Putting the enterprise into social enterprises: Page 2 of 2

 

Can something be done to fix this problem?

 

Putting the enterprise into social enterprises: Page 2 of 2

 

Over the course of 2017/18 I had the pleasure of coaching two social enterprises over a 15-month period. I am intrigued by the idea of social enterprises and I wanted to know more about how they work, how the entrepreneurs think and how the benefit is provided to society. It was an interesting experience and this is what I discovered.

1. Passion in abundance

The founders are extremely passionate about their cause. They believe in them, they want to help society and genuinely feel sad if they cannot do as much as they can.

2. The “Confusion”

However, there is this confusion about whether they are a business entity or a social entity. Is their mission making money or doing good? Should they give more to the causes (for example paying the workers more, giving them extra benefits) or should they make a profit and if yes how much of a profit.

Sometimes its almost as if making too much is bad because well, they are a social enterprise right not a business venture?

They also don’t pay themselves well because they want to give more to their causes. Most of them are not pure entrepreneurs who want to make money and then give back to a cause; they are instead social activists who believe they can do more via a social enterprise than via a charity.

This push-pull between making a profit and doing good is something they find hard to reconcile. This shouldn’t be the case. It should be very clear, make money first then help society because if you don’t, you will fail and society will get no benefit.

3. Entrepreneurial skills need to be honed

When coaching the two companies my fellow coach Renuka Sena and I spent a lot of time honing their entrepreneurial skills. They no doubt knew how to look after their social causes but they needed help with building a successful company. We spent a lot of time trying to identify customer segments, products, channels, pricing and getting their financials right.

Often pricing became an issue because they couldn’t price it too low as they wanted to give as much as possible to their cause, but then they end up with high prices that make it difficult to sell the product. They then have to resort to “selling the story” of their cause to entice people to pay a higher price.

This is not how business should be run. Business is about pricing the product for the market and buyers buying the product because they see value. If you need to sell the story to sell the product you will sell some but there will never be sufficient volume to sustain the business.

4. Sell more

I recently received an email from a social enterprise on lessons learnt in 2018. In it one of the founders said this:

“Do you have more work for me to do?” - this is something we hear a lot of from our refugee artisans. My heart breaks every time I hear it. “We will try our best to sell more”, I respond.

And this is the point I want to make about social enterprises. It IS about selling more. It is about being a business venture and doing what all businesses do. The problem with most social enterprises is that they are not business people building a great business and then giving back to society.

They are not entrepreneurs first, social activists second like Roddick and Newman. Instead they are social activists trying their hand at entrepreneurship because it is supposed to be a better alternative to charities and NGOs.

5. Investing in entrepreneurs and business models

Impact investors, like other investors, invest in people and business models. The founders are the most important reason why we invest in a business. If they are likely to be great entrepreneurs then we invest.

Secondly there must be a viable business model - products or services that have a large enough market at prices that provide sufficient margins to build a sustainable business. Without these two elements an investment is unlikely.

We ask why there are so few impact investors and the answer is clear. If there are social enterprises with great teams who can build a successful business, which can then contribute back to society, investors will invest.

But if you are trying to persuade investors to invest when either the team or the business model is weak then no investments happen. And that’s the case today.

The good news is the problem can be fixed. Having worked with these two social enterprises I am happy to say that we have managed to make a difference.

With one of them we did very well. The company has successfully transformed itself into a real business with the CEO very focused on selling more because she understands that if the business does not do well her cause will not do well either.

And equally important the product can be sold at a good margin fulfilling the business model viability. Although we spent a lot of time identifying the best customer segments it was worth it because now they are very focused on sales and as they do well they will share this success with their beneficiaries.

The other one was a bigger challenge because the business model was weak. We couldn’t identify the best products, the customer segments or even the channels that could be used to sell their products.

Many of their products were not profitable, hence there were insufficient margins to keep the company going and they had to resort to offering services to keep afloat. In the end they had to drop most of their products in order to focus on the one line that had a better margin and chance of success.

They are wonderful people, who are great human beings who were willing to earn very little themselves so that they could give back to society, but this is not what a social enterprise should be.

There is nothing wrong with the concept of a social enterprise. However, like Einstein supposedly said, if we keep doing the same thing over and over but expect different results, then that’s insanity. So if we want to make social enterprises work in Malaysia we need to turn things around.

Founders need to put the enterprise first in a social enterprise. Focus on building a successful and profitable business so that they can use these profits to contribute back to society. Imagine if Newman’s Own was just breaking even, they would not have been able to give US$500 million back to society.

Make sure founders are real entrepreneurs, if you are a social activist and you don’t think you have the entrepreneurial nous, then find partners who have and get mentors who can help.

If we do this right and focus on helping the social enterprises to be real businesses then the model will work. But all parties in the ecosystem from funders to government agencies to mentors need to do things differently from now on.

Build great businesses and society will benefit. We need more of the Anita Roddicks and Paul Newmans in Malaysia. I am confident we can do this, provided the ecosystem works together and does things the right way.

Dr. Siva is has a Ph.D in Venture Capital studies from the University of Edinburgh, Scotland. He is also President of the Malaysian Business Angel Network (MBAN) and Co-Founder of Proficeo Consultants, the leading Entrepreneur Coaching organisation in Malaysia. The opinions expressed are his own and do not represent that of MBAN.

 
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