Recently, I had the privilege of speaking at the Sustainability Innovation Lab at GSVlabs, sharing insights on a topic I’m frequently asked about – what every founder should know about social entrepreneurship. The spirited discussion that followed the presentation was enlightening, prompting me to share these key takeaways here.
- Diverse Legal Structures Exist for Social Entrepreneurship:
Founders should be aware of various legal structures designed for social entrepreneurship. These structures include benefit corporations, social purpose corporations, limited low-profit liability companies (L3Cs), and combinations thereof. They enable companies to prioritize both impact and profit, expanding their focus from a single bottom line (profit) to a double or triple bottom line (people, planet, profit). This shift also broadens a company’s legal responsibilities, extending beyond shareholders to stakeholders like the environment and the community.
- Tailored Business Models for Social Entrepreneurship:
Just as a glove fits the hand, legal structures should align with a venture’s business goals and model. Founders should understand that business models tailored for social impact ventures are emerging. Examples include ‘buy one, give one,’ the ‘1%-1%-1%’ model, dedicating a percentage of revenue to nonprofit or policy initiatives, and pay-what-you-can models. These models simplify the explanation and accounting of impact and profit.
- Diverse Funding Options for Social Entrepreneurship:
While traditional funding sources like loans, grants, and venture capital can support social enterprises, the dual objectives of impact and profit can present challenges. Fortunately, a range of funding options cater to social entrepreneurs, including impact investors (focused on impact and profit), Program-Related Investments (PRIs) backed by foundations, and crowdfunding (both donation-based and investment-based). Crowdfunding, in particular, helps validate and fund social impact ventures.
- Social Entrepreneurship is a Mindset, Not Just a Business Approach:
In countries like the US, there is no strict legal definition of social enterprise. Consequently, terms like social entrepreneurship and social innovation are used broadly to describe various legal structures and business models, both for-profit and nonprofit. Therefore, social entrepreneurship is as much about mindset as it is about the venture type. Social entrepreneurs are often individuals seeking business-oriented solutions to pressing global issues. They employ entrepreneurial methodologies and a ‘lean’ startup approach to develop revenue models and maximize impact. This mindset involves problem-solving while considering and accounting for multiple end goals with transparency and accountability.
- You’re Not Alone – a Supportive Ecosystem Exists:
Entrepreneurship can be challenging, and the pursuit of impact alongside profit can make the journey feel distant and solitary. However, it’s crucial to recognize that social entrepreneurs, both experienced and aspiring, are not alone. An ecosystem of support is continually strengthening and evolving to better address the unique needs and obstacles faced by social entrepreneurs.
In conclusion, these insights shed light on the key aspects of social entrepreneurship that every founder should understand. From legal structures to tailored business models, funding options, and the entrepreneurial mindset, embracing these elements can empower founders to navigate the dynamic landscape of social entrepreneurship effectively.
