Building Social Business

You’ve likely already heard of the term “social business”, but what does it really mean?

Fundamentally, a social business isn’t based solely on its bottom line. Most businesses, private ones in particular, are all about maximizing profit; on the other side of the coin are nonprofits that rely primarily on philanthropic donations. But a social business is distinct from both.

The primary aim of a social business is to solve social, economic or environmental problems. To accomplish this goal, such businesses employ regular business methods like the production and sale of a product or service that makes the venture self-sustaining.

For instance, Grameen Danone makes and sells affordable yogurt products loaded with micronutrients, and their overriding goal is to combat malnutrition among children in Bangladesh.

But it’s not quite that simple. In fact, there are two forms of social business: Type I and Type II. A Type I social business produces profits but does not dispense dividends – that is, they don’t regularly pay out a percentage of their profits to the company’s owners.

So, while Type I social businesses are still owned by investors, all the profits are reinvested in the company, resulting in neither a gain nor a loss for the investors. Grameen Danone is an example of one such Type I social business, as they operate without dividends.

On the other hand, a Type II social business operates like a typical for-profit company. However, unlike a Type I social business, it is owned by poor people rather than wealthy investors. As a result, the profits of the business go directly to low-income people and, therefore, serve a social function – namely the alleviation of poverty.

For example, the Grameen Bank is a Type II social business. It’s owned by the poor of Bangladesh and provides loans to low-income citizens.