Call me a natural skeptic. As the social enterprise movement has gained momentum over the past decade, launching new conferences and awards, I have found myself continually puzzling over what makes the enterprise approach different from traditional charities and nonprofits.
The typical definition of a social enterprise—an organization that combines revenue-generation with a social mission—fails to line up with the reality of how we use the term. Many organizations carrying that label lack any form of customer or client revenue.
At one end of the spectrum are businesses that use some portion of profits for charitable work, such as TOMS Shoes and Newman’s Own Foundation, which could just as easily be called corporate philanthropy. At the other end are mostly donation-funded organizations. For example, Shining Hope for Communities is a great organization working with girls in Nairobi’s undeveloped areas, but its business model is not so different from traditional charities.
In between, there are organizations such as Sanergy, a sanitation company also in Nairobi, that has leveraged grant funding and innovation prizes to subsidize the development of a revenue-generating model for urban toilet franchises. Adding to the diversity, there are also product companies focused on creating ethical value-chains, such as Divine Chocolate.
It’s clear that, despite the alleged importance of revenue-generation, the social enterprise movement contains a variety of financing models. And while definitions of social enterprise have used the broader, vaguer criteria of applying "commercial strategies" to social issues, this translation of management practices across sectors is an old practice.
Meanwhile, there is something new about the fervor attached to social enterprises. Something about them attracts attention and excitement in a way that other nonprofits, charities, and NGOs fail to do.
Focus, Focus, Focus
My conversations with professionals at various organizations have suggested a subtler and largely unrecognized difference: Today’s social enterprises have a relatively narrow focus.
Large NGOs work on multiple issues in dozens of countries. Plan International’s website, for example, shows that it works on eight broad issue areas—including education, emergencies, and child protection—and in about 50 countries. A former employer of mine, Mercy Corps, lists 12 similarly big issues and about 45 countries.
Balancing priorities across broad missions and locations leads to serious management challenges. How do you trade off between investing organizational resources in education or health projects, when they lack common metrics? Setting strategic direction becomes about competing values for the issues that matter most to the organization, which can turn analytical discussions into political ones. Too often, organizations resolve such questions based on the interests of donors, whether those are foundations, government agencies, or public appeals.
At the same time, new ideas struggle in large organizations. They frequently get caught in “innovation units”—silos that often lack the organizational footholds needed to influence broader practice. In this way, the innovation challenge facing large NGOs is not so different from the one facing corporate giants like GE or IBM.
In contrast, most social enterprises do essentially one thing. Kiva, for example, connects lenders with borrowers via its field partners. Digital Divide Data provides business outsourcing that creates backend jobs for disadvantaged youth, military spouses, and veterans. These clear, straightforward missions guide strategic choices and management.
Another well-known example is One Acre Fund, which serves small-scale farmers in East Africa and views every decision through that lens. The primary service line is asset-based financing paired with agricultural training and market facilitation. Significant management attention goes to improving that service line. When the organization experiments with supplementary services like microinsurance or solar lamps, it evaluates each one based on whether it makes the farmer more prosperous. If not, then One Acre Fund cuts that service.
In short, for social enterprises, focus can be a competitive advantage when it comes to impact. Focus helps leadership drive better methods and operations. It creates incentives to innovate within a targeted scope. And when the business model requires external support, a focused goal leads to clearer appeals and more excitement from fans.
Of course, a focus that’s too narrow also has drawbacks. For example, the buy-one-give-one models of TOMS and others have been rightly criticized for displacing local production, and ultimately making a greater impact on the company’s own marketing than on poverty. A narrow focus must be justified within a broader view. And we must keep in mind that larger, multi-sector organizations have a critical advantage in addressing complex problems at scale.
Ultimately, the social sector needs a combination of focus and diffusion to drive progress. Social enterprises play a special role by focusing energy and effort on a single problem. That role distinguishes them from other organizations far more than how they finance themselves. They can pioneer innovations that larger organizations absorb and scale, or they can grow into larger organizations themselves, bringing their improved management methods with them. They should just make sure they maintain focus along the way.