8 fatal social start-up mistakes and how to avoid them
Choose the right clothes (and shoes), listen to Scrooge, and don't win bad contracts, be a hero or think like a charity. Don't forget who you are or forget to plan. Oh – and remember to ask for help! Malcolm Williamson of Inspire2Enterprise lists the top tips for social enterprise survival
1. Choosing an outfit before you know where you’re going
MISTAKE: The ‘clothes’ or legal status that you choose as a social enterprise is something that needs a lot of research. Trends and fads can be misleading. Some legal forms will help certain businesses stick to their social mission or promote democratic governance, but may be restrictive for others. If the nature of your business means at some point you’ll want to diversify, a restrictive form might be the wrong choice.
AVOID IT: Don’t choose a legal form before you have a business plan that tells you where your business is heading. What is this enterprise about, where is it now? What is its social purpose and what does it aim to achieve? Let your plan inform your decision on what the legal status should be.
2. Demonizing Scrooge
MISTAKE: When you’re in the social impact game, Scrooge – an uncharitable miser – is no-one’s favourite literary character. But holding his obsessive coin counting in disdain is a fatal mistake. Many social businesses don’t adequately count their coins or forecast how it will increase or deplete in the immediate future and in the long term. As a result, cash falls come as a surprise, it’s too late to act, and the business enters a state of emergency.
AVOID IT: Leave Scrooge’s world view behind but take his money monitoring with you. Most people (misers or not) make budgeting a constant process. Early stage businesses are no different. You should be able to say we predict that we’ll have this much cash in our pockets by this time; we’re going to monitor it and check it at regular intervals, so that we can be sure. That way you won’t get surprises, and if you do they’ll be less damaging. Crucially you’ll be able to take appropriate action if the figures indicate that there’s a fall in cash. There’ll be time to think creatively and avoid failure.
It goes without saying that it is a mistake to keep on making mistakes. And if you’re inclined to work your socks off and muddle through you’re far more likely to make a fatal one.
3. Winning a fatal contract
MISTAKE: A fatal contract is a social entrepreneur’s worst nightmare. Some businesses I’ve come across make the mistake that contracts equal business opportunities. They’ve ended up hemmed into contracts that they can’t deliver on. Worse still the contracts have ended up costing them rather than make them money.
AVOID IT: Plan what is required to deliver the contract. Do you have the capacity, the resources and the experience? Is the contract going to be profitable? A lot of contracts have very small margins in them. So if your business isn’t sufficiently streamed in terms of its processes and its delivery be very careful when deciding whether to go in for these types of contracts. Be confident that your processes run smoothly before taking on a contract that will only make you a small profit.
4. Playing the hero
MISTAKE: Treating your enterprise like an over-protective parent is a common mistake, one many founders tend to make. ‘Hero syndrome’ is rife in the start-up world and it is crucial that leaders of early stage businesses learn to trust others to care for their social business baby. That means delegation.
AVOID IT: Your team can and must take different business functions into their care, from invoicing to marketing and communications. But you can’t feed a baby without a bottle and feeding times. People need the tools and a process to follow to make the business work.
5. Treating a social business like a charity
MISTAKE: Some social enterprises start up with the idea that there is a goldmine of grants, contracts and investment out there ready to support them. Unfortunately this is not the case. Grants and contracts are not readily available to all enterprises doing a good thing. But false expectations have a habit of sneaking into business plans. Effectively what happens in these scenarios is that a business writes failure into its own plan-making predictions and assumptions that are out of sync with reality.
AVOID IT: Social enterprises need to be deliberate, focused and realistic about developing their income streams. A social enterprise is fundamentally a business, not a charity or philanthropic organisation. It can’t expect to treated as a special case because it is a social enterprise. A social purpose and re-investment of profit into a social cause makes social businesses distinct. But in terms of the way they sustains themselves, they needs to think and operate like the corner shop.
6. Losing the plot in your social business story
MISTAKE: Losing sight of your mission is a one-way ticket to an identity crisis for a social business, and those don’t tend to end well. Betraying the original purpose of your enterprise’s existence takes the ‘social’ out of social business. It also takes the energies that a social mission inspires out of the team. And that could run your business into the ground.
AVOID IT: Seek to constantly prove yourself in terms of your social mission. As we learned last month in the I2E leadership series, make sure you can tell the story of your business and why it exists. At the same time validate and measure the good work you're doing with official recognition like Social Return on Investment. Business plans can be flexible, but the social mission should be at the heart of the business.
7. Being complacent about process and planning
MISTAKE: Process and planning are words used so much they can lose meaning. But shoddy processes can throw a business into disarray. Social businesses that fail to create processes around their work usually hit trouble before they understand whether they are making progress or stagnating as a business.
AVOID IT: Put the correct checks and controls in place. When you set out to deliver something, know exactly how you are going to monitor and measure the process, where it is meeting its targets, where it is falling short. Process doesn’t just apply to service delivery. Make sure you have a system to monitor and measure your finances, and your social impact.
8. Not asking for help until its too late
MISTAKE: It goes without saying that it is a mistake to keep on making mistakes. And if you’re inclined to work your socks off and muddle through you’ll almost certainly repeat your mistakes, and you’re far more likely to make a fatal one.
AVOID IT: Be constantly on the lookout for advice, make sure you interpret it well and fit it to your goals. If you’ve got a specific query, research and find a port of call that can answer your question. And if you need guidance to shape the all-important planning and processes that will streamline your work, seek out the help of social business support services like Inspire2Enterprise.
Pioneers Post Business School content is delivered in partnership with Inspire2Enterprise. Inspire2Enterprise provide a unique, free-to-access social enterprise support, information and advice service – from start-up through to initial growth and beyond. Call them on 0844 9800 760 or visit www.inspire2enterprise.org to find out more.