For the Good of It: A Q & A with Ph.D. Candidate Rasheda Weaver on Benefits and Challenges of Social Enterprises

By Tom McLaughlin

If you listen to popular sentiment, there are two ways to run a business: for profit – focused on generating revenue – and non-profit – using any surplus revenue to further the organization’s mission. However, as a growing cadre of successful business owners can attest, one hand can feed the other.

Rasheda Weaver, a Ph.D. candidate in public affairs at Rutgers University­–Camden, explains what drives these social entrepreneurs, explores the pros and cons of owning a social enterprise, and considers what policy changes can be made to bolster revenue-generating organizations that are making a social impact.

Do social enterprises miss out on some advantages, such as tax breaks or credits, which nonprofit institutions enjoy?

For-profit social enterprises, such as benefit corporations and low-profit limited liabilities, do miss out on financial benefits such as tax breaks, especially on property. However, large social enterprises – for example, The Honest Company, TOMS Shoes, and Warby Parker – substantially benefit from the profits that they make.

Conversely, are there any advantages that social enterprises have over nonprofit institutions?

Yes, nonprofit organizations have what is called a “non-distribution constraint,” which prevents them from granting profits that they make to their board of directors. Instead, they reinvest these surpluses into their organizations.

Since 2008, four for-profit laws have been created for social enterprises: low-profit limited liability company (L3C), benefit corporation, special purpose corporation, and the benefit limited liability company. Under these laws, social enterprises can provide a certain number of profits to their shareholders and investors, as long as their social mission is met.

Are there any advantages that social entrepreneurs have over for-profit businesses not concerned with making a social impact?

With income inequality growing, more and more people want to understand how businesses can help improve the world. The social mission of a social enterprise makes people want to purchase from them as opposed to traditional for-profit companies. New research has shown that people do not mind paying more for a product if they know some of the profits will be used for a social purpose. The more popular social enterprise becomes as a field, I predict the more people will expect businesses to engage in socially conscious activities.

What about any disadvantages?

DSC_0058-facebookSince social enterprises are created and operated by people who truly want to create positive changes in the world without much concern for profits, they might face certain challenges. For instance, they often charge low prices because they want to provide a service or product that is socially beneficial in some way, but they forget that they need to be financially sustainable in order to keep providing that product or service.

What makes social entrepreneurs stay committed to their respective missions, even when their bottom lines suffer?

Most social entrepreneurs start enterprises because of the social mission and see the money making aspect of it as necessary for financial sustainability. In fact, research has found that many social entrepreneurs create social enterprises after going through or witnessing others experience serious life challenges. They start social enterprises as a means of combating problems they have experienced or seen.

Thus, they stay committed to the mission because it is personal as well as professional. With that said, most research on social enterprises focuses on those who are successful. We do not know much about unsuccessful social enterprises yet.

Can anything more be done, such as policy changes, to ensure that social enterprises survive and thrive?

Yes, various social enterprise laws should be available in each state to facilitate the work of social enterprises. I also strongly believe that investing in training programs for aspiring social entrepreneurs may help them survive and thrive as well. I have a journal article currently under review with the Social Enterprise Journal that explains the challenges social enterprises face in regards to financial sustainability, legal form, and recruiting talented staff.

These challenges can be prevented or better dealt with if social entrepreneurs are properly trained. Such training can be done in academic institutions or through institutions that offer low-cost training, mentorship, and technical support to new social enterprises.

Posted in: Research Highlights

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