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What is a Social Enterprise and Is It Right for Your Nonprofit?

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First things first: what is a social enterprise? You can find many different definitions out there, but the one we’ve found to make the most sense is that a social enterprise is a business operated by a nonprofit. It generates revenues in the process of, or for the purpose of, achieving a social, environmental, or cultural objective. Social enterprises can help nonprofits enhance their programs and services to become more financially stable.

Although you may have never heard the term “social enterprise” before, this is not a new idea – think about gift shops in museums, or YMCA membership fees that get put towards charitable activities. Earning extra revenue for your nonprofit sounds great, but is it all that it is cracked up to be? Keep reading to learn more about some of the risks and rewards of social enterprises. 

Reward: Sustainability 

In life, there is an aspect of excitement and adventure that comes with being spontaneous and unpredictable. However, this is not the case when it comes to nonprofit revenue streams. While donations and grant funds can come into your organization in a seemingly routine pattern, it can be difficult to rely on large lump sums of funding at specific times during the year if you are not receiving much in between.

Adding a sales revenue stream to your organization can increase the amount of frequent funds that your nonprofit receives in between the large grant and donation payouts. This increases the predictability of your overall financial situation, making strategic planning much simpler. Having an additional revenue source is also especially important if funding is cut and you’re left to fill in the gaps – a social enterprise would provide a support system until you can find a solution to a lack of funding. 

Risk: RISK 

It may seem obvious, but the risk involved with starting a social enterprise is the same as starting any business and it is important to consider all the pros and cons before jumping into a social enterprise. An article published by Nonprofit Quarterly summarizes this nicely: “Single-revenue streams, especially when the future is going to look much like the past, are safe and stable, just like savings accounts. However, the future is looking less and less like the past. Most of us now understand that we have to be prepared to adapt. Many read reliance on one revenue source as vulnerability, and, therefore, risk, and that makes good sense. But adding revenue streams adds complexity and new risks—ones that we often cannot fully calculate or appreciate as we enter into them.” 

Opening a new revenue stream can potentially lead to more opportunities, but the costs associated can sometimes make it not work the risk. Assess what your startup costs will be, how much it will take to maintain, and what the worst-case scenarios are for your organizations. Also, ensure that your staff are well equipped to handle this new project. Is your back office capable of tracking and reporting on this new revenue stream? 

Reward: Further Supporting Your Mission 

If you choose to open a social enterprise, you have the potential to create a business model that is centered on the mission you are trying to achieve, and you can use your business to help further your organization’s impact.  A great example of this is the Stopgap Foundation. Their goal is to remove barriers to accessibility in cities, specifically the single step that is in front of most building entrances. Stopgap builds portable, brightly coloured ramps that are custom fit to the entrances of businesses that want to be more accessible. They use the revenue made from selling ramps to fund their mission. 

A social enterprise can also provide employment opportunities to those who would typically have a difficult time securing a job. Many organizations that support individuals with developmental disabilities hire their clients to work in their social enterprises, giving them work experience and an income, helping them reach their full potential. 

Risk: Losing Track of Your Mission  

The other side of a social enterprise regarding your organization’s mission is that it is possible to lose track of your core values in your business activities. Many nonprofits will start a social enterprise that isn’t directly related to their mission to help fund it – such as selling t-shirts or hosting a bakes sale. There is nothing wrong with doing activities like this to generate revenue, but you need to ensure that you aren’t taking away too many resources from your mission-driven activities. If your staff is spending most of their time working on the business, is it worth doing?

Another consideration to keep in mind is how your social enterprise will look to your shareholders. Will they think your efforts are too divided? Or that you are making enough revenue from the business, so you don’t require as much funding? 

Key Questions to Ask Yourself 

A social enterprise may sound like the answer to all your funding worries, but as you can see, there are many factors you’ll need to consider before making your decision on whether this is right for your nonprofit. Ask yourself these questions before you dive straight into a business plan: 

  1. How will stakeholders view your activities?
  2. How will you stay focused on your mission? 
  3. Do you have the capacity to take on these additional activities? 
  4. Is your organization ready to become more entrepreneurial? Do they have the skills? Will your culture change and are you okay with that? 

If you decide that a social enterprise is right for you, make sure you have an outside perspective weigh in on your business plan. It’s easy to get swept up in the excitement of starting a business, but sometimes an idea isn’t always as great as we think it is. A nonbiased opinion is good to have because they aren’t committed to the plan already and can give you an honest perspective on whether the business is worth perusing.  

Social enterprises help many nonprofits further their mission and we hope that this blog shed some light on whether it is the right choice for your organization.  

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