How three common pitfalls of social enterprises can be avoided

Social Enterprise

How three common pitfalls of social enterprises can be avoided

A man in Ethiopia overlooks his crops during a drought. Photo: Erin Gray/Mercy Corps.

The social enterprise revolution of the last decade has been a success. Businesses have adopted the skills of entrepreneurship and found innovative, efficient, and effective solutions to social problems.

But many businesses face challenges trying to balance for-profit endeavors with social objectives, and end up trapped by these familiar pitfalls:

The one size fits all model
Business strategies that are proven successful in one community may not work in another.

Development Alternatives Inc. (DAI) provides energy resource management, public health solutions and works with countries recovering from civil war. The firm advocates for government accountability and the creation of competitive business environments in the more than 150 countries in which it has worked.

Although many of DAI’s projects have been successful, it has tripped a few times, like all groups working to solve complex problems.

DAI attempted to establish an urban garden program in Ethiopia using a drip irrigation system that had been successful in other countries. But Ethiopia’s topography and shortage of water put the brakes on the project.

“Failure was about learning,” said Robert Salermo, a development specialist at DAI, in an interview with DevEx. “We failed, learned, adapted and moved on.”

The company turned failure into success by collaborating with local residents to design a watering system better suited for the region.

Non-profit and for-profit confusion
In pursuit of social change, some social enterprises attempt to follow a business model that’s better suited for a non-profit organization.

Generating a profit can be difficult for any business. But social enterprises face even tougher obstacles because they have goals and obligations that purely money-making enterprises do not.

Many social enterprise start-ups rely on fundraising, but this risky form of funding can’t sustain a business. The entrepreneurs then have to split their focus between competing for limited donor dollars and developing independent ways to support themselves and fuel a social benefit.

Saul Garlick founded ThinkImpact in 2002 to send U.S. students to South America and Africa to build relationships within communities and use existing resources to find solutions to local problems.

ThinkImpact grew. By 2010, more than 100 students had worked in South Africa and Kenya, creating services such as health workshops, seedling nurseries, and cleaner cookstoves with local participation.

However, Garlick needed to raise around $400,000 a year to finance the endeavor. The constant fund raising and providing the transparency that donors demanded exhausted the company’s employees, who made below-market wages.

“Nothing about that scenario was sustainable,” Garlick told The New York Times. “Scale depended solely on fundraising ability.”

Garlick eventually converted to a for-profit business model. Now universities pay ThinkImpact a fee to lead student trips to Africa. The payments cover operating costs and are ThinkImpact’s primary source of revenue.

“I think people make the mistake of distinguishing for-good vs. for-money,” said Garlick. “The notion that nonprofits are the right vehicle for doing good in the world is no longer true… Today ethical, well-run businesses with products that make life better are remarkable at improving lives at scale.”

Not building an effective, trustworthy team
Social entrepreneurs wear many hats within their company. They’re passionate about their vision and are personally invested in their company success. But that also can leave them bogged down by everyday decisions.

Hiring the right people in the right roles can free entrepreneurs of some duties and responsibilities, but first they must ask themselves questions such as What am I good at? What do I enjoy doing? What kind of people do I need around me?

When executives understand their strengths and priorities, they can create a leadership team comprised of people with complementary skills, such as problem solving, strategizing, financing and networking skills.

“If you have a lot of corporate refugees who know strategy and process, they can scale like champions, but you won’t have deep programs,” said John Wood, founder of Room to Read, to the Stanford Social Innovation Review. “Conversely, if you only have a lot of programmatic specialists with nonprofit backgrounds, your programs are incredible, but they don’t scale.”

Some tips for selecting the best team for a new social enterprise include hiring locally, investing in long-term training, and encouraging collaboration by setting up structured meetings.

Mistakes happen. DAI’s irrigation project in Kenya started out all wrong, and ThinkImpact didn’t initially figure in the time and energy demands of fundraising. Hiring the right team can make all the difference for a company.

Social entrepreneurs can take a powerful steps towards success by turning their mistakes--and the mistakes of others--into positive lessons. But only if they share them.

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