social delta

Consulting and support for social enterprise in Canada

Tag: business planning

Market share equals what to social enterprise?

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One key measurement of success in a for-profit business is market share. Does this also apply to a non-profit housing cooperative?  An employment-based catering company?  An up-cycling storefront?

The goal of a social enterprise is to maximize the positive impact on those who benefit from their business: affordable housing to all, new job opportunities for the disenfranchised, tons of diverted waste from landfills.  In many cases, mission maximization can only be achieved by increasing the scale of their business; therefore,  unless the market expands, scaling up means someone else must scale down or be joined.

However, it is almost “un-social enterprise” to be creating a vision in which market share is a goal, or evemarket-share-graphicn plausible. Most social enterprises operate locally, and all work with a social mission that drives them. The thought of putting a for-profit out of business—or even acquiring that company—is likely not in their initial thinking, nor explicitly in their business plan.

But why not? Why shouldn’t a social enterprise seek to minimize competition and/or take customers from another local business? Why wouldn’t they attempt to buy that local business in order to increase their inventory, maximize their social mission, minimize competition, and benefit from economies of scale? There is no imperative to leave your competitors alone when you are a social enterprise.

Of course, it is possible that putting competitors out of business, or challenging their cost structure by using grants to get a competitive advantage, or taking them over in order to employ a disadvantaged segment rather than their existing employees, may have unintended social costs. No social enterprise ought to decrease the employment of others in favor of their “target” population, or diminish the value of for-profit colleagues in the marketplace. Healthy competition is good, arguably even necessary for innovation and improved social outcomes, and seeking market share without recognizing the social costs could potentially jeopardize the net social impact on the community.

Social enterprises are modest by nature, in my experience, and aggressive business practices are seen as unsavoury at best and downright nauseating at worst. However, if increased market share means increased (net) social benefit, then by all means a social enterprise ought to be unabashedly bold in their business aspirations to increase market share.

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The Value of Ideation

“What business should we operate?”

Is your organization thinking about launching an enterprise?  Jonathan Wade explains the importance of ideation in pursuing that goal – and shares some of the challenges and benefits every enterprising non-profit can expect.

For non-profit organizations, there is a growing sense of urgency in seeking necessary resources to deliver on their social mission. Funding is diminishing, or is becoming increasingly focused on specific areas of funder interest. Donors seek lean organizations and relatively rapid results, yet social service provision is labour intensive, and change takes time.

It is not surprising that Ottawa’s Centre for Innovative Social Enterprise Development (www.cised.ca) receives regular calls from non-profit professionals asking for help starting a business to offset lost funding. The problem is that successful businesses rarely succeed because the entrepreneur needs money. In fact, as anyone who had started a business can tell you, launching a business typically requires more money (investment) than it initially makes…often generating one to three years of operational losses.

This reality is understandably disappointing for cash-strapped organizations.

Let the ideation begin

However, starting a social enterprise from within a non-profit is an excellent way to diversify revenue, provided that expectations are managed. In fact, the process of conceiving of a business idea—referred to asideation—is itself a very beneficial endeavor for most non-profits (and charities) as it allows them to look critically at what they do and how they do it while considering market demand for products and services they might create.

There are several ways to determine what sort of social enterprise your non-profit might consider:

1. What are you good at, and can it be commercialized?
2. What does the market need, and do you have (or can you assemble) the knowledge, skills, and inputs required to meet that demand?
3. Can you take over an existing business that is in keeping with your mission?
The second approach to ideation is pure entrepreneurship. If you understand the market, and you can fill a consumer need, that becomes your business. However, non-profits typically need to commission suitable market research and then divert limited resources to create the required product or service. This has a high opportunity cost, and many say that you can’t “learn” entrepreneurship.

Similarly, taking over an existing business requires a strong knowledge of business operations and business valuation, as well as access to financing to acquire an existing business.

Building a social enterprise on existing strengths within a non-profit corporation, in my experience, is the most effective ideation approach; it guarantees an alignment between the organization’s social mission and its business activities and it doesn’t require learning a whole new skill-set or investing in new resources.
For example, if your organization offers computer training to women in crisis, then you can offer fee-for-service computer training to a broader audience to generate revenues to underwrite your social mission. Similarly, if your social service programming generates artworks, then selling those artworks—indeed a by-product of the programming—is relatively easy and does not immediately raise concerns about mission drift.

The challenges of commercializing

Commercializing existing assets—intellectual, social, financial, or human capital—can be a challenge for non-profits. For one, the organization may lack the skill and resources to bring these assets to market. Second, there may be no buyer for the skill, product or services in which your non-profit excels. Third, an organization must ensure that selling of skills, networks, intellectual property, or programs doesn’t adversely affect the current programming goals. Fourth, the very concept that people, networks, programs and buildings are “assets” that can be “used” to generate revenue can rub non-profit professionals the wrong way.

Each of these challenges can be addressed, of course, and the process of addressing them is what brings new value to a non-profit board, staff, volunteer and beneficiary community. Acquiring new skill-sets is possible but one needs to be carefully budgeted and planned. A well-done feasibility study will identify not only if there is a buyer for your product/service, but also whether that business idea will enhance social outcomes.

A good business plan ensures that the launch of any revenue generating activity will support, not compete with, social value creation. Similarly, if the “assets” of the organization are understood as being investments in a better social outcome, then the language becomes less inflammatory.

Many believe that what makes an entrepreneur is the ability to see challenges as opportunities. Perhaps loss of funding offers the opportunity to rethink how best to maximize a social mission. The ideation process for non-profit staff and governors is a concrete way of categorizing challenges in the market and in the organization and building a sustainable, revenue generating, social value-creating solution to those challenges. Indeed, the process of ideation actually strengthens the capacity and resolve of an organization with a social mission.


This article originally appeared February 24, 2014 in See Change Magazine online.

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