Understanding The Concept

Why social businesses?

Society today has become increasingly interconnected; yet it largely operates as independent compartments.

Social sector organizations develop initiatives to reduce poverty and inequalities, as well as preserve the environment. But since they do not aim at making a profit, these organizations tend to depend on donations to become financially sustainable, thus restricting both their operational scope and results.

Private companies, on the other hand, are profit oriented by definition. Established to offer products and services to society, they are currently able to serve only 1/3 of the world’s population.

These limited rationale and goal make both kinds unable to fulfill their role in society in its entirety. And this is why – in spite of the increase in global wealth and the progresses achieved in the last centuries – ours is still an unbalanced world, with high poverty and social inequality rates.

Social businesses were therefore established as an evolved model. To overcome social challenges, they propose solutions that integrate the rationales behind the two sectors, allowing for the building of radically new business models.

The social business field remains under construction, and there is much to be done and learned.

By consolidating emerging social businesses, attracting and training skilled human capital, increasing the number of interested investors, establishing knowledge centers at and beyond universities, it will sure be possible to further the understanding of this new model and of its ability to contribute to solving the significant challenges society is already facing.

What are social businesses?

Social businesses are profitable initiatives whose core business brings forward solutions to social problems by using market mechanisms. These ventures integrate the rationales behind both the private and the social sectors, and try to provide products and services to a share of the population typically excluded from the traditional market. By doing that, they help fight poverty and reduce socioeconomic inequalities.
This new trend has simultaneously emerged among different society players:

Social leaders and entrepreneurs, who seek greater financial autonomy and new ways of expanding the scope of their actions
Companies and business entrepreneurs, who search for models that would allow them to offer products and services to a share of the population still not served by the traditional market
Foundations, multilateral agencies and universities, which have specific investment lines for social businesses, besides their role in disseminating research and successful case studies.

Social businesses impact society in different ways:

By promoting social inclusion through job opportunities that improve revenues and life quality of the low-income population - also including disabled and marginalized people, or else those belonging to alternative communities.
By offering quality and affordable products and services that directly improve the life quality of low-income people - housing, food, health, drinking water, sanitation, electricity, mobile phones, computers, insurance, and legal and financial services, among others.
By providing services that raise productivity of low-income people, indirectly contributing to an increase in revenues – access to productive credit, sales of low-cost equipment and technology, among others.

What distinguishes a social business from a not-for-profit organization and a ‘traditional’ business?

"Traditional" businesses prioritize financial results, and are legally structured as private companies. Although they often invest in environmental or social projects, such actions are not necessarily linked to their core business.
Not-for-profit organizations are legally structured as such, and aim at solving social problems. Their actions depend in part or in full on financial donations.
Social businesses are ventures that employ market mechanisms typically focused on accumulating profits to solve or minimize socioeconomic inequalities. They always combine economic feasibility with positive social impact, and may be legally structured as either private companies or not-for-profit organizations.