As not-for-profits struggle to break their dependence on government funding, many are turning to social enterprise in a bid to diversify sources and grow their cash flow.
But social enterprise has become a bit of a panacea for the funding struggle. Social enterprises come and go, and many NFPs aspiring to social enterprise never quite get there because of a lack of sustainability in their business model.
Why is social enterprise so difficult to achieve? Much of the answer lies in leadership, and the ability to articulate a vision that is both commercially viable and values-driven.
It is critical for a social enterprise to be founded on business principles concepts. It is an absolute priority that a social enterprise offers something demanded by consumers broadly, or at least by the organisation’s constituency.
The economics of a social enterprise business proposition have to make sense. There must be a business plan, as well as appropriate governance, systems and processes.
Commercial advantage
A social enterprise’s success can depend on timing. It can often be ahead of the curve in recognising a need within its constituency, and try to turn this into a commercial advantage, but if it is playing catch-up to the for-profit sector when it comes to marketing its offering, it is probably already too late for success.
Beyond its consumer focus, a social enterprise must be run as a business. The principles of agility and market responsiveness, persistence and adaptation are just as critical for an NFP social enterprise as they are for any for-profit business.
It takes visionary leadership to establish what the offer is or should be. The end outcome or social goal cannot just be “establishing a social enterprise”. NFP leaders who seek to use a social enterprise model to open a new funding stream need to ask the fundamental questions: why are we doing this, and what market need are we addressing?
The aspiration of social enterprise is ultimately to support and help a constituency. The successful social enterprise embeds its constituency or its social impact within its business model. The organisation lives and breathes by supporting its customers, and in seeking appropriate, values-driven outcomes in its actions – while simultaneously running as a business. It is a tricky balance that needs a change in mindset for many NFPs.
Vision and foresight
While NFPs need to become less risk averse and adaptable, leadership can often be conservative. But NFPs have had enough vision and foresight to identify the need and demand for social enterprise models, so should be confident enough to change their management practices to suit.
The organisational culture needed to support a social enterprise mindset does need to be led by management. Organisations must become more willing to recognise failings and shortcomings, and adapt. Adaptability and signalling that failure can be constructive, and an institutional change in mindset must be seen to be supported from the top.
Without leadership, NFPs will struggle to empower staff to contribute to the sort of innovative thinking that leads to successful social enterprise.
How management works will determine how successfully an NFP can institute a social enterprise funding model.
NFPs often ask whether government has a role to play within social enterprise. Given the need for a commercial approach and a desire to move away from relying on grants in the first place, it is not appropriate that government be a source of finance or a major contributor to a social enterprise. By definition, social enterprise must stand on its own commercial viability.
While the government can potentially act as a customer or oversee an aspect of the a social enterprise, the organisation should not turn to government for regular funding or grants. The government can significantly contribute, however, through capability enhancement and connection to training and development opportunities, as well as bringing about connections with likeminded organisations or consumer bases. These are ultimately more powerful as they allow the social enterprise to grow and meet challenges.
Badge of pride
A reliance on government funding and charitable donations has allowed NFPs to indulge in a mental separation from commercial considerations, which puts them at a disadvantage when it comes to rolling out a product or service as part of a for-profit enterprise. NFPs can often wear their lack of commercial focus as a badge of pride, as it has allowed them to concentrate on providing significant social outcomes that cannot be commercialised.
But a mentality that is vastly different from a for-profit business can also be an advantage. For-profits often have internal bureaucracies and set methods of engagement with consumer bases that are even more ponderous than those of NFPs. And NFPs do have the advantage of having had to work in leaner funding environments, embedding agility and efficiency into delivering services. Applying that mindset to social enterprise will be critical to success.
Basically, NFPs need to have the foresight to look beyond the safe territory of a government funding environment. In these uncertain times of government spending cutbacks, NFP leaders need to have the courage to try something new, take a risk and lead the way in creating a new social enterprise model.
The value of the NFP sector is that it can lead social change on a broad scale. It has community and attitudinal leadership in spades. Its challenge is to expand its horizons, and empower its leaders and future leaders to be great business leaders as well.
Mark Harrison is a Partner at Pitcher Partners.
This article originally appeared in the June edition of Third Sector print magazine- click here for more info.