6 reasons social enterprises fail

Starting a new social enterprise is exciting and rewarding in equal measure, but it’s important to approach the process with an open mind and the ability to embrace failure.

You will fail at some stage; it’s how you’ll learn to build a social enterprise that is capable of delivering your big idea and making real, tangible changes to people’s lives. It’s the manner of the failures that’s important.

The more creative and daring you are, the more errors you’ll make, but most errors are recoverable – it’s the big stuff that’s capable of ending a social enterprise before it’s had chance to draw breath.

With that in mind, we thought we’d list six common reasons social enterprises fail. Learn them now, and you’ll avoid significant heartache further down the line.

1. An unclear social purpose

At Inspire2Enterprise, one of the most common questions we’re asked is “does my business have a social purpose?”, and the answer is often a rather tricky “no”.

Defining a social enterprise remains a very difficult task, and although you may be convinced your organisation offers real socioeconomic or environmental benefits, the reality might be rather different.

Social enterprises should meet a clearly-defined need or complement an existing offering from local authorities. They have lofty social goals but understand they need to be delivered in small, bite-sized chunks.

If you’re unclear about the social direction of your enterprise or feel the need to ask whether or not it has a social purpose, the answer might be a tough one to come to terms with, but it’s better you do so now, rather than after a significant amount of time and investment.

2. Failure to keep up with the times

The best social enterprises in the world will struggle to remain relevant if they don’t keep up with the times.

Market trends, technology and customer expectation move incredibly fast, and if you miss the opportunity to take advantage of new developments within your social enterprise’s sector, it will struggle to keep pace with the competition.

This is why you should continually scan the horizon and indulge in news sources, blogs, seminars and industry events that will ensure you’re ready for the next wave of innovation.

3. Lack of a business plan

It’s easy to get carried away when starting a social enterprise, but if you do so without a proper business plan, you’ll quickly run into numerous roadblocks.

It may seem laborious, but by creating a business plan for a social enterprise, you’ll provide it with the solid footings it needs to ensure profitability, scalability and sustainability.

Without a business plan, you’ll undertake new initiatives and ideas without knowing their potential impact on the future of the enterprise or whether they’ll help you achieve its goals.

Spend as much time as possible creating your social enterprise’s business plan – it is utterly worth it.

4. Mismanagement

Many a social enterprise has encountered a bottleneck because of bad management.

This is common, because the nature of a social enterprise’s business model is often far more personal than that of a corporate business. If you’re the owner, manager and chief bottle washer, it’s unnervingly easy to create multiple problems of your own doing.

The key lies in accepting that you have made mistakes and rectifying them in a timely fashion. If the enterprise appears to be careering uncontrollably downhill, look first in the mirror; have you taken your eye off the ball? Are there areas of the enterprise you have inadvertently ignored?

5. Stiff competition

Social enterprises must operate in a businesslike manner when it comes to competing within their market.

Unfortunately, this is easier said than done, because the purpose of such an enterprise is to provide social value; being aggressively competitive can therefore feel rather inappropriate and at odds with the overall goal.

There’s a relatively simple way to counter this dichotomy; your social enterprise should have a Unique Selling Proposition (USP), so define it within your business plan (see tip 3), and you’ll have all you need to take on the competition while ensuring every social goal you have is achievable.

6. A lack of funding

Again, thinking of your social enterprise purely in financial terms might be rather unpalatable, but it will need to gain solid funding if it’s to be successful.

Finding funding for a social enterprise isn’t easy, but there are numerous ways to do so. For example, the Funding Central website provides a brilliant search tool that will help you hunt down grant opportunities, loans and contracts.

Unless you’re particularly lucky, you’ll need assistance when it comes to finance. Accept that early on, and your social enterprise will stand the best chance of success.

Final thought

The social enterprise sector wouldn’t exist if it wasn’t for the failures of past entrepreneurs, but by learning from their biggest mistakes, you can build an enterprise that is capable of making a sizeable dent in its industry.

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