December 1st, 2013

The Social Enterprise Panacea

December 1st, 2013

Social enterprise development seemed to occur without a clear beginning or certain end in mind, and during the nascent stage of its development, it was burdened by the global financial crisis of 2008. This likely affected the altruistic trajectory of social enterprise, as almost suddenly it seemed to be the go-to solution for everything— new jobs for the economy, alternatives to funding for nonprofits, opportunities to narrow gaps within society and address environmental needs, etc.  Public programs were formed, civil society organizations founded, conferences hosted, books written and hashtags tweeted. Social enterprises could be found in for-profits, nonprofits and charities, or as arms-length organizations, and even more recently, in a variety of different hybrid structures like the B corp. This haphazard development resulted in some unforeseen consequences for social enterprises and their complimentary actors in conventional businesses, nonprofits, foundations and the government:

1) The infiltration of the sector

One effect was a watering-down of the concept of social enterprise before it even had a chance to establish itself.  Former corporate social responsibility champions swiftly reinvented themselves and donned the cloak of social enterprise leaders, except that underneath the cloak was still the same marketing ploys to garner favourable consumer perceptions. Anyone with an idea even loosely connected to social or environmental outcomes instantly became a proclaimed “social entrepreneur” irrespective of the impact of their accomplishments. This prevented social enterprise from reaching its maximum potential as a genuine alternative to business because it was, at least partially, perceived as a dressed up version of more of the same old, same old (e.g., Guardian: CSR is dead, long live social enterprise).

2) Passed the buck to ill-equipped nonprofits

And, rather than relieving nonprofits from certain activities that could have been undertaken by the for-profit sector, social enterprise development was largely imposed on nonprofits as an alternative revenue stream to funding cutbacks in the wake of pressure to become more independent from government. Ill-equipped to create financially-viable charitable “products,” it left many nonprofits fumbling to learn a game they were not designed to play, and often at the expense of their own vision. This reactionary response to misguided funding priorities led nonprofits to lay claim to the social enterprise movement over small businesses, corporate leaders and investors.  Social enterprises came to be perceived by many as second-rate companies, instead of legitimate and viable competitors to traditional business models (e.g., Globe & Mail: Should your non-profit organization start a business?).

3) Transferred pressure from investors to overstretched philanthropists

Also, foundations and other philanthropic efforts were encouraged to expand on more “mission-related investments” and develop other “social-finance mechanisms” to help support the growing social enterprise sector, rather than having typical venture capitalists or angel investors take on such a risk. However during this time, foundational dollars were already stretched to their limit from the financial crisis, so this budgetary shift was most likely made possible with redirected funds rather than new money. By further depleting funds for traditional nonprofit activities, the gaps foundations sought to bridge in the first place, were only widened. So, instead of “making the pie bigger” as was initially professed by champions of the movement, social enterprise development, at best, just made some of the slices bigger (and others smaller, as the whole pie remained unchanged). This led some people to falsely perceive charitable work as becoming obsolete, rather than doing what it does best: filling in the gaps. Thus, when the increasingly sparse philanthropic dollars should have been focused on addressing the immediate troubles of the nonprofit sector, they were instead being used to get profitable social enterprises off the ground (e.g., Monitor Deloitte: The Case for Philanthropy in Impact Investing).

4) Government offloading

The final consequence was a fundamental shift in the financing of social programs from a public perspective. Governments could now expect social enterprises to help close  societal gaps that typically would have been solely their responsibility. This is somewhat problematic because governments can be held to a higher level of accountability than social enterprises (i.e., those not structured as a charity). For example, what would happen to a homeless shelter going bankrupt in the winter? There are currently no protections against market fluctuations for social enterprises filling in previously public-financed programs (e.g., Globe & Mail: Tories launch ‘social financing’ programs to boost literacy and job skills).


Social enterprise as it currently stands is a missed opportunity; it has settled for entering markets, when social enterprise had the potential to transform them. It has placed nonprofits in an unfavourable position and has disrupted the already struggling philanthropic/charitable funding stream, as well as opened the door for governments to exploit the idea of social enterprise as an excuse to reduce their role in traditional non-profit activities. Not only is social enterprise incapable of being a cure-all, it may also create more problems than it solves when not properly understood or implemented. These consequences highlight the need for a more balanced and focused approach.  Perhaps the first step towards getting social enterprise back on track, is to admit it cannot be the panacea for all the world’s social problems.

Thank you Saadia (@ThisTechGirl), Brittany (@BrittFritsch), Alex (@alexbcarr) and my mom for all their feedback and help on this article.