The term social entrepreneur refers to individuals who start a company or organization with a mission to create a social good. Historically, the majority of social entrepreneurs have found it easiest to start non-profit organizations with 501(c)(3) status to achieve their social mission. While non-profits have provided a significant boost to the rise of the pyramid over the years, leaders of non-profits often need to divide their attention between achieving their social mission and securing funding from grants & foundations. Not only does this detract from the ultimate impact that non-profits have, it also means that non-profits are competing for a limited pool of grant dollars. Thus, non-profit organizations as a group can only achieve so much (as an aside-there are many successful non-profits out there that have found ways to be financially sustainable while achieving their mission, but this is inherently difficult).
So, how can social entrepreneurs achieve the desired social impact while running a financially sustainable organization?
Enter social business. Social businesses fall under the umbrella term “social entrepreneurship” much like Kleenex falls under the umbrella term “tissues”; all social businesses are part of social entrepreneurship, but not all social entrepreneurship ventures are social businesses . Any for-profit company whose primary goal is to achieve a social mission could be considered a social business, but several individuals have offered more specific definitions. In The Power of Unreasonable People , Pamela Hartigan & John Elkington define the main characteristic of social businesses as “profits are generated, but the main aim is not to maximize financial returns for shareholders but instead to financially benefit low-income groups and to grow the social venture by reinvestment, enabling it to reach and serve more people”.
If social businesses can unlock market forces & use them to solve social issues, why don’t more exist?
Until recently, it has been difficult for social entrepreneurs to choose to start a for-profit social business. I believe social entrepreneurs have been afraid that others in the industry will eye their for-profit status & perceive the social mission of their venture as a guise for making money. Perhaps more compelling, social entrepreneurs may anticipate that investors in for-profit ventures might force them to abandon the social mission whenever the mission gets in the way of profits.
Introducing L3C, aka the <3
Fortunately there is now a wonderful new corporate structure, the L3C, which has recently been passed into legislation in Illinois as well as a few other states. The L3C structure will allow social entrepreneurs to start for-profit organizations without the stigmas attached to a typical LLC. During the “New corporate structures” panel at SOCAP09, Rick Zwetsh from Intersector Partners described the difference in emotional attachment between an L3C and an LLC well, “Back in the old days automobiles had a hood ornament. With a LLC for-profit organization, the hood ornament is a dollar sign. When you pull into the driveway or pull into the parking lot, the first thing people see is a dollar sign; with an L3C, it’s a heart.”
I believe the introduction of the L3C corporate structure is a watershed moment for the future of social entrepreneurship & the plight to raise living standards at the bottom of the pyramid. L3C corporations will be able to take advantage of grant & foundation investments as well as typical financial instruments to scale rapidly & make a greater impact. This truly is the beginning of a new era of capitalism.