Is it morally responsible for a social enterprise to make a profit?

Many companies gauge their success in terms of profit. Not so for social enterprises. For Tony’s Chocolonely, a Dutch confectionery company, making a profit is not an end in itself, but a means to create more social impact. But how do you measure the success of a social enterprise? And what makes an enterprise “social” in the first place? Should all profits go towards making a difference, or is that an unrealistic goal? Dr. Sergio Paramo Ortiz, a lecturer in Social Entrepreneurship at the Maastricht University School of Business and Economics, addressed these questions at the 8th International Conference on New Business Models.

The Tony’s Chocolonely business model

Social entrepreneurship has long been dear to Paramo Ortiz, who has been immersed in the theme ever since his master’s degree. His current research focuses on different types of social enterprises in non-Western contexts—particularly Brazil and his native Mexico—where social entrepreneurship take different forms compared to those known in Western contexts. “With my research and lectures, I hope to develop and discover new, fairer and more social business models for entrepreneurs to use. Together we can contribute to a more social and sustainable world.”

Tony’s Chocolonely is a well-known example of an international social enterprise implementing a new business model in an existing market. “Their mission is to end slavery and child labour in the cocoa industry,” says Paramo Ortiz. “By completely redesigning the value chain—and paying cocoa farmers a fair price—they want to inspire other companies in the industry to follow suit.”

The meaning of social entrepreneurship

What makes an entrepreneur a social entrepreneur? “The definition isn’t set in stone.” Paramo Ortiz himself uses three criteria. “First, social entrepreneurs are motivated and passionate about solving a social issue. Second, they come up with creative solutions, going beyond what established companies are doing. Third, the people behind a social enterprise are committed to making their vision a reality. In social enterprise, the road to success is rarely a straight line. You have to be able to handle that.”

Social vs sustainable entrepreneurship

Social and sustainable entrepreneurship are often lumped together, and sometimes do go hand in hand. The difference lies in the purpose of the organisation, explains Paramo Ortiz. “As with most businesses, the goal of a sustainable company is to make a profit. It’s just that they do this by providing products or services that don’t harm the environment and communities, or by reusing materials for their products or services. The business model of social enterprises is different—to them, making a profit is not an end in itself, but a means to create social impact.”

Social enterprises want to use their profits to contribute to solving a social issue, such as inequality or poverty. For example, many social enterprises in Europe employ people with disabilities, helping them overcome barriers to employment and participate in society. “The proceeds from the products they make are used to keep the business running.”

Social enterprises don’t see making a profit as an end in itself, but as a means to create social impact.  

Dr. Sergio Paramo Ortiz

Measuring social impact

Good intentions aside, how do you measure the actual impact of a social enterprise or sustainable company? It’s important to make that impact concrete, says Paramo Ortiz, but herein lies the difficulty. “Making your positive impact concrete is the only way to effectively communicate it to stakeholders, in order to keep your customers, investors or network on board. The tricky part is that social impact can’t always be expressed in numbers.”

To show how social entrepreneurs can measure the impact of their work, Paramo Ortiz and several of his colleagues organised a workshop at the 8th International Conference on New Business Models. He offered a sneak preview of the measurement method they have developed: “The main thing is to break down the overall impact goal into small, measurable steps. We first look at concrete actions you can take, then at the results of these actions, and finally at the impact of these results.”

Generating profit vs impact

What about the profits a social enterprise makes? Profits are essential for a healthy business. But to what extent do social enterprises need to keep reinvesting profits to generate even more impact? This, Paramo Ortiz says, is the longest-running debate in the field. “Some researchers only consider a business a social enterprise if absolutely all profits go to creating long-term impact. Depending on the context, others think it’s acceptable for part of the profits to be paid out.”

What is Paramo Ortiz’s personal take? “In my view, the defining feature of social entrepreneurship is that creating positive social change takes precedence over accumulating profits. An increase in profits need not get in the way of the social objective. It’s only logical that social enterprises, too, need to make a profit to keep the lights on. But it’s important to keep in mind that customers are willing to pay more to buy from these types of companies partly because of their social impact. If it turns out that a lot of money is going into the pockets of the owners, customers will be more critical in deciding whether the product is worth the price.”

An increase in profits need not get in the way of a social objective.  

Dr. Sergio Paramo Ortiz

Mission drift

Paramo Ortiz uses the term “mission drift” to refer to the extent to which a social enterprise deviates from its initial commitment to a social issue. “As their profits grow, social enterprises can decide to either invest in increasing their social impact or shift their focus from mission to money. The greater the motivation to solve the issue, the greater the odds that the business will continue to put social impact first.”


Text: Romy Veul

Interested in social enterprise?

Sergio Paramo Ortiz is eager to get in touch with people involved in social entrepreneurship. If you run a social enterprise or are considering starting one, please reach out to him at sergio.paramoortiz@maastrichtuniversity.nl. He would be happy to put you in touch with established social enterprises or help you find out how the university may be able to support you with connections, information or resources.

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