about, and why?
• Have you been inspired to take action for a specific reason?
• What kind of impact do you want to make?
  
  

Jot down the answers to these questions and use them as a guide towards the kind of activity you think will help.

For many, a personal desire to help protect the environment has fuelled the enterprise.

Abigail and Jamie Forsyth founded reusable cup business KeepCup to help address the huge volume of single-use cups ending up in landfill.

The business now has a multi-million-pound turnover and estimates that it has saved 8bn disposable cups from being thrown away.

Or perhaps you’re driven by the need to support social justice and greater equality.

Timpson is now one of the largest employers of ex-offenders in the UK, with roughly one in ten of its workforce made up of people who have criminal convictions.

Once you know what you want to achieve, and the issues you want to focus on, you can think about which model would help meet both your business and your social goals.

If you’ve an existing business and are eager to add a social stance, you don’t have to reinvent everything.

You could start with a renewed mission – put together a mission and vision statement to inspire employees and customers – and consider redeveloping your business plan if it’s feasible.

Of course, it may be that, as an entrepreneur, what interests you the most is that you think it’s simply a great business idea.

If so, you could look at any trends in the social business sector or see if there are any particular growth areas that interest you.

How to set up your social enterprise

If you’re keen on setting up a social enterprise, you’ll need to consider what type of legal structure is best suited to your goals.

Limited companies: ordinary limited companies can also be social businesses. You’ll need to register it with Companies House, file annual returns and pay a small fee – but afterwards, your company will be its own legal entity and you won’t be personally liable for any debts. Be aware that, to define it as a social business, you’d need to put a mission lock on it.

Community Interest Companies (CICs): the CIC structure sits somewhere between a traditional limited company and a charity.

You can raise money by selling shares, make a profit, and can even pay dividends to shareholders.

You’ll need to make a clear public commitment to social causes, and may be able to access additional sources of funding compared to limited companies.

Also, unlike a typical limited company, your enterprise would be subject to an ‘asset lock’ which means it assets can only be used for the community’s benefit.

Charities: registering as a charity will mean you’ll be eligible for tax breaks and can apply for grants and other funding. However, you’ll also face stricter regulations on how you operate. For example, unlike other forms of social business, charities can’t be run for profit.

Co-operatives: this type of social business is owned and managed by its members. How you choose to define your members is up to you – they could be customers, workers, or both. Whatever your definition, all members will have an equal say in how the co-operative is run and what to do with any profits.

And if you’re feeling inspired to set up your own business, whatever kind, there are plenty of helpful guides on how to get started.

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