The world is facing big problems. Many people are turning their attention to solving those problems. The old models of traditional for-profits and charities no longer are sufficient tools for meeting these challenges. The future is far more likely to be dominated by businesses that are tracking more than their financial bottom line, and nonprofits that see enterprise as a fundamental part of large-scale social change.
Policymakers are responding to the changing times by embracing new forms of social action that fall between the two poles of traditional business and traditional charity. New organizational forms exhibit increasingly hybrid characteristics. Business and social leaders seek and adopt new structures that can transparently deliver more social benefits. Both business and the social sector are changing.
Social Business is a cause-driven business. In a social business, the investors/owners can gradually recoup the money invested, but cannot take any dividend beyond that point. Purpose of the investment is purely to achieve one or more social objectives through the operation of the company, no personal gain is desired by the investors. The company must cover all costs and make profit, at the same time achieve the social objective, such as, healthcare for the poor, housing for the poor, financial services for the poor, nutrition for malnourished children, providing safe drinking water, introducing renewable energy, etc. in a business way.
The impact of the business on people or environment, rather the amount of profit made in a given period measures the success of social business. Sustainability of the company indicates that it is running as a business. The objective of the company is to achieve social goal(s):
- Business objective is to overcome poverty, or one or more problems (such as education, health, technology access, and environment) which threaten people and society; not profit maximization.
- Financial and economic sustainability.
- Investors get back their investment amount only. No dividend is given beyond investment money.
- When investment amount is paid back, company profit stays with the company for expansion and improvement.
- Environmentally conscious.
- Workforce gets market wage with better working conditions.
Entrepreneurs must understand their market. Understanding your customers, their environment, and their needs is crucial to any social venture. Determining how to best serve your customers will shape your decision of how to structure your venture. Just about every social question and issue you may address can be recast into market questions, such as:
- Who are your customers?
- Who or what is the competition?
- What is your value proposition?
- What is the market size and how profitable could you be serving that market?
Capital requirements often play an important role in the decision to be a for-profit or a nonprofit. If you are not going to be able to pay back the money to investors or lenders with an additional return, the only for-profit investor you may be able to get is yourself. If you can’t raise or don’t have the capital you need, then you may need to look at the nonprofit structure, or reworking your business plan to start more slowly with less money.
- How much money do you need to get your venture launched?
- How much money will you need to keep the business growing?
- Will you have assets you could borrow against?
- Will tax structure affect your business significantly?