Tip Sheet: Social Enterprise: A tool to sustain your heritage site

What is Social Enterprise?

Social Enterprise is a much misunderstood concept, particularly because it has no one single definition.

However, in all the many definitions, there are always three key elements, as follows:

  1. The primary guiding purpose of the business must be to address a social need or gap* in our society.
  2. The business is ongoing, and planned to be more than a single event, or a short-term fundraising effort.
  3. A product or service must be sold to a consumer, with an exchange of value taking place in the transaction.

*Note that the term “social need” includes human needs such as meaningful and gainful employment, adequate shelter, alleviation of poverty, protection of human rights as well as environmental, cultural or recreational needs.

Common Questions

Jonathan Wade is the President of Social Delta, a social enterprise consulting firm based in Ottawa working with clients across the country. He provides coaching or consulting services to individuals, co-operatives, non-profits or businesses as they conceive, create, design, finance, launch, market and scale social enterprise. For more information or to contact Jonathan directly, visit www.socialdelta.ca.

01. Can I make money in a social enterprise?

Yes. A social enterprise can (and should) pay salaries to employees and managers that are comparable to other similar jobs in the marketplace…so individuals can certainly make money through a salary or contract. Furthermore, a social enterprise as an entity can also make a profit, as long as business is always actively maximizing social, environmental, cultural or recreational mission(s). Note that profit is defined as when total revenue from sales exceeds total expenditures (including salaries). In a profit maximizing business, there are likely ways in which the profits could be either reinvested in the social mission or minimized in order to maximize a social outcome.

02. Do I have to be a non-profit organization to be a social enterprise?

No. You might note that the common elements in the definition do no mention a form of incorporation. Social enterprises can operate as sole proprietorships, companies, non-profit organizations (even registered charities) or as co-operatives. Each of these structures has advantages and disadvantages, and social entrepreneurs should choose the form of the business should follow the function of the business.

03. What kinds of products or services can a social enterprise sell?

Anything that someone will buy. There are social enterprises offering housing, catering, renewable energy, custom woodworking, sewing services and products, bike rentals, landscaping, research services…the list is extensive. The best product or service to sell relies on two fundamental questions: What are you (or your organization) well positioned to do; and what will a consumer pay for? Both of these questions can be answered in a sound feasibility study in which both organizational capacity and market research can be considered.

04. Could our museum, staffed primarily by volunteers, be a social enterprise?

Absolutely. Any business can engage volunteers, but a social enterprise often will have a cadre of volunteers (governance, advisory, managerial or even front line) working to maximize the social impact of the business. The key is that a social enterprise needs to be planned such that volunteer labour is considered a risk and strategies to mitigate that risk should be addressed as part of a business plan. Note that many social enterprises, as a result of their mission focus, may receive other donations of assets or expertise and these should similarly be welcomed and be monitored as the business grows.

05. Our non-profit has no money. How do we start a social enterprise?

This is perhaps the case of 90% of social enterprises started by non-profits (and 90% of private entrepreneurs, for that matter.) In fact, for many non-profits, social enterprise is often considered only after the loss of longstanding grant or philanthropic support. The first thing to consider is that most social enterprises will take 1-3 years to plan, launch and establish themselves. Social enterprise is an investment by an organization in a long term social impact strategy, not a short term answer to a funding shortfall. It is worth seeking a grant or using existing balances to invest in a strategic planning session followed by a proper feasibility study for 1-2 plausible lines of business. This process might take 6 months to a year.

If the business idea is deemed to be financially feasible, AND would make a significant impact on your social mission, then build a business plan that can be used to leverage start-up capital and launch the business. Small investments in the right things will begin to generate modest sales revenues, that then can be reinvested in the business to expand the scale and scope. This iterative launch strategy may be slow, but can also minimize financial exposure/risk and can generate “live market data” to endorse or contradict the assumptions and expectations set out in the market research.

06. How do I get start-up capital?

A sound business idea can always find investors. A sound social enterprise idea might also find investors, but also may be able to access social investments, donations or grants made by individuals, governments, or foundations. Moreover, if the social enterprise has a sound business plan, then a social entrepreneur can access loans or bridge financing from banks, credit unions, or from a growing number of social investment agencies and funds. Of course, like any business start-up, a social entrepreneur can also make a personal investment based upon existing collateral or savings, although this can be risky if the business does not succeed, or if it is owned by multiple stakeholders (as a co-operative or non-profit, for example).

07. Our building/land is in need of repair/restoration. How can we employ it to generate revenue?

There are two options: find the money to fix the assets or look at other assets you have that could be commercialized. A museum, children’s camp or bed & breakfast cannot be operated profitably (or safely) out of a dilapidated building or a contaminated property. In all likelihood, you might be considering social enterprise as a way to generate the revenues you need to do the repairs or restoration work. Most organizations and individuals have other assets that can be used to create products or services that can be sold. Below is a short list of examples employed by other organizations in the heritage sector:

  1. Expertise in land management or historical analysis can become a consulting business;
  2. Past camp programming can be sold to other agencies or can be operated in another location;
  3. Solar panels can be installed on a property to generate revenue;
  4. Adventure tourism (hiking, nature talks, snowshoeing, dog sledding or even bungee jumping) companies can operate on larger tracts of protected land;
  5. Out-buildings can be rented for winter storage.

Don’t be restricted to operating a seasonal museums or lecture series as revenue generating activities. Consider all the social, experiential, physical, financial, cultural, and human capital in your organization/community that could form the basis of a successful business venture.

08. Running a social enterprise sounds hard. Why would I want to do this?

In short: Unrestricted revenue.

Running a business is indeed hard work. And time consuming. And potentially risky. And for many, a new set of skills may be required. However, writing grant applications and building a sound fundraising program is also hard work, and can be an incessant task fraught with risk and disappointment. Moreover, grants are tied to specific outcomes, and rarely cover “overhead” costs that are a fundamental part of running any organization: administrative salaries, utilities, promotions and branding, or other general costs. It is true that social enterprise may not necessarily be the best option for all situations, but it is a useful tool to consider in a strategic plan that would benefit from un-earmarked revenues that can be spent at the discretion of the organization to support a heritage property restoration or operation.

09. Can we have a modest social enterprise and still apply for grants?

Absolutely. Many organizations rely on both a fundraising/grant-writing program AND sales and earned revenue. This strategy offers safety through diversification. Social enterprise is a tool that can be used with other tools to create social change or social benefit. However, this bifurcated strategy can be incredibly cumbersome and unsustainable (particularly in family or volunteer-driven organizations where the key stakeholders are aging). Moreover, the skill sets to run a business and to solicit donations or grants are not always the same, which can result in either a weak fundraising program, or a perpetually struggling business.

Social Enterprise Tips

There are many elements to running a successful business, and the choice to embark on a journey to create a business that supports a social objective can be a bold endeavor, especially for the uninitiated. Nonetheless, it is wonderfully rewarding if you can affordably create and sell a product or service that somebody wants to buy. If those sales simultaneously fulfill or further your social mission (education, employment, historical preservation, cultural awareness…) then social enterprise is a worthwhile option to consider. Here are a few tips for those just considering social enterprise.

01. Know your cost structure.

If you understand your current expenses on infrastructure, staff, maintenance and other costs, it will help determine the scale, scope and price structure of a future business endeavor.

02. Engage the right skills.

If nobody has the skills and/or interest to conceive, plan, or run the business, it will fail. Consider planning the business to create sufficient revenue to pay for a business manager or an operations staff person that will bring the right skills to the revenue generating job. If you need help with planning, financing, marketing or operations, consider making a modest investment in a social enterprise consultant’s time to help. A professional in any field can help save you time and money in the long run.

03. Don’t just start selling stuff.

Take the time to consider the best possible investment in a business venture. Learn about competitors, collaborators, trends, and opportunities in that industry. Make informed choices about investments of money, time, and other assets in the new venture. You don’t have to paralyze yourself in a planning labyrinth, but do consider the key factors that will affect your business success and impact.

04. Be patient.

The business won’t likely create massive financial returns in the first year or two. There may be time when you are spending money and don’t immediately see when you will be making money to compensate. Building an iterative plan helps to set realistic interim benchmarks to help you gauge your success during design, investment and launch.

05. Make choices that maximize social impact.

There are many business ideas, and there may even be many viable business ideas that you’ve considered. Be sure to choose the idea that has the greatest net benefit to achieving your social mission in society, be that environmental, cultural, recreational, historical or otherwise.