We recently fielded a couple of questions about Social Enterprises. This is not an area in which we have any experience so we approached practitioner Tricia Fitzgerald to elucidate. She has provided the following comment.
(To find out more contact Tricia through her website: http://www.fitzgerald.org.nz/ )
Motivated by a long-term vision to address need but constrained by a lack of resources, not-for-profits seek to strengthen their financial sustainability. Consequently, many not-for-profits are drawn to increase their autonomy and fiscal resilience by developing commercial revenue streams and thereby supplementing their resources available from government and the public.
The academic and practitioner literature around social enterprise is relatively recent, but has grown rapidly in the past twenty years. Social enterprise is defined in New Zealand as an organisation which has a social mission and derives a substantial portion of its income from trade and reinvests the majority of its profit in the fulfilment of its mission (Department of Internal Affairs, 2013). The inherent focus in this definition on generating earned income reflects the interest of not-for-profits in using social enterprise primarily as a means to increase their financial self-sufficiency and thereby achieve their social purpose. It is the holding of dual social and commercial purposes that is new for the not-for-profit.
Social enterprise is idealised as being more entrepreneurial, market-oriented and efficient than either public sector organisations or not-for-profits, and more collaborative and ethically aware than the commercial sector. While some see this hybrid organisational form as potentially being the engine of economic reform, others see it as a naïve and unproven method to address social issues. Fitzgerald & Associates takes the view that social enterprise is a useful hybrid that blends social and commercial characteristics to produce sustainable social value, but is not a universal remedy for all social challenges.
In practice, successful social enterprises typically have a saleable product or service and a market that pays for it. They are likely to have an entrepreneurial culture and engage with a diverse range of customers and stakeholders who support the social enterprise. Fundamental social and ethical values lead the organisation’s development and are somehow reconciled with profit seeking. Access to resources for investment are needed at various stages of business growth and leadership, and business skills are in place to deal with the operational complexity of blending the social and commercial aspects of the organisation.
Although many writers reserve the term ‘social enterprise’ for a stand-alone hybrid organisational model, social enterprises can and do exist within not-for-profits. With their existing social missions, infrastructure and networks, not-for-profits might be considered useful conduits for innovative social enterprises that adopt some form of commercial activity to generate revenue in pursuit of social goals. In New Zealand, for example, more than two-thirds of social enterprises are within or run by not-for-profits (Department of Internal Affairs, 2013).
However, there is still much to learn to fully understand how, within the context of not-for-profits, social enterprises might be successfully generated. There is some evidence that this adjustment is a challenging one. Holding strong values of participation in a social mission, sharing, mutuality and fairness, not-for-profits are electing to develop a business that requires investment, is market and customer-focused, competitive, adaptive and risk-taking. The potential for conflict between these ways of working is high.
While it is likely that many not-for-profits have considered this option, relatively few may be commercially successful. The disruptive challenges of incorporating commercial innovative processes to diversify funding efforts may be underestimated. Despite the fact that US and European not-for-profits already earn around half their income from fees and other business activity, not-for-profits are still perceived as inexperienced in starting and running competitive commercial businesses.
Because not-for-profits could be critical to the growth of the social enterprise sector, further learning has been recently undertaken on how this can be achieved. This involved comparative research between commercial and social organisations to see where the differences and similarities lie, how social enterprises manage to incorporate aspects of both organisations and how the successful development of a social enterprise might be achieved by not-for-profits.
Establishing a social enterprise requires not-for-profits to somehow incorporate the different logics or technologies, rules, assumptions and skills of commercial organisations, usually at the same time they are continuing to manage their social services. Incorporating very different commercial logics within the not-for-profit requires an important and substantial paradigmatic shift.