What is a Social Business?

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Coined by Noble Laureate Professor Yunus, the idea of social business is considerably new. In his book ‘Building Social Business’, Professor Yunus distinguished social business with a social enterprise or any other type of social venture. Also known as enlightened capitalism, the emerging field of social business focuses on using business methods and practices to achieve positive social changes. With an often-ambiguous identity, social businesses aim to promote social welfare as primary driver, while also making a profit. The main difference of a social business with any other traditional for-profit social enterprise is that the investors, or the shareholders, do not receive any share of the profits. They only get their invested amount back after a certain time. The profits are re-invested to expand the business with the vision to increase impact. Stakeholders receive a dividend on their investment in the form of social change. There are two main components of social business model:

Value proposition – Who are the customers and what is being offered to them?
Value constellation – How do the value is being delivered to the customers? This involves not only the company’s own value chain but also its value network with its suppliers and partners.

According to Professor Yunus these two components need to fit together like pieces of a puzzle in order to generate a positive profit equation, which is the financial translation of the other two, and includes how value is captured from the revenues generated and manifested in both economic and social profit equation. Social business is founded on seven key principles:

A business objective to overcome poverty, or one or more problems (such as education, health, technology access, and environment) which threaten people and society; not profit maximisation.
Financial and economic sustainability
Investors get back their investment amount only. No dividend is given beyond investment money
When the investment amount is paid back, company profit stays with the company for expansion and improvement
Gender sensitive and environmentally conscious
Workforce gets market wage with better working conditions
Do it with joy

There are two types of social businesses:

Type 1 – Benefit maximising SB

Social businesses that focus on providing a social benefit rather than on maximising profit for the owners, and that are owned by investors who seek social benefits such as poverty reduction, health care for the poor, social justice, global sustainability, and seeking psychological, emotional and spiritual satisfactions rather than financial reward. Typically, Type One social businesses are undertaken by large corporations or investors who are also keen to make an impact through positive social change.

Type 2 – Profit maximising SB

In most cases Type Two of social businesses are owned and operated by the poor or disadvantaged. In Bangladesh, social business commenced with the inception of Grameen Bank. From the beginning, Grameen Bank lent money to many poor villagers, mainly women, to start their own businesses to earn profit for making a living. Though the loan amount was small, it was a great help for those who had barely enough to feed themselves. In this type of social business, the social benefit is derived from the fact that the dividends and equity growth produced by the business will benefit the poor, thereby helping them to reduce their poverty. The following figure shows the foundation of the social business model –

References:

Lundstrom, A., & Zhou, C. (2013). Rethinking Social Entrepreneurship and Social Enterprises: A Three-Dimensional Perspective into Social Entrepreneurship. International Studies in Entrepreneurship, 29, 71-89.

Yunus, M. (2010). Building social business: The new kind of capitalism that serves humanity’s most pressing needs. Dhaka: The University Press Limited.

Yunus, M. (2017). Social business entrepreneurs are the solution. In The Future Makers (pp. 219-225): Routledge.

Yunus, M., Moingeon, B., & Lehmann-Ortega, L. (2010). Building social business models: lessons from the Grameen experience. Long Range Planning, 43(2), 308-325.