There’s been a lot of chatter on impact investing as well as corporate social responsibility. However, only recently has there been an enhanced focus on social entrepreneurship. Previously, there was certain hesitation around the idea of incorporating for-profit entrepreneurship. This primarily originated from the misconception that creating societal or environmental impact was mutually exclusive from the concept of making profit. Social entrepreneurship is building impact in a sustainable fashion. Here are 4 reasons why impact entrepreneurship is so important:
(1) Impact Entrepreneurship > CSR
Corporate social responsibility is by nature an ex post facto action created by the need to generate good from the profits that were created. Additionally, it’s a way to create impact for the ‘other’ stakeholders that are not directly involved with the institution. However, this does not imply that the profits were built in a sustainable manner. Impact entrepreneurship, on the other hand, does not consider social good as a residual or optional outcome, and instead relies on it as its primary driver. In the future we may not even need to require CSR as social responsibility is just a given component of the business model.
(2) Eliminates the need to fix
If every corporation and business, from its infancy, were to have core values that revolved around social impact as well as maximizing profit, we wouldn’t run into the issue of having to fix so many things after the fact. Clean energy, responsible consumption and supporting education are just a few of the critical areas that we should have all done a better job of investing in and supporting.
(3) We have broken definitions for ROI
Much of modern day business and financial principles revolve around maximizing the ROI (Return on Investment) for any particular injection of capital. This ROI is governed by short term principles that cannot and do not have the ability to adjust for or measure the potentially harmful effects of promoting business that does not create value for ALL stakeholders that are involved. For example, if there’s a community business that does not consider the effect a product has on the children it targets and instead directs all its attention to maximizing ROI for its investors, that business could very well become a short-lived one.
(4) Creating ‘value’ will result in a more stable environment
There is much misunderstanding and confusion around social impact and its core definition. Well beyond the world of charity and philanthropy, there are entrepreneurs that recognize that the importance of a sustainable business model is just as critical as the impact and value that it generates. If all entrepreneurs asked themselves, “what value am I creating by making this today?”, we would likely be in a much more stable environment with far fewer problems.
What do you think? Would love to hear from you.
By Sang Lee