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Social Enterprise is an innovative approach to nonprofit sustainability and a practice widely used in our region, both historically and presently. The following definitions present a framework for understanding this field and what we mean when we use these terms. There is also a document in our Resources & Tools section, called Key Definitions, that provides additional (and sometimes contradictory meanings) for some key terms.
Affirmative business
A social enterprise created specifically to provide permanent jobs, competitive wages, career tracks and ownership opportunities for people who are disadvantaged, whether it be mentally, physically, economically or educationally. John DuRand of Minnesota Diversified Industries created the concept in 1973 and simultaneously emphasized the importance of a blended work force in order to maximize productivity and increase the enterprise's ability to compete (a typical mix draws about 60 per cent of the employees from the ranks of people who are disadvantaged). The employees for an affirmative business might include people who are developmentally disabled, chronically mentally ill, recovering substance abusers, former convicts, visually impaired, physically challenged, or grappling with some other disadvantage. In the United Kingdom, an affirmative business is known as a "social firm." [SOURCE: http://www.socialent.org/definitions.htm]
Community Wealth
Resources generated through profitable enterprise to promote social change. (e.g., business ventures, cause-related marketing partnerships, and licensing) [SOURCE: Community Wealth Ventures http://www.communitywealth.org/]
Dependency
The traditional business model for nonprofits, in which they depend solely or almost entirely on charitable contributions and public sector subsidies, with earned income either non-existent or minimal. [SOURCE: http://www.socialent.org/definitions.htm]
Double Bottom Line
The definitive benchmark for a social purpose business venture - the simultaneous creation of both a financial and social return on investment. [SOURCE: Social Enterprise Alliance http://www.se-alliance.org/resources_lexicon.cfm]
Earned Income
Payments received in direct exchange for a product, service or privilege. [Earned income for a nonprofit includes such elements as tuition and fees for service, commercial products or services, government contracts, consulting fees, membership dues (when dues purchase tangible benefits), sale of intellectual property, agreement to use the nonprofit's identity, property rentals, etc. Earned income does not include such sources as corporate, foundation or government grants or subsidies, contributions from individuals, or in-kind donation of products or services.] [SOURCE: Social Enterprise Alliance http://www.se-alliance.org/resources_lexicon.cfm]
Earned income strategies
An attempt by a nonprofit to cover part of its costs by capitalizing on the earned income potential of its programs, products and services. A strategy that depends entirely on earned income is called a social sector or social purpose business. [SOURCE: http://www.socialent.org/definitions.htm]
Enterprise
A systematic purposeful activity. [SOURCE: http://www.Merriam-Webster.com]
Entrepreneur
- One who organizes, manages, and assumes the risks of a business or enterprise. [SOURCE: http://www.Merriam-Webster.com]
- Starting with nothing more than an idea or a prototype, entrepreneurs have the ability to take a business to the point at which it can sustain itself on internally generated cash flow. Generally speaking, entrepreneurs need the freedom to operate without much supervision. They also need clear definitions of success and failure, immediate feedback, rewards for performance, and ongoing challenges. [SOURCE: http://www.socialent.org/definitions.htm]
Entrepreneurial nonprofit
A nonprofit that seeks to match its core competencies with marketplace opportunities in order to simultaneously generate more earned income and expand its social impact. [SOURCE: http://www.socialent.org/definitions.htm]
Financial Return on Investment (ROI)
An index of financial profitability that measures the net result of operations as a percentage of funds invested; an indicator of business success. [SOURCE: Social Enterprise Alliance http://www.se-alliance.org/resources_lexicon.cfm]
Innovation
- The intersection of ideas and implementation, leading to the creation of social and economic value. [SOURCE: Adapted from the National Innovation Initiative]
- Implementation of a new or significantly improved idea, good, service, process, or practice that is intended to be useful. [SOURCE: http://www.wikipedia.com]
- The creation of something new. Innovation is often confused with entrepreneurship, but innovation does not necessarily include earned income. [SOURCE: http://www.socialent.org/definitions.htm]
Mission-driven product or service business
Unlike an affirmative business, which employs the people served by a social enterprise, a mission-driven product or service business generates revenue from the delivery of a product or service to the people being served, although payment may come from a third party such as a government agency or entitlement program or from a private insurance company. Examples include such things as hospice care, tutoring services for potential high school dropouts, assistive devices for people who are physically challenged, and personal care services for elderly people. [SOURCE: http://www.socialent.org/definitions.htm]
Return on investment
Financial return on investment (FROI) is concerned with the cash flow, profitability, balance sheet and other financial results necessary for an earned income strategy or a social sector business to be deemed successful. Social return on investment (SROI) is concerned with the social outcomes of the strategy or business, and environmental return on investment (EROI) is concerned with the environmental impact. In all three areas, the possible returns will differ depending on the type of strategy or business - and the definition of "success" will vary from organization to organization. [SOURCE: http://www.socialent.org/definitions.htm]
Self-sufficiency
The ability to fund the future of a nonprofit through earned income alone - without having to depend in whole or in part on charitable contributions or public sector subsidies. [SOURCE: http://www.socialent.org/definitions.htm]
Social Enterprise
- An organization or venture that advances its social mission through entrepreneurial, earned income strategies. [SOURCE: Updated version of Social Enterprise Alliance definition, 2006]
- An income-generating venture that provides a nonprofit with unrestricted funds and enhances the organization's core mission. Earned income, or profit, from these ventures is used at the nonprofit's discretion to meet the needs of its constituents and lessen its reliance on traditional forms of funding. [SOURCE: Accelerator]
Social Entrepreneur
A person who takes notice of a social problem or need, decides to passionately pursue it, creatively innovates new solutions and entrepreneurially, addresses the issue through an organized approach. [SOURCE: http://www.wikipedia.com/]
Also called a Nonprofit Entrepreneur
An individual who pays increasing attention to market forces without losing sight of the nonprofit's underlying mission. [SOURCE: http://www.socialent.org/definitions.htm]
Social Entrepreneurship
The art of persistently and creatively leveraging resources to capitalize upon marketplace opportunities in order to achieve sustainable social change. [SOURCE: Social Enterprise Alliance http://www.se-alliance.org/resources_lexicon.cfm]
Social Franchise
Using a commercial franchise to achieve social goals. [SOURCE: Social Franchise Ventures http://www.socialfranchise.com/]
Social Innovation
Field-tested, financially sustainable social impact backed by credible research and/or enabling technology. [SOURCE: Accelerator, 2006]
Social Purpose Business
A discrete division, subsidiary or related corporation of a nonprofit or a for-profit company that deliberately pursues financial and social returns within a specific industry segment in the commercial marketplace. [SOURCE: Social Enterprise Alliance http://www.se-alliance.org/resources_lexicon.cfm]
Also called a Social Sector Business
A business designed to directly address a social need and simultaneously make a profit through earned income alone, regardless of whether it is structured as a for-profit or nonprofit entity. [SOURCE: http://www.socialent.org/definitions.htm]
Social Return on Investment (SROI)
The non-financial outcomes created by a social enterprise, measured in terms of the nonprofit's mission, e.g. people served or jobs created, average salaries paid, amount of transfer payments eliminated, etc. [SOURCE: Social Enterprise Alliance http://www.se-alliance.org/resources_lexicon.cfm]
Triple bottom line
The simultaneous pursuit of return on investment in three areas - financial, social and environmental. [SOURCE: http://www.socialent.org/definitions.htm]
Unrelated business income
Earned income derived from products or services not directly related to the charitable purpose of a nonprofit, including income from the organization's under-utilized assets (such as facility downtime) or as conveniences for its clients or patrons (such as parking lots or cafeterias). Unrelated business income is subject to taxation and, at significant levels in proportion to total income, may jeopardize a nonprofit's tax-exempt status. [SOURCE: http://www.socialent.org/definitions.htm and Social Enterprise Alliance http://www.se-alliance.org/resources_lexicon.cfm]
Value rubs
When two or more of a social enterprise's economic, social and environmental bottom lines are in conflict and decisions must be made that may temporarily or permanently disrupt the existing balance. [SOURCE: http://www.socialent.org/definitions.htm]
