Social Enterprise: What’s in a Name?

As business schools continue to embed sustainability, ethics and social impact across their curricula, social enterprise offers a powerful example of how business can be used as a force for good. Purpose-led organisations are demonstrating every day that commercial success and positive societal impact are not competing objectives, but mutually reinforcing goals that contribute directly to the Sustainable Development Goals (SDGs).

In this guest blog, Tom Levitt, PRME Lead at the Claude Littner Business School, University of West London, explores why social enterprise deserves a more prominent place within business education. Drawing on more than three decades of experience in the sector, including his work as a social entrepreneur, investor and champion of social value, Tom challenges common misconceptions about what social enterprises are and how they operate. He argues that business schools have a vital role to play in helping students understand purpose-led business models and the opportunities they create for innovation, inclusion and sustainable development.

From community interest companies and social value procurement to ethical finance and entrepreneurial solutions to social challenges, Tom makes a compelling case for recognising social enterprise not as an alternative to business, but as business at its most purposeful.

Social Enterprise: What’s in a Name?

By: Tom Levitt, PRME Lead, Claude Littner Business School, University of West London

Given his track record in Manchester the new Prime  Minister, Andy Burnham, will bring to Downing Street a better understanding of the potential of social enterprise to deliver jobs, services and growth than any of his predecessors. Many social enterprises could be described as ‘the SDGs in action in a business context’.

Business schools differ in the status they afford to social enterprise; at best they can be partners in teaching, learning and research but too often they’re not. We hear of university business incubators which don’t encourage the social enterprise model because their governance structure, which includes an asset lock, bans the conventional purchase of equity in the company. Now is a time for both clarity and a call to arms: social enterprise deserves a place in the life of your business school!

But what is a social enterprise? It’s a business, an employer, a creator of jobs, products and taxes, a collective entity which trades in order to survive. Unlike charities (with which they are sometimes associated) social enterprises do not rely on grants or donations to survive; they have to earn their passage like any profit-led business.

Which is where clarity is required. A common description of social enterprises is that they are either ‘non-profit’ or ‘not for profit’; such an understanding is both lazy and misleading. These terms are both found in American law, where they have real but different meanings, but they appear nowhere in British legislation. Stateside, a ‘non-profit’ is what we would call a charitable foundation; a ‘not-for-profit’ is a charity which may or may not trade in its own right. In UK, over 32,000 businesses with a social purpose, social enterprises if you will, have adopted the legal format of Community Interest Company (CIC).

Secondly, social enterprises are not strictly ‘not for profit’, anyway. Every trading company needs to make a surplus in order to fund investment, protect against a rainy day or grow their business. The term which describes social enterprises which don’t make a profit is: ‘bust’. The difference between a social and an ‘ordinary’ enterprise is that the former is led by its mission, though being ‘purpose-led’ still requires financial sustainability. The traditional Friedmanite concept of companies is that they should only ever be ‘profit-led’, where the owners’ or shareholders’ financial interest is given priority over the impact that their products or services have on society. Such has been taught in our business schools for more than 50 years, yet the very meaning of the word ‘company’ is collaborative, ‘those who break bread together’, not ‘those who maximise their own earnings at the expense of everyone else’.

‘Profit’, a wise person once said, ‘is like oxygen; we need it to breathe but we don’t live simply in order to breathe’. Profit is essential for every company to survive, yet even Victorian entrepreneurs created companies with a higher purpose: to provide a service, to employ people in a sustainable manner, to meet a market demand, to deliver quality and pride in a job well done. This is what social enterprise does, too, overtly giving its purpose a higher priority than the simple ‘bottom line’. Generally, the profit that a social enterprise makes is ploughed back into the company rather than removed, subject to the interests of owners and shareholders. Success is measured in impact terms, not purely dictated by the balance sheet.

Finally, the ‘non’ and the ‘not’ appendages are disrespectful. Why call something by what it is not? Acknowledge and respect it for what it is for. ‘Purpose-led’ is both a positive and an accurate description of social enterprise.

I’ve worked with social enterprises for more than thirty years, and I co-founded one in 2013. A dozen years later I vacated my board position but not before Fair for You’s 25 employees had engaged 100,000 customers. The CIC relied on 6-figure loans from charitable foundations in its early days – all successfully repaid with interest – but its next five years of trading was recently secured with an 8-digit commercial loan.

Fair for You (FFY) operates online providing small, low-cost loans to people whose credit rating is just too low to grant them access to affordable finance elsewhere. Before FFY came along families who lacked a washing machine had to meet the added cost of a launderette or the indignity of sending kids to school in grubby uniforms; they dreaded school summer holidays where they couldn’t afford to entertain the kids at home. Their washing machines were often repossessed by ruthless loan companies (something FFY has never done). Thanks to FFY’s loans these families now have clean clothes, dignity, washing machines – and the beginnings of a credit rating. Today FFY’s low income customers can access a wide-range of goods and even, through their partnership with Iceland Foods, get interest-free micro-loans at holiday times.

All of this was achieved without removing a penny in profit from the system, which helps to keep down costs.

Social enterprises are largely SMEs and it’s in the sphere of start-ups where innovation can often help to tackle intractable social and environmental problems. Social enterprises are key to this, often finding ethical yet practical niches in which to trade and with a high awareness of which Sustainable Development Goals they might be impacting.

Back in 2010 I helped the Social Value Bill to progress through Parliament. The subsequent Act encouraged the public sector to trade with purpose-led businesses that could demonstrate public benefits other than profit. The construction industry in particular quickly realised that having social enterprise partners and suppliers could help them win contracts, a trend recently reinforced by changes to government procurement rules.

In 2019 I spent a week in Moldova examining the potential of social enterprise to succeed in the region of Transnistria, a hostile economic environment where the traditional private sector had failed. If nothing else, social enterprise was generating engagement, cash flow and, most important of all, hope.

In 2020-21 I helped to write the standard BS8590 on evaluating social value. This can be seen as a measure of the benefit created other than profit. All businesses are capable of producing social value, it need not be a case of ‘social value OR profit’.

And for ten years I’ve been an investor in Toast, a ‘cuckoo’ brewery that makes fine beer from surplus bread that would otherwise have gone to landfill. They borrow other breweries’ spare capacity to make it and have systematically donated millions of earned pounds over that time to charities that focus on family food security and combating food waste.

For a while there was a trend to ‘spin off’ public services into social enterprises as management buy-outs, especially where it was felt that their overlords, such as in the NHS, cramped innovation and effectiveness. The autonomous new service providers would then act as external contractors to the commissioning body without being encumbered by a need to maximise profits, often providing an improved quality of service. Some big charities create social enterprises as their trading arm; here, profit is taken out of the business but only as far as the parent organisation and the good cause that it supports, and not to individual shareholders.

Business and management students should, at the very least, be aware of the opportunities that social enterprise can deliver, even to the most ambitious potential entrepreneur. Better still, they should experience social enterprises for themselves.

Just don’t dismiss them as ‘not for profit’.