Why social enterprise might not be the answer for struggling charities

Changes to the funding environment – commissioning, personal budgets, payment by results – coupled with cuts to local authority budgets have all contributed to a more challenging and complex context in which charities are operating. More and more of the charities that approach Pilotlight – which matches small charities with senior businesspeople to help them increase their sustainability – are looking at alternative funding streams, with many recognising that social enterprise has the potential to deliver increased sustainability and social impact. 

But why and how they are going to go down this path must be thought through.

Charities must consider social enterprise for the right reasons: not because it’s the next thing to try, but because being socially enterprising fits within their organisation’s long-term strategy.

Working out the right organisational structure requires careful planning; some charities setting up a ‘separate’ social enterprise function have found it can lead to governance problems. Others have a great idea, but not the necessary skills. For example, if a charity for disabled people opens a shop offering clients employment opportunities they will need retail expertise. Analysing a service’s true cost, and, if necessary, ensuring a profit is made, may require a change in culture or mind-set but it can enable charities to demonstrate the true value of what they do, something they’re not always good at.

Worth Unlimited, a charity working with young people, came to Pilotlight after establishing Worth Enterprises, which gives young people work experience and skills through a bike repair business and bakery. Chief executive Tim Evans says: "We knew we had a good idea but we were struggling to really think things through and see how our new social enterprise would fit within our organisation." Tim adds that a challenge was getting staff to buy in to the new venture. "We needed our youth workers to switch their mind-set to running a business which was a big change for them.”

Running a charity as a business, while bringing staff with you, is a challenge. Many social enterprises remain registered charities and I have heard this described as the charity as the ‘heart’ and the social enterprise as the ‘head’.

Social enterprise will not solve the challenges charities face, even if the external environment may be the driver to explore what the sector can offer. But with careful thought, clear strategic planning and buy in from stakeholders, more and more charities will be able to harness social enterprise to diversify their income, increase their social impact and have a more sustainable future.

Gillian Murray is deputy chief executive of Pilotlight.

Pilotlight and Social Enterprise UK have launched a free guide to help charities explore whether becoming a social enterprise is the right move for them. Get it here.