Exploring the Pros and Cons of Social Enterprises: Balancing Impact and Profit (With Examples)

Social enterprises are businesses that are motivated by a social or environmental mission, rather than solely by profit. These organizations aim to create positive social or environmental impact through their operations and business model. While social enterprises have gained popularity in recent years, there are pros and cons to consider when starting or investing in one.

One of the main pros of social enterprise is the ability to make a positive impact on society and the environment. Social enterprises are designed to address a specific social or environmental issue, such as poverty, inequality, or climate change. For example, TOMS Shoes operates on a “one for one” model, where for every pair of shoes purchased, a pair is donated to a child in need. This not only helps to improve the lives of those in need but also gives consumers the satisfaction of knowing that their purchase is making a positive impact.

Another pro of social enterprise is the potential for financial sustainability. Social enterprises often have multiple revenue streams, such as grants, donations, and impact investing. This can help to ensure the long-term viability of the organization and its mission. Additionally, consumers are increasingly willing to pay a premium for products and services that align with their values, which can provide a competitive advantage in the market.

Here are a few examples of social enterprises that have been successful in achieving their social or environmental mission while also achieving financial sustainability:

Warby Parker: Warby Parker, a socially responsible eyewear company that operates on a “one for one” model, has been successful in providing glasses to people in need while also achieving financial sustainability. The company has donated over five million pairs of glasses to people in need and has a valuation of over $1 billion.

Patagonia: Patagonia, an outdoor clothing company that is known for its commitment to environmental and social responsibility, has been successful in promoting sustainability and reducing its environmental footprint while also achieving financial sustainability. The company has implemented a number of environmentally friendly practices and has a reputation as a socially responsible company.

Grameen Bank: Grameen Bank, a microfinance institution founded in Bangladesh, is considered to be one of the most successful social enterprise. It was founded in 1983 to provide small loans to poor people, mostly women, who lacked collateral. Today, it has lent over $10 billion to more than 8 million poor people in Bangladesh and it has been replicated in many other countries.

These examples show that social enterprises can be successful in achieving their social or environmental mission while also achieving financial sustainability. By carefully considering their mission and business model, social enterprises can create a positive impact on society and the environment while also being financially sustainable.

However, there are also cons to consider when starting or investing in a social enterprise. One of the main cons is the potential for trade-offs between impact and profitability. Social enterprises often have a limited budget and must make difficult decisions about where to allocate resources. Additionally, social enterprises may face challenges in scaling their operations and reaching a larger audience while maintaining their social or environmental mission.

Another con is that social enterprises may face a lack of understanding or support from traditional investors or business leaders. The traditional business model may not fully understand or support the social enterprise model and the potential trade-offs that may be required.

While many social enterprises have been successful in achieving their social or environmental mission and achieving financial sustainability, there are also examples of social enterprises that have been unsuccessful. Here are a few examples:

1. The Honest Company: The Honest Company, a socially responsible consumer goods company that sells eco-friendly and non-toxic products, was founded in 2011 with the mission of making it easy for consumers to live a healthier and more sustainable lifestyle. Despite its socially responsible mission, the company struggled to turn a profit and in 2020, it was reported that the company had laid off nearly 20% of its staff and the co-founder stepped down as CEO.
2. Better World Books: Better World Books, a social enterprise that sells used books to support literacy and education programs, launched in 2005 with the goal of reducing waste and promoting literacy. However, the company struggled to scale and generate consistent revenue, and it filed for bankruptcy in 2019.
3. Natura: Natura, a Brazilian cosmetics company that was founded in 1969, was a pioneer in the area of Corporate Social Responsibility (CSR) and sustainability. However, the company struggled to adapt to changing consumer demands and increased competition, and in 2020, it reported a loss of $30 million.

These examples show that even with a socially responsible mission and multiple revenue streams, social enterprises can still face challenges in achieving financial sustainability. It’s important for social entrepreneurs to consider all the potential risks and challenges before starting a social enterprise, as well as be aware of the market and adapt to it.

In conclusion, social enterprises offer a unique opportunity to make a positive impact on society and the environment. They can be financially sustainable and offer a competitive advantage in the market. However, it’s important to consider the potential trade-offs between impact and profitability and the potential lack of understanding or support from traditional investors or business leaders.

Considering investing in social enterprises? read this checklist first.