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What happens when social activists masquerade as business people?
They still go hungry. According to The Guardian and UnLtd, 71% of social entrepreneurs struggle to make a living from their ventures, and the same proportion face problems creating sustainable revenue streams. Additionally, 60% of social enterprises cannot access the right type of funding. Clearly, social enterprises can’t seem to resolve issues around money. Are social entrepreneurs financially incompetent, or are there deeper causes for their struggles?
Why do social enterprises fail?
While investigating this question in Mexico, the Failure Institute discovered that only 17% of social enterprises remain in operation for longer than 3 years. Social entrepreneurs who were surveyed identified two primary causes for the failures of their enterprises:
- Lack of resources and infrastructure: Social enterprises could not secure funding because teams lacked fundraising skills, teams did not know where to find funds, or funds did not exist.
- Social and economic context: The inconsistent context that social enterprises were operating in did not effectively respond to their needs. Contextual problems included inadequate regulatory environments for social enterprises and insufficient public/private participation in social enterprises.
Both of these factors heavily influence a social enterprise’s ability to create sustainable revenue streams. However, they fall outside of the social enterprise’s domain of control.
Funders dictate resource accessibility, and policy makers determine contextual factors. Do these two groups exclusively control the fates of social enterprises?
Let us explore some additional possibilities.
Social Enterprise Problems Fall into Four Categories
In Social Entrepreneurship: What Everyone Needs to Know, David Bornstein and Susan Davis detail four interconnected categories of problems that affect social enterprises:
- Talent Cultivation: Social enterprises fail to recruit, train, and retain talented employees.
- Resource Acquisition: Social enterprises experience difficulties raising funds.
- Impact Evaluation: Social enterprises struggle to measure and report their social/environmental impacts. Furthermore, impact metrics are not standardized as well as risk/return metrics.
- Cross-Sector Collaboration: Social enterprises must often collaborate across industries and sectors to succeed. This presents challenges, such as facilitating communication and aligning stakeholder interests, that can be difficult to manage.
With the exception of resource acquisition, funders and policy makers appear to have little influence over these factors…
Blame Funders and Policy Makers for Social Enterprise Failures
Interestingly, these four categories of problems can all be traced back to the Failure Institute’s two primary causes of social enterprise failures, which revolve around funders and policy makers.
Talent and resource problems most-likely stem from ROI and wage differentials among for-profit, non-profit, and hybrid models. Improved government regulations and financial instruments would incentivize higher rates of investment in social enterprises, which could close wage gaps. Unfortunately, innovations in public policy and finance fail to keep pace with the rapidly progressing field of social entrepreneurship.
Impact evaluation and cross-sector collaboration go hand in hand. Standardizing impact metrics requires consensus from stakeholders across industries and sectors. Conversely, facilitating cross-sector collaboration and aligning interests would become much easier with standardized impact metrics providing a common framework. Alongside social enterprise teams, funders and policy makers the two main stakeholders when it comes to impact evaluation and partnership formation.
Why do social enterprises fail? In most cases, we can blame funding and policy failures.
Since funders and policy makers cause social enterprise failures, they should resolve the situation. Right?
Knowledge is Power for Social Entrepreneurs
Actually, educators and connectors are the people who should reduce failure rates among social enterprises.
Universities, accelerators, incubators, and ecosystem builders are uniquely positioned to address the four categories of problems. Educators, such as academic institutions and enterprise support providers, can cultivate talent and teach social enterprise teams how to acquire resources.
While educators possess technical knowledge, connectors have social intelligence and ecosystem knowledge. Connectors, also known as ecosystem builders, can bring stakeholders to the table to resolve impact evaluation and cross-sector collaboration problems.
Furthermore, finance and policy innovations for supporting social enterprises do exist. Although their use and availability is not widespread, new strategies for funding and regulating social enterprises are being conceived, tested, and iterated constantly. Educators and connectors should take on the responsibility to disseminate knowledge of these innovations across borders and ecosystems.
Follow Social Sector Network‘s Example
Here at Social Sector Network, our primary objective is helping social enterprises succeed. Tackling the four categories of problems head-on, we have modeled our enterprise to empower social enterprises through education and connection.
Social Impact Startup: Online Social Entrepreneurship Training
Our most extensive course, Social Impact Startup, guides aspiring social entrepreneurs through key startup processes, such as market research and rapid prototyping. Furthermore, we cover several strategies for social enterprises to create revenue streams, as well as raise capital. Reduce your chances of failure with this self-paced online program.
If you are an educator or connector, we highly encourage you to follow our example and work to reduce failure rates among social enterprises. Help feed a social entrepreneur!
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