Social Enterprise Article by David LePage in Vantage Point E-News

SOCIAL ENTERPRISE: Another Tool, Not the Solution!

By David LePage

The following article appeared in the March 2011 edition of the Vantage Point E-News.

Five years ago, when I mentioned "social enterprise" most people's eyes glazed over. Three years ago, I was often told the phrase itself was an oxymoron. Today, a colleague asked me what we should do now that "social enterprise is mainstream." Like many other areas of our lives, discussions on this subject have changed substantially in a short period of time. More often than not, social enterprise now seems to be the hot not-for-profit topic (and solution!) of the day.

So, it's worth asking the question: will social enterprise allow the not-for-profit sector to solve the social and environmental issues facing our communities?

The current context is familiar to many of us: federal and provincial governments are facing deficits; not-for-profit budgets are being cut from all sides; social needs are on the rise; and governments are moving from being the sole provider of services to a partner and facilitator. In this environment, we often hear social enterprise positioned as the common solution. Some proponents regard social enterprise as a great opportunity for not-for-profits to generate revenue, earn profit, and become self-supporting. Others view social enterprise as a more efficient model for delivery of government services. Still others perceive the growth of social enterprise as evidence the governments are downloading their responsibilities while refusing to provide appropriate funding.

As this wave of social enterprise enthusiasm swells, not-for-profit organizations are increasingly requesting information and funding opportunities in this area. We are also witnessing the magnification and proliferation of social enterprise expert websites, blogs, training, and consultants. Given all the hype, it's important to keep the realities in perspective.

Social enterprise is not the sole solution. It is not the best delivery model for all social and environmental issues. Governments will always have a role in addressing community issues. Some services will always require a charitable delivery method. Social enterprise is not the right model for all not-for-profit organizations. It is only one tool of many, and must be deployed appropriately in order to generate value.

In my view, the best question to consider is: what role can social enterprise best play in a collaborative effort to create healthy and sustainable communities?

Social enterprises are businesses operated by not-for-profit organizations for the dual purpose of generating income from the sales of goods or services to customers AND creating a social, environmental or cultural purpose. They blend a social and financial return on investment. Social enterprises are functioning in many businesses - including cafes and catering, courier companies, printers, building maintenance, family and employee counseling, recycling, farmers' markets, technology, arts, culture, and eco-tourism. They appear in a variety of forms and legal structures: not-for-profit, not-for-profit with charitable status, co-operative, and for-profit. Social enterprises create employment, deliver affordable health care, solve food security issues, address environmental problems, and bring arts and culture to communities.

Let's be clear - putting an effective social enterprise sector into practice will not be easy. It will be a long-term effort, and we will measure outcomes and impacts over years rather than months.

Before we begin, it is critical to recognize creating a social enterprise entity is not the goal! Social enterprise is a verb! It is a means, a tool not-for-profits can leverage to achieve their social mission and become financially sustainable.

Start-up social enterprises are in fact new businesses, and most are small new businesses. So it's worth pointing out across Canada more than 50% of small businesses fail or close their doors in the first five years of operation. In addition, by adding a social outcome to business development goals, social enterprises increase their start-up challenges.

When they do succeed, most small businesses and social enterprises take several years before they return a true profit. Social enterprise is by no means an easy and quick fix to address the loss of a grant or a current funding deficit.

It should go without saying, but social enterprise initiatives also don't fix dysfunctional organizations.

Many not-for-profit organizations are extremely resourceful and experienced with their income generation opportunities and sources. They are effective fundraisers, grant writers, and contract negotiators. Many are also efficient at program delivery and some are even effective in their governance. However, the vast majority of not-for-profits have never written a business plan, sought out credit and managed investment financing, maintained a successful sales system and staff, or run a business on a day-to-day basis. Clearly, a whole new set of skills, knowledge and practices are required to be successful in this realm.

Business not only requires a new set of skills; it can also be a significant cultural shift for many not-for-profits. While not-for-profit organizations perform services after being funded; businesses sell services to generate income. Think about it - when did your Board of Directors last discuss the cost of goods, or the "profit margin" on a product or service? Often, annual cash flow based on not-for-profit grants is simply reflected as total income divided by 12 months. That model will not work for a business with fluctuating sales income, along with late payments and seasonal income issues. The organization will have significant debt to manage, customer retention to address, and market competition to consider.

In case you're wondering, I remain very excited about the new wave of interest in social enterprise resources and implementation models - and in particular about the potential opportunities they offer to not-for-profits. However, in all of our enthusiasm, it is essential to also realize the breadth of support and the cross-sector integration efforts required for success.

As a starting point, we must address the following:

• Not-for-profits require increased business skills on an individual basis and at an organizational level
• Financing must be appropriate for the full spectrum of social enterprise development and growth: from technical assistance for planning, through start up grants and patient capital, to investment for scaling and growth
• Markets and consumers must seek out blended value consisting of product quality, competitive price, environment, and SOCIAL value
• Measuring success must include both mission delivery and business results

To create a conducive environment, we require new partnerships and relationships between government, private sector and not-for-profits; new investment tools and investor incentives; and a supportive government regulatory environment.

So - the next time someone tells you they're going to start a social enterprise; the best response is "why?" Question how it will contribute to achieving the organization's mission. Consider whether it is based on a sound business model. Ask how it will contribute to the organization's sustainability. And seriously examine whether it is the right tool for the particular organization and context.

Above all, you can emphasize although social enterprise can offer great opportunities and social impacts, it is not a panacea. We will be most successful if we understand it as another tool, an additional means, a complement to the many influences contributing to our shared goal of creating healthy, inclusive and sustainable communities.

About David LePage

David LePage is the Program Manager of Enterprising Non-Profits, enp, which supports the development and growth of social enterprise. Enp, a collaboration of nine funders, provides resources, technical assistance, and grants and is collaborating on creating an enabling environment for social enterprise across Canada.

David has over 35 years experience in the non-profit and social enterprise sector, including inner city and rural economic development, community media, social purchasing models and business development. He is a member of the Social Enterprise Council of Canada (SECC), the Policy Council of the Canadian Community Economic Development (CCEDNet), the Social Enterprise World Forum Collaboration, and the board of the Social Enterprise Alliance (North America).

About Vantage Point

The mission of Vantage Point is to inspire & build leadership in the voluntary sector. This publication is intended to be a medium of communication and information for the many organizations active in the volunteer and not-for-profit sector. The opinions expressed herein are solely those of the writers and do not necessarily reflect official policy of the Board of Directors of Vantage Point.

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