Growing social enterprise

The social enterprise movement is much more than a passing trend, as an increasing number of organisations are established with the purpose of providing socially responsible goods and services. Lucas Ryan GAICD explores the key factors critical to their success.

The social enterprise model is gaining momentum in (and outside of) the Australian not-for-profit (NFP) sector. Last month the AICD hosted an NFP Directors’ Briefing on establishing a social enterprise, featuring a panel of expert speakers from well-known Melbourne-based social enterprises to explore the trend and stimulate thinking about the future of this model for NFPs.

The concept behind social enterprise is hardly new; NFPs have been turning second-hand goods into profit through op shops for decades. The ‘new wave’ of social enterprises expands on this tradition, bringing purpose-driven business into diverse and exciting new markets through innovative business models. Social enterprises are active in many fields and are continuing to expand their reach.

As the landscape in government funding changes, with grant funding becoming increasingly precarious, politicised and prescriptive, many NFPs are exploring different funding models to support their ongoing operation and achieve their mission. As highlighted by the AICD’s 2015 NFP Governance and Performance Study, financial sustainability continues to be the number one concern among NFP directors. For some, social enterprise represents an attractive new way of doing business, providing a more flexible and stable financial model.

Our panellists provided their insights as operators of successful social enterprises on some of the keys to success in running a social enterprise:

1. Good work can be good business

If it furthers their purpose, there is absolutely nothing to stop an NFP from engaging in commercial activity.

For some NFPs, this might be as straightforward as leveraging existing assets to generate revenue such as through investments. However, social enterprises focus not only on generating profit that can be applied to a good purpose, but also in conducting their business in a way that provides a material benefit. For example, a social enterprise might take on employees who have experienced difficulty in entering the job market and support them to undertake training, thereby not only generating a profit, but also providing a benefit to the employees.

2. The business has to work

Although you may be running a charity, to succeed in social enterprise you must have a head for business.

Having the right mindset is crucial to succeeding. Social enterprises must be willing to be innovative, competitive, ambitious and disruptive. Culturally, many NFPs are inclined, often for good reason, to be risk adverse. However, the operators of social enterprises must be willing to bring their business nous to the board table to succeed in the market. Philanthropic support is not a sustainable way to operate a social enterprise long-term, and if the business component of the enterprise doesn’t work, it may not represent a viable social enterprise.

3. Having the right board is crucial

The board of a social enterprise is likely to look and behave differently to the board of an NFP.

Many boards will need to consider whether they have the right skills at the board table to understand and govern a social enterprise. Good social enterprise boards will have a mix of skills that ensures they have the business acumen to succeed while also delivering on the all-important social purpose for which the enterprises is established. Especially during the start-up phase, these boards will also need to exhibit agility and responsiveness to meet the governance needs of a growing business.