Healthy Seas diverse

New Weave, a Social Business.

What is a Social Business?

A Social Business is a type of company described by economist, Nobel Prize winner, and the creator of microcredit, Muhammad Yunus. A Social Business is not a protected concept, and variations exist, sometimes referred to as a "social company" in the Netherlands. Since New Weave is modeled after a Social Business as described by Yunus, New Weave is referred to as a Social Business.

The goal of a Social Business is to address a social issue through a business approach. For a Social Business, profit is a means to achieve the goal, but not the goal itself. However, making a profit is necessary to independently work towards the goal. This is where a Social Business differs from a non-profit. In a Social Business, any potential profit is reinvested in achieving the objective. Thus, no profit or dividend distributions take place. A Social Business must adhere to 7 rules. More on this shortly.

Why a Social Business? The best of both worlds

Yunus describes the role of a Social Business by looking at two organizational forms: a regular business and a non-profit. A Social Business seeks to combine the strengths of these different organizations.

A (financially healthy) regular business can operate economically independently, making it self-sufficient. In economic terms, it is self-reliant. This self-sufficiency is a powerful asset that a non-profit doesn't possess. A non-profit depends on donors or other forms of external funding and will always remain so for as long as it exists.

This financial independence, while being a strength, can also be a weakness. Often, we see that profit orientation becomes a goal that overshadows everything else. "The business of business is business" is a quote by economist Milton Friedman, emphasizing that a company's primary responsibility is to make a profit to deliver value to its shareholders.

The excesses resulting from such a singular focus are numerous and well-known. It can lead to the neglect of social and environmental issues, a focus on short-term gains, ethical compromises, worsening working conditions, or result in (extreme) forms of inequality.

New Weave does not see a traditional business approach as the right model for an organization focusing on a long-term objective, such as reducing waste or promoting circular design. However, the aspect of financial independence can significantly enhance effectiveness.

Looking at a traditional form of a non-profit, we see essentially an opposite profile. These organizations are not financially self-reliant but do strive for a good cause.

The idea behind a Social Business is essentially straightforward; it combines the strengths of a commercial business and a non-profit. An organization that is financially self-reliant and thereby aims to be more effective. And at the same time, it also works towards a social issue. This objective is embedded in the foundation of the organization, making such organizations often referred to as 'impact first' entities. A Social Business, as described by Muhammad Yunus, must adhere to the following seven principles.

The 7 principles

Yunus describes two types of Social Business. New Weave is a type 1 Social Business. The other type focuses on a business model targeting impoverished individuals.

Type 1: A non-loss, non-dividend company dedicated to solving a social problem. Owned by investors who reinvest all profits in expanding and improving the company.

Unlike a non-profit, a Social Business has investors and owners. In a Type 1 Social Business, these investors and owners do not earn profits, dividends or any other form of financial benefit. Investors in a social business have the opportunity to get their investment back over a predefined period. Any amount flowing to investors in excess of the original investment disqualifies the company from calling itself a Social Business. This includes adjustments for inflation. In a Social Business 'a dollar is a dollar'. 'If you invest a thousand dollars in a Social Business, you will get a maximum of a thousand dollars back, not a cent more.' It is a strict definition because we want to be clear that the notion of personal financial gain has no place in a Social Business.

The 7 principles:

  1. The purpose of the company is to combat poverty or one or more social problems such as education, health, access to technology and the environment, which pose a threat to people or the community; not maximizing profit.
  2. The company will achieve financial and economic independence.
  3. Investors can receive a maximum return of their invested amount. No dividend or other form of compensation will be paid.
  4. Once the investment is repaid, the profits remain in the business for the purpose of expansion or improvement.
  5. The company will act environmentally consciously.
  6. Staff receive a competitive salary with better working conditions than the standard.
  7. Do it with pleasure!

A Social Business does not start with looking for a business case to maximize profit; it takes a social problem and looks for a business solution. Profit is a necessity, not a goal.

New Weave's business structure

At the time of writing, New Weave is a sole proprietorship. With financial success or significant investments, New Weave will transition to a BV (Limited Company) structure, and the outlined principles will be anchored in the company's statutes. These will also be publicly communicated at that time. Due to the cost of this foundation and the tax advantages a sole proprietorship enjoys at lower turnovers, the decision was made not to start directly in a BV structure.