“Is Umbo a charity?” “No, it’s not. And here’s why…”

We’ve all been there. You’re at a barbecue or a dinner party. You know the host, but not many of the other guests. And then, as inevitable as the going down of the sun, the question arises.

“So, what do you do?”

For me, answering this question comes with trepidation, not because I’m ashamed of what I do (quite the opposite), but because it’s much harder to explain than simply saying “I’m an accountant” or “I’m a doctor”.

My usual answer begins with the fact that I started a charity in Cambodia, and am now co-founding a social enterprise in Australia.

Mentioning the word charity seems to invoke a predictable response. A softening of the eyes. A respectful nodding of the head. And then, a phrase similar to this: “Aah. That must be so rewarding.”

For better or worse, people understand the purpose of charities. When it comes to social enterprises, like Umbo, they’re not so clear.

My purpose today is to spell out what a social enterprise means to us, and why we chose this structure for Umbo.

How do we define social enterprises?

In Australia at least, there is no legal definition of a social enterprise. By law, they are treated just like any other corporation. The wonderful Prashan, CEO of Chuffed, explained, why we need to have a more specific definition, a Social Benefit Company, which can achieve philanthropic aims under the company structure.

But for now, the closest definition we have is from certain industry groups, such as the Pro Bono Law Association, which states that a social enterprise reinvests 50% of profit back into the organisation or gives it away to charity.

To understand what a social enterprise is, you just have to look at the words themselves. Social. Enterprise.

It provides some tangible social benefit to society and it’s a business (ie an enterprise).

How does a social enterprise differ from a charity or non-profit organisation?

What about the difference between a social enterprise and any other company?

This is where things start to get grey, considering the lack of a legal definition for a social enterprise. The constitution determines what makes a social enterprise social. 

A social enterprise can deliver social benefit in one of two ways – through the day to day running of the business, or through donating profits.

An example of the first type of social enterprise is ThreeOneSix, a tea company which ethically sources its product and pays people in the supply chain a decent wage.

An example of the latter is the Thank You group, which donates a percentage of every sale to charity. These charities, according to the website, then help to supply clean drinking water across the world.

Which of the two methods is better? 

There’s no simple answer to the question, though some of the considerations are in the table below.

Through the business:

  • Hard to scale
  • Easy to control

Through profits:

  • Easy to scale
  • Hard to control (as social good is essentially outsourced)

What is the future of social enterprise?

It is my firm belief that in the future, almost every enterprise will be social. We will move away from businesses where delivering some social benefit is an afterthought or an add on. It will become the core work of almost every business.

We will also see social enterprises treated by governments differently from a legal and tax point of view.

And hopefully, as social enterprises proliferate, the barbecue conversations will be just that little bit easier to handle. Just a little bit.