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Social enterprises: Is it time to kill your darlings?

Over the last five years, I have watched the rise in popularity of social enterprises, an increase in discussions, and a flurry of activity. During this time, the term social enterprise has managed to make its way in to the vocabulary of trendy millennials. While this can appear to be a good thing, building momentum and awareness for a new (or re-coined) approach to business, it also comes with some significant challenges.

These challenges include:

1. Lack of focus on creating real, systemic change: Much of the focus from intermediaries to date has been on building the business management skills of these budding entrepreneurs. We need this approach, but it is now time to think about lending the skills of social scientists and innovators to our entrepreneurs to increase their impact.

In order to create real systemic change, one needs to understand the methods and processes used to create real results. One example is design thinking, harnessing design techniques to innovate for social change. Design thinking explores and incorporates customer insights and tests conceptual models through the discovery, ideation, rapid prototyping and iteration stages of the design process, working to solve complex problems. Fundamental to this process is involvement from people at the heart of the challenge throughout the design phases. This is particularly important because without it one is likely to create an initiative that does not meet the needs of those targeted to benefit.

A group of Stanford University students took this innovative approach and established the Embrace Infant Warmer, a cost-effective and portable bed warmer for infants born prematurely. This group recognised that each year, more than one million babies die the day they are born from preventable and treatable complications related to hypothermia. Through taking a design thinking approach, these students created a portable solution that does not require electricity like its predecessor high cost option.

2. Foregone/absent innovation: Many social entrepreneurs set out with aim to innovate for social change. Unfortunately, we are seeing fewer innovative social businesses than we are carbon copies of the same idea. As more people vie to be a part of this trend, they look towards establishing a business with ease, but sadly, these tend to lack innovation and creativity. Providing employment to disadvantaged people through your cafe is a case in point. Whilst this model has been a great addition to the market (look no further than STREAT), it is fast proving to be unfeasible without ongoing funding in many cases. According to ABS data, businesses operating in the accommodation and food service industry are the least likely to survive. Some of the challenges facing social enterprises operating in this sector can be seen in the Queensland Eritrean restaurant Mu’ooz which was hit hard by the economic downturn that resulted from the financial crisis.This particular social enterprise model could be justified if it was generating large social impacts compared to the amount of funding invested. But any one enterprise can only employ so many individuals on any typical day. More evidence of impact – a cost/impact analysis – would be useful to help understand whether this model is effective outside a few larger and scalable enterprises.

The other limitation on innovation that I see regularly is donation based “social enterprises”. These types of “social enterprises” run a regular business and donate a percentage of their profits to a selected charity(ies). Does this really qualify them as social enterprises, or are they just good corporate philanthropists? What impact are these enterprises having? Could they be contributing to the perils of aid dependency or other negative consequences from foreign aid?

When developing a social enterprise, try to think beyond the square and innovate!

3. Overlap with existing organisations/initiatives. We have an abundance of organisations operating in the third sector. Overlap and a lack of collaboration are already issues. If your social enterprises is not addressing an otherwise unserved gap in this market is it just adding to oversupply?Before setting up your new, shiny looking social enterprise, please step back and scan the many players already working towards addressing that particular social challenge you were hoping to affect. Are they already doing something similar? Could you collaborate with them, and achieve greater impact?

There are plenty of NGOs out there working towards creating social and environmental change. With the rise of glitzy, new social enterprises, we may run the risk choking off funding for tried and tested change programs.

4. Increased risk of producing unintended negative consequences: In the rush of enthusiasm to establish their social enterprise, entrepreneurs may not adequately explore the problem they are addressing, and therefore may not deeply understand the social challenge at hand. This can lead to solutions that cause more harm than good. We can look to the very well-known case of TOMS shoes, a company that donates a pair of shoes to a child in a developing country for every pair sold. Unfortunately, this company has been publicly criticised for affecting local markets and putting local shoe manufacturers out of jobs.

Make sure you plan and test your ideas fully, leveraging the expertise of change professionals to gain as complete a picture as possible of the effects your business will have. One common approach to better understanding and identifying the long term outcomes of your work is to develop a theory of change.

My aspiration here is not to see social enterprises decline in popularity, but for those wishing to create social change to increase their focus on creating as large a social and/or environmental impact as they can, right from the outset.

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About Stephanie Sterck

Stephanie Sterck is a Senior Consultant at the Australian Centre for Corporate Social Responsibility (ACCSR). ACCSR provides consulting services to businesses looking to improve their social and environmental impacts through strategy development, impact measurement and reporting, and improved stakeholder engagement.