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Management

Four ways to profit by thinking like a social enterprise

Published 18 May 2022 in Management • 12 min read

Chasing growth and maximizing shareholder returns is not the only way to run a successful business. Widen your goals by following the examples set by a new breed of companies.

Ask any company CEO what they’re aiming to achieve this year, and the response will almost always be the same: growth. Business paradigms have changed little in the 21st century, with profit being placed above all and growth as the driving force to achieve them.

But this is a very limited view of success. It overlooks the wider responsibilities companies have as key members of our communities. It also ignores the fact that there are a great many organizations that have not only done incredible social good but also have managed to survive and thrive for decades under a not-for-profit model. The continued existence of non-profits provides us with valuable evidence that chasing the money isn’t the only way to succeed.

Businesses aren’t expected to turn non-profit, of course, but they can and should tap into this conjunction of social good and non-profit thinking. A new breed of companies, known as social enterprises, is doing just that. They act like NPOs in putting particular local or global problems front and centre of their operations, but at the same time they aim for a profitable model to ensure their success in confronting these social issues. Instead of having a CSR (Corporate Social Responsibility) department insulated from company activity and strategy, they are, in effect, a CSR department acting as an entire business.

These social enterprises take on all kinds of forms. One example is SDG Impact Stories, co-founded by Shaan Madhavji to “boost social and environmental change through storytelling” – in other words, to educate and inspire the public by showcasing the good work already being done to reach the UN’s Sustainable Development Goals (SDGs).

For him, forming a social enterprise was the right choice, especially to run his business sustainably. “Social Entrepreneurship is a simple yet revolutionary idea: you can make money while having a positive social and/or environmental impact,” he said. “Most of the time, social impact is associated with philanthropy only, but it shouldn’t be the case. Finance is the third pillar of sustainability and being financially healthy is what helps companies to thrive and sustain their impact.” 

Operating in this way can be a difficult balancing act, but these challenges build a strategic resilience and a way of thinking and problem-solving that for-profit companies can learn a lot from.

Develop the management and leadership skills you need

Dashita giles eshe
“Think about the stakeholders, internal and external, animate and inanimate that will be impacted by your business”
- Darshita Gillies, founder and CEO of Maanch

Lesson 1: be agile

Being at the forefront of pressing issues means that social enterprises often find themselves in precarious situations. Circumstances often change, and when they do, it will almost always happen rapidly.

Dealing with these upheavals successfully, and even flourishing in the face of them, requires agility, a skill that non-profits and social enterprises must learn from the moment they open their doors if they want to survive.

In practice, this agility can take on many forms. It could mean pivoting suddenly to social issues that require more immediate attention, or it could mean reacting intelligently and swiftly to a changing political or legal landscape. In extreme cases, such as loss of funding or personnel, or a catastrophe within their region of operations, agility could mean completely changing their business model and day-to-day activities with a minimum of fuss.

Being forearmed with knowledge is often the backbone of agility. Social enterprises are continually carrying out external and internal research on their activities so that little will come as a surprise. At the same time, they make a point of forming an extensive network of contacts across all aspects of their operations, as well as with the communities they work with, so there is always ready access to vital “boots-on-the-ground” information.

Arash Tayebi is the CEO of Kara Technologies, which develops virtual sign-language avatars that can vastly improve accessibility for the Deaf community in digital spaces. Technology drives their social enterprise, but it is also constantly evolving and throwing up new challenges for his team. Without the constant input of their users and community, they would never be responsive enough to deliver a product that works well and stays on the cutting edge. “Never create a product for a target group or community unless you include them in every step you make and every decision you take,” he said.

Shaan agrees with this, and stresses the importance of listening in order to respond quickly and effectively to problems. “I believe the culture of feedback is essential in any parts of our lives, whether personal or professional. It’s important to constantly seek feedback from all stakeholders to make sure you can address issues and capitalize on the upsides.”

Another key element of agility is developing a multi-skilled, multi-disciplined workforce, that can take on other responsibilities or move into other roles as necessary, without significant retraining required. While employees are still generally hired for specialized roles, they are included in – and exposed to – a diverse range of day-to-day activities within the social enterprise. That way, when issues arise, they are more than comfortable troubleshooting the problem themselves.

The benefits for your business: while you may not have to deal with the same kinds of upheaval as a social enterprise, these same lessons can be successfully applied to sudden changes in the business marketplace, such as shifting consumer trends or increased competition. With a more agile mindset and the knowledge and employees to back it up, you can react much more quickly and profitably take advantage of the new situation.

Training your workforce to be agile has very positive side-effects, too. Investing in an individual’s growth increases morale and reduces the expense of training in the long term, as well as boosting employee retention. Armed with new skills and increased confidence, they’ll be ready and willing to go with you on your company’s journey.

Lesson 2: make the most of what you’ve got

Like any other company, social enterprises are set up to make a profit. But since their profit-generating activities are only a secondary focus, it’s not unusual for them to rely on outside investments, grants, and partnerships to help them to survive before they reach self-sufficiency.

In turn, this de-emphasis on boosting profits will generally lead to reduced resources for the social enterprise, especially in the early stages. Capital will be limited, as will the ability to invest in further development and also find and retain sufficient quality employees to maximize their social impact.

In other words, social enterprises must be frugal, and are necessarily forced to make the most of what they’ve got. Careful prioritization of goals and tightly controlled resource allocation is essential to their survival, which also involves selecting the right metrics and monitoring only the most essential KPIs so as to not waste these resources on less pressing secondary objectives.

Darshita Gillies is the founder and CEO of Maanch, a social enterprise that looks to link high impact organizations around the world so that they can share the burden of UN SDGs and collaborate to achieve real progress. As such, she perhaps knows better than most just how difficult it can be for a social enterprise to juggle so many competing aims yet still make an impact.

“Think about the stakeholders, internal and external, animate and inanimate that will be impacted by your business,” she advised. “Make sure your business model factors for increased costs necessary to drive a high-purpose business.”

Another crucial way to use limited resources effectively is to delegate as much as possible. social enterprises and NPOs alike are masters of outsourcing their work, whether it’s to volunteers, the wider community, or even to customers and stakeholders.

The benefits: the positives that companies can gain from this mentality are immediately apparent. Prioritization of resources can give an immediate boost to the pursuit of growth, as well as increased resilience during leaner times.

But just like budgeting for a household, the benefit isn’t just that you have more money to spend. The process of cataloguing resources and identifying how you spend them is also invaluable in giving you an understanding of where resource wastage occurs, and where your business model can be optimized.

Me poupe
“Nathalia Arcuri, founder of financial education group Me Poupe, says she has learnt to ‘not be afraid of errors, as long as you are learning from them’”

Lesson 3: take risks

Solutions to longstanding social problems have to be innovative. If something is not working, then you have to be creative and think outside the box to find something that will make a difference.

Innovation and creativity, however, always come packaged with an element of risk. No matter how much you research and plan, if something has never been tried before, there’s always the chance that you’ll fail and lose precious resources in the process.

Every social enterprise knows this, but as there is simply no way of avoiding these risks, they must learn from the outset to manage the risks and take valuable lessons from any failures.

Nathalia Arcuri, a Brazilian entrepreneur and founder of financial education group Me Poupe, agrees. After growing her business for six years and helping countless Brazilians take control of their financial lives, she has learnt to “not be afraid of errors, as long as you are learning from them. They also help shape you and your business.” One way to manage this fear, Arcuri said, is to remember who you’re helping, and the long-term positives: “Think about who you are doing this for, that’s the most important thing.”

In part, this is done through careful mitigation of the risks from the outset. Each social enterprise must begin with a deep understanding of the problems to be solved, and a robust plan for the solution they want to implement. At the same time, social enterprises will often experiment in small ways – in authentic, real-world scenarios – before scaling up. This enables them to gauge the effectiveness of their solution without exposing themselves to catastrophic failure.

An even more significant idea that social enterprises have adopted is to change the narrative around risk-taking. In fact, for social enterprises, taking risks is something to be celebrated, not avoided, and all of their communications reflect this. A culture of risk-taking is something to be encouraged, and successes to be amplified at every opportunity. In rewriting their story to be a positive one, even when there are missteps, they create a message that communities have no hesitation in getting behind.

The benefits: many for-profit entrepreneurial start-ups take risks too. But as the business becomes established and profit is secured, the tendency is to move away from innovation and stick with what already is known to work. After all, the only problem they’re trying to solve is that of how to make a profit. Once that’s done, playing conservatively is the safest way to maintain it.

This is a mistake. “No risk, no reward” is still so often quoted for a reason: because it’s true. Businesses that forge their own paths and innovate may stumble occasionally, but in the long run will find greater success as they reach untapped niches and develop a positive reputation as leaders, instead of followers.

Would you plan “a six-month world tour starting in February 2022, across 20 countries to cover the stories of 50-plus social entrepreneurs, in the middle of a global pandemic and significant geopolitical instability”? Many businesses would simply delay this until the situation (and the outcome) became certain.

But for Shaan and his fledgling enterprise, delay was not an option. “From the perspective of SDG Impact Stories, we had no choice but to take risks,” he said. “And despite the risks, it paid off. We have already covered the stories of more than 25 entrepreneurs, met numerous inspiring change makers, created all the content we wanted and gained perspective about social business worldwide. At the end of the day, these were calculated risks and all of them were outweighed by the upsides of going forward with the tour.”

This process of mitigating risks, of rapid prototyping and smaller, in-the-wild testing, also improves overall agility for the business, helping you to keep up with the changing demands and trends of the market.

Finally, having a company-level attitude of risk-taking also fosters and encourages risk-taking, problem solving, and out-of-the-box thinking among employees. In turn, this increases employee engagement, as they become an integral part of the problem-solving process while also feeling like they’re part of something innovative.

Lesson 4: find a purpose

As 21st century businesses pivot to a more socially conscious model, the mantra of putting purpose before profit has become almost a time-worn cliché. Everyone is being told that they should do it, and why they should do it, but often with little regard to realities – and lingering old-fashioned mentalities – that businesses continue to adopt.

Without concrete and actionable steps for how to put purpose front and center, and reasonable expectations for which steps businesses can actually take, this lesson becomes in effect a pipe dream, especially for large corporations which don’t have the nimbleness required to change direction so drastically. Instead, they will adopt the mantra and echo it without making any changes.

Nevertheless, it’s an incredibly important lesson to learn, for businesses of all sizes. The social mood is shifting, and green- or whitewashing your operations won’t hold up to public scrutiny for very long. At the same time, social enterprises, for which a socially good purpose is an integral and inextricable part of their operations, are thriving.

Purpose ties neatly into each of the three lessons above. A clearly defined purpose gives SEs the drive and clarity to be agile, resourceful, and innovative. If they don’t apply these lessons in their day-to-day existence, then they will fail to contribute positively to their purpose. With this purpose in hand, they always have specific goals to work towards and an in-built, obvious way to measure their progress. For social enterprises, purpose isn’t optional: it’s existential.

Can profit be a purpose? Strictly speaking, yes, and it’s likely that many businesses will make this exact argument in defense of their business strategy. Their purpose is to give their shareholders a return on their investment.

While this is true, it ignores the fact that there really is no end goal for profit, which is simply another factor of growth. Growth is an endless journey, towards an endpoint that is always shifting. In this way, profit can be a purpose, but it loses all of the advantages that having a real social purpose will impart. Profit (and growth) do not reward you, because you never get to the end of the journey. Profit does not give you clarity, because its aims are arbitrary and ill-defined.

“Have a plan which places purpose at the core of everything you do,” said Juliet Davenport, the founder of Good Energy, a revolutionary enterprise built around decentralizing the renewable energy market. “It’s not just a nice to have but should guide everything you do, from your investment decisions to how the company is governed.”

Perhaps paradoxically, with an authentic purpose for your company, backed up with genuine action, you will suddenly find that you have far more freedom – and success – in chasing growth. Stakeholders, from clients and customers to employees, care about purpose. Presenting them with yours will foster a deepening trust and increase engagement, rewarding both them and your brand at the same time. It also gives you more leeway from shareholders, because if you have a social purpose and are attempting to do a common good, you are expected to take more risks and innovate. If you don’t find immediate success, then, or if you attempt new strategies that don’t pay off, they will be much more understanding.

“It does give you some kind of flexibility,” Shaan said when describing his business model. “There are no shareholders to satisfy, no competition, fewer risks. It helps you to try more without the fear of paying for the wrong decisions.”

In other words, finding a social purpose is like bringing everyone else on the journey with you. It strengthens the community, it gives you countless extra pairs of hands to work with, and it rewrites the individual company narrative into a wider, collective one that everyone has an interest in succeeding. Maybe you will focus less on profit overall, but this new-found community will ensure that the opportunities for growing your business will be richer than ever before.

Authors

Paul Ryatt

Paul Ryatt

CEO and founder of Copalana

Paul Ryatt is the CEO and Founder of Copalana, a tech-for-good social enterprise that brings together companies and not-for-profits within a crowdfunding and volunteering ecosystem. A member of the Meaningful Business global community, his passion is using his expertise in IT to develop a next generation giving platform that puts a focus on collaboration and partnerships.

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