I make this distinction as the term social enterprise is often viewed, wrongly, as a synonym for charity. I believe that all businesses should be considered in, and responsive to, the wider social context.
In a real sense every business is a social enterprise in that it operates in the society in which it is based. It buys goods from other enterprises and sells goods to other businesses or individuals in that society, be that on a local or global level. However what we think of when we talk about social enterprise is a business established and managed for social good. In general we all agree that this is a good thing and that we need more of them but in tacling this issue we need to go back to basics and, as ever, the language we use is critical.
Creating a new enterprise is often called “Starting YOUR OWN Business” The business is acknowledged as something that you own. If you form a limited company and retain 100% shareholding then in this sense you do “own” the business but I feel that this language forms a barrier to social enterprise. It is far better to think about “Creating A Business”.
The business isn’t you. It is a separate and distinct legal entity. Money made by the business belongs to the business and while it may pay salaries to employees and repay loans and have other committments the primary use of the money the business makes should be none of these things. The money should be used to serve the purpose for which the business was created. If the business was created to build houses then it should, first and foremost, build houses. A business that is created simply to make money for the stakeholders and where the purpose of the business, for example building houses, is a secondary consideration can never be a social enterprise.
Consider banks. These were first created by people who set up strong vaults to look after gold for merchants while they were at sea. Had the merchants taken their gold with them they would have been easy targets for pirates. Knowing that the gold was held safely by a trusted third party allowed merchants to pay for goods and services with promisory notes which allowed the holder of the note to claim the payment promised from the vault at a later stage. No gold need be moved, the risk of piracy was reduced and over time the notes became accepted as being as good as gold. The bankers realised that since most transactions were made by exchange of promisory notes the gold was rarely taken out of the vault, so they could lend the gold itself to other merchants, for a fee of course. The banks started making money out of money – not even their own money! And so it continued to the present day with more and more complex ways of making money for it’s own sake.
- We need to think about creating not owning a business.
- We need to think of the money made by the business being retained by the business.
- We need to ensure that the money made by the business is used for the purpose for which the business was created.
When we get these three things right we will create enterprises that are fit for purpose – a great starting point for being social and enterprising.