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The Role of Social Enterprise in Economic Development

William McElnea


What Is Social Enterprise?

Traditionally defined, social enterprise describes any business with social objectives whose surpluses are reinvested either in the community or in the business itself, should the business be geared toward serving the community in some way. The term social enterprise emanates from social entrepreneur, a term that was originally used for 19th century philanthropic businessmen who had genuine concern for the welfare of their employees and society.[1] Whereas conventional businesses distribute their profit among shareholders, in a social enterprise profits are either directed to social causes (e.g. job training for the disabled, ex-offender re-entry, youth development, etc.)  or are reinvested in the business to create employment opportunities for individuals who are socially marginalized.

Social Enterprise London, a nonprofit advocacy group and think-tank, defines social enterprise as having three common characteristics:

“Enterprise orientation: They are directly involved in producing goods or providing services to a market. They seek to be viable trading organizations, with an operating surplus.

Social Aims: They have explicit social aims such as job creation, training or the provision of local services. They have ethical values including a commitment to local capacity building, and they are accountable to their members and the wider community for their social environmental and economic impact.

Social ownership: They are autonomous organizations with governance and ownership structures based on participation by stakeholder groups (users or clients, local community groups etc.) or by trustees. Profits are distributed as profit sharing to stakeholders or used for the benefit of the community.” [2]

The Role of Social Enterprise in Economic Development

Nonprofit organizations provide vital resources to communities everywhere. Their presence in those areas where public services are poor or lacking is particularly important. These agencies fill, at times, massive social service gaps in regions where resources are exceedingly scarce, populations are dense, and in-depth individualized need must be met to prevent exacerbation of societal ills.

Nonprofits in all sectors, be it health care, workforce development, substance abuse, child care, etc. are many a time fully dependent on public and private monies and thus, must modify the quantity and quality of their services based on the available levels of these resources, which vacillate considerably at times. This system offers little insurance against public policy changes, government budget cuts, or shifts in private preferences and corporate restructuring. By generating profits that can be directed toward supporting the bottom-line services of a nonprofit, social enterprise can serve as an innovative means for nonprofits to safeguard themselves from these public and private sector fluctuations.

Moreover, social enterprises seek to add to economic development through the creation of jobs and entrepreneurial ventures – this in addition to the social services they already provide, which support the economy by improving quality of life for the local workforce (e.g. health care for the poor, vocational job training for high school graduates, substance abuse counseling for ex-offenders, etc.). The economic development benefits that social enterprises provide to society is also many a time directed to the very poor.

Greyston Bakery

Consider the case of Greyston Bakery in Yonkers, NY, an established gourmet bakery that has been in business since 1982. Since the mid-1980’s, the Bakery has dedicated itself to hiring the chronically unemployed, offering on-the-job training, housing, child care, and health care to displaced workers and the homeless. Under the guidance and vision of an award-winning chef, the Greyston Bakery is now the second highest rated bakery in New York City and one of Ben & Jerry’s largest suppliers. All after-expenses revenues from the Greyston Bakery go to the Greyston Foundation, a nonprofit organization dedicated to helping the poor and afflicted. {For more on Greyston Bakery, go to their homepage at:}

Rubicon Programs Inc.

Rubicon Programs Incorporated is a nonprofit organization that, since 1973, has built and operated affordable housing and provided employment, job training, mental health, and other supportive services to individuals who have disabilities, are homeless, or are otherwise economically disadvantaged.[3] Its primary vehicle for doing so however has been through two successful social enterprise ventures which employ Rubicon clientele: Rubicon Landscaping Services and Rubicon Desserts. The profits for these businesses are funneled back into Rubicon’s social service programs, which aim to support the very individuals that work for them. {For more on Rubicon Programs, Inc., go to their homepage at:}

Economic Benefits of Social Enterprise

With regard to social enterprise’s other long-term economic development benefits, areas worth mention are:[4]

·        Helping to improve the overall skills of a local workforce

·        Reduction of inequalities in access to health and social care services

·        Construction of good quality housing for those in sub-standard conditions (with respect to social enterprises involved in construction and housing development)

·        Reduction of social exclusion for the displaced/unemployed

·        Creation of wealth; added benefits due to a multiplier effect

·        Improved labor productivity due to skills investment

·        Increased tax revenues while reducing welfare payments

·        Enabling community-led rejuvenation and renewal[5]


Challenges Facing Social Enterprise and Social Entrepreneurs

Perhaps the most obvious challenge to social enterprise stems from the fact that the individuals that seek to begin these enterprises possess a nonprofit management background rather than a business background. Thus, many social enterprises can run into problems as soon as the start-up phase if they lack the necessary business fundamentals. This section is dedicated to highlighting the common challenges social enterprises face and general recommendations on how to best address these.

Problem #1: Introducing a For-Profit Entity in a Nonprofit Atmosphere

Nonprofits oftentimes find it hard to develop a for-profit mindset, as their usual modus operandi involves a commitment to administering services for free. Successful social enterprises know how to departmentalize their operations. If a workforce development agency opens up a for-profit “temping” service, there should be clear segmentation in the organization’s management structure, so as to avoid a clash between social service delivery and competitive business activity. If a social enterprise is completely dependent on the performance of its “client employees”, it must develop a culture of helping those with a demonstrated commitment to help themselves.

Problem #2: Behaving Like a Business

For social enterprises that are 100% dependent on profit revenues (i.e. those whose annual budgets do not include a substantial amount of donations or grants) or who are aiming for complete self-sustainability, getting accustomed to a dual-environment where a) you must make money to survive and b) maintain a commitment to effectively assist clients can be challenging. Operating like an efficient business and developing a “for-profit” culture takes time and training. Fortunately, there are a number of organizations that offer comprehensive training and technical assistance programs geared to assist nonprofit managers in creating a successful for-profit ethos within their larger organization. A handful of service providers are listed at the end of this entry.

Problem #3: The Absence of Business Skills and Knowledge

As has been mentioned above, the preponderance of social entrepreneurs have a nonprofit background rather than a business background. These individuals thus lack knowledge and skills in a number of important, business-related areas: business plan development, marketing strategy, financial management practices, and capital sourcing. Fortunately, it is not at all necessary for nonprofit managers and future social entrepreneurs to attain a business degree to accomplish their social enterprise goals. The providers of the training seminars and workshops mentioned at the end of this entry are just a handful of outfits qualified to equip social entrepreneurs with the toolkit they will need in their field.

Problem #4: Maintaining Competitiveness

In order to successfully compete in the open market, goods and services need to be of the highest quality while appealing to a wide audience. Because social enterprises are socially focused and give priority to their clients’ needs, they often do not focus like they need to on product standards. While a handful social enterprises bring on private consultants to evaluate their operations, this option is typically not financially feasible. This area of social enterprise has been researched and written on extensively as it is a central challenge for social entrepreneurs globally. A number of books and websites addressing this issue can be found below.


For years, social enterprises have played an integral role in local economies worldwide. These enterprises employ creative and innovative methods of helping the poor and disenfranchised. They also offer a self-sustaining means of providing a valuable social service. While the economic benefits of these entities is substantial, services and support must be available to social entrepreneurs that lack the business know-how needed to operate in a competitive marketplace. The resources below serve as valuable starting points for anyone interested in beginning a social enterprise or becoming involved in the growing worldwide movement of social entrepreneurship.

Training and Technical Assistance Providers for Social Entrepreneurs

Social Enterprise Group:

Social Enterprise Alliance:

Social and Enterprise Development Innovations:

For a full listing of essential books/articles on social enterprise, go to:


Recommended social enterprise “how to” resources:

“Enterprising Nonprofits: A Toolkit for Social Entreprenuers” by J. Gregory Dees, Jed Emerson and Peter Economy

“Generating and Sustaining Nonprofit Earned Income: A Guide to Successful Enterprise Strategies” by Sharon Oster, Cynthia Massarsky, and Samantha L. Beinhacker

“Case Studies in Social Enterprise: Counterpart International Experience” by Sutia Kim Alter


Listing of successful social enterprise case studies and resources:

The William Davidson Institute at the University of Michigan:

Sources Consulted

Haugh, Helen and Paul Tracy. Role of Social Enterprise in Regional Development, Judge Institute of Management, 1997.

Rubicon Programs, Inc. “About Rubicon Programs, Inc.” Online. Available:

Scottish Social Enterprise Coalition, Brief Submission to Scottish Parliament, 2005. Online. Available:

Social Enterprise London, “A Starting Point Guide for Social Enterprises”, 2005. Online. Available:, Social Enterprise Defined. Online. Available:

[1] Online. Available:

[2] “Starting Point Guide”, Social Enterprise London, 2001

[3] Rubicon Programs, Inc., Online. Available:

[4] Helen Haugh and Paul Tracy, Role of Social Enterprise in Regional Development, Judge Institute of Management

[5] Scottish Social Enterprise Coalition. Online. Available: