Social enterprises do amazing things. They matter because they offer underrepresented groups employment opportunities. They also reduce economic inequity, improve social justice and increase environmental sustainability. But it’s not always rosy in the garden of social enterprise.
Why is running a social enterprise difficult?
Being a social enterprise brings a unique set of challenges not experienced by traditional businesses or charities. Social enterprises are constantly trying to balance their activities between generating profits and meeting their stated social aims. It doesn’t matter what you do but you must have a clearly defined social or environmental mission at the heart of your organisation, earn more than 50% of your income from trading and re-invest or donate at least 50% of your profits to your mission. However, meeting the competing financial and social needs can be difficult and many social enterprises struggle to stay solvent or meet their ambitious social goals. This blog looks at five of the most common challenges facing social enterprises today.
Financial challenges for social enterprises
Social enterprises can often find managing their finances difficult. These issues generally fall into three broad categories:
Limited access to capital
Banks and other lenders typically view social enterprises as higher-risk investments than traditional businesses which can make it more difficult to access traditional sources of lending such as loans and venture capital. All is not lost, however, because you can explore alternative funding sources such as donations, grants and crowdfunding.
High startup costs for social enterprises
Getting a social enterprise off the ground can be expensive. Start-up costs, such as product/service development, marketing and staff, can be high creating barriers to entry. Social enterprises often need to spend money upfront on high-quality management resources such as business consultants, accountants and lawyers to avoid issues down the line. Again, grants can help keep you afloat or why not consider partnering with another social enterprise doing something complimentary to you and share some of the costs?
Slow revenue generation
When you are competing with traditional businesses that have more experience and resources, it can be hard to generate revenue in the early stage of your social enterprise. Don’t get discouraged. Focus on building a sound business model, your product development and marketing to help you establish your organisation as a leader in a crowded marketplace.
Managing operational challenges in social enterprises
Although you might be super clear on your purpose and your ‘Why?’, actually achieving your goals can be tricky if you don’t have the business basics in place. Consider the following and work out where you need to be focusing your efforts.
Lack of infrastructure and resources
Setting up a social enterprise from scratch is really no different than a traditional business – you’ll still need office space, equipment and technology but chances are you may lack these essential resources and infrastructure to get yourself fully established. An option could be to partner with other businesses that can offer the resources you need. Look for opportunities to use low-cost options such as cloud accounting software rather than desktop-based tools. They may require an exchange of services or they may be happy to help out as part of their corporate social responsibility efforts. Don’t forget you could also apply for grants, locally, nationally or even internationally to support your social aims.
It’s not uncommon for social enterprises to be so focused on delivering their social aims that they don’t prioritise their back-end processes. This can waste a lot of time and money meaning you achieve less in the community. If you aren’t regularly reviewing how you do things, it’s a great idea to take a look every so often as you could be surprised at the time and money you can save by making even small changes.
Difficulty in scaling operations in social enterprises
Social enterprises exist to make big changes in the world. They have radical ideas and can be disruptors in the marketplace. This means that sometimes it can be difficult to bring enough people on your journey, which slows your progress in scaling your operations. The focus on social outcomes can impact the financial success of your organisation so you may need to develop partnerships with other businesses to support your growth.
Problems with impact measurement
Traditional businesses usually have simple success measures – a standard set of business KPIs such as profit margin, year-on-year growth etc. For social enterprises, where the success measures aren’t necessarily monetary, it can be more difficult to assess impact.
Lack of standardised impact measurement frameworks
Traditional businesses usually assess their progress using standard performance measures from the P&L and Balance Sheet. This also allows some level of comparison with competitors within their industry. It’s not so easy for social enterprises to measure their social impact. There is no single standardised framework for performance measurement. Develop your own impact measurement framework so you can demonstrate progress over time and towards your social goals. Check-in with other social enterprises who are working in the same niche to find out how they do it.
Difficulty in attributing impact to specific programs or interventions
On top of the problem of a lack of standardised impact measurement, you may find it difficult to attribute social impact to specific programmes or interventions. Social problems are complex with many factors affecting outcomes. Pinning improvements down to your organisation can be challenging, to say the least. So, you’ll need to implement rigorous evaluation methods to help you track your impact over time.
Challenges in communicating impact to stakeholders
Communicating your impact to stakeholders is hard because of the challenge of measuring your progress against your stated aims. Use clear and concise language to frame your achievements in a storytelling format that brings your successes to life.
Marketing and sales challenges for social enterprises
All businesses need to sell. Even those that are not-for-profit must cover their costs and generate a surplus to plough back into their organisation for future activities. Marketing and selling are vital tasks for all organisations to get right but these can be tricky areas for a social enterprise where the focus is on making a difference in their community.
Difficulty in reaching target audiences
When you have a limited marketing budget, it’s always challenging to reach your target audience. Using organic social media is one way to reach more potential customers when you don’t have much money to spend on advertising. Creating partnerships with other businesses or social organisations can be another low-cost way to market your social enterprise.
Building brand awareness
Getting your name out in the world takes time and effort. Build brand awareness by teaming up with other businesses or influencers in your niche who can increase your brand’s visibility.
Generating leads and sales
Until potential customers understand the products or services you sell, you may struggle to make enough sales to meet your social aims. Keep going and remind yourself why you started in the first place. Focus on building relationships with potential customers. Talk to possible stockists of your product. Team up with other businesses where your product or service compliments (but does not compete with) what they do.
Team and culture challenges
Most social enterprises require a significant amount of human resources to run the organisation. Many charities, community interest companies and social enterprises often rely on the help of an army of volunteers. But that can only get you so far. At some point, you’ll probably need to hire permanent staff. This helps make your organisation sustainable but can bring its own challenges.
Attracting and retaining top talent
As budgets are often tight, you may find it hard to attract the right people to your social enterprise. Traditional businesses that can attract greater investment are more likely to offer higher salaries and better benefit packages than you can afford. However, remember that not all employees are motivated by money. If you create a positive and inclusive work culture you can attract staff who are keen to have a fulfilling career where they can make a difference to their community.
Creating a positive and inclusive work culture
When you spend time creating a positive environment, you can attract, and more importantly retain staff who will work tirelessly for your cause. This is especially important if you are unable to pay top salaries. You can create loyalty through the way you communicate and interact with your employees. Create diversity in your workforce and ensure inclusivity in all your staff matters. You’ll make your organisation a better place to learn, grow and work by creating a collaborative culture from the top down.
Managing burnout in social enterprises
When you are passionate about what you do, that enthusiasm can easily rub off on your teams. However, if you are working long hours, be careful that this does not lead to burnout. It’s worth considering what physical and mental health support you can put in place for your staff. You may be able to partner with another business that can help keep your employees happy, healthy and motivated.
Growing social enterprises, making a real difference
Social enterprises can make a huge impact on the lives of the people they serve. Two wonderful examples include Community Shop which partners with retailers to collect surplus and donated food to redistribute to those in food poverty and Community Dental Services which provides dental care to those who typically don’t have access such as those with learning difficulties or mental health conditions. Whatever your social aims, run your business carefully paying close attention to your financials so you can generate sufficient income to continue with your good work. Efficient bookkeeping and accounting means you’ll be able to make accurate, timely decisions. This can help keep a lid on your costs or allow you to take advantage of new opportunities to increase revenues.
Proper accounting support not only includes accurate record keeping but also provides business insights to enable your organisation to flourish. To set up smart digital accounting or to improve your cash flow forecasting so you can continue to reach more people.
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