Social Business Phenomenon

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Social Business Phenomenon

(Source: cdn2.yourstory.com

During the 1976 famine in Bangladesh, Muhammad Yunus--a banker, economist and social entrepreneur--was inspired to lend $27 to 42 families so that they could have seed funds for their startups, and find ways to make a living. Yunus did this at a time when commercial banks were not giving small loans without collateral to back up the loans. What Yunus was doing soon became the cornerstone for what came to be known as micro-credit financing. Grameen Bank, the microfinance organisation he set up, provided small loans to families, especially women, at an interest rate that was much lower than the ones stipulated by commercial banks. While the organisation ran like a business, its aim was to eradicate poverty in the rural areas of Bangladesh. He coined the term ‘social business’ to describe what Grameen Bank was doing.

Social business is starting to become a well-known concept in Nepal too. The construct itself is fascinating to most people because of what such business could do: create business value while at the same time contributing to society. Today, the term is bandied about by our media and entrepreneurs, and the concept has become a subject of study in colleges and universities across Nepal. You as an entrepreneur might be thinking of labelling your company a social business to, but before you do that, you might want to first think about what the term implies.

The term ‘social business’ has been the object of critics’ scrutiny and intense debate for a long time now, and yet there has been no consensus reached on what can be considered a social business entity. It can be exceedingly difficult to discern the differences between a private for-profit company, an NGO and a social business.

 

General perception

 

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There are several lenses through which the term ‘social business’ is analysed today. If you want to go the purely linguistic route, ‘social’ can be understood as ‘everything related to the human being and the surrounding of a human being’. Hence, a social business, in general, can thus be described as a venture that improves or changes the human condition, while at the same time implementing a business model to bring about that change. Yunus describes social business as “a new form of capitalism that serves humanity's most pressing needs.” Another lens through which we can view the definition is by positing that a social business lies somewhere between two extremes--at one end of the spectrum, we have companies that focus solely on making a profit, and on the other, we have NGOs, who focus on social issues.

Yunus describes social business as “a new form of capitalism that serves humanity's most pressing needs. 

On the face of it, social businesses have dual motives: to create social impact and to make a profit. But we’ll parse that definition in more granular detail.

 

The curious case of Salesforce

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In 2011, Salesforce, a San Francisco-based cloud computing company, filed to use the trademark ‘Social Enterprise’ for their company. This move drew criticisms from many social business advocates. A group of leaders, including Muhammad Yunus, wrote a letter to Salesforce requesting them to remove the use of the trademark from their company profile, claiming that it brought about unnecessary confusion in the marketplace. 

Salesforce claimed that the company had “revolutionized the level of customer and employee engagement through the use of social, mobile and open cloud technologies” and were making a social impact in a way that no other companies were. Though they dropped their file in the face of the pushback from non-profit companies, they thought they had a case: they said they were working to make society better by having customers use their state-of-the-art technology. But if we were to follow their logic to its conclusion, it would mean that every business could then call themselves a social business. That’s why in order to define what a social business is, we probably have to figure out a company’s intent.

 

The intent

 

(Source: www.nonprofitlawblog.com)  

The intent is what makes social businesses different from other seemingly similar enterprises. A business can capitalise on the work it does on a social cause even if its primary intent is to make money through solving a social problem. Let’s say a venture has found an innovative way to recycle office waste and create environmentally friendly bags out of them, but that the venture’s primary intent is to make money; if that’s the case, then the venture is not a social business, even though it is fulfilling the dual motives of social businesses. But if a venture wants to primarily contribute to environmental protection and has also come up with a business model based on its innovation, then it qualifies as a social business, according to Yunus.

The intent is what makes social businesses different from other seemingly similar enterprises. 

Yunus said that it was all right for a social business to earn a profit and for a social business to re-invest profits back into the company. The company’s investors could also recoup their initial investments, but they were not to take further dividends from the company. This definition has, however, evolved and today’s theorists insist that social businesses should be allowed to take out profits as long as the primary intent is still to create the right social change.

 

Yet another wrinkle 

But there is also the argument that businesses already serve society by providing jobs and so on. Here again, we can analyse the intent of such companies: these companies primarily want to make money, and their providing jobs and other benefits can be seen to be an outcome of their primary aim. But how do we analyse a venture that is truly concerned about the people, environment, customers their employees and so on, but whose main intent is to procure long-term benefits for the company? Many experts would say that these company activities would probably be better defined as Strategic CSR (Corporate Social Responsibility) efforts, and that the company is not exactly a social business. Thus, the debate, as you can see, can continue forever.

Many experts would say that these company activities would probably be better defined as Strategic CSR (Corporate Social Responsibility) efforts, and that the company is not exactly a social business.

 

The debate comes to Nepal 

The trend of companies’ labeling their venture a ‘social business’ is picking up in Nepal too. Many of the things these companies are doing are great for society. But ultimately, it’s only the entrepreneurs and owners who can say what their real intent is: outsiders will choose to believe what they want and you can’t change that. If you want to call your company a social business, think about what the labelling implies. You can call yourself a social venture and sell as many products as you can, with the proceeds from the sales going to, say, the homeless; or you could provide employment to jobless women and have them produce handicraft, which you can then sell on their behalf. But no matter what you do, others might still call it a marketing gimmick or a crafty business strategy. Only you know your intentions, and only you will know whether your venture is a social business. Or not.

    *First published in M&S VMAG

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Guest Tuesday, 16 January 2018