To Be or Not to Be.. Profitable

By Olga Habre - Responsible Business – Beirut

 

What exactly is Social Entrepreneurship? Simply put, it’s an income-generating enterprise that aims to have social value.

In the 2010 report, Social Entrepreneurship in the Middle East: Toward Sustainable Development for the Next Generation by the Wolfensohn Center for Development at Brookings, the Dubai School of Government and Silatech the term is defined in terms of four central principles:  Achievement of positive social impact; Non-conventional thinking; Use of sustainable methods; and Innovation that can be adapted and “scaled up” beyond a particular local context.

Social Entrepreneurship (SE) finds itself at what has been called the intersection of money and meaning, and the best thing is that everyone can get involved. Social Entrepreneurship is undertaken by social entrepreneurs who aim to further social and environmental goals. They are people who recognize a social problem that has left an unfulfilled need and come up with a way of remedying that issue by using entrepreneurial principles to organize, create and manage a venture to achieve social change. Often these remedies are creative, innovative, and out of the box. Many adjectives have been used to describe these individuals; most commonly they have passion, integrity, determination, and humility, among other characteristics.

 

Social Versus Traditional

The primary difference between a social enterprise and a commercial business is its raison d’être. SE ventures also differ from commercial entrepreneurship in terms of business models. Unlike the typical top-down, model-based approach to solving problems employed by large institutions, social entrepreneurs find unique, local solutions to problems, often working with the communities that they are trying to help to find these solutions. This allows both parties to “learn by doing”. SE is not about just doing good, but coming up with real, sustainable solutions that work for everyone, keeping in mind that sometimes the best solutions are very simple, and are often revisited ones that didn’t work in the past.

While a traditional entrepreneur typically measures performance in profit and return, a social entrepreneur focuses on creating social impact, or social value. SE is most commonly associated with the voluntary and not-for-profit sectors but this doesn’t mean these initiatives do not make a profit. In fact, measurement and evaluation are key to the success of social entrepreneurs, but the scale may be different than that of traditional businesses. Profits are usually reinvested in furthering the mission of the organization. SE introduces business and innovation principles to the social sector, which changes the current paradigm and blurs the boundaries between social and economic domains. The term clarifies and points out the blurring of sectoral boundaries but while it’s new, the phenomenon is not. Even if we did not call them “social entrepreneurs”, these people have always existed.

 Social enterprises: same, same but different. They can be structured as a for-profit or non-profit, and may take the form of a co-operative, mutual organization, a social business, or a trading charity. Social enterprises apply commercial strategies to maximize improvements in human and environmental well-being, rather than maximizing profits for external shareholders.

Many traditional commercial enterprises believe they have social objectives, but often their motivation to commit to such objectives is the perception that ultimately the enterprise will become more financially valuable because of them. On the other hand social enterprises do not aim to offer any benefit to investors, except where they believe that doing so will primarily further the social or environmental goals of the business itself. What social enterprises do with profits is critical to distinguishing them from standard businesses. Social enterprises can differ depending on their legal structures, the social mission and governance embedded in their structure, or on their business model.

The difference between SE and social enterprise is that the former is about driven individuals, while the latter is more about organizational form. SE is about what people do; social enterprise is about the structures they use to get it done. That is, a social entrepreneur may start a SE venture that takes the form of a social enterprise, but such a venture can also take other forms within the private, public and voluntary sectors.

Various business models define social enterprises in different terms, and governments have only relatively recently begun to recognize these entities in legal terms, and begun to offer legal and tax incentives to encourage more initiatives.

 

From Theory to Practice

In practice, SE comes in assorted shapes and sizes.  Some of the biggest SE initiatives globally include Shwab, Ashoka, Synergos, and USAID.  Social enterprises vary from country to country in regards to legal and tax frameworks. The distinguishing features of a social enterprise in the UK are:

 

• “Have a clear social and/or environmental mission set out in their governing documents

• Generate the majority of their income through trade

• Reinvest the majority of their profits

• Be autonomous of state

• The majority controlled in the interests of the social mission

• Be accountable and transparent”

 

In the US the notion of social enterprises is very similar to that of the UK. One difference is that there is no specific legal entity for a social enterprise because unlike the UK, the US does not recognize community interest companies. A legal entity in the US must apply for tax exempt status to the Internal Revenue Service (IRS) and be approved. The entity must fit into one of the enumerated tax exempt statuses which are defined by the nature of the work rather than the legal entity itself. So being a non-profit does not automatically make an enterprise tax exempt; the company must apply, and fit into a certain category.

 

 Regional Momentum

 In the Arab world, there is also a boom in SE. According to the MEYI report, an estimated 78 globally recognized and awarded social entrepreneurs are operating in the Middle East.

The trend is also making an impact on Lebanese society. Beyond Reform and Development - BRD/I Group, recently conducted a study, The Social Entrepreneurship Momentum, speaking to 300 people in the country about SE between 2010 and 2012. Co-director of the American University of Beirut’s Darwazah Center for Innovation, Management and Entrepreneurship and associate professor Tony Feghali also recently published a report titled SE in Lebanon: Contexts and Considerations. In it, he and his colleagues examine the scope and impact of SE in the country based on interviews with 17 participants involved in SE, as well as a legal expert.

Gilbert Doumit, a partner at BRD/I Group, defines SE as a phenomenon but social enterprises as a legal form. “Social entrepreneurship is not an entity. It’s a mindset to make an impact and create social value, while using business means,” he says. Feghali says, “to be entrepreneurial, you have to start with a social objective. Instead of building your organization on charity, you build it on a good business model where you give a service or product for exchange of money or in kind, therefore you can be sustainable and profitable.”

 Though SE has existed in Lebanon throughout history, according to Doumit, many of these social entrepreneurs never realized they could be labeled as such. During his meetings with various entities as part of BRD/I’s research, many of these entrepreneurs realized they are in fact social entrepreneurs.

“Everywhere in the world there is no strict definition regarding social enterprise and social entrepreneurship but the common points between all definitions have two criteria: the social impact of the company, and sustainability, a feasible model for the company,” explains Krystel Khalil, project coordinator in charge of the SE venture at Berytech.

While abroad there are tax schemes that are relevant to incentivize companies, Lebanon does not offer such incentives. In Lebanon, there is no such thing as a social enterprise, legally, explains Doumit. “Social businesses are either NGOs or they are taxed like any other business,” he says.

 

 Why the Buzz Now?

Worldwide, the spread of SE has been attributed to various factors. Governmental and philanthropic efforts have fallen far short of expectations while major social sector institutions are often viewed as inefficient, ineffective, and unresponsive. Due to the general frustration and disillusionment with political systems and their abilities to affect change, people have taken matters into their own hands. There has also been a rise in what is called the well-being agenda. More people are seeking meaning in their work lives, and there has been increasing self-employment over the years. Overall the boundaries between traditional non-profits and traditional for-profits have blurred. The result is charities that are becoming more business-like and businesses that have developed corporate social responsibility programs, bringing the worlds closer together. The advent of modern technology has created a networked and mobile society, while the wide range of organizational, governance, income, and support options to choose from has helped turn ideas into reality.

In Lebanon, experts agree that civil society has often acted as a crutch for government. According to the BRD/I report, personal initiatives to solve social problems through innovative means have always been driven by necessity here. “In Lebanon there is a need for SE because the government cannot do much. They have a lot of problems. Societies can’t survive unless they are helped, especially people in remote areas or marginalized communities,” explains social entrepreneur Sarah Beydoun. “Many times when you demand change, the government does not have the resources, the capacity, so why demand? Go find a solution and provide an alternative. But people need to be incentivized,” says Doumit.

Feghali explains that SE enables people to be less dependent on the government. “If you empower citizens to become social entrepreneurs, they will support society, they will be doing good for society and for themselves. They will be earning a descent living while doing good, it’s excellent,” he says.

 

A Wide Array of Initiatives

There are countless SE initiatives in the country according to Doumit. Arc-en-cielwas cited by experts as one of the biggest SE ventures in Lebanon. Countless other enterprises serve various community needs.  “When you talk about SE, you are not just talking about people like us. They are also these people in villages,” says Doumit, referring to SEs that are not even registered as official enterprises. “Through the study, we found a huge number of cases and people who did things for the sake of creating social safety nets and helping their communities, and always with a passion,” he says.

 Sarah Beydoun began working with women in Lebanese prisons with the NGO Dar al Amal as part of her Master’s degree in sociology at USJ. The work inspired her to help the women further, and in 2000 Sarah’s Bag was born. The socially-conscious company produces beautifully hand-crafted handbags and accessories that are becoming renowned the world over. When she launched the company, Beydoun worked with a handful of women at the Baabda prison but this number has since expanded to 40 women in the Baabda and Tripoli prisons, as well as 100 women that have either since been released or been introduced to them via released prisoners.

Unfortunately release does not mean freedom in all senses of the word; the women’s ID cards indicate that they have been incarcerated for several years after release, along with the stigma that comes along with the imprisonment. This makes it difficult for the women to find any work at all. That’s why Sarah’s Bag continues to work with the women after release, and gives them the chance to become ambassadors in their communities for other women who are interested in working for the company. In this way, not only do they become breadwinners in their own homes, they are also seen as job-providers by others in the community, which slowly lifts the stigma and gives these women a sense of independence they may not have otherwise had. 

By teaching the women age-old craftsmanship as well as modern techniques, Sarah’s Bag not only helps them earn a living but also preserves the beautiful traditions of the trade that are dying out as a result of global commercial fashion giants.

 “I didn’t know what CSR and social entrepreneurship was until a few years ago. Then I realized that I had been doing it, but I was just being socially conscious and trying to help these ladies,” Beydoun says.

 

Microfinance, Incubators and Ideas

 Microfinance business model is also considered a social business. Bangladeshi Nobel Laureate Professor Muhammad Yunus has long discussed the idea of solving social problems more efficiently by using new business means, writing several pivotal books on the subject. In his book, Building Social Business, he defined two categories of social businesses: 1) a non-loss, non- dividend company devoted to solving a social problem and owned by investors who reinvest all profits in expanding and improving the business and 2) a profit-making company owned by poor people, either directly or indirectly through a trust that is dedicated to a predefined social cause. In the 1980s he founded Grameen Bank, a community development bank which provides microcredit loans for impoverished individuals without requiring collateral.

In Lebanon there are also various organizations that provide microcredit, including Kafalat, Council for Development and Reconstruction, Al Majmoua, Emkan, among others. Likewise there are several organizations that act as incubators not just for entrepreneurs, but now also specifically social entrepreneurs.

INJAZ has been inspiring an entrepreneurial culture among Lebanese youth since 2001. AltCityis a new social endeavor that provides space, support and organizes activities for SE initiatives in Lebanon. These initiatives aim to transform great ideas into tangible solutions. The older and more established Berytech recently launched a competition in partnership with Saint-Joseph Universtity (USJ) to search for the best SE ideas among USJ students, encouraging social entrepreneurship and contributing to the economy. In 2010 the competition was transformed into a regional joint venture with ESSEC Business School as part of the Global Social Venture Competition (GSVC), originally started at UC Berkley in 1999. The competition is open to anyone in the region, provided one member of the group is a business university student or recent graduate, and can include a new idea or an enterprise that has existed for up to 3 years. Proposals are judged according to social impact and economic viability.

Winners benefit from international exposure, as well as coaching and mentoring services from expert counselors, meetings with investors and professionals in financing, participation in international conferences and events, cash prizes, and access to further incubation and support programs.

 Last year, 43 projects were submitted. Ten were selected to participate in the business plan competition and 10 benefit from a coaching program. One project was selected this year. Daniele Diab created Myschoolpulse, an initiative that aims to keep sick children on par with their school curriculums despite their varying health states. A different, local jury also chose Pierre Daher’s TourTwist, an eco-tourism venture with a localization concept and “Charek”, a project created by Samer Sfeir.

 Inspiration is exactly what TED does—“Ideas worth spreading” is their slogan. An abbreviation for “Technology, Entertainment, Design”, the initiative began as an underground one-off event in California in 1984 and has since turned into a global phenomenon. TEDxBeirut organizer Patricia Zougheib is a self-proclaimed TED-addict and says she has been organizing TED parties at her house for almost 4 years. When TED organizers launched TEDx (where x stands for an independently organized event) she applied for a license and began organizing events. The first TEDxBeirut event, held in late 2011, exceeded all expectations of organizers, drawing over 600 people to the event and even more that were willing to watch speakers on screens outside the venue. Speakers included various social entrepreneurs as well as others who just had good ideas. But there was definitely an entrepreneurial feel at the event. “It seems we have an entrepreneurial spirit in Lebanon,” observed Zougheib. In 2011, 15 volunteers worked on organization with Zougheib, but last year over 40 have signed up—a clear indicator of the initiative’s popularity.

 

Impacts and Challenges

 Participants in Feghali’s study said SE is causing a big impact in the country. One mentioned that the lagging state is leaving lots of room for individuals to fill in the gaps. Others were less optimistic, citing that it is difficult to measure the true economic impact of SEs and warning against creating dependence and further marginalizing the very citizens the enterprises aim to help, rather than teaching them to become self-sustaining. Even so, most agreed there is potential for SE growth in the country.

Some challenges facing social entrepreneurs in the region are the same as their counterparts globally, but others are unique to the area. The MEYI report categorizes these into: policymaking and governance related challenges, the need for greater institutional, operational and financial support, and the lack of social and cultural awareness and recognition of their work. Locally, some challenges include not having government support, policy or incentives in terms of tax, legal and resources. Many ventures do not even know the criteria that define social enterprise, especially on the level of profitability. A huge boost for the SE movement would be for it to be recognized as a concept.

The BRD/I report found the following financial mechanisms for SE in Lebanon: microcredit, special bank loans, grants, funding from investors, venture philanthropies, as well as various types of partnership funding and sector development funding. But Feghali’s participants sited financial struggles as the most significant challenge to SE in the country. Other reasons included legal obstacles, lack of technological access, infrastructure difficulties, cultural conflicts and gender biases.

Legislative support and intervention is also vital, including tax exemption or reform and improvement of the infrastructural systems to sustain and advance SE. Likewise, financial reforms to facilitate access to a wider array of loans was recommended. Many of the study’s participants reflected that a network for social entrepreneurs would help with material and non-material resources, as well as help newer entrepreneurs make informed decisions and work better. Such a supportive network –as opposed to negative competition—would help everyone in the ecosystem thrive and thus be better able to serve their causes.

 Doumet suggests that SE could be transformed by the government from a phenomenon to a strategy, a solution for problems using citizens’ innovation. The report recommends creating a new legal structure, create criteria for what it means to be a social enterprise, as well as a control and auditing mechanism.

To continue the momentum, BRD/I is has launched the Society for SE, which aims to provide a platform for all stakeholders to contribute to the global conversation and work together to anchor SE in the public, private and non-profit sectors.

 

The Way Forward

 Academic and educational efforts in the region are also helping bridge the current academic research gap. “The role of education is to create awareness and provide all the tools you need to avoid obvious mistakes, and to use all these tools to succeed,” Feghali says. Education empowers people to bounce back in case of failure, or “snags” he adds. In addition to several new educational initiatives in Lebanon, BRD/I has designed and conducted an SE course with over 500 participants in 12 Arab countries at universities, NGOs and informal platforms.

Encouraging awareness is vital according to everyone in the SE ecosystem. Beydoun adds that with more awareness that is happening now, new start ups would think of being social from the start, and not create CSR initiatives down the line. “They should think of it as a source of opportunity, a competitive advantage,” she says.

BRD/I report states that the phenomenon of SE is vital now more than ever in order to create a paradigm shift in society whereby people will move from demanding change to initiating it, while using an entrepreneurial mindset to affect and drive this change sustainably.

 

SourceResponsible Business Magazine

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