Social enterprises, a possible cure for the world’s societal problems?

In the global fight against societal challenges, a promising development in recent times has been the expansion of the social enterprise sector. What can be done to encourage greater social entrepreneurship?

The world faces a host of societal challenges from poverty to educational gaps and healthcare concerns. Even developed countries are not spared, as they deal with their own share of issues, such as ageing populations in Singapore and Japan. As some of these problems afflict populations on a massive scale, governments and policymakers may not have the necessary resources to tackle them.

Although there may be less financially equipped than governments, social enterprises offer an opportunity to fill the gaps. They not only create jobs for entrepreneurs, but also potentially generate jobs for an entire generation, becoming a catalyst for growth and development.

Understanding social enterprises and the processes involved

The concept of social enterprises has evolved a lot in recent years and can be difficult to define, especially because it is sometimes conflated with the idea of non-profit organisations. In simple terms, a social enterprise is thought of as an organisation that seeks to generate revenue and profit while making a positive impact on society.

Many social enterprises have successfully shown how they can promote social change, with some making a name for themselves in Asia including WaterSHED and Freedom Cups. Initiatives such as Grameen Bank, which was founded by Muhammad Yunus in Bangladesh, have also brought awareness to social enterprises as a new economic model.

Meanwhile, other businesses are increasingly putting emphasis on corporate social responsibility and sustainability. More firms are moving towards making ethical business decisions and giving back to society in their operational process. It is clear that the time is ripe to create an ecosystem that allows for the proliferation of social enterprises.

However, is it feasible to pursue philanthropic goals while attempting to generate a profit at the same time? Scalability and sustainability are essential for social enterprises to survive. They therefore often face a steep uphill struggle and only a few manage to achieve success.

Another concern is how best to measure the success of social enterprises in the first place, if profit is not the main priority.

In an interview with Nuno Delicado, lecturer at the Lee Kuan Yew School of Public Policy (LKYSPP), National University of Singapore, he explained that positive world impact is the key measure of success for social enterprises and they should also ensure sustainability for continued impact. The challenge is that there are currently no generally accepted impact assessment principles that companies use and markets recognise. Therefore, as social impact can come in various forms, each initiative could have various measures of success.

Additionally, there are different barriers to success that prevent many initiatives from getting off the ground.

What prevents social enterprises from achieving their missions?

Although billions of dollars are currently being invested into social enterprises, failed start-ups are relatively common in today’s economy, with about 83 per cent of social enterprises staying operational for less than three years.

Delicado echoed that most social enterprises do not live beyond early stages because many tend to be more like traditional charities, as they are dependent on private grants, donations or public subsidies. This makes them unable to pursue their mission because they have to adopt funders’ agendas and priorities.

Additionally, these organisations are usually operating in an environment that is hostile. As making an impact takes priority over profit, social enterprises often work with populations that have low purchasing power and occasionally in remote locations with poor infrastructure. Delicado stressed that ensuring that human, operational and business models are sustainable is hence a huge challenge.

Therefore, there exists a tension between creating social change and generating economic returns for investors. Traditional mindsets of profit and short-term economic benefits have to be cast aside, as social enterprises have to be careful about not overcharging the very people they are trying to help.

Furthermore, as society is not familiar with the concept of social enterprises, the sector receives much less support than it deserves. Delicado pointed out that there are weak legal and regulatory environments as well as limited research and training opportunities for those seeking to develop themselves. Due to this, many initiatives lack effective leadership. Attracting and retaining talent is also difficult due to lower wages and lack of job security.

With the various challenges that social enterprises face, how then can this increasingly important sector be nurtured to reach its fullest potential?

Encouraging the growth of social enterprises

Opening the door for more social enterprises requires the support of both the public and the government. Even if governments lack financial resources to fund organisations, it can contribute to social entrepreneurship development by promoting awareness. This can be done through agenda setting, campaigns, education and research initiatives, for instance.

At the LKYSPP, students taking the Social Entrepreneurship elective recently presented their pitches on 28 October 2017. Ideas included initiatives to empower single mothers by providing job-matching services, horticulture therapy for the elderly and localised energy solutions in rural Indonesia. Each group was given the chance to work on real-world social venture projects and learn first-hand about scalability and sustainability.

By using education as a tool to encourage the young to create and uphold sustainable economic systems that alleviate social problems, further innovation can be facilitated. As demonstrated by LKYSPP’s students, there is an increasing awareness and willingness  within society to help solve these problems.

Additionally, governments can implement specific legal and fiscal frameworks that take into account the particularities of social enterprises as well as stimulate appropriate financing sources and mechanisms towards more efficient and effective capital markets. This would enable different supporting structures in the social impact ecosystem, such as incubators and accelerators. These can also include programmes that promote social entrepreneurship regionally, such as the ASEAN Impact Challenge and ASEAN Conference on Social Entrepreneurship.

Lastly, although wages are an important way of attracting talent, they are not the only necessary component when it comes to work. An increasing number of people now prioritise responsibilities, professional and personal development, and meaning and purpose, among other things. As Delicado explained, social enterprises may offer lower salaries compared to for-profit agencies, but they can be competitive in other dimensions, especially when it comes to making a social impact and providing meaning and purpose in a job.

Many social enterprises thrive despite the multitude of challenges, mostly due to their founders’ passion and determination to address social problems. A successful initiative typically sees the organisation looking for solutions by directly interacting with target populations to understand them better. Additionally, they tend to test prototypes early on to learn more at a minimal cost.

Persistence appears to be a key factor for success. As long as problems exist, social entrepreneurs that look for more effective ways to adapt solutions and scale impact are able to reach more people and maximise their positive impact on the world.

This piece was written by Prethika Nair.