Social businesses are those businesses that are created with their sole purpose being to solve a social problem in a way that is financially self-sustainable. These businesses are continually becoming an important tool for economic and social development in many countries all over the world. The idea of social business borrows some of its concepts from the capitalist economy. In the capitalist system their are two types of companies that can be distinguished, the companies that are purely profit-maximizing businesses and their main purpose is to create and increase share holder value. The other businesses are nonprofit organizations which exist just to fulfill a social objective. A social business borrows its ideas from both of these companies. It aims to recover its costs from its operations and the owners can recover their invested money.
The social businesses are however more cause-driven than profit-driven. They have the potential to act as a change agents in the world. Social businesses recover their costs so as to achieve self-sustainability while achieving their social objective (Yunus & Jolis, 1999).
Rather than the profits made being passed on to investors like the profit-making organizations, the surplus generated by social businesses is reinvested in to the business. Ultimately, the profit is passed on to the target group of beneficiaries. The benefits are passed in many forms including lower prices of goods, better services and greater accessibility to the goods and services. Social businesses are designed and operated just like other normal business enterprises with goods, services, customers, markets, expenses, and revenues (Yunus & Weber, 2007).
It differs from NGOs since most of the NGOs do not recover their investments and costs from their operations. They devote part of their time and energy to raising money that will be used to sustain them. Social businesses on the other hand, seek for self-sustainability and only rely on its investors at the beginning of the project (Yunus & Jolis, 1999).
Unlike traditional companies, social businesses aim at addressing societal needs so that the society is able to perform and function more efficiently. They provide the necessary framework for solving societal issues by combining their business knowledge with their desire to improve the quality of life.
How Social Business Differ From NGOs
NGOs depend on grants from government and private funding so as to sustain themselves. This funds that are provided by the different donors are used to provide goods or services to the needy on a one time basis. These organizations therefore seek for funding year after year so as to be able to sustain their good works.
Social businesses on the other seek to change the idea of achieving social transformation using donated funds. They seek to create self-sustainable businesses that seek to change the society. They do not depend on funding to run their operations. They only depend on funds from investors to sustain the business. Their after they sustain themselves by re-investing the profits that they gain from their operations (Yunus & Weber, 2007).
Principles of Social Business
Professor Muhammad Yunus identified seven principles that guide the development and operations of social businesses (Yunus & Weber, 2007). The principles are discussed below.
The objective of a social business should be to overcome the problems that threaten the people and the society as a whole and not to maximize profits. Some of the social problems that the professor identified are poverty, education, health, technology access and environment. Social businesses should aim at overcoming one or more of these problems and not to maximize the profits that they receive from their operations.
Financial and economic sustainability. Social business must aim at achieving self sustainability. They should dedicate part of the profits they make to be reinvested in to the business. The remaining part is given back to the society in various forms. Social businesses are not expected to depend on donations from outside to sustain themselves.
Investors only get back the money they invested into the company and no dividend is given to them beyond the money they invested.
When investment amount has been paid back, the profit stays with the company for expansion and improvement. As mentioned earlier, social businesses are supposed to be self sustained. That is, they use the profits they get from their operations to maintain, expand or improve the business.
Social businesses are supposed to be environmentally conscious. One of the problems that social businesses seek to address is environmental problems. The businesses are also expected to keep the environment they operate in as clean and natural as possible. They should not engage themselves in activities that will or may degrade the environment.
The workforce of these businesses should be paid the prevailing market wages with better working conditions. The working environment should be conducive for the workforce. They should be comfortable at the place of work and their salaries must be in line with the prevailing market wages.
The final principle is to do it with joy. This means that the social business owner should operate these businesses with pure hearts. They should be happy and comfortable with operating this business.
Benefits of Social Business
Social business offers numerous advantages to its workers, government and the society as a whole. One of the benefit that social businesses offers is that to it workers. This is because social businesses operate on the principle that the workforce should be paid the prevailing market wages and they should also be offered a working environment that is conducive. This means that the employees of any social business will enjoy the fact that they will not be underpaid or treated unfairly at their place of work (Yunus & Weber, 2007). The society can generally benefit from social businesses from the jobs they create when they come into existence. They help reduce the level of unemployment in the region they are created.
The social businesses are created purposely to help solve societal problems. The problems include education, health, poverty, technology access and the environment. By solving these problems the businesses help the society to be able to live a normal healthy life. By solving these problems the businesses also help the government. This is because it lifts some of the responsibilities of the problems by solving such problems.
Social business help in filling gaps in the market that are creating challenges for the society. An example is the bank that was developed by Yunus to help provide loans for the villagers who were not able to get loans from the commercial banks that were in the village. The economy of the country these businesses operate in benefit when these problems are reduced since the economy becomes more stable.
When the economy is stabilized other profit-making business are able to benefit from this. Their cost of operation is reduced due to the stabilization of the economy and hence, they are able to realize more profits.
One of the ways that social businesses improve the society is by providing products at a lower price and making them more accessible to the community. This is very beneficial especially to communities that face a challenge in accessing goods and services that are vital for their existence.
The owners and shareholders of the social businesses are also able to benefit from investing in social businesses. Even though they do not get profits for their investments, their public image is enhanced. They also get to enjoy good relationships with the government. Any other business they operate is likely to be easily accepted by the community it operates in and they may also enjoy special privileges from the government.
Challenges Associated With Social Business
One of the challenges that social businesses face is finding the right people from the community that they can include in the business. Social businesses need to understand the needs of the society before they are able to help solve them. Most social businesses look for members of the community and integrate them into the business. The main purpose of these community members is to identify the most important needs of the community. The challenge comes in finding the most appropriate level of community participation that will support both the social and entrepreneurial success of the business ("3 Big Social Business Implementation Challenges - InformationWeek," n.d.).
Another challenge that this businesses are faced with is the method they can use to gauge their social and financial performance. It is difficult for the business to measure their impact and also decide at what exact point they can start measuring themselves. It is difficult for these businesses to identify their key performance indicators.
For social businesses that operate at community levels, they face the challenge of adapting the culture of that particular community. For the social businesses to operate efficiently and effectively, they need to co-exist with the community in which they operate. This proves to be challenging especially in trying to get the work force to work in a way that is acceptable in the community ("3 Big Social Business Implementation Challenges - InformationWeek," n.d.) .
Types of Social Business
There are two types of social business that are identified by professor Yunus.
The first type is the one that focuses on businesses that only deal with their social objectives. The products produced by these businesses are just for the benefit of the poor or are targeted just to solve a specific societal problem. An example of this type of business is Shokti Doi yoghurt that is fortified with micro nutrients that are needed by children and it helps in fighting malnutrition in these children.
The second types of social businesses that take up any profit maximizing business that is owned and operated by the poor and those that are disadvantaged. The poor and disadvantaged who own the business gain by receiving dividends or some indirect benefits. An example of this type of social business would be a company in which the poor produce products and sell them abroad. The net profits gained from the sale go towards worker benefits ("Types of Social Business | Social Business Earth," n.d.).
Social Business Models
The professor suggests that business models should have to major components.
A value proposition. The value proposition should seeks to answer the questions; who are or will be our customers and what do we or can we offer to them that they value?
A value constellation. This seeks to answer the question; how do we deliver these offers to our customers? This involves both the companys value chain and the businesss value network with both its suppliers and partners.
Different strategic moves can be used by social businesses in developing the business models. Professor Yunus identified the moves that are discussed below.
Challenging the conventional wisdom and basic assumptions
Most businesses when developing their business model consider the already existing business models instead of focusing on their products, processes or technologies as their centre of innovation. When coming up with a business model, owners of social businesses need to look at their products, processes and the technology that they posses and come up with a business model that will suit their operations. They need to avoid the use business models that have been used by other businesses (Hossain, 1988).
Professor Yunus in coming up with Grameen Bank challenged the common rules and belief that applied to the banking industry. Yusuf had encountered a group of women from a small village who c...
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