Social Business: a Sustainable Solution for Social Problems
In recent years, there has been a growing trend towards businesses that prioritize social and environmental impact, in addition to financial gain. This model of business, known as Social Business, was coined by Nobel Prize winner Muhammad Yunus, who is also the inventor of microcredit and founder of Grameen Bank in Bangladesh, the first concrete example of Social Business.
What is Social Business?
Social Business is a model of business that aims to solve social problems in a sustainable and economically self-sufficient way, without relying on public money or private donations. The primary objective of a Social Business is to combat poverty or one or more problems that affect people and society, such as education, health, or the environment. Unlike traditional businesses, Social Businesses do not prioritize profit-maximization, but rather prioritize social and environmental impact.
The 7 Fundamental Principles of Social Business
According to Professor Yunus, there are 7 fundamental principles that a Social Business should follow to be defined as such:
1. The business objective is to combat poverty or one or more problems that affect people and society; the objective is not maximizing profit.
The primary objective of a Social Business is to create a positive social impact. Profit is not the main goal, but rather a means to achieve sustainability.
2. Self-sustainability, both economic and financial.
A Social Business should be economically and financially self-sufficient, without relying on public money or private donations. This ensures its long-term sustainability and ability to create a lasting social impact.
3. Investors are only repaid the capital they initially invested. No dividend is disbursed, besides the one to refund the investment.
In a Social Business, investors only receive a refund of their initial investment, and no dividend is paid. This ensures that the focus remains on social impact, rather than profit distribution.
4. Once the initial investment has been repaid, profits stay inside the business to finance its expansion and improvement.
After the initial investment has been repaid, any profits generated by the Social Business stay within the business to finance its expansion and improvement, rather than being distributed to shareholders.
5. Respectful of the environment.
A Social Business should operate in an environmentally sustainable manner, minimizing its impact on the environment and promoting sustainable practices.
6. Collaborators are paid with salaries that are aligned to the market, but with better working conditions.
This ensure that the business should provide fair wages and treat its employees with respect, creating a positive and healthy work environment.
7. Do it with joy.
The business should be founded on a sense of purpose and passion, rather than simply chasing profit. By creating a business that is focused on solving social problems and improving people’s lives, entrepreneurs can find fulfillment and joy in their work.
It’s worth noting that there are Social Business models that deviate from these seven principles, particularly when it comes to the distribution of profits to shareholders. Professor Yunus acknowledges that these models can and should coexist, and that the choice of a model depends on each individual entrepreneur.
Social Business does not aim to replace the traditional capitalist model, but wants to complement it, using market logics to solve social problems, particularly of the poorest people, in an economically self-sufficient way and without depending on public money and/or private donations.
The first Social Businesses created by Yunus were born in Bangladesh, but it’s a phenomenon destined to spread to the western world as well.
Image source here.