Social enterprises need a business brain

The idea of running a business that has a strong social mission, is launched from a solid ethical platform, and proudly commits to reinvest profits for the greater good is an attractive proposition. But is it a model for a sustainable business?

You can’t actually add social value if you don’t have a sustainable business in the first place. It’s not just about having good ideas

Despite the growing popularity of social enterprises, UnLtd, a foundation for social entrepreneurs, says one of the biggest challenges to setting up a social business is actually making a living and earning enough money to stay in business for the long run.

“Commitment to ethics can make everything more expensive and time consuming,” explains Michelle Wright, founder of Cause4, which helps charitable organisations to change and grow. “It’s not impossible, but running a social enterprise isn’t for anyone looking for an easy life.”

Social enterprises must be inherently sustainable

Mark Sesnan, managing director of GLL, a charitable social enterprise launched in 1993 to take over the running of leisure services in Greenwich and which now operates 250 different facilities around the UK, says: “You have to forsake the idea that you are ever going to make yourself a multi-millionaire. But hopefully you get satisfaction from trying to do the right thing and do it well.”

Mr Sesnan, who has also mentored other social entrepreneurs, believes successful social businesses are built on a solid, sustainable plan.

“You can’t actually add social value if you don’t have a sustainable business in the first place,” he says. “It’s not just about having good ideas; it’s also about having a business brain.”

Dr Gabriella Cacciotti, assistant professor of entrepreneurship at Warwick Business School, says the most successful social enterprises are those set up with a very clear goal. “Our research found that social entrepreneurs who started their venture with a very broad sense of purpose, such as ‘I want to change the world’, found it very hard to establish a sustainable business model.

“A narrow purpose is much easier to turn into concrete business practices, which are more likely to form a sustainable business model.”

Mr Sesnan agrees. “Idealism; there isn’t much room for it really,” he says. “You have to be realistic and practical.”

Social enterprises must think commercially from the start

Last year’s Hidden Revolution, a report by Social Enterprise UK, showed that despite the difficulties, there are more than 100,000 social enterprises contributing £60 billion to the UK economy and employing two million people.

It also showed that 47 per cent of social enterprises grew their turnover year on year compared with 34 per cent of small and medium-sized enterprises.

“There’s nothing wrong with making money,” says Neil Woodbridge, chief executive of Thurrock Lifestyle Solutions, a community interest company that delivers adult social care. “It depends on what you do with it and how you’re making it.

“The challenges [for social enterprises] are actually the same as for any other business; not-for-profit doesn’t mean you don’t like profit, it means we’re not led by profit.”

Cause4’s Ms Wright says: “The best social enterprises think commercially from the start. They have founders who recognise the principles of business and generating profits for investment are at the heart of the social or charitable proposition.”

Rosie Ginday, who runs Miss Macaroon, a patisserie in Birmingham which offers training and jobs for long-term unemployed young people, says: “There’s been a bit of a misconception that social enterprises have that ‘charity café-type’ quality,” she says.

Her company, which uses a Pantone matching system so she can match macaroons to a customer’s colour choice, has won contracts with the likes of Google and KPMG.

It’s profits that drive the business, Ms Ginday says. “Without any profits we can’t run the training courses and we can’t provide that in-depth support for the young people we work with,” she says.

Finding finance can be an obstacle

An area where social businesses struggle is finding finance. Many social enterprises are established as a company limited by guarantee, which makes things difficult for investors. “What do they buy into if they can’t have a share?” Ms Wright explains.

Crowdfunding is growing in popularity and at the other end of the scale are social bonds, which are an effective way of raising large amounts of money. However, Ms Wright adds: “There isn’t enough capital at the right time that’s affordable and appropriate to social entrepreneurs.”

Spring Impact, formerly the International Centre for Social Franchising, runs the Scale Accelerator in partnership with the National Lottery Community Fund. It’s designed to help social enterprises grow and develop through an intensive programme of support and access to innovative funders.

“The number of social enterprises is increasing and it’s a business model being explored by a range of organisations,” says Spring Impact director Joe Kallarackal. “In the commercial sector, we are also seeing the emergence and demand for purpose-led businesses, with big corporates like Unilever identifying a mission-driven business model as the route to sustainable business.”

Social entrepreneurs of the future

Mr Woodbridge, who also runs the Thurrock School of Social Entrepreneurs, works with young people, many of whom have degrees and big debts, but are now part of the gig economy or doing shifts in the local supermarket. He says: “You say to them, ‘What sort of work would you really like?’ and the idea of working for a big corporate and spending 40 years there and retiring is long gone. What they talk about is wanting to make a difference in their job.”

Dr Jackie Mulligan, founder of social enterprise app ShopAppy, which is helping to link local people with local producers and retailers, concludes: “The days of companies seeking profit at all costs are numbered and socially responsible businesses have much more chance of success.

“Ultimately, to be successful businesses need to deliver win-wins for customers, investors and the social good they are trying to achieve. A business model that serves all three demands will be sustainable, but striking the right balance is the big challenge.”