Governance Considerations in Social Enterprises

Should we replace our board with business professionals to establish a social enterprise and generate funding for our Not-for-Profit programs running at a deficit?

The board continues to oversee the entire organization and should embody a diverse range of skills and knowledge necessary for effective governance. While it is beneficial to have business professionals on a Not-for-Profit board, it should not solely consist of individuals from a business background.

The primary responsibility of a Not-for-Profit board remains the articulation of the desired world the organization aims to create, along with its ethical values, and subsequently determining the organization's role in advancing towards that better world. Once the board has established the direction, its key function is to ensure the availability of resources necessary to fulfill the chosen role. Social enterprise can serve as a mission-driven endeavor, offering the potential to enhance an organization's sustainability and autonomy. However, the success of a social enterprise largely hinges on factors such as the chosen model, the market, and the effectiveness of its management.

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Is adopting commercial strategies suitable for your organization?

At present, there lacks a universally agreed-upon definition for social enterprise; however, it generally refers to entrepreneurial endeavors undertaken to promote social well-being, where any profits or surpluses generated are reinvested for the betterment of society.

The board must take into account the values and culture of the organization. For instance, an organization with a significant advocacy role may find that engaging in business activities hampers its ability to address economic issues effectively. Similarly, an organization that prioritizes thorough dialogue and consensus-building may not be willing to adopt the swift decision-making approach demanded by a business model. Moreover, an organization serving small business owners should avoid competing with its own members. Assessing the feasibility of social enterprise involves considering various factors such as the overall readiness of the organization, the required skills and competencies, alignment with the mission, risk tolerance, timing, and the support of the board.

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Choosing revenue strategies

If the values and culture of the organization are not in conflict with social enterprise, the focus should shift to analyzing various revenue generation options, both traditional and innovative. Numerous organizations are considering incorporating social enterprise into their strategic mix due to the significant potential for generating unrestricted new revenue. Given that the term "social enterprise" is relatively new and not well understood, it is natural for many Not-for-Profit board members and staff to feel uneasy. It is worth noting that even among business professionals, there is still a level of discomfort with corporate social responsibility despite its longer existence.

Engaging in a constructive dialogue is essential to impartially evaluate the potential risks and rewards associated with each type of revenue generation, while considering the organizational, social, and business aspects. Your organization might benefit from enlisting a facilitator who possesses a deep understanding of the social enterprise landscape, while also recognizing that social enterprise may not be suitable for every organization. The facilitator can assist in finding the right balance and guiding the decision-making process effectively.

Asset mapping can provide valuable insights during this process. It is important to identify the organization's strengths and assets. Are there high-quality resource materials that can be sold for a substantial profit and are well-regarded by the target audience? Does the organization have a dedicated and loyal donor base, including individuals likely to increase their giving and make bequests? Are there facilities and programs that can be adapted for the open market, expanding beyond a restricted client list? Does the organization currently charge significant fees for its services? Are there sufficient reserves that can be utilized as seed money to initiate a social enterprise? Additionally, does the organization enjoy a prominent reputation and a high-profile standing within the community? These considerations will help determine the organization's potential for successful social enterprise endeavors.

Conduct a comprehensive risk assessment for each potential revenue generation option. For instance, if the Not-for-Profit heavily relies on government contracts, it is important to consider the risk of increased competition from for-profit providers as the government opens up the market or requires more extensive evaluation data than the organization currently possesses. When board members are well-informed about emerging issues, their comfort level with traditional funding sources may diminish. To facilitate board discussions, senior management can provide advance analyses that cover both asset assessment and risk evaluation. In addition to financial and organizational risks, it is crucial to assess social risks as well, especially since most charities aim to stabilize and enhance the lives of vulnerable or marginalized groups. Ensuring that the social enterprise does not inadvertently have adverse effects on the target population should be a key concern during the assessment process.

In the majority of cases, social enterprises aspire to achieve self-sufficiency as a long-term objective. This implies that significant investments of time, effort, and financial resources are necessary. Therefore, organizations that are already facing challenges should exercise caution and avoid taking on additional risks with the expectation of immediate returns. It is crucial to recognize that social enterprise is not a rapid solution or a guaranteed remedy for financial instability. Typically, it takes a span of 3 to 10 years for a social enterprise to establish sustainability, although there are a few exceptional cases with faster results.

Similarly, organizations undergoing significant organizational transitions may find it prudent to delay initiating a social enterprise. Starting a business would undoubtedly increase the stress levels for both staff and management during such a period. Fortunately, there are funding sources available that can support the startup of your social enterprise through technical assistance grants, often designated for feasibility studies or business planning. Acquiring a grant for this purpose can help mitigate financial risks and allow for thorough consideration before diving into the venture, ensuring that appropriate thinking and preparation are undertaken.

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