I’m refocusing on the crux of cause capitalism: building a business to drive social (or environmental) change because I believe that the force of capitalism can be used to solve many of the problems we face and because it’s in companies’ best business interest to do so.
I see cause capitalism is a continuum with CSR and cause-related initiatives (like PRODUCT(RED)) at one end and non-profit social enterprise at the other (like Living Goods). In the middle of the spectrum is the social business venture (which I frequently call purpose-driven business).
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A social business venture:
- Is specifically conceived and structured to drive social change;
- Generates profits but doesn’t prioritize maximizing earnings for shareholders. Instead, profits are invested in the population or cause the enterprise serves and reinvested into the business; and
- Attracts investors looking for both financial and social returns. This structure (as opposed to a non-profit social enterprise or hybrid social venture) gives the company greater financing and scaling opportunities because it can assume debt and equity.
In their book on social enterprise, The Power of Unreasonable People, John Elkington and Pamela Hartigan call this structure Model 3. I want to be clear that Model 3 is not better than Models 1 or 2–Leveraged Nonprofit Venture and Hybrid Nonprofit Venture, respectively. Each model supports different missions and needs.
Briefly,
- Leveraged Nonprofit Ventures (Model 1) tackle market failures that are extremely difficult to resolve with a for-profit model. “Generally [Model 1 enterprises] operate where the market air is too thin for mainstream businesses to even think of venturing.” For example, enterprises serving the bottom of the pyramid.
- Hybrid Nonprofit Ventures (Model 2) serve “populations that have been excluded or underserved by mainstream markets.” Making a profit is possible, but the organization isn’t predicated on it. The enterprise recovers some of its costs by selling a product or service. One example is Greyston Bakery.
There are different forms of social business ventures even within the definition here. This week, I’ll highlight some social venture businesses and look at the challenges and benefits of this model.
I'm Olivia Khalili. I created Cause Capitalism to show you how to grow your business by incorporating a social mission. 
Hi Olivia,
Another great post! There is one part of the definition of social business venture, however, that might be strengthened. If a social business venture has to reinvest all profits in the business (point two), then it likely cannot attract investors looking for financial returns through equity offerings (point three). It could, as you note, run on debt financing because that doesn’t require the distribution of profits.
What do you think? Am I misreading your third point?
I really like the overall def though and plan on using it for some materials I’m developing (giving credit, of course!)
Cheers,
Brian Howe
@socialbizlawyer
Brian,
Really appreciate the comment. You bring up a good point. The way I see it (which might need amending) is that social venture businesses can still make a profit, some of which is reinvested into the business and into the cause/communities it’s serving, but some of which is re-distributed to investors as needed.
But, I haven’t been through this process as an investor or a business. I would love to hear from others and any other thoughts you from your experience, Brian.
This is a great reinforcement for some ideas run thru my mind as I search for a sustainable solutn to a major human capital ( youth deployment) issue in my state Lagos Nigeria and I will surely give my ideas a lot more thought. Thanks to social business venture.
This article helped me a lot. I have been reading a lot from Muhammad Yunus, Nobel Laureate, and I have been looking for ways to put these ideas into practice. You really did a great job of doing exactly that. I hope that my work at Better Better Better becomes as influential as your work is now.