Earlier this week I wrote the post, Why I Don’t Like Your Social Business. It turned into one of my most shared and read posts of the last year, in part because I think it struck a nerve with many social entrepreneurs. Many know and can sense that the field has been inundated with bad social businesses, which I rant against in the post.

Today though I’d like to talk about the good social business and the parts necessary for creating one.

1) The best social business is a business!

This might seem odd but I think many social entrepreneurs are people who would have generally joined or started nonprofits but they see this trend and the potential for a continuous and sustainable revenue source, so they start a business. This, in my opinion, is backwards. I think the best social businesses are actually started by people who start businesses but they stumble upon a business model with positive social benefits.

2) The best social business doesn’t rely on charity.

You would think that would be covered by actually being a business, but a surprising number of businesses ask people for investment without giving them upside, return, or equity. This makes the investment a charitable gift without a tax deduction. This creates an environment where bad businesses last too long. In the normal market if you aren’t making money and have no hope of making money, you shut down. The charitable action in the social business world just prolongs the inevitable.

3) The best social business aligns social and financial returns.

This is the crux of the matter. Businesses that are built around giving a portion of their profit or each sale away are really just glorified corporate giving strategies. I think a social business is one that has found a way to align the social and financial returns. If your investors aren’t crying for you to increase social returns so they see an increase in financial ones then I don’t think you have created a social business. If you feel a tension between the financial bottom line and the social bottom line then you have not truly aligned the two.

If you are able to accomplish these three goals I think you’ve probably created a pretty awesome social enterprise. It will be sustainable, impactful, and lasting. If you are meeting a consumer need while addressing a social ill you have truly created something revolutionary. I am sure that many people will disagree with my definition here but I think that if you have not accomplished these three things you are probably just a nonprofit in disguise and you should embrace it already and give your donors the benefit of a tax deduction. You can still sell things as a nonprofit and operate in much the same way as a business.

I think social businesses can be powerful agents of social change but they cannot address every problem and it has become too large of a fad and people are being taken advantage of and good is not truly being accomplished. As I always say, bring a skeptical eye to the social business world and ask yourself are they really a business and are they really accomplishing anything good?