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Venturesome calls for clarity on social enterprise business models 1

Finance | Ian Allsop | 30 Jul 2008

Venturesome, CAF’s social investment fund, has published a paper aimed at finding common agreement on the language used to describe social enterprises.

The paper outlines three different business models of social enterprise.

John Kingston (pictured), Venturesome’s director, said: “To attract and retain more social investors we need to use a common language.

“More and more people are talking about themselves as social enterprises but this means different things to different people.

“The interest is positive but there is now a need for clarity about the different types of organisation trading to achieve positive social impact.

“We don’t see any of these models as better than the others. We have designed them to help create clarity which is important if they are to be successful as each model requires different management capabilities and different types of investment.”

The three models outlined

The first model includes enterprises operating a profit-making trading activity that has no direct social impact but gives some, or all of their profit to a charity, for example the trading subsidiaries of charities, companies which promise to give a percentage of their profits to charitable projects, or a hedge fund which gives a slice of its profits to a charitable foundation, eg. the Children’s Investment Fund.

The second model includes enterprises operating trading activities that have a direct social impact but manage a trade-off between producing a financial return and social impact, such as fair trade businesses or microfinance funds.

The third covers enterprises engaging in a trading activity that not only has a direct social impact but also generates a financial return in direct correlation to the social impact created. This might include windfarms or farmers’ markets.

Models “a means to an end”

Authors Paul Cheng and Joe Ludlow conclude that no particular model is inherently more profitable than another.

“We also believe that no particular model is inherently more socially impactful than any other. Each model is merely a means to an end, and not an end in itself.

“As such, every social enterprise should ultimately be judged on its actual impact.”

The Office of the Third Sector estimates that there are over 55,000 social enterprises in the UK generating a turnover in excess of £27bn and contributing £8bn a year to GDP.

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