Social Firms or Affirmative Businesses

In the 1960s to 1970s American and European nonprofits began experimenting with enterprises to employ disadvantaged populations. In the mid-1960s, John Durand, started working with 7 mentally retarded people and by 2005 Minnesota Diversified Industries had revenues of $40,000,000 and employed over a 1,000 physically and mentally disabled people.1 Similarly, in 1971 with $1,000 loan from a moneylender Mimi Sibert began a program for former felons and substance abusers. Since, Delancey Street has successfully mainstreamed 14,000 former clients entirely on self-generated resources through its 20 social enterprises run entirely by clients. 2

The first social firm (aka "affirmative business") model was created to employ people with psychiatric disabilities and is credited to the Italians. The social firm model was founded on, and continues to adhere to, the following principles: over a third of employees are people with a disability or labor market disadvantage, every worker is paid a fair-market wage, and the business operates without subsidy, and has gained prominence throughout North America, Japan and Europe. The growth of the social firm movement has been aided by legislation that supports the businesses, policies that favor employment of people with disabilities, and support entities that facilitate technology transfer.3 Such regulations as advantageous tax laws, preferential contracting terms, and government subsidies have created an enabling environment under which social firms have flourished.

In the mid 1990s, REDF (formerly The Roberts Enterprise Development Fund) popularized this notion of social firms by experimenting with business types, operating models and target populations. REDF merged social welfare and vocational rehab creating new enterprises to employ people with barriers to employment (including disabled, homeless, ex-offenders, youth at risk, etc.). REDF also began applying the tenets of venture capitalism to philanthropy ("venture philanthropy") to architect its funding and technical support approaches, as well as to begin measuring investor rates of return on social impact (social return on investment).

In doing so, REDF created a venture portfolio of 10 employment development social enterprises4 and published widely on tools and lessons drawn from its work with portfolio organizations. Indeed, REDF's contributions to social enterprise literature are the closest claim the social entrepreneurship field has to any one given methodology for social enterprise. The employment-model of social enterprise has been both replicated overseas by civil society organizations as well as adapted for an overseas application by practitioners of Making Markets Work for the Poor, who are creating employment or favorable conditions for employment for particular disenfranchised groups.

  • 1MDI annual report 2005
  • 2Delancey Street Website
  • 3Warner, Richard, M.B., D.P.M. and James Mandiberg, Ph.D., An Update on Affirmative Businesses or Social Firms for People With Mental Illness, American Psychiatric Services, October 2006.
  • 4REDF's literature refers to social enterprises as social-purpose enterprises.