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Part 2 -Practicalities; managing and organizing a social enterprise

This article is about the session “Practicalities; managing and organizing a social enterprise”. The character of the social entrepreneur and the features of the social enterprise were partially discussed during this session too. These additional ideas are valuable to compliment and to strengthen what we have learned in part 1. I would like to highlight the different levels of the entrepreneur and the enterprise as the questions and answers were zooming in and out from one person to an entire organization. In this article we start first with investigating the individual level regarding to the optimal mindset and the necessary first steps that starters need to take.Secondly the enterprise, the organizational level which requires orchestrated work of an entire team or even several teams. Besides the individual and company aspects the very relevant question about investors came up and some valid points on why it is even more difficult to run a social enterprise than a “regular” company.

The initial question was: How to start and what necessary steps should be taken?
While we are trying to answer this question, we need to step into the entrepreneurs’ shoes who are often starting out alone as individuals.

 

Individual level

It always starts with an idea, a stubborn thought that comes up to the surface when someone gets to that stage of life when self-actualization somehow starts to kick in. Without investigating the initial reasons let’s start at the point when an individual fall in love with an idea. Somehow it is almost always there. Sometimes it can fade away for some days, weeks or maybe months but it always remains our “secret project”. It is amazing to even think about it, but it is often too scary to dwell on what actual steps need to be taken to make our dream come true.

It can be certainly helpful in our progress to think about the following question;

What are the very next steps if we already have an idea?

 

In this stage of the entrepreneurial journey the social entrepreneurs are facing similar challenges like the “regular” entrepreneurs. Most of us are familiar with the statements like: Do what you love, follow your passion, build on your strong skills and be the best version of yourself to be able to give your best to the world.

To make sure that we have the right mindset we have to consider that we should start with a working business model which has to be profitable from day 1! Most of the time it isn’t the case at all, so we need to take risk which is almost inevitable and we have to ask ourselves;

  • How much of our time and money are we willing to spend?
  • Are we willing to risk our current way of living?

If we are up for the challenge the best thing we can do is to reduce the risk factor as much as we can while still pursuing our dream.

In most of the cases we do not have all the skills and money that we need to start our own company. Ideally, we already work in the industry in which we envisioned our idea. The best we can do is networking and find others with the necessary skills and connections. We can be relatively well prepared by acquiring skills, building network and great relationships but some level of risk will be always there while we are transforming from our corporate job to become a full-time entrepreneur.
At this point I highlighted the risk factors already twice, but we have to face with the other side of the coin which is: There is no such a thing like 100% job security anymore. This means that even as an employee your livelihood can be risky so in the end it is your choice what kind of risk do you prefer. 😉

 

There are other cases when we are merely fantasizing about an idea but do not have any industry related experience or connections. Sometimes it can be an advantage in the beginning because our views on the problems are not constrained by industry specific and sometimes narrow-minded thinking. But still, to step up our game we need to find a company that is similar to the company that we are dreaming of to build. There we need to learn all the nitty-gritty about the industry, get experience, build network, and learn the tricks of money making. If we gradually take these steps, when the time comes to start our own company we will be more or less prepared for the challenge and we can add our own social goal to it. (Many starters do not want to take these gradual steps and want to start right away with their own initiative. With this move they choose the extra steep learning curve and they have to pay the price of every lesson that they learn.)

Stubbornness is like a double-bladed sword. We should keep in mind, that many successful leaders have failed several times! Failure is part of the game! Do not get disappointed! We should keep trying again and again! The best approach is to treat and review our failures with an analytic mindset, we need to filter out the valuable learning lessons. By now it is probably clear that success will not come easy. The good news is that it does not have to be a lonely journey. There are experienced executives out there who are in some cases more than happy to share their expertise with an enthusiastic pioneer. The concept of business mentorship has a long tradition in the U.S. and in recent years in Western European countries too. Ideally a mentor does not ask for money, but it is good to formulate the relationship on a way that the mentor is also able to benefit from it.

Company level

After we have discovered that the social entrepreneurs need to start with similar steps like the regular entrepreneurs it is time to look at the organizational level.

The question to start with: What is the difference between social and “regular” enterprise on management level?

From management perspective to run a social enterprise is the same as other companies.
The daily operations, money, HR, logistics and most of the other aspects are very similar.
We can say that in essence; from a management point of view, Qxfam and Nike are very alike. Because even as a social enterprise you have to sell something that can be translated into a product or a service.


Of course, there can be differences in how to run businesses Our basic attitude concerning the decisions that we make along the way can be a very significant cornerstone of our business policy. The goal setting of a company determines a lot from the beginning; such as company culture, way of operation, internal and external communication, sourcing, partnerships etc. Since in most of the companies the most expensive assets are the people a social enterprise can pay special attention on dealing with employees. Especially because the expectations of the employees are similar like at the “normal” companies however social enterprises often lack the resources to provide financially that is comparable to hard core commercial companies. The social enterprise should make sure that it’s employees are satisfied and compensate their effort in various ways since money is only one aspect of a long-term work relationship.

Social enterprises can be sometimes set up with volunteers. However, the working hours should be calculated because nothing is for FREE in reality. In this case the non-financial compensation really should satisfy the volunteers. Ideally, they get something back in various forms like: good community, feeling of belonging, good vibes, network, discount in services etc.

By the time the organization wants to change from volunteers to paid workers the enterprise has to be prepared to how the system works and know the actual financial details involved with labour. Dealing with employees is one of the toughest task that company leaders have to deal with. Of course, it depends on the leadership style too and a Brazilian billionaire Ricardo Semler’s unique approach came to the table.This can be a doable way to lead a company to keep it self-managing. Here the community aspect is very important and also to give the responsibility and certain decisions back to the employees. However the experience is that self-managing companies often crumble in risky situations. Therefore it is useful to have a manager for the long run who has the overview of the company.


Investors

A very relevant question came up regarding to investors.

 

Does the money go back to the investors or does it go to the social purpose that we are persuading?

At the first glance it indeed can be interesting to think about: who and why would give us money to invest in our socially or environmentally responsible idea? The “big sharks” do not seem to care at all about social and environmental issues. For the answer we need to get familiar with the concept of impact investing which is in nutshell: investments made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside (or in lieu of) a financial return. That means if we are looking for investors the best way is to focus on impact investors first. The impact investors are investors with compassion together with financial knowledge and resources which is an awesome combination to be honest 😊. See a list of Dutch impact investors from 2014.

 Extra difficulties

Running a social enterprise can be a more difficult task than running an “only” for profit company. The main reason is because there are more goals to focus on, for example:

  1. operational sustainability
  2. long term social goal

As an example, the sociale werkplaats was mentioned. Click here for English explanation that is similar to the Dutch term.

While running a sociale werkplaats the focus gets divided in three directions: profit, involvement of local political system which gets prioritized in decision making, and the social goal itself. This divided focus creates extreme challenge while manoeuvring the company. Operating with divided focus puts extra weight on those who run the company. Similarly, in another example from Taiwan was highlighted that the managements of the social enterprises are not working well. Especially in the first 2-3 years the companies’ survival rate is very low. It is mainly because of the operations which are not smooth enough and there are usually problems with funding, cash-flow and HR. The result is that often very enthusiastic people join these companies and they leave relatively early because of the listed issues. In other cases, employees are not able to do the kind of work that they thought they would.☹
Most of these problems can be originated from pursuing multiple goals at the same time while having less focus on each of the goals. This situation is extremely difficult for companies which are starting off. It is a wise choice to focus first on operational sustainability, even if the social goal would be somewhat compromised in the beginning. Strong foundations are essential to accomplish the greater goals of the future, therefore compromises in the beginning can be morally accepted.

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