Shaken by the economic crisis in 2008, Europe began to look for new, more sustainable solutions to the deep social issues in the European Union. Today, social enterprises are gaining in importance - one in four new companies in Europe is a social enterprise. The EU has chosen social enterprises as one of the key tools in the fight against unemployment and growing social exclusion, as its unique model is currently seen as the most effective way to address the region's sensitive issues.
Social enterprises operate for public benefit purposes (social, societal or environmental) and are not focused solely on profit maximization. Such businesses often apply innovative solutions when developing products or services, or organizing their work and production. They also often employ people from the most vulnerable groups, making a significant contribution to social cohesion, job creation and the reduction of social inequalities.
Social enterprise can take many forms, but differs from the traditional business model in that its primary mission is to have a social impact and benefit society - reducing or mitigating sensitive social problems or market failures - rather than maximizing shareholder profits which means that the profits are used for reinvesting in the development of its activities or used for social, charitable activities. Key criteria for describing social business:
- have a financially sustainable and viable business model that allows them to generate most of their income from commercial activities;
- apply innovative solutions (this should not be a completely new idea, but at least new in the field, sector, geographical area, target group, etc.), social innovation or successful practices in the development and marketing of products or services;
- reinvest most of the earned profits in the development of social enterprise or to address the social problem in order to increase the impact on society;
- clearly define the social or environmental mission in their statutory documents and be able to justify its benefits to society;
- not to pay dividends to investors or shareholders, as the purpose of social business is not to increase shareholders' capital, but to enable the investor to recoup the initial investment;
- provide employees with competitive, market-based pay and better working conditions than the average traditional for-profit company;
- apply open and transparent management methods, involving the organization's employees, shareholders and volunteers in making important decisions;
- operate in harmony with the environment and ensure the efficient use of resources without harming the environment.
Despite a very wide range of social business activities, most of these organizations in the European Union operate in three areas:
- integration into the labor market (training for the unemployed and reintegration into the labor market)
- personal services (eg childcare, services for the elderly, "remote" services, assistance to socially excluded people, etc.)
- Development of socially excluded areas (eg social entrepreneurship in remote rural areas, development of residential areas / rehabilitation programs in rural areas, etc.)
The benefits of social enterprises to society
- creates new, long-term jobs;
- promotes more sustainable business;
- increases the country's economic competitiveness;
- reduces the state budget for social benefits;
- promotes smart growth through social innovation;
- promotes social cohesion;
- reduces social exclusion, inequality and environmental problems.
What is a social entrepreneur?
Anyone willing to solve an important social problem and able to discover and propose new ideas for large-scale change can become a social entrepreneur.
Instead of leaving the solution to social problems to the state, a social entrepreneur is able to recognize society’s need for a particular service or product, understand what is not working, and solve the problem by applying their knowledge, energy, and ideas and implementing business principles to change or solve the problem. The best social entrepreneurs are great talent seekers and living examples of how people who are able to turn their ideas into practical work and results can achieve it all.
How does a social enterprise relate to WISE?
Work Integration Social Enterprise (WISE) is one of the social enterprise business models (employment model), whose social mission is focused on creating employment opportunities for people belonging to socially excluded groups - the unemployed, the long-term unemployed, people at retirement age, for single mothers or fathers returning from prisons. This model is limited to the reintegration of certain socially excluded groups into the labor market and does not reflect the wide range of solutions developed by social enterprises.
How are social enterprises different from non-governmental organizations (NGOs)?
Social enterprises use commercial activities as a tool to achieve social / societal / environmental goals. Therefore, successful commercial operations are crucial. Meanwhile, NGO‘s usually receive funds from projects, the state, sponsors, other support. However, similar to social enterprises, NGOs also reinvest the proceeds back into the organization. Social enterprise, like any business, strives to be self-sustaining. It has a steady income from commercial activities.
In social enterprise, a great deal of attention is paid to ensuring that customers buy the goods or services offered by the social enterprise (this should not be confused with the services provided to the target group).
Business development is influenced by market changes and the opportunities that arise from it. Social enterprise is characterized by 3-5 years of business planning to expand its market share. This approach differs from the project planning of voluntary / community organizations in terms of short-term funding.
How is social enterprise organization different from corporate social responsibility?
Corporate Social Responsibility (CSR) is a corporate strategy based on the voluntary inclusion of social and environmental issues and the values of respect for human, society and nature. However, such strategies are practiced by companies whose main goal is to maximize profits. One of the most commonly used CSR solutions is to donate money for social purposes. Social enterprise, meanwhile, is set up to make the greatest possible social impact and change, and profit maximization is not its main goal.
Today's economy encompasses three distinct areas: the private sector, the public sector, and the social economy. The social economy is made up of social enterprises, foundations, non-profit organizations, cooperatives, associations and other groups of active citizens and volunteers who seek to serve society and transform it both socially and economically. Organizations operating in the social economy are best described by the following criteria:
- They contribute to more effective competition in the market, promote solidarity and strengthen social cohesion.
- Their primary purpose is not to generate profits or distribute them to stakeholders, but to pursue goals that benefit society.
- In most cases, their governance model is based on the principles of solidarity and reciprocity, based on the democratic voting of all members, where "one person has one vote". Often the management of such organizations can be trusted not only by investors but also by employees, clients or even volunteers who are an integral part of social economy organizations.
- They are flexible and innovative (easily adapt to changing socio-economic circumstances).
- They are based on the principles of active (and often voluntary) participation and commitment.
Social innovation is the development of new social ideas, the transfer and implementation of existing innovative methods and practices from other sectors to meet social needs, address social and environmental challenges and build new social connections. and cooperation. The result of social innovation is the discovery of modern (new), often unconventional solutions. The spread of these innovations has been driven by information technology and the changing balance of influence in favor of the individual (consumer). This is a principle applied when creating a social enterprise or solving a chosen problem.
Transmission of public services
Public services are often provided by budgetary and public institutions, state or municipally controlled enterprises to meet the needs of members of society in the social, educational, scientific, cultural, sporting and other fields. Nevertheless, the strategic documents of the Republic of Lithuania establish the direction that many public services can best be provided by the Third sector organizations, which includes non-governmental organizations, social and traditional business, communities, etc.
The transfer of services has a dual effect: a greater positive impact of public services and a reduction in the cost of providing them. Studies in the United Kingdom show that outsourcing public services to the private and non-governmental sectors saves between 10% and 30% of costs without compromising the quality of such services.
An additional goal of such public service transfer is also to promote entrepreneurship in Lithuania, the level of which is currently insufficient. Promoting social entrepreneurship is very important, as the social economy and the culture of social procurement are beginning to take shape in our country, where buyers can simultaneously receive the dual benefit of the product or service they need and the knowledge that it contributes to solving a specific social problem. Accordingly, entrepreneurs are increasingly seeking not only to create personal well-being but also to use their entrepreneurial skills for the benefit of society. If institutions, in one way or another, acquired more public services from private or the Third secor, they would create demand for a variety of businesses and encourage people to create their own jobs.
What does "greater impact of services" mean?
For the state and local government, this means that identifying problems, planning the need for services adapted to solve them, purchasing services and monitoring their impact becomes a more effective means of implementing strategic plans, enabling deeper or more inclusive changes in everyday work. For service users, this means that their lives have improved significantly with the services they have received.
Why is it important?
It is important because we want a better future in our society. We want young and creative people not to emigrate, and when they leave - to return to build their future in Lithuanian cities, towns and rural communities. It is not enough to believe that you can contribute to the future of your country. This requires quality public services, good schools and kindergartens, interconnected networks of mutual assistance in communities, and the readiness of state and municipal institutions to involve and mobilize their citizens for common goals. If the erosion of the social environment deepens in the long run with the declining population, it will also directly affect the business environment. There will be no more people in such areas who want to build their future.
Another important reason is demographics. As the population ages, the need for social services will only increase, requiring an increasing share of municipal budgets. For this reason, there is a need to better justify the efficiency of spending on social services by eliminating inefficient interventions and increasing funding for those that achieve their goals.
The creation of effective public services is not possible without the equal involvement of non-governmental organizations, businesses, communities and their associations, such as local action groups. To understand what works and what doesn’t, one needs to improvise and take risks. It will take diversity and alternatives, competition and failure. In the provision of services, failures are as important as success in business: they help to distinguish why some social interventions or combinations of them work and others do not.
Analyzing the best practices of other countries Enterprise Lithuania prepared a Public Service Transfer Guide in 2019. The public service delivery methods, impact measurement methods and tools described in this document are suitable for both social enterprises, non-governmental organizations and traditional businesses.
Download the Public Service Transmission Guide here (LT) [link]
Procurement of impact
A procurement model where the ordering of municipal services is not based on the purchase of a specific service but on the purchase of results is called impact procurement.
The municipality identifies the partners in the field of public services, and the social partners (social businesses or NGOs) propose measures and identify the scope of the target group that can be affected and participate in market consultations in order to create a mutually acceptable model.
The social partners are allowed to choose the design of the services themselves, the measures that would be most innovative and effective in solving the problems. The partners take the risk that the municipalities' payment for the services provided depends on the results achieved - the impact on the target group.
Guidelines for impact reporting
One of the most important aspects that characterizes social enterprises and helps to demonstrate its success is the positive impact that it has on society and / or the environment. Although there is no formal requirement for social enterprises in Lithuania to measure and report their impact, there is an increasing expectation to prove their reliability and ability to achieve the desired results, especially in pursuit of funding. Without defined qualitative standards for measuring impact, social enterprises often lack the knowledge, skills and motivation to do so. The lack of qualitative impact reporting guidelines is also evident in public institutions: when constructing measures based on the funding of the achieved impact, the institutions do not have a common understanding of what to expect from social enterprises and what impact to expect from this type of funding.
In order to encourage social enterprises to measure and report on their social impact, it is important to find ways to simplify and clearly present these complex processes. Impact measurement and reporting should not be seen as an additional, resource-intensive burden, but as a way to communicate the importance of your social mission to society, to provide a basis for additional financial or other support for organizational development, and to attract investment. Without naming the desired and achieved impact, social enterprises are at risk of failing to reach their target group, providing services that are not effective, or, in the worst case, providing services that not only do not bring benefits but even have unintended consequences.
For these reasons, in 2021 during the project of “Create Lithuania”, Enterprise Lithuania prepared guidelines for impact reporting. These guidelines are designed to reduce the apparent dissonance between public authorities and social entrepreneurs and to align each other's expectations. The guidelines are of a recommendatory nature and their content can be adapted to the needs and opportunities of social enterprise.
Download the Impact Reporting Guidelines here (LT) [link]
- INVEGA priemonė „Startuok”. Investicinės arba apyvartinių lėšų paskolos yra skirtos įmonėms ir verslininkams, kurie atitinka smulkiojo ir vidutinio verslo subjekto statusą (SVV subjektai) ir veikia ne ilgiau kaip 3 metus, bei SVV subjektams, vykdantiems socialinio poveikio projektus ir veikiantiems ne ilgiau kaip 5 metus: https://invega.lt/verslui/visos-priemones/25/startuok-90
- INVEGA also has various business support measures for businesses at various stages of its development: https://invega.lt/verslui/20
- LEADER program support for social enterprises in rural areas: https://zum.lrv.lt/lt/naujienos/socialinis-verslas-ateik-ir-kurk-kaime
- Parama verslo pradžiai ir plėtrai – VVG kvietimai. Parama verslo pradžiai ar plėtrai kaimo vietovėje įvairiuose Lietuvos rajonuose apima įvairias verslo sritis nuo gamybos iki paslaugų teikimo, turizmo, socialinio taksi, aplinkos tvarkymo darbų ir kitas verslo veiklas kaimo vietovėje. Projektu turi būti kuriamos naujos darbo vietos sau ar kitiems asmenims, registruotiems kaimo vietovėje. Daugiau informacijos apie kvietimus ir finansavimo paramos dydžius reiktų kreiptis į vietines VVG. https://www.esparamoscentras.lt/lt/parama-verslo-pradziai-kaimo-vietoveje-ir-kiti-kvietimai-teikti-paraiskas-vvg/
- Savarankiško užimtumo rėmimas – Užimtumo tarnyba. Savarankiško užimtumo rėmimo paraiškas gali teikti darbo ieškantys asmenys, kurie pirmą kartą steigia darbo vietas sau LR smulkiojo ir vidutinio verslo plėtros įstatyme apibrėžtose labai mažose įmonėse ir savarankiško užimtumo rėmimo paraiškų vertinimo metu atitinka vieną iš sąlygų, numatytų Užimtumo įstatymo 47 straipsnio 3 dalyje. https://uzt.lt/darbo-ieskantiems3/versl-kurimas/
- Švedijos – Lietuvos bendradarbiavimo fondas. Priemonė skirta stiprinti abiejų šalių partnerystę. Paraiškas gali teikti NVO, MVĮ ir kiti viešieji asmenys. Didžiausia vienam projektui skiriama finansinė parama – iki 5000 Eur. Sekantis kvietimas planuojamas pavasario sezonui, kuriam paraiškos galės būti teikiamos iki balandžio 1 dienos. https://swelitfund.org/
- Projektas „Būk laisvas – nebūk priklausomas!“. Projekto tikslas – teikti psichosocialinės reabilitacijos paslaugas asmenims, priklausomiems nuo psichoaktyviųjų medžiagų vartojimo, ir padėti reintegruotis į visuomenę ir (ar) darbo rinką bei joje išlikti. Tikslinė grupė – nuo psichoaktyviųjų medžiagų priklausomi asmenys ir jų šeimos nariai. Projekto apimtis – iki 2028 m. psichosocialinės reabilitacijos ir (ar) reintegracijos veiklose sudalyvaus 2079 asmenys. Iš jų 45% baigę dalyvauti veiklose, pradės mokytis, ieškoti darbo, pradės dirbti, įskaitant savarankišką darbą. Projekto finansavimo suma – 15 954 246,00 Eur. Daugiau informacijos: https://www.esf.lt/veiklos-sritys/psichosocialine-reabilitacija-ir-reintegracija/1169
Are you aware about other financial incentives for social enterprises? Write us an e-mail [email protected]