Setting-up viable social enterprises – Tips to grow a spark into an inferno

By Dr. Kumudu Jayawardhana

Accentuating the metaphorical snowball effect, issues such as poverty, drug addiction, homelessness, child malnutrition, social exclusion and domestic violence have come a long way evolving from private problems to national and global pains. However, the unadorned truth is that the lack of interventions by public or private sectors to methodically and capably handle these issues has left several communities in dire straits.

Could there be “businesses driven by social missions” battling with these issues? This sounds bizarre for some readers since businesses are conventionally deliberated to meet the holy bottom-line – The profit. 

Bucking the trend of revering this sacred bottom-line, social enterprises synergise the efficacies stemming from the application of business-like-practices with their core purpose of existing – To fix-up pressing social messes. With their emergence as a unique genre of enterprise model, social enterprises proactively combat these social catastrophes that are thought-out to be “incessant” throughout every corner of the world. 

A decade ago, the foremost focus of the social enterprise agenda was on addressing the definitional ambiguities and demarcating their territorial distinctiveness within the landscape of the overall entrepreneurship ecosystem. Setting a trendy diversion, most of the concurrent debates in this time are apparent on forming sustainable social enterprise models that can adeptly handle market and public sector failures and creating enterprises without falling prey to the money trap. 

Enriching these debates, this article provides significant elucidations on the bare bones of creating sustainable social ventures. Subsequently, this article answers the enquiries: Can commercial and social ventures take identical ways at the setting-up stage? How to structure a viable social venture? And finally, what are the most important thought-outs when creating a socially conscious idea into a viable social venture – growing a spark into an inferno?

Defining the core of venture existence

Almost all the top-secret receipts of creating successful entrepreneurs are subtly embellished to train them on making their mark by reaching beyond the customer expectations as a means of setting them apart from their competitive crowd. 

Worth stressing here is that social enterprises – being a different genre of enterprises, the social component is not an add-on component but their core of existing. Thus, unlike the commercial venture genre, for social enterprises, “marking the impact” comes first. Subsequently, at the beginning of venture formation, well articulation of the impact that the ventures want to create on society is critical.  

So, first of all, a social venture is supposed to define the mission that the enterprise is devoted to, which acts as its business brief. A clearly defined mission statement can guide the ventures in screening the expectant deliverable social impact, operational scope, and operational procedures. 

Here, making a clear departure from their for-profit counterparts, the social issues form the market for these ventures, and thus, having a clear visualisation on which solution-based market the venture expects to work is critical. This could trigger to keep one’s troops ready when growing the spark.

Building the financial arm/s

Though the whole motive of creating a social venture is not the wealth accumulation, the triumph of the start-up could unwittingly get sloppy if it’s financially illiterate. This is since articulating their money generation modes is considered as a basic criterion in building their “business fitness” in sustaining their respective social missions in the long-run. 

Worth noting here is that, just as for commercial ventures, lack of money could be a quick road to venture failure. The logic is simple – no margin, no mission. However, commercial ventures and social enterprises certainly take non-identical pathways to gain “business fitness” to achieve desired goals. While entire perspectives in commercial ventures are gravitated around the single force – “high profit yielding prospects”, social enterprises realise that this is a “road not to be taken”. 

In the endeavour of establishing a social enterprise, it’s indispensable to determine the optimal balance between the two ends: mission and margin. Can essentially these discrete interests work together? Of course, yes. 

The basic principle of incubating sustainable business models or revenue-generating activities for social ventures is to strategise these two ends to grow together rather than apart. While their focus on building finance is always commendable, social ventures typically run the risk of mishaps if they prioritise the margin over the social mission. This is since, in case if the financial models get prioritised, the ventures would be in the menace of missing the social essence and being another commercial venture. 

Thus, rather than paving voluminous and exaggerated focus on money-making, planning to entrench the financial models in their respective social missions becomes pivotal for this enterprise genre. 

Structuring the venture

Giving a social venture a legal form is significant given the importance of attracting the funds, scoping up the liabilities, governance, and scaling-up needs in the time to come. This is a main criterion that should be addressed in the early stage. This could be a sole proprietorship, partnership, limited company, or a cooperative. Interestingly, different legal forms of social enterprises are emerging worldwide (e.g. community interest companies). 

Additionally, to preserve the social essence, social enterprises are required to lock their assets to increase the impact creation rather than wealth creation. Though this aspect is not mandatory in Sri Lankan context, countries such as UK has made it mandatory for community interest companies to lock their assets – “asset lock” – which is a legal promise to use the assets in their core of delivering the social missions rather than using them for maximisation of shareholders wealth. 

Though there are no mandatory requirements in Sri Lanka, it is significant to follow these best practices to engage in enhanced social value creation.

Creating the bridges

Many of the top reasons for social venture failures boil down to the inability or lacking chances to create bridges. Extant networks such as co-service providers, funding networks, universities, research institutions can be immeasurably supportive in building overall enterprise phases of these ventures. 

Though these ventures put their “social end” out front, there are enough chances to garnering support from the overall entrepreneurship ecosystem – from impact-driven enterprises, commercial ventures, and public sector organisations.  This undeniably paves a way for these organisations to attract diverse resources especially funds, develop dynamic capabilities such as learning and innovation capabilities, and would create experiences sharing platforms.   

Conclusion – Is spark a magic pill?

Just as commercial ventures, social ventures are not entirely immune to failure! There could be abundant factors that lead to the demise of a social venture. Lining up with emerging research in the field on why social ventures fail, research by Failure Institute brings three factors into the limelight – Lack of resources and infrastructure, lack of context, and conflicts among founders. 

To conclude, having a spark/an idea is not a magic pill after all. What does this mean? Having an idea doesn’t essentially mean that growing an idea into a viable social venture would just magically happen. First comes the spark, then the urge to persuading the idea which necessitates a deliberation of careful actions and inactions. These well-thought-out actions and inactions would define the direction that these ventures voyage – Towards a sustainable social venture? A dependable charity? Or another commercial venture?  

Accordingly, being literate on the hands-on challenges and acting promptly matters. Let’s turn to the worthy leaning point that the death of the legendary musician Beethoven provides. Discovering the reasons for his mysterious death centuries ago, American scientists who commenced their experiments in the mid-1990s declared that the reason could be “lead poisoning” reflecting “a slight of poison everyday”. Here, the learning point for the social enterprises is that regular tiny unthoughts could create the path for bitter venture explosions if they are left unattended.

Thus, tending a spark into an inferno – To grow an idea to a viable and optimally functioning social venture is a whole process, not esoteric though. As discussed in this article, the process demands the social ventures to follow several tips along the way to preserve their true social essence while standing upright as financially worthwhile ventures.

(The writer is a Senior Lecturer in Entrepreneurship at Department of Management Sciences, Faculty of Management, Uva Wellassa University of Sri Lanka, and can be reached via [email protected])