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Defining a social business for fast pitch

Posted by Dave Richards

As we’ve started to reach out to social investors to contribute to our social business investment prizes fund, we’ve been asked to provide more definition around what qualifies (and excels) as a social business for this competition.

We have some thoughts but we’d also like community feedback on this.

Is “Social Business” the right terminology?

Wikipedia has chosen a narrow definition of social business as a non-loss, non-dividend company designed to address a social objective within the highly regulated marketplace of today.  Sometimes the term “social enterprise” is used as a synonym. Although, Wikipedia defines social enterprise as an organization that applies capitalistic strategies to achieving philanthropic goals – whether for-profit or not-for-profit structure.

There are a range of opinions on what constitutes a social business. Here are a few examples:

  • Muhammad Yunus, co-winner of Nobel Peace Prize, for his pioneering work on microfinance, argues in his book Creating a World without Poverty that social businesses must have an inherently social mission and may only return principle to investors (no profit) or, if you do return profit, the business must be owned by the poor.

  • Toms Shoes is often sited as a social business because they give away a pair of shoes to a poor person in Africa for every pair bought in rich world. Toms has its critics though.

  • Village Capital argues (at least for developing economies) that an increasing number of businesses which don’t even think of themselves as social businesses are creating more positive social impact than some businesses with an explicit social mission.

  • Startup SoBiz10 leverages social media (also confusing the use of term “social”) with an aggressive corporate social responsibility (CSR) program (give away 10% of profits) to distinguish themselves from their competitors.

  • Venture philanthropic investor Omidyar Network encourages their social business investees to seek market rate financial returns for their investors so that when they need significant capital to expand their impact, they will be able to raise it from mainstream sources

  • Dave Richards shared some thoughts on what is a social business/enterprise

Our definition of a social business

While we encourage every business to integrate responsible behavior into everything they do, we need to stake out a clearer definition of a social business for our competition. For SIFP Seattle competition, the best candidate social businesses will look like the following:

  • Businesses with an explicit core operating focus to bring public benefit – generally to those underserved or under represented in our “system”

  • Have potential for scaled impact

  • Intend to be profitable such that investors can be paid back a reasonable return and business can expand operations from internally generated surpluses and/or raise future expansion capital from investors

What do you think? Too narrow? Too broad?

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