Originally published November 26th, 2015

In German academic papers, you can find at least 29 different definitions of a social business. When someone actually sat down and analysed them, they found that they represent the different angles at which you can look at a social enterprise. Some take an actor-centred approach, rather talking about the social entrepreneur and what characterises him or her, while others speak more of the business, or innovation and change (A. Jansen, Begriffs- und Konzeptgeschichte von Sozialunternehmen; Differenztheoretische Typologisierungen). 

But is that actually helpful? The German term 'Sozialunternehmen' adds to the confusion, rather than bringing any sort of clarity. Where do you draw the line between social enterprise, social business, Sozialunternehmen, SocEnt? And where does someonone like the high-profile social entrepreneur and Nobel Laureate, Muhammad Yunus fit into this picture, when he argues that a social business never pays out dividend to investors?

These are not new questions. This is a long and ongoing debate. It is not as old, but at least as complicated, as the 'what is social' discussion. So how do we deal with it? Do we even need a collective definition? 

One approach, which is currently creating buzz in academic research, is that of a spectrum.

On the one side, there are traditional charities, aimed at social output and not earning any revenue through their work. On the other side are companies. They are not aiming to create social impact, but rather are purely commercially driven. (Yes, thats debatable. The difference is the intention of the core business activities). The space in between is occupied by businesses with a social mission and some sort of generated revenue. When you put them into four categories, you get the following spectrum:

social-business-definition

The businesses and organisations on this spectrum are very diverse in their legal forms, with some businesses even falling in multiple parts of the sprectrum.  

Take betterplace.org, the donation platform, as an example. At betterplace, money is made by the betterplace solution, which works with companies and their CSR divisions. You can see an example of how this works at www.gut-fuer-hamburg.de,  a cooperation between Hamburg-based Haspa and betterplace. The betterplace solutions makes a market-like return, so it belongs in Category IV on the far right of the spectrum.

Then there is the donation platform entity of betterplace, which essentially offers its services for free. They occasionally offer workshops which they charge for, but regardess, what they earn is much less than their operational costs. This lands them on the far left of the spectrum, a category I. The money which is earned via the betterplace solutions subsidizes the donatation platform, meaning the profit from category IV is reinvested into the category I. 

Sounds simple? Notice that not once did I mention that betterplace.org is a social business, nor did I give any indication to their legal structure. But there is no need to! Why? Because at the end of the day, it doesn't matter. You need only to look at their core intention and their revenue streams. 

The social intention sets it apart from commercially driven businesses and the fact that they generate a revenue differentiates them from charities.

The world of social entrepreneurship would be a lot easier if everyone was clear about this. 

But in order to work, it will take a good amount of self-reflection from businesses. Are they up for the challenge? 

The full thesis can be downloaded here

About the Author 

laura kromminga

Fascinated by a book written by Muhammad Yunus, Laura Kromminga dedicated both her bachelor and master thesis on the topic of social entrepreneurship. She is part of MakeSense, a community of young enthusiasts who thrive to help social entrepreneurs solve their challenges. Previously working for betterplace.org, Germanys largest donation platform, she witnessed the struggle of charities and social businesses to raise funds. She has therefore decided to dive into the topic of social finance and help businesses raise Impact Investment. Her master thesis compared the Impact Investment markets in Germany and the UK in order to find out how the German market could learn from its european neighbor.

Laura is currently working at Ashoka Hybrid Finance in London. This initiative supports Ashoka Fellows to scale by finding the right investment solutions out of both philanthropic and investment capital. 

For those interested in further reading, her published thesis can be found here. Follow her on Twitter here