The growing trend in the NGO sector is to develop Social Enterprises as a means of alleviating the load of NGO balance sheets from an ever shrinking government funding pool. However, there are many pitfalls that these businesses get into (not unlike normal businesses) that need to be guarded against.

Before getting into the topic, I would like to mention two rules of thumb. Some ideas work and others don’t – that’s the first one. Knowing something that you shouldn’t do is more worth than knowing what you should do – and that’s the second rule of thumb. The purpose of mentioning these points is actually to relate the concept of successful and failed ideas that arises in every newly born enterprise. Talking specifically about the social enterprises, there arises numerous ideas for the welfare purpose and most of them gets failed due to some technical and managerial reasons (mentioned below), and when ideas gets failed, the purpose of a particular social enterprise gets failed and hence, when purpose gets failed, the enterprise as a whole gets failed.

Remember: Social Enterprises are businesses that provide a social dividend back to the NGO that owns them; often in both 'soft' (business being utilised by clients) and 'hard' (cash) returns.

Faulty Foundations: Get your foundations right before you start. You need to finance yourself, not just your social enterprise. Too many entrepreneurs equate starting a business with getting a job. They take a salary from the business increasing its chance of failure. The business is spending cash it can't afford, reducing the time available to develop a profitable product.

Beware the Love-struck Founder: Love-struck founders need to be balanced out in any social enterprise. Most people that are involved in NGOs are some of the most passionate, amazing people you will meet when it comes to their cause. That is what attracts them to the NGO in question. However, we need to remember that Social Enterprises are still businesses. They still need to make money in the real marketplace and they need to be run as such. Social enterprises will fail the same as normal business without experienced management. 

Due Diligence: If you were going to buy a house, car or business, you would do due diligence on the asset. Before entering into any new social enterprise, you must engage in a quality due diligence process. In order to do this properly, the 'owning' entity needs to enter into an independent due diligence partnership; for this, our Gravis Risk team needs to be engaged.

Cross Subsidisation: There are plenty of NGOs that go into the social enterprise of their choice as a means of ameliorating the pressure on their budget bottom line with the ever present pressures from a shrinking pool of social services funding from the Federal and State Governments. Then, for a variety of reasons they find themselves in a position where they are cross-subsidising the operating budget of the social enterprise instead of the other way around. This is unsustainable and needs rectifying ASAP.

Growth Strategy: Like all things in business, unless you plan to grow, stagnation will follow. The peculiarity of social enterprises are the number of entrepreneurs that pursue ideas that only work at a large scale. This means that social enterprises need to be moving into a scale where they are sustainable. 

For a consultation on your idea for a social enterprise, your social enterprise that is up and running and needs to be taken to the next level or your social enterprise that is 'stuck in the mud' - get in touch with the Gravis Risk team today by clicking here.