Even though social enterprise is a concept that has been around for a while, there is still some confusion about exactly what it is. Usually the questions that come up immediately when social enterprise is mentioned are: (1) What is social enterprise? and (2) Is it a viable revenue option for my nonprofit? So we’re going to begin with a definition of the concept, and then identify some critical areas to evaluate to determine if there is a social enterprise opportunity that is the right fit for you.
Let’s first start with a formal definition: “A social enterprise is an organization or initiative that marries the social mission of a non-profit or government program with the market-driven approach of a business.” Social Enterprise Alliance I would clarify by adding that these nonprofits, by selling goods or services, are furthering their mission while generating income, whether that be in arts and culture, social services, education, environment, or other sectors.
To add a little to the confusion, for-profit organizations also are looking at ways to generate revenue for social good, often referred to as shared value. In this case, companies develop projects to increase return on investment by growing profits or reducing expenses while also providing a social impact. And while both social enterprise and shared value initiatives are concerned about generating revenue and addressing societal challenges, in my experience return on investment leads the discussion with for-profit organizations while social impact becomes the key factor for nonprofit organizations.
A common follow-up question from nonprofits is, “Are all of my nonprofit’s income-generating, earned-income projects social enterprise?” And while there is a certain element of social enterprise in all earned-revenue endeavors, I believe social enterprise initiatives are those additional sources of earned income that you don’t traditionally think for an organization.
For example, in my opinion ticket sales for a theater is not social enterprise, but if the theater develops a program to provide training for corporate executives to be able to think on their feet, that would be a social enterprise initiative. Or if a YMCA charges membership fees that is not social enterprise, but if it opens a healthy lunch counter in the Y facility that would be. Or if a humane society charges for adoptions of pets that is not social enterprise, but if it opens a “doggy daycare” that would be.
If you want to hear from some executive directors who have successfully developed and implemented social enterprise initiatives for their nonprofits, join us for a panel discussion at the Nonprofit Finance & Sustainability Conference, March 3.
Is Social Enterprise a good fit?
The panelists participating in the conference have completed the Financial Resiliency & Social Enterprise program, jointly presented by the Initiative Foundation and Propel Nonprofits (formerly Nonprofits Assistance Fund). In that program, nonprofits spend several sessions evaluating whether they should pursue a social enterprise initiative – is it the right fit for their organization? The key areas they evaluate are:
- Mission Fit: Will this compliment your current mission? Will it be integrated into your current programming? Or is it completely separate from the mission of your organization? What is your goal with the social enterprise – how will it help you accomplish your core mission?
- Organizational Capacity: Do you have current capacity to explore a new program? What are your assets (tangible and intangible) that would contribute to a successful initiative? What are your skills and expertise? How would you leverage your relationships, reputation and brand for this initiative – any concerns about negative impact from the social enterprise on your relationships or brand?
- Financial capacity: Do you have the reserves needed or financial sources identified to invest in the initiative and cover the costs during the start-up? Before launching a new social enterprise initiative, analyze your current financial position, budget and cash flow.
- Market Opportunity: What is the market for this initiative – is there truly a demand rather than just a need for this social enterprise? Competition? Delivery channels? Pricing structure? Marketing/promotion/communication needed?
Depending on what organizations discover during this initial evaluation will determine if they should continue to brainstorm social enterprise options and opportunities for the benefit of their organization, their communities, and their clients or customers.
Social enterprise COULD be a next step for your organization – but is also might not be. It will not magically solve all your finance challenges – and could just make them worse.