Social enterprises making an impact

27/07/2016 - 14:20

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The process for creating a social enterprise or a startup is the same – the only real difference is the criteria for success.

VISION: Many startup founders list ‘changing the world’ as the reason for founding their business. Photo: Stockphoto

The process for creating a social enterprise or a startup is the same – the only real difference is the criteria for success.

The Social Impact Festival was held in Perth late last month, with a diverse range of speakers and events held across the city.

Among the topics discussed and debated during the week-long event were investment and philanthropy, entrepreneurship and design, and dialogue and the marketplace.

Social enterprise and impact investing have always had a close association with startups. Many startup founders list ‘changing the world’ as the reason for founding their business. Anecdotally this tends to be more associated with the first, failed attempt. For some reason veteran founders tend to be less altruistic.

What makes a business a social enterprise is almost as hard to define as what makes a startup a startup. But the working definition is that the business’s purpose is creating change, not wealth.

Every business needs to be sustainable, however. Social enterprises can be as hungry for revenue as the most ambitious Mark Zuckerberg wannabe.

Social enterprises have much the same DNA as any other startup. They must find a customer, produce something of value, build a brand, and build an audience. The process that they go through to discover their business model is exactly the same. In all respects, the process for creating a social enterprise or a startup is the same. The only real difference is the criteria for success.

What is success, anyway?

Founders start companies for many reasons. Some are after wealth – and that’s usually the assumption for founder motivation – but many are not. For some founders it’s the freedom afforded by being their own boss; for others it’s the chance to change the world and make a difference.

For all these businesses, financial failure is still a killer. It doesn’t matter if you planned to rid the world of racism, if you can’t pay your bills then your business failed.

Revenue is a must-have.

But other forms of failure are still possible. Businesses that intend to free the founder can become burdensome. Making a difference can become impossible.

Not for profit doesn’t mean not for salary

There’s a common misconception that a social enterprise has to be a not-for-profit organisation. It’s true of most social enterprises, but not all. And of course NFPs still need to pay salaries, sometimes some very respectable salaries.

Tech startups usually don’t pay their shareholders anything in the early years. Every cent raised in revenue and capital goes towards building or growing the business. This is the same as NFPs. The difference is ideological – startups aim to increase shareholder value, NFPs don’t.

This need to be able to pay their staff and grow drives both types of business. They need to build a customer base and a revenue stream quickly and cheaply. They need to iterate their products or services to find the highest value in the market. In other words, a social enterprise and a startup look identical during the early stages.

Impact investment

Getting investment into a NFP appears different, however. A startup raises money purely on its ability to create shareholder value. An NFP social enterprise cannot do this; it must raise money on its ability to create social change. This is impact investment, and there are impact investors out there.

Impact investment is about supporting new social enterprises to create social change. The objective of the investment is to enable the social enterprise. Increasing the value of the investment may happen, but as a side effect.

Finding an investor is hard enough for any business. Finding impact investors is especially hard. The twin needs of enough cash and agreeing on the social change agenda make the prospect pool small.

Fortunately, there are extensive government and corporate programs to support social enterprise. The public relations and political benefits of supporting beneficial social change are significant.

Social impact

Events such as the Social Impact Festival bring together a range of social initiatives, including social enterprises, but technology-led social enterprises are significantly absent. The context for social change is moving online, but the knowledge and impetus are not.

People engage in digital communities more than physical communities these days. We can ignore that, fight it, or embrace it. Ignoring it or fighting it seems to be a lost cause. Facebook groups are now the villages that people create, for better or worse. ‘Social’ is coming to mean just half of ‘social media’ – social enterprises and tech startups are coming ever closer.


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