How to Structure Your Social Enterprise for Maximum Benefit

By Darcy Hitchcock

Does the designation of for-profit or not-for-profit make any sense anymore? With the rise of social entrepreneurship, the line has been blurred between for-profit and not-for-profit. There are now for-profit businesses certified as B-Corps run by social entrepreneurs and there are not-for-profit organizations with for-profit businesses helping to fund their charitable mission.

But even social enterprises are often focused solely on their external mission, overlooking their employees’ needs for empowerment and wealth creation that worker-owned co-ops and democratically-run businesses can offer.

We need organizations designed to benefit society and employees at the same time!

As the diagram below indicates, there are a number of different points on the spectrum from traditional not-for-profits to traditional all-about-profit corporations. I’ve arrayed different organizational forms with two axes: pure nonprofits to full for-profits; and organizations that are designed primarily to benefit society versus employees. Below each type, I provide examples that can be easily investigated on the Internet.

Here are five innovative organizational forms. See how they can be mixed to provide a maximum-benefit hybrid.

Forms benefiting society

There are a number of different organizational forms focused on benefitting society (or the environment) beyond the traditional charity.

1. NGOs funded by their own businesses: Some NGOs (nonprofits) have responded by creating for-profit businesses where the profits go toward charities. For example, the late actor, Paul Newman, created a food company, and 100 percent of the profits go to the Newman’s Own Foundation. The company started selling his salad dressings, and it has since expanded into a number of different food items including pet food. By 2012, the foundation had given grants of over $350 million to charities around the world, arguably much more than if they had stayed with a pure nonprofit model.

2. B-Corporation: A B-Corp is one that has been certified that it provides social benefit. Greyston Bakery was created to provide jobs to people who needed them. They hire whoever shows up on a first-come basis. The profits from the bakery go to their foundation which then in turn funds more social programs.

Because the for-profit operation is also providing an important social benefit, Greyston became certified as a B-Corp. A number of states have passed legislation recognizing B-Corps, and some municipalities like San Francisco give preference to B-Corps in purchasing decisions. While B-Corps started in the United States, they have now spread to 37 countries.

3. BoP: I put Base of the Pyramid organizations in the upper right hand corner of the table because many of the largest consumer companies are experimenting with repackaging their products for the poorest of the poor. This may not be a separate organizational form, but it is a strategy worth investigating. In "Capitalism at the Crossroads," author Stuart Hart indicates that this may be the only remaining large market opportunity for companies that have saturated the developed world.

While on the face of it, it may seem immoral for rich corporations to sell products to the poor, the uncomfortable truth is that many poor people have to pay more for services than you do. You can buy in bulk (say, a liter bottle of clothes detergent, for example), while they may be only able to afford a single-use packet. You purchase cheap electricity from your utility, but they may pay many times that in kerosene. You may chafe at credit card interest rates, but they’re puny compared to loan sharks charging 25 percent a month to the poor!

Forms benefiting employees

The organizational forms I’ve mentioned so far are focused on benefitting society. But what about the well-being of employees?

4. Cooperatives: While ESOPs are usually formed more as a tax avoidance strategy, the employees are truly the owners in worker-owned cooperatives where they not only own stock but also make major decisions. The classic example is Mondragon in Spain, which has grown into huge economic engine with a wide range of businesses. In 2010 it generated just under 14 billion Euros in sales and employed about 100,000 people.

The company is committed to maintaining employment rather than profit margins, so if one business is struggling, employees get retrained and loaned to others. This meant that in 2008 while many in the United States and much of the world were thrown out of work by the Great Recession, Mondragon employees who were laid off were quickly transferred to other companies within Mondragon. According to a United Nations paper, Harnessing the Cooperative Advantage to Build a Better World, by 2010 most were back at their regular jobs again.

Worker owned co-ops are not just popular in the Basque region of Spain. The U.S. Federation of Worker Owned Cooperatives list members in practically all industries.

5. Democratic organizations: Mondragon operates in a democratic fashion, emphasizing self-management. It invests about 10 percent of its profits in social activities, ranging from research and education to cultural activities and social support services.

To me, this seems a more fair way to allocate wealth. Rather than having the lion’s share go to the CEO or people who only bought stock with a click of a button, why not have most of it go to all the people who work hard 40 or more hours a week to make it thrive?

Psychologists have found that having control over your work is key to job satisfaction. You get to vote for the president of the United States; why not your boss? Many organizations operate democratically; Zappos and WD-40 are two recognizable names amongst many certified by WorldBlu.

Why not a bit of both?

It seems the real opportunity is to blend social enterprise with worker-owned and democratically-run cooperatives.

In a Bloomberg BusinessWeek article called How three social ventures look beyond profits, John Tozzi talks about Cooperative Home Care Associates in New York. This co-op has 2,300 worker-owners, mostly poor, minority women who had been unemployed. They provide home care for elderly or disabled Medicaid patients. In addition to being owners in the business, they get time-and-a-half for overtime, extremely rare in the industry. The company has been in business since 1985 and are certified as a B-Corp. It’s as if they took my diagram and stirred.

Now we need to rinse and repeat!

Image credits: 1) Flickr/Kris Krug 2) Darcy Hitchcock

Darcy Hitchcock is the author of a number of award-winning business books including The Business Guide to Sustainability (now in its third edition). In her latest book, GREAT WORK: 12 Principles for your Work Life and Life’s Work, Darcy shares what she has learned about finding a calling, making a difference and leading organizations. It’s available in print and also three e-books: "Finding Your GREAT WORK," "Designing Organizations for GREAT WORK", and "Leading Others to GREAT WORK."