The challenges of running a social enterprise

A social enterprise is an organization that behaves like a commercial enterprise in every respect, that is, identifying the need, developing a product that addresses the need, estimating the resources, raising those resources, evolving strategies to optimize those resources to deliver measureable impact in society – all without obsessing about the bottom-line. In theory, it sounds so wonderful that every entrepreneur would want to be a social entrepreneur. In practice, it is a different story. And the glaring ideological differences between  a social and a commercial enterprise becomes evident from the word go. Let’s check out a few of them:

1. Legal structure:

Rarely do you find a social enterprise being incorporated as a company. It is always a Trust. A set of individuals come together to form a Trust and manage the assets of the Trust on behalf of the beneficiaries of the Trust. In other words, the trustees have a fiduciary relationship with the beneficiaries. A company, on the other hand, is a corporate legal entity which engages in commercial business in order to generate profit and create wealth in society. The Trustees raise money mostly by passing the hat around for donations, sponsorships and the like. The ‘do-good’ nature of the Trust is what is reflected in its triple bottom-line, that is, how many constituents benefited from the reach of the Trust as opposed to how much profit they generated.

2. The ‘business sense’ of the Trustees:

The Trustees are so overwhelmed by the good they are doing that it becomes the single most goal they are in pursuit of. Rarely is there a due diligence of the efficacy of business processes, optimal deployment of resources, hiring the best talent, or simply generating a surplus. As someone who was a veteran in the social sector once told me, if you achieve more than 50 percent match between your resource and your reach, it is considered good business! Emotion seems to underwrite every plan; feel-good seems to overwhelm every Trustee.

Having mentored women in Afghanistan, Ethiopia, Nigeria, Ghana and India, to build business that transcend the livelihood space, there are a few things I have learnt about the challenges in the social sector. Here’s my laundry list:

1. The challenges are directly a by-product of the two major differences between a Trust and a Company. Firstly, the Trustees are easily satisfied and because they are easily satisfied, their expectation of performance from their cohorts is extremely below par. Let me give you an example. Let’s say you are an NGO set up to make economically dependent women empowered enough to earn their own living. You teach them some basic skills like sewing, knitting, basket weaving and cooking.

Your first moment of truth is when you see the women ‘produce’ something. A basket, a sweater, a blouse, a chhole-bhature. That really ought to be the moment when you sit them down and say, happy you took this first step, ladies, now I want to see how consistently you manage to produce, how many you will sell, and how much money you will take home, net of expenses, to put food on the table for your family.

But that’s not what happens. The Trusties behave as if a unicorn is born. They call for a press conference. They flaunt the beneficiaries with their respective products. They wallow and the journey ends. Did anyone notice that the bhature was dripping oil? Did anyone notice that one sleeve of the sweater was slightly shorter than the other? Did anyone notice that the hooks on the blouse were not evenly spaced? No sir, we are a Trust. We are happy we have come this far!

2. And this to my mind is the biggest challenge social enterprises face – of demanding excellence from their beneficiaries. Over the years I have bought products on various occasions from NGOs. Candles where the wicks have fallen out. Woven baskets which start to come apart at the seams. Agarbathis that don’t burn till the end. Diyas where the paint peels off the moment you light them. I can go on and on.

And mind you, these don’t come cheap, they are more expensive than what I’d pay on Amazon. I bought because I wanted to be part of the feel-good brigade. And I continue to buy even after feeling disenchanted each time. I once asked a very famous corporate lady who ran an NGO for women, from whom I had bought several packs of diyas for Diwali, why there is no demand for excellence from their beneficiaries. The answer was simple, succinct and summarizes the biggest challenge social enterprises face: Excellence costs money, money that I’d rather use to bring in more beneficiaries, even at below par level.

And this is the bane of the social sector. This is why they will never produce beneficiaries who will contribute to the GDP. And this is why there is a certain tonality associated with the social enterprise – a tonality filled with dismissal, lack of respect and lack of seriousness as a contending player in building the economy.

The most important lesson I learnt from the social sector is that you may start in the livelihood space, but if you do not inculcate the mindset of a commercial organization in your beneficiaries, where they give primacy to creating surplus, you will be out of the reckoning even before the race begins. And creating surplus is a byproduct of excellence not just in product but in business processes. The moot questions stay −  without creating surplus, how can you build a sustainable organization? And if your focus is not on building long-termness, why start at all?

The columnist is a published author, entrepreneur, business consultant, industry commentator and mentor to startups. Email: nandini@carmaconnect.in