Just like an NGO (Non-governmental organization), the mission of an SB is to cause positive social and/or environmental impact. However, just like any other business it has to be financially self-sustainable and managed in an efficient, transparent, ethical and professional manner, with a qualified team of executives compensated according to market standards and with benefits that go beyond what the market offers.
The model in which 100 per cent of the profits of Social Businesses are reinvested in the cause is just one of the possible paths to be followed – but it is the one we have chosen to test and drive diversity in the ecosystem of Impactful Businesses.
It is worth mentioning that the SB does aim at operating at a profit and with margins: the company must have enough financial resources to overcome any difficulties that may arise and to expand. Only then the business can amplify its positive impact on society.
Thus, the only difference as to the financial aspect of this model is that investors of SBs agree that after the investment is paid off they should allocate the profits in full to the SB. The goal is to maximize the social and/or environmental impact of the business.
We believe that this makes it easier to conduct businesses and keep the focus on the SB’s main goal, which is to generate positive change in society. When the manager is under pressure to deliver the financial return promised to partners and/or investors, this usually becomes the only focus of executives – diverting attention from the business’s social impact. We want executives to have one single focus: boosting social impact. In order to sustain impact through time, the company must be profitable. Keeping the company’s operations at a profit is key to ensure the longevity of the intended positive impacts.
The SB model allows for innovations like cross subsidy: when a product is sold at different prices (because it is sold to people with different social conditions), the product that is more expensive – with larger profit margins – subsidizes the cheaper product – without profit or at a loss. This mechanism may be necessary to ensure affordable prices for people who need a service or product but have little or no financial condition, without giving up on the positive financial returns which are crucial to the business sustainability.
Click here to learn more about the Social Businesses supported by Bemtevi!