Is Social Enterprise the Future of Business? A Deep Dive into Its Viability

In recent years, the business landscape has seen a shift towards more purpose-driven models, with companies increasingly focusing on creating positive social or environmental impact alongside generating profit. This movement, embodied by social enterprises, has gained significant traction globally. Social enterprises blend the best of both worlds—business acumen and social responsibility—while aiming to solve real-world issues like poverty, inequality, and environmental degradation.

But as more entrepreneurs turn to social enterprises, the question remains: Is this model truly viable in the long run? Can businesses committed to social causes sustain themselves in competitive markets, or does the pursuit of profit and purpose pull them in opposite directions? This blog will explore the core challenges and opportunities that determine the viability of social enterprises, with real-world examples of success and failure to provide insights into what makes or breaks these ventures.

What Is a Social Enterprise?

A social enterprise is a business with a dual mission: to generate profit while addressing social, environmental, or community issues. Unlike traditional non-profits, social enterprises seek financial sustainability through commercial activities. They are not reliant on donations or grants, but instead generate their own revenue while reinvesting a portion of their profits back into their mission.

The idea behind a social enterprise is that businesses can create long-term, scalable solutions to some of the world’s most pressing problems. However, balancing this dual mission is no small feat, and the viability of this business model is often called into question.

The Economic and Social Need for Social Enterprises

The growth of social enterprises is driven by changing consumer and investor behavior. Today’s customers, particularly Millennials and Gen Z, increasingly demand that businesses stand for more than just profit. They want companies to reflect their values, and they’re willing to spend more on products and services that align with these principles.

At the same time, the global challenges facing our planet—climate change, poverty, and inequality—have reached a point where traditional government and non-profit interventions alone are not enough. Social enterprises fill the gap by offering innovative solutions to these problems, blending the efficiency and scalability of the private sector with a strong sense of purpose.

Example: TOMS Shoes

TOMS is one of the most recognizable social enterprises. Known for its “One for One” model, the company donates a pair of shoes for every pair sold. Over the years, TOMS has expanded its mission to include providing clean water, medical care, and safer birth services in underdeveloped countries. While TOMS faced criticism for some aspects of its model, the company has remained a prominent example of how a for-profit enterprise can create social impact on a global scale.

Challenges Facing Social Enterprises

While the potential for social enterprises to create lasting impact is significant, the path to success is not without its hurdles. These businesses face unique challenges that can jeopardize their viability.

Balancing Profit and Purpose

The core challenge for any social enterprise is balancing profit with purpose. Striking this balance is far more difficult than it might seem. On one hand, businesses need to generate enough revenue to remain sustainable. On the other hand, they need to commit significant resources to their social mission, which can cut into profitability.

This tension can lead to difficult decisions. Should a social enterprise cut corners on its mission to increase profits, or should it prioritize impact at the expense of financial growth? Finding the right balance is key to long-term viability, and not all social enterprises are able to manage this effectively.

Example: Warby Parker

Warby Parker, an eyeglass retailer, was founded with the dual mission of selling affordable eyewear while donating glasses to those in need. While its business model has been lauded, the company shifted its focus slightly to prioritize scalable growth. The company’s success in maintaining a balance between purpose and profit has contributed to its viability as a social enterprise, with Warby Parker becoming a major player in the eyewear industry.

Access to Funding

Social enterprises often struggle to secure funding, particularly in the early stages. Traditional investors are often skeptical of businesses with a strong social mission, viewing them as less likely to generate substantial returns. At the same time, social enterprises don’t always qualify for the same grants and donations that non-profits receive, since they are for-profit entities.

To overcome this, many social enterprises must find alternative funding sources, such as impact investing or social venture capital, where investors are willing to accept lower financial returns in exchange for social or environmental benefits.

Example: Impact Investment in Social Enterprises

The rise of impact investing—where investors aim to generate both financial returns and positive social or environmental impact—has provided a lifeline to many social enterprises. Impact investment funds like Acumen and Omidyar Network have successfully supported social enterprises in sectors like healthcare, education, and renewable energy, helping them grow while staying true to their mission.

Scalability

Scaling a social enterprise can be particularly challenging. For many, the cost of achieving their social mission increases as they grow. For example, if a company donates a product for every one sold, the donation costs increase alongside sales. This can strain resources and make it difficult to maintain profitability.

Additionally, expanding a social enterprise into new markets often means dealing with different regulatory environments and cultural expectations. This requires both flexibility and a strong, adaptable business model.

Example: Grameen Bank

Grameen Bank, founded by Nobel laureate Muhammad Yunus, is a social enterprise that provides microloans to low-income individuals, primarily women, in developing countries. While Grameen Bank has achieved significant success, its model of offering small loans with low interest rates has faced challenges in scaling globally, particularly in regions with differing financial systems or regulations.

Opportunities for Social Enterprises

Despite these challenges, there are numerous opportunities that make social enterprises not only viable but essential to the future of business.

Growing Consumer Demand for Ethical Products

Consumers today are more informed and concerned about the social and environmental impact of the products they buy. This shift in consumer behavior presents a significant opportunity for social enterprises, which can attract a loyal customer base by aligning with these values. Brands that can clearly communicate their mission and impact stand to benefit from growing demand for ethical consumption.

Example: Patagonia

Patagonia, the outdoor apparel company, has long been committed to environmental sustainability and social responsibility. Its efforts to reduce its environmental impact and its public stance on environmental activism have helped it build a loyal customer base that values purpose as much as product. Patagonia’s commitment to sustainability has not only earned it a positive reputation but also made it a highly successful business.

Attracting Talented Employees

Millennials and Gen Z employees increasingly prioritize working for companies with a social purpose. Social enterprises can attract top talent by offering meaningful work that aligns with employees’ values. In an era where people seek more than just a paycheck, the ability to provide meaningful employment can be a significant advantage.

Example: Ben & Jerry’s

Ben & Jerry’s, the ice cream company, has long been a proponent of social and environmental causes, from climate justice to fair trade. The company’s strong social mission has helped it attract passionate employees who are committed to making a difference, creating a workplace culture that fosters innovation and loyalty.

Long-Term Impact and Longevity

Unlike businesses that are solely focused on profit, social enterprises have the potential to create long-lasting change. When done right, these businesses can build strong relationships with customers, communities, and stakeholders, which contributes to their longevity. Companies with a clear purpose and impact often inspire greater brand loyalty, leading to sustainable long-term growth.

The Hybrid Model: Blurring the Lines Between Profit and Purpose

One of the most promising trends in the world of social enterprise is the hybrid business model, which combines the strengths of both for-profit and non-profit organizations. In a hybrid model, businesses can access both commercial revenue streams and philanthropic resources, allowing them to maximize their social impact while remaining financially viable.

This approach has gained traction with the rise of B Corporations, for-profit companies certified to meet rigorous standards of social and environmental performance, accountability, and transparency. B Corps blur the lines between profit and purpose, showing that businesses can pursue both simultaneously.

Example: Seventh Generation

Seventh Generation, a company specializing in environmentally friendly cleaning products, is a certified B Corporation. The company has built its brand around sustainability and social responsibility, while also achieving commercial success. Seventh Generation’s hybrid model allows it to meet the growing demand for eco-friendly products while staying true to its mission of environmental stewardship.

Conclusion: Can Social Enterprises Succeed?

The question of whether social enterprises are viable ultimately depends on their ability to navigate the challenges of balancing profit and purpose. While there are significant obstacles—such as access to funding, scalability, and managing mission drift—the opportunities for social enterprises are substantial.

In a world increasingly focused on ethical business practices, social enterprises are well-positioned to thrive. As consumers demand more from the companies they support, and investors look for ways to make a positive impact, the future for social enterprises looks promising.