Social enterprises and social entrepreneurs, for now, hold a unique and ever-present culture of sharing, of ‘being in this together’, of humanity. This is particularly useful when forming networks of social enterprises. The importance of networks holds true specifically when materials, products, or labour must be outsourced. By ensuring that each element of the supply, manufacture, and distribution chain are outsourced by a social enterprise, the collective social impact increases exponentially. Holding each other accountable also means that cash fluctuates and is kept within the social enterprise circle and is adequately distributed.
Let’s assume that we, Designs for Change CIC (pseudonym) develop the design of an arbitrary household product. Our in-house marginal costs are low because we’re only concerned with the design. Because of this, our profit margin per product would, in ordinary business, expected to be high. But through our social enterprise business model, we want to ensure individuals across the chain are paid considerably well and the products follow sustainable processes. This incurs a premium. With the remainder, we continuously invest in growing the enterprise.
But why would we be willing to spend more money at each stage, to ensure a sustainably sourced and produced product? The social impact.
At each stage, there is a potential for social impact. In this business model, social impact would happen via the contracts made with social enterprises that hold themselves accountable – in this case, they employ individuals from deprived or disadvantaged backgrounds, and care about the environment. At each stage of the conveyor belt, via their employment strategies or through their own social mission, these social enterprises that have been outsourced will, together, multiply social impact.
Our product requires three types of raw materials. It will require three independent enterprises. These will then be manufactured by three other enterprises. Then, 1 enterprise will be responsible for transporting these to be assembled by 1 team. Digital commerce and marketing is handled by 1 enterprise. After the sale is made online, this is further distributed by 1 enterprise. Finally, customer service is outsourced to 1 other enterprise. Assuming that production and manufacture are handled by the same enterprise, and likewise for transportation and distribution, this product cycle will require 5 social enterprises.
By choosing to implement a strong network of social enterprises at each step of the product, an impact investment of $1 will yield a social impact that is 5-fold.
Now, it is well known that social impact is incredibly difficult to quantify and measure. But its magnitude can be ensured if various social enterprises are involved in the product cycle. You can quickly envision that your investment on one particular enterprise will trickle down, potentially affecting other areas of the country and a variety of demographics, depending on the model.
Put simply: if you’re an impact investor and you look to get your bang for the buck, you should dig deep into the social enterprise’s business model. Find out what its complete product cycle is, and prioritise investing in those that ensure a close-knit network of social enterprises.
Decio Espinha is a Young Talent Programme Delegate at SEWF 2018