When you become a professional, you generally work in a specific field. You work either in the public sector, the private sector, or an NGO. Sometimes, you can find yourself at the intersection of these fields. For example, I know people who work in the private sector and work as consultants to the public. I also know some who work as ‘social entrepreneurs,’ which we might call the intersection of the private sector and NGOs.
From my own perspective, I personally consider my position as Honorary Consul of Costa Rica a public duty, and I’ve been doing everything I can to provide this public service since 2008. Of course, I’ve also been working in the social sector for many years, both in the private sector, where I’ve undertaken numerous initiatives, and through the NGO I’m the founding president. I’ve even launched a social initiative under the NGO. What Ekonomist article suggests:
As someone who has done all of this work and participated in many events, I decided to write this article after seeing a recent article in Ekonomist (see: http://www.ekonomist.com.tr/kapak-konusu/sosyal-girisim-onculeri.html) . Let me clarify: I know many of the social enterprises listed and the individuals involved. I am one of the first supporters of the Ashoka Foundation in Türkiye, the institution that supports social enterprises most in Türkiye.
The Ashoka Foundation Logo
With the confidence I’ve gained from all this reference work, I can say that many people introduced as social entrepreneurs in Ekonomist article truly do live up to the concept, but a name with no connection to social entrepreneurship is also included in this list. If they bother me in the future, I’ll explain this name and explain in detail why it has nothing to do with social entrepreneurship.
Indeed, I touched on this topic a bit in last week’s blog post (see: http://www.serhansuzer.com/tr/kendi-kapimizin-onunu-supurmek).
Before I share my findings—that is, why one of the names featured in Ekonomist doesn’t qualify as a social entrepreneur—a thorough and accurate definition of the concept of ‘social entrepreneurship’ would be helpful. To this end, I’d like to share a reference article on social entrepreneurship with you. Below you can find the link and content of this article, which shares the opinions of three esteemed experts with deep understanding of the subject:
You can also find the article at http://blog.good4trust.org/post/87489738592/sosyal-giri%C5%9Fimin-lafz%C4%B1-ve-ruhu.
The Letter and Spirit of Social Enterprise
There are three main problems with social entrepreneurship: the lack of a clear definition of social enterprise, its confusion with civil society organizations, and the ethical and financial dimensions. Eda Bayraktar, founder of the Future Adjustment Institute (GAYE) and member of the Young Optimists Board, Erhan Bozkurt, President of the Young Social Entrepreneurs Association, and Dr. Uygar Özesmi, founder of Good4Trust.org and Director of Change.org for Eastern Europe and West Asia, met on zumbara.com to discuss these issues and attempt to provide answers.
EDA BAYRAKTAR, ERHAN BOZKURT, UYGAR ÖZESMİ
Today, we face a system that is destroying our planet’s life support systems and creating social inequality. Any sane person knows this cannot continue. Fortunately, there are ways to solve these problems. In our rapidly changing world, change creates new needs; new needs give rise to new models. Social networks and the digital age are transforming the order created by the industrial revolution. The new social order brings with it unique concepts and new perspectives. Concepts like ‘personal interests’ and ‘brutal competition’ are now giving way to ‘win-win,’ ‘cooperation,’ ‘synergy’ and ‘sustainable strategies.’ People are searching for meaning in their lives, and social consciousness and awareness are rising. The current capitalist system, based on profit maximization, is failing to meet social needs and is destroying nature. Therefore, non-profit social enterprises are emerging as an alternative. The current capitalist system creates profound inequality by concentrating power and resources in the hands of a few. Meanwhile, social enterprises that produce sustainable social and environmental benefits to address inequality are steadily increasing. Developments in social entrepreneurship today define the future we will live in.
In today’s world, where social entrepreneurship has gained so much importance, three key issues challenge social entrepreneurs and confuse society. First, what is a social enterprise? Second, how do non-governmental organizations (NGOs) differ from social enterprises? Third, whether making money in social enterprises is ethical.
What is a Social Enterprise?
While social enterprises share commonalities with traditional enterprises, they also have many distinct points. Entrepreneurship is the process by which an individual or group creates value through organization, starting or expanding a profitable business, or offering a new product or service to the market. Social entrepreneurship, like entrepreneurship, recognizes problems and opportunities, takes risks, and develops innovative solutions.
The most important difference is that commercial enterprises are focused on profit, while social enterprises are focused on social benefit. Another key difference is that while imitation and modeling are frowned upon in commercial enterprises, the goal of social benefit in social enterprises is that modeling is an important and desirable tool for expanding the reach of the most.
A social enterprise is an organization that aims to be part of the solution, not the problem. It creates opportunities from problems recognized by individuals or communities. It draws on local culture with innovative ideas. It replaces profit with sustainable, adequate income. It creates value for a segment or the entire society, that is, for nature and all living things within it, including humans. Social entrepreneurship requires taking responsibility for the world. Therefore, social entrepreneurship is also a form of activism…
Social Enterprise and Civil Society Organizations
Social enterprises and NGOs share a common ground in developing solutions to social problems and the destruction of nature; however, there are clear differences between them in terms of the models they employ.
From a business model perspective, NGOs generally continue their development with the support of donations and grants. Sustainability is crucial in social enterprises, requiring the system to be self-sustaining and not entirely dependent on public support and donations.
The management model is at least as different as the business model. NGOs generally have a democratic and participatory, horizontal structure, while social enterprises are open to all kinds of vertical structures, allowing for rapid and sudden changes in dynamic market conditions. Social enterprises can quickly change management and restructure their organization if their management style becomes hindering their operations.
It’s also important to mention the difference between volunteering and professionalism. In social enterprises, the functioning of businesses is not dependent on volunteering; on the contrary, social work aims to employ people. NGOs, on the other hand, always invest in volunteer opportunities, and NGOs without volunteer programs are not considered fully legitimate.
Finally, while not a rule, NGOs are generally established under the Law on Associations and Foundations, while social enterprises are established under commercial law. NGOs generally strive to persuade existing authorities regarding policy and legal regulations, demonstrate their proposals through exemplary projects, or provide social services based on philanthropy. Social enterprises, on the other hand, encourage the widespread dissemination of value-generating, systemic solutions within the economic sphere, thereby expanding the scope of social development and social impact, thereby triggering social change. Furthermore, because social enterprises are economically sustainable, they generate the necessary income themselves—NGOs experiencing fluctuations in their income sources can incorporate social enterprises through commercial enterprises.
The Ethical Dimension of Making Money in Social Enterprises
Money, due to its ethical nature, is often an unspoken topic in the social enterprise field, as it creates emotional turmoil. Social enterprises shouldn’t be short-term projects lasting a few months or even a year or two. To create long-term impact, they must operate on a self-sustaining business model that considers amortization (payback) and investment needs. It can be beneficial for social enterprises to receive donations from individuals and institutions during their initial stages, and to benefit from public financial support and subsidies such as tax exemptions. However, in the medium- to long-term, social enterprises are expected to generate their own income, avoid relying on donations and support, and, if possible, generate profits and use these profits to expand their services. Therefore, social enterprises must generate income to cover their expenses and feed their employees.
Where do social enterprises generate their finances?
The source of income for a social enterprise’s needs varies depending on the type of work they undertake. Income can come from the sale of products created through the labor of individuals involved, from a fee paid by customers for the service provided, from memberships in service or product distribution systems, or from contributions paid for services received. The key is to establish a clear and equitable link between the social benefit generated and the income generated. While not preferred, income can also be generated from donations and grants, but only at the initial stage, but not exceeding a certain amount.
Can social enterprises make a profit?
Social enterprises can generate profits, but the profits must be reinvested in the same or another social enterprise. In other words, if a social enterprise is used for personal enrichment, it loses its legitimacy. Therefore, if possible, establishing a social enterprise as a “non-profit” company is appropriate. However, it’s important to ensure that “non-profit” status does not restrict commercial opportunities or impose undesirable sanctions. Even if it offers advantages, some may reject it philosophically. Sometimes, for this and other reasons, a regular company status may be more suitable for a social enterprise. In these cases, all or part of the shares can be allocated as investment shares, making the company a de facto non-profit. Furthermore, organizations established as regular companies can also achieve legitimacy through B Corp and similar certification systems. Ultimately, social enterprises can generate profits, but they must use the profits directly for social or natural benefits.
What should the financial expectations of social enterprise founders and employees be? The most important factor in the success of social enterprises is the talented entrepreneurs who start them and the employees who strive to ensure their success and their continued existence through their creativity, intelligence, diligence, and hard work. The more talent a social enterprise can bring together, the more successful it will be. Therefore, a social enterprise must meet the income expectations of its founder(s) and employees, specifically, a regular salary and social security. While their work serves a higher social or natural good, social entrepreneurship is not charity work or volunteering without expecting anything in return. This approach is evident in NGOs. However, social enterprises must be transparent and accountable regarding their expenses and salaries. Otherwise, it will be impossible for employees to demonstrate that they are living a dignified life and serving a higher purpose. Perhaps the most important question at this point is what the needs are and how the standards should be set.
How should founder and employee salaries be determined?
When setting employee salaries, for-profit companies strive to attract talented employees while avoiding high salaries by monitoring other companies they compete with. To achieve this, their human resources departments compare their practices with those of other institutions. Benchmarking, as it is known in Turkish, means adapting the methods, processes, and practices of organizations with the best or better practices in the sector to achieve better results. Therefore, social enterprises should adapt the highest salary scale and benefits among companies operating in similar sectors and with the same turnover. The founder of the enterprise should not receive a salary and benefits higher than the salary of the highest-ranking executive of a similar company. Other employees of the social enterprise should receive salaries based on the scale resulting from the comparison, provided that they do not exceed this salary. If this is achieved, no one has the right to single out a social enterprise under existing laws and rights or to accuse its founders and employees of being unethical. If there is to be criticism and a fight on a related issue, this criticism and fight should be directed at the entire sector.
Conclusion and Responsibility
While social enterprises are growing today due to the zeitgeist and the demands of the times, it is critical for those joining this field to have concrete distinguishing characteristics and core principles. It is crucial that these organizations be structured according to the definitions above. New entrants must have transparency, accountability, and a revenue and salary structure determined by rules. If these criteria and distinctions are not observed, we cannot distinguish a social enterprise from a company lacking any social benefit concerns and simply maximizing profits. If we cannot distinguish, those who exploit this uncertainty under the guise of social entrepreneurship may undermine the positive image of social enterprises within society. This, in turn, slows down the current development of social enterprises. To accelerate the rise of social enterprises, we must both pay attention to these distinctions and ethical rules and prioritize social enterprises in purchasing raw materials and necessary services, contributing to the growth and strengthening of this economy.
Reference: Bayraktar, E., Bozkurt, E., Özesmi, U., 2014. The Word and Spirit of Social Enterprise. Optimist, Entrepreneurship, Innovation, Management, Year: 2, Issue: 17, Istanbul.
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Let’s review some concepts mentioned in this article:
1- “The most important difference is that commercial enterprises are profit-oriented, while social enterprises are socially beneficial.”
While Ekonomist article I linked to at the beginning of the article includes many valuable organizations, there are also a few examples that appear to be socially beneficial but are actually profit-oriented. Some even describe themselves on various platforms as organizations producing ‘social technology.’ Isn’t it funny? They combine two appealing words (‘social’ and ‘technology’), supposedly write their own stories, and convince many people they’re creating social benefits. They claim to invest the profits in this technology. Yet, the concept of ‘social technology’ here doesn’t go beyond simple software. Once you’ve created the software (which can be done in a month with a good team of software developers), minor tweaks over time are sufficient. So, there’s no need for such an investment. In fact, the revenue generated here goes directly into your pocket. So, you have a venture that appears social but is essentially profit-oriented. Moreover, this is achieved by generating commission income through the social assistance system.
2- “On the other hand, because social enterprises are economically sustainable, meaning they generate the necessary income on their own, NGOs experiencing fluctuations in finding income sources can incorporate social enterprises through economic enterprises.”
For example, TIDER (Basic Needs Association), of which I am the founding president, has an economic enterprise. This economic enterprise has an “Employment Office” certificate from İŞKUR and generates income from job placements. This income also remains with the association. The economic enterprise also has other commercial activities. The TIDER Economic Enterprise is a good example of a social enterprise. It operates like a company, but because it is owned by the association, all its income naturally flows into the association’s social benefit-generating activities.
3- “Social enterprises can generate profits, but the profits must be reinvested in the same or another social enterprise. In other words, if a social enterprise is used for personal enrichment, it loses its legitimacy. Therefore, if possible, it would be appropriate for a social enterprise to be established as a ‘non-profit’ company.”
There are those who do not adhere to this rule and present themselves as social enterprises. It is not enough to donate a portion of their income to NGOs or invest in social enterprises. All of the income must be invested in a way that creates social benefits.
In short, we witness many enterprises with a social appearance. In my opinion, not all of these can be classified as social enterprises. Not all of their income is spent on social benefits. Enterprises adorned with appealing stories enrich individuals. Furthermore, this enrichment is unfortunately achieved through the social assistance system. This is, as some would call it, completely ‘unethical,’ while others would consider it ‘encroaching on others’ rights’ or a ‘sin.’
I would like to add one more point to all this. A company listed by Ekonomist, presented as a social enterprise, operates with a business model that subtly eliminates the core function of NGOs and puts them in real trouble. They also secure investments from private capital to generate income, and with that financial leverage, they begin to crush NGOs. However, if these enterprises want to create social benefits, they should complement NGOs rather than eliminate their core functions. I could give clear examples. However, I won’t name names here because I don’t want to create controversy.
I can also say unequivocally that, as someone from the private sector and an entrepreneur who has undertaken dozens of successful projects in areas such as renewable energy, financial technology (fintech), Wi-Fi analytics, call centers, and software development, I will do my utmost to prevent social enterprises from crushing NGOs and causing social harm.
Balance is crucial for me. I believe it’s essential for social enterprises to transparently share all their financial data and impact, clearly disclose their revenue models, and clearly state the profits they generate and where they are invested. I will fully support any platform created to achieve this. Of course, in the future, I will do my best to introduce the US-based ‘B Corp’ structure to our country, which eliminates the cumbersome management structures of NGOs and directs their revenues to social good. The formalization of the ‘B Corp’ legal entity in Türkiye will eliminate many such contradictions and inconsistencies, enabling dynamic entrepreneurs seeking to create social good to quickly transform into social entrepreneurs.
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