About social entrepreneurship

August 1, 2018

Social entrepreneurship means the production of goods or services in order to solve a social problem or to bring benefits to the public, not the maximization of profits for business owners. Social business types, formats, goods, and services can be very diverse, social enterprises can be large or small, international or local, but they all share the desire to generate high social added value by applying business methods.

Social entrepreneurship is not easy to define – neither in Europe nor in the world there is a single definition or common understanding of the exact boundaries of social entrepreneurship, but the two main criteria still are and remain: 1) entrepreneurship 2) with a social objective.

As social entrepreneurship is an interdisciplinary area full of innovations, it is extremely difficult to put it within a specific frame of reference, therefore, we offer to get acquainted with Latvian and foreign examples in order to understand how this type of entrepreneurship works in practice!

How is social entrepreneurship defined in Latvia?

‘Social entrepreneurship’ and ‘social enterprise’ are slightly different concepts. Social entrepreneurship is a broader concept and mainly characterizes the process, it is not legally defined in any way. A social enterprise already is a specific type of business and a legal status that can be obtained by a company that fulfills certain criteria established by the state.

In Latvia, a social enterprise is a limited liability company (SIA), which produces economic activities that have a beneficial social impact, such as the provision of social services, the creation of inclusive civil society, the promotion of education, the support for science, the protection and preservation of the environment, the protection of animals, or the provision of cultural diversity, and has acquired the status of a social enterprise in compliance with the criteria and conditions established by law.

The status of a social enterprise can be obtained by:

– existing limited liability companies that have adapted their activities to the requirements of the law

– newly established limited liability companies that have been created with a particular objective to immediately become social enterprises.

Who came up with the idea of social entrepreneurship?

The first social enterprises appeared a long time ago (for example, the oldest social enterprises of Britain were founded in the late 19th century), but the first to define social entrepreneurship was Muhammad Yunus, a Bangladeshi social entrepreneur, the founder of the Grameen Bank and the Nobel Peace Prize winner. He formulated the seven principles of social entrepreneurship, which underpin most of the definition of social entrepreneurship currently used in Europe and across the world.

● The business objective is not to gain maximum profits, but to overcome poverty or any other social problem.

● Financial and economic sustainability.

● Investors get back only the amount invested without any dividends.

● After the return of investment, company profits are used for further development and solution of social problems.

● Responsible attitude towards the environment.

● Employees get the remuneration appropriate for the labor market situation and better working conditions.

● …and do the work with joy!

How is social entrepreneurship explained elsewhere in Europe?

In its documents, the European Commission defines social entrepreneurship as follows:

A social enterprise is an operator in the social economy whose main objective is to have a social impact rather than make a profit for their owners or shareholders. It operates by providing goods and services for the market in an entrepreneurial and innovative fashion and uses its profits primarily to achieve social objectives. It is managed in an open and responsible manner and, in particular, involves employees, consumers and stakeholders affected by its commercial activities.

This definition is not binding in any way for the Member States, and the European Commission emphasizes that there is no uniform legal form for the implementation of social entrepreneurship. However, as the definition shows, the Commission has linked social business with such broader concepts as the social economy and innovation, which indirectly implies a non-traditional and unconventional approach of social entrepreneurship in creating social value.

What is NOT social entrepreneurship?

  • Social entrepreneurship is NOT the social corporative responsibility activity of traditional companies. For example, an education program implemented by a bank is not social entrepreneurship, unless, of course, it is implemented in a form of an individual company that is separate and independent both financially and in terms of content.
  • Social Entrepreneurship is NOT charity when something is given to someone free of charge. Of course, this can be done if it is based on a sustainable business model that generates income that fully or partially covers charitable activities.
  • Social entrepreneurship is NOT social assistance activities provided by state and municipalities.

Read also “10 questions about social entrepreneurship”

Read also “From idea to enterprise”