Social or commercial entrepreneurship?  …that is question…or is it?

Social or commercial entrepreneurship? …that is question…or is it?

Through various interactions with people and programmes in both the commercial and social entrepreneurship arenas in South Africa, I’ve often wondered why a distinction is still made between the two types. This is mainly because most social enterprises are expected to have viable and sustainable income generation sources to fund their social initiatives with minimal dependency on grants and donations; whilst there is, an equal and opposite expectation that viable, commercial enterprises will demonstrate their commitment to social development through business practices that honour the Broad Based Black Economic Empowerment (BBBEE) codes and the optimisation of the triple bottom line.

The amended BBBEE Codes of Good Practice were issued by Dr Rob Davies, Minister of Trade and Industry in April 2015 and came into operation in May last year. In particular, the annual value of enterprise development contributions (which, for the purposes of convenience for this post, we’ll deem contributions by established and profitable companies to start-ups) is 1% of the Net Profit After Tax (NPAT) of the former companies. Similarly, the annual value of all socio-economic development contributions by these companies is also 1% of NPAT to social initiatives.

Whether 1% of NPAT is an adequate private sector contribution for both enterprise and socio-economic development has been the subject of many spirited debates which won’t be contributed to in this post.

So, assuming that the aggregated 1% NPAT of all qualifying commercial enterprises to social development, is a comparable proxy for the financial sustainability of social enterprises then why is entrepreneurship still preceded by the qualifiers “commercial” and “social”? Abridged from the Houston Chronicle I found the following four main reasons:

 

Criterion Commercial Entrepreneurship Social Entrepreneurship
Initial investment sources Venture capitalists who invest on the basis of the company’s leadership team and the managers and staff that support it Philanthropists who gauge the viability of a project based on the individual at the helm
Perceptions of value Value lies in the profit the entrepreneur and investors expect to reap as the product establishes itself in a market that can afford to purchase it Value lies in broader social benefit to a community or the transformation of a community that lacks the resources to fulfil its own needs.
Profitability measures and company structures Always structured to make profits that benefit stakeholders such as shareholders or private investors Activities often structured under charitable trusts and non-profit organisations
Approach to wealth creation The business’ success is gauged by market cap size and how much wealth it creates – for the most part wealth creation is an end in and of itself Wealth creation is necessary, but not for its own sake. Wealth is rather a tool to effect social change and the degree to which minds are changed, suffering is alleviated or injustice is reversed represents the business’ success.

GIBS, which offers the Social Entrepreneurship Programme, reports that social enterprises in South Africa are often registered as both for and not for profit companies meaning that they can access both donations / grants and commercial funding. Surprisingly, GIBS has found that the consequence of this approach is not a shift away from the mission of the organisation, but instead a focus on it.

“[Social entrepreneurship] is a blend of for and not-for-profit approaches, which balances the value and trust of social organisations with the efficiencies and profit motive of business. Within this is a conflict that challenges our cultural interpretation of charity – to make money out of social services is interpreted as inherently wrong and counter-intuitive to the mission-focus of civil society.”

civil societyIn recognising the unique position of entrepreneurship in South Africa continued, innovative responses around both the challenges and opportunities faced by social entrepreneurs in South Africa are not only encouraging but have the potential to render the commercial vs social entrepreneurship question irrelevant.

Applications for Singularity University South Africa’s Global Impact Competition close on 15 March 2016 so don’t delay- apply today! The purpose of this competition is to foster successful start-ups that will positively impact a billion people in the next 10 years.

The 2016 SEED Awards are open for start-ups that integrate social and environmental benefits to solve pressing local issues. Entries close on 21 March 2016.

About the Author

Leave a Reply