Why social enterprise rarely works 2: the fall-out

When the Wall Street Journal write about social enterprise, and write about it negatively, it seems everyone notices. I blogged my initial reaction to it previously in this post, but the reaction since, and the debate it has provoked, warrants a further mention.

Leading the charge is the Social Enterprise Alliance, the Social Enterprise Reporter here and here, followed swiftly by Nonprofit Board Crisis, and Xigi. There’s plenty more (see this link to view the 50 or so posts linking) comment, mostly from the US / Canada. There’s a whole range of opinion, mostly centering on the organisation (SEEDCO) that produced the report that the WSJ article is based on: ranging from “SEEDCO deserves credit for publishing a case study of their own business failure” to “Seedco, one of the least informed and most inept players to have dabbled in the nonprofit Social Enterprise field”. Difficult to judge from this side of the Atlantic, but both may be true.

By all accounts, the original report (the Limits of Social Enterprise) is worth a read, and is more balanced than the article, which is pretty one-dimensional and un-thought through. SEEDCO focus on one aspect of social enterprise/entrepreneurship (non-profits starting up a business arm) and use their failure to extrapolate more widely….which is always a little tricky. Nevertheless, I think there are lessons / messages / points to wrangle with here for the UK scene, even if it’s just a reiteration of ones we already know. Here’s a few quotes from some of the blogs, for example:

  • “We already know that the purpose of social enterprise is to accomplish a social mission, not to change from being a nonprofit”
  • “While improved self-sufficiency, efficiency and quality are certainly
    key social enterprise goals for most entrepreneurs, no one touts social
    enterprise, earned income or business practices as a magic bullet”
  • “Sustainability is not just about earned income or self-sufficiency”
  • “The report only seems to use the term Social Enterprise to include existing non-profits that start a revenue generating business”
  • “People entrenched in the status quo are threatened by new ideas as they
    gain momentum, so these attacks are a good thing and a sign that we are
    making headway.”
  • “Viewing social enterprise solely from the perspective of
    the for-profit world misses the social goals of nonprofits, where the
    primary measures of success are social outcomes”
  • “Growing numbers of nonprofits are…embracing social enterprise in order
    to diversify revenue streams, increase independence, improve overall
    capacity and advance more mission”
  • “Blind faith (and adherence) to one ‘pure’ model, whilst turning down
    other [funding] opportunities to achieve impact, isn’t entrepreneurial, it’s the
    opposite” [OK, that was me]

I think this gives a flavour of why we should be väska kopia paying attention to the debate; because it covers a lot of the key issues: mission vs. money / business model as magic bullet / sustainability is about more than income / social enterprise as spectrum / the movement challenging commercial business / measurement is king / diversification of revenue / entrepreneurialism vs. blind faith in model…..

Not to mention the wonderful use of the phrase “advance more mission” which is a new one on me.

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4 thoughts on “Why social enterprise rarely works 2: the fall-out

  1. Glad to see you’re surveying the “responses” to the Casselman/WSJ item.
    Is this really a debate?
    Take SeedCo to task for the “low hanging fruit” approach that undermined the original effort and permeates subsequent contributions to the exploration of social enterprise.
    The paper is broadly instructive and manages to evade intellectual or enterprise rigour.

  2. Of course social enterprises rarely work. Most things rarely work. 7 out of 10 new business start-ups fail in their first year: ‘business is hard,’ as it says in the original article.
    It seems social enterprises are therefore being judged by an impossible and unfair yardstick. I hope this article helps to prompt a sensible debate around risk in social ventures. Part of the problem here is that charities always work, or at least that’s what they’d have us believe. It’s not all their fault, though. Try writing a report to your funders after a year saying “Sorry, we failed, but here’s my new idea, can I have some more money?”

  3. Just a snippet of crude data to throw into this – we run a very successful social enterprise support programme in West Yorkshire which has supported more than 1000 existing and emerging social enterprises over the last 4 years.
    On the subject of sustainability, we track failure rates and interestingly the survival rate of private businesses during 2006-07 (those still around after 1 yr of trading) is 91%.
    Based on the same period the survival rate for social enterprises is 93% – and the figure in previous years is not dissimilar. Whilst not conclusive, it provides an interesting and direct comparison that suggests that, irrespective of the actual survival rates, social enterprises fare better than private businesses. So there.

  4. Thanks for the comments.
    Hi Peter: fair comment, methinks…not so much a debate as an ill-thought through article followed by a barrage of “hey, that was ill-thought through!”
    James: absolutely right, of course…I look forward to the WSJ follow-up article, “Why business rarely works…” based on the fact that some of them also fail…
    Tim: Interesting stat. We have similar from following our Fellows (although they don’t just set up ‘social enterprises’ (depending on your definition) but also charities and for-profit social businesses. One interesting stat from our evaluation is that the first SSE cohort (in 1998) established organisations which have a survival rate of 67%, which is almost double that of conventional business for the same period (39%).
    As the evaluation (by New Economics Foundation) says, though: “At the same time, we must acknowledge the danger of just using financial figures as the only indicator of sustainability. Although funding is always a key issue for most of these organisations and projects, many thriving organisations have little income from trading. This is a reminder that income from market transactions may not be the most important factor contributing to the sustainability of these organisations; sustainable, effective organisations also demonstrate that determination, persistence and support for the leaders of these organisations generates long term change, too.”