By definition, a social enterprise is a for profit business that also carries a strong social mandate. As such as a start-up it faces some of the same challenges any incubator company may have. However it also carries certain advantages and disadvantages to market.
Recent experiences with two new SE’s suggest they have more support at the front end than the entrepreneur who needs to establish proof of concept before attracting investment capital. Loans from sponsoring agencies and foundations, as well as available government grants, provide an initially solid operating basis. That capital can dissipate rapidly however if the business case is not validated in the market and the enterprise is handcuffed in its ability to be nimble and scalable. Third party validation of the business concept is a critical early step. It removes the social bias and helps benchmark best practises within the launch market. Usually, work force training and integration is integral in the social return sought by the sponsor. Over aggressive targets to that end and ignoring the need to utilize workers that fall outside the mandate can be a mistake. Stakeholders must appreciate and support the need to succeed in the market as a regular business first, because if the business fails, the reason it was created in the first place, matters not. Whereas stakeholder enthusiasm supplants family and friends as a driving force at the outset, it can turn on a dime if there is a feeling that an overly commercial direction is being taken versus achievement of the social good everyone envisioned. That is why leadership and communication have to be keynotes of the operation. The CEO/COO must bring credibility with respect to the cause as well as relevant business savvy. He/she needs to communicate clearly internally and externally what the enterprise must accomplish in both program and revenue generation in the pursuit of its vision. Faced with a lean support staff or perhaps initially only assistance provided by sponsors, they must be willing to roll up their sleeves. Contracting aspects of the Finance, HR and Marketing functions can keep the enterprise scalable while it is building its business in the marketplace. Fiscal discipline is critical, or like with any start-up, the business will quickly burn through its available cash and the CEO will spend all his/her time searching for new investment.
There is a balance to achieve between leveraging opportunities in the market created by public awareness to the social goals, and having customers utilize your services because of how well you market yourself. Within the industry vertical that the business is in, it is important that companies, who might otherwise be staunch competitors, believe that the enterprise is not out to erode their market share. Rather, they see how the available work force can be enhanced through providing real opportunities to challenged individuals. Initially, contracts and clients, not profits, should be the goal. However, pricing well below the market creates longer term issues for the business and can antagonize companies engaged in the delivery of similar services. Additionally, labour needs to be properly compensated relative to experience and skills. Otherwise, no different than with any other business, quality, production and customer satisfaction will suffer. Social Enterprises inherently have a much higher cost of dedicated HR support for program development which becomes challenging if there is a negative gross margin after cost of sales.
Governance is an important issue. As quickly as possible, the social enterprise should have its own dedicated management team and Advisory Board. The sponsoring agencies need and deserve representation, but business advisors with relevant industry experience, as well as certified professionals in law and accounting, should also be appointed. Advice should be sought relative to the tax implications of its revenue generation model and what must be done to maintain compliance with and qualify for government grants.
At the end of the day, with far too many not-for-profit agencies serving the same constituents, the organizations who survive will be those who learn that in order to make a difference in the community, they need to also differentiate a business that can be effective enabling profits as well as people.
Mark Olson (click to see Mark's profile)
Managing Partner & Principal
