An explanation of social enterprises and the Third Sector

The social enterprise sector is estimated to be worth £60bn to the economy, three times more than agriculture, according to a report by the Co-op, and yet it remains a relatively hidden sector. 

With the growth of the sector, the phrases "Social Enterprise" and the "Third Sector" are becoming increasingly common and rightly so, but what do they mean? They are often, incorrectly, linked to the phrase Not For Profit. Whilst this is true of many charities, Social Enterprises are definitely FOR profit. 

Third Sector is a phrase that's used to encompass the spectrum of organisations whose primary aim is to benefit individuals, communities or society. At one end it includes Charities that are reliant on donations and funding for income and volunteers to deliver their services. In the other direction, it includes highly successful trading business whose profits are re-invested. The Big Issue, The Eden Project and Divine Chocolate are some of the more well known social enterprises.

The main difference between a social enterprise and a regular trading business is what happens to those profits. In a social enterprise they are not shared with shareholders or paid out in dividends - they are re-invested in the enterprises' social aims.

Broadly speaking Social Enterprises achieve their social aims in one of two ways:

• Direct benefit: the services or products the organisation produces and sells, directly benefit individuals that the social aims are trying to impact on.
• Indirect benefit: the profits generated from producing and selling products and services are used to benefit the communities that the social enterprise is impacting on.

Let me give you some examples.

Glencraft Mattresses

Glencraft is one of the oldest known mattress manufacturers in the UK. It's an enterprise that strives to craft the highest quality products. Founded in Scotland, the company has manufactured mattresses in the North East since 1843. Glencraft has supplied four generations of the British Royal Family at Balmoral Castle and hold a Royal Warrant for doing so.

The social enterprise looks to offer employment to people with disabilities, either through physical or mental health issues, who may struggle to secure employment otherwise. This is a direct benefit social enterprise.

MsMissMrs Empowerment Pants

The MsMissMrs service offers an educational development programme known as the S.E.T. (Self-Esteem Tools) to women and girls who are building or rebuilding self-esteem and self-awareness. Their product, Empowerment Pants, is their very own brand of underwear, trademarked and designed in Glasgow. They are a gift item that not only feels good but does good! The profits are reinvested in supporting social change at a community level. This would be an example of indirect social enterprise.

Q: My company does a lot of good work in the community. Is it a social enterprise?

A: Doing good work in your community is not a definition for a social enterprise. Many businesses act with a strong social conscience e.g., offering discounts for good causes, supporting staff to fund raise, providing equipment or people for projects. Ultimately, if the profits (or a proportion) are passed on to shareholders, they are not a social enterprise.

The reality is that is doesn't matter HOW the enterprise achieves it's social aims, as long as it trades profitably and generates enough cash to re-invest and keep going and growing. 

In trading terms, and in most cases legal terms a social enterprise is not the same as a business with a social conscience. The set-up and governance arrangements can be very different, and if you are thinking of setting up a social enterprise we would suggest you seek advice from an expert organisation who help create social enterprises. The types of organisation range from charities, community interest companies (CIC's) and company's limited by guarantee with unique shared holder agreements to ensure profits remain in the business.

So, there's a whistle-stop explanation of what social enterprises are and how they fit into the thing called the Third Sector.

If you are a Third Sector organisation and need support, check out this page.