What are the challenges of running a for-profit social enterprise? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
What are the challenges of running a for-profit social enterprise?
This is a crucial question, since social enterprises are a growing force in the national and global economies. Deloitte’s latest Global Human Capital Trends report is“The rise of the social enterprise.” A HuffPost says “The future belongs to social entrepreneurs.” And the CEO of LeadGenius the for-profit social enterprise is “the impact model of the future.”
There are big benefits to this model. For-profit enterprises are often more sustainable in the long run, and able to scale more quickly. One of the biggest reasons my co-founder and I followed this model foris that it’s necessary to woo the best employees. They need to know not only all the good the organization is doing, but also that there is a long term potential financial reward. In fact, without this model as an option, many entrepreneurs couldn’t afford to launch a social enterprise.
One of the biggest challenges is navigating the suspicions of people who believe that doing good and making profits are antithetical. They’re wary of any company that wants to do both.
This can require you to adapt your business model. For example, at Givz we allow people to give to any charity registered in the United States. Our initial strategy was to charge a percentage of each donation. Our percentage was substantially lower than that which non-profits generally take. So if participants chose to give through us, more of their money would reach the intended organization.
But the fact that we’re a for-profit enterprise still made some people avoid our platform altogether. It felt wrong to them. As three professorsin researching this type of challenge, “It seems people don’t think companies can make a profit and support a social cause at the same time.” So we switched to a tipping model, in which users can choose whether or not to help cover our costs in running the platform. By making that change, we showed people that we’re happy to give 100% of their donations to the charities, in the hopes that some donors will add a tip. So far, that switch has proven successful.
Aligning with your investors
There’s a huge movement ofnow, with more venture capitalists looking to support social enterprises. So there are opportunities to attracting funding. But there’s also a unique challenge within that space.
Many social entrepreneurs have found that impact investors, as a rule, lean toward one side of the equation more than the other. Some are much more interested in how your business progresses on its social metrics — how many people or organizations in need are helped, for example. Others are much more interested in the profit side.
This becomes a problem when the balance you seek is different from what your investors want. For example, you may be equally interested in financial and social metrics. Your investors might give you a hard time for making a decision that benefits the side they’re less interested in. I’ve been fortunate on this front. But among colleagues in the social entrepreneurship space, there are some horror stories involving stressful arguments and even loss of funding.
Perhaps the biggest challenge is personal for the people running social enterprises. Launching any startup can be overwhelming and frightening. Doing so for very little money, when you don’t have independent wealth, brings added difficulty. I’ve found myselfthinking about how I could be making a better salary and putting my family in a more secure financial situation if I wasn’t focused on social impact. (My wife and I have our first child on the way.)
But don’t be scared off. I don’t regret my decision for a second. Social entrepreneurship is incredibly rewarding. You constantly see positive effects of your work, and how people are helped. You’re fueled not just by a desire to succeed, but also by a desire to make a real difference. And you share that goal with your entire team.
I have more energy for this work every day than I did for previous lines of work, including highly paid investment banking. Now, every success my team has feels more exciting. Every note from a stakeholder thanking us is more meaningful. If you’ve got the drive, determination, and a business plan to tackle an important societal goal, go for it. Don’t let the challenges hold you back.