Trustees need to give social enterprise a chance
Increasingly traditional charities are seeking to diversify their income streams to ensure their financial sustainability. One such diversification is to develop a social enterprise arm, but what happens if you can’t convince your board that it’s time to make changes to your organisation's structure? Heather Black from Economic Change offers advice.
Over the last year I’ve become increasingly saddened and equally frustrated that some charities are having to close as their trustee boards won’t entertain or assess the feasibility of a social enterprise model for their organisation.
I’ve had ‘determined’ charity CEOs come to me with evidence that a social enterprise model could work for them based on the assets they have available and/or initial test trading. Inspired by other social enterprise models, they are desperate to develop new trading avenues as their normal income channels from public or third sector become completely cut or squeezed.
The CEOs understand the need to undertake a feasibility study, but the trustees have refused to even approve a grant or allocate the resources needed to undertake an external market assessment and feasibility study to explore the idea. I find this quite baffling, as surely finding ways to sustain the future of the organisation should be of optimum importance if the senior management staff are keen to give it a go. Instead the CEO is told to focus on business as usual, and as a result I’ve seen many start to hit the wall. So what are the issues that these CEOs are facing when trying to convince trustees?
If a feasibility study isn’t undertaken, the trustees will lack understanding and confidence in the social enterprise model as no data or evidence is yet to be presented around the future sales potential in the market place. This is going to be a hurdle for any board to approve, until some evidence is presented in black and white.
However, some charities have deeper issues in managing change. Some trustees have a traditional view on charities and believe they should continue to be reliant on grants and donations to work towards their core mission. They don’t understand the extent to which the market place is changing and are oblivious or dismissive of the challenges ahead. They fear that the social enterprise model is a distraction from the charity’s mission and an unnecessary risk to bear, especially if social investment is needed. They believe that the charity’s destiny should be too close if the normal channels of income are no longer available.
What is the business case for social enterprise?
Research such as Social Enterprise UK’s State of Social Enterprise Report 2015, highlights that there are 70,000 social enterprises in the UK, contributing £24bn to the economy and employing nearly a million people. It also showed that 50% of social enterprises reported a profit in 2014-15, with 26% breaking even, and that 73% of social enterprises earn more than 75% of their income from trade.
The 2015 NatWest SE100 Report showed a similarly positive picture, with 59% of the social ventures on the SE100 Index reporting growth in turnover. The combined profits recorded by all the ventures in the most recent year was £1.3bn.
What can CEOs do to convince?
Having one or more trustees with a commercial mindset on the board who understand social enterprise and trading options can be useful so they can advise others on the potential of the model.
Identify case studies or speakers from other charities at the board meeting who have successfully created a social enterprise model that helps to sustain their charity.
- Find a potential business leader with the right skills and experience within the appropriate industry who could help the charity to set up a social enterprise model, as this can provide guidance and confidence to the trustee board.
- Prepare a business case with evidence of robust test trading to show that there is traction and a clear potential to grow the market further
- Identify financial resources e.g. grant or social investment to help undertake a feasibility study or development of the social enterprise model, if other financial resource isn’t available.
- Undertake a feasibility study with competitor analysis and research other aspects of the industry sector and related costs e.g. compliance, quality standards, resource, marketing strategy, income potential etc.
- Once a feasibility study is complete and looks promising, it will be necessary to invest time in a business plan to lay the foundations of a financial, marketing, sales, operational and resourcing strategy.
Adopting some of these ideas should help win over minds and help CEOs to realise a new business strategy with a social enterprise model. At Economic Change, we support charities working with vulnerable groups to apply for Big Potential, which is a grant to help them undertake a feasibility study and explore whether social investment and a social enterprise model is the right approach for them.
We are also running an event on this topic on May 27th for charity CEOs, featuring expert insight from a range of charities, including Crisis and charities with community assets. To register for the event, click here.