failure in social enterprises -...
TRANSCRIPT
ResearchpapercommissionedbySEEChangeMagazineandconductedbyMBAstudentsatRotmanSchoolofManagement,UniversityofToronto:
SamanthaRykaszewski,MarieMa,andYinzhiShen
FailureinSocialEnterprises
“Failureissimplytheopportunitytobeginagain,thistimemoreintelligently.”HenryFord
Spring2013
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TableofContentsIntroduction .................................................................................................................................................................................3
Method............................................................................................................................................................................................3
Definitions.....................................................................................................................................................................................4
WhatisaSocialEnterprise/Entrepreneur?.............................................................................................. 4
WhatDoesSuccessLookLike? ............................................................................................................................................5
WhatDoesFailureLookLike?..............................................................................................................................................6
ExternalReasons........................................................................................................................................................................7
LackofLegalSupportinCanada .............................................................................................................. 7
LackofaUnifiedMeasurementforSocialImpact ................................................................................... 8
LackofExternalFunding .......................................................................................................................... 8
LimitedAccessforEarly‐StageSocialEnterprises .................................................................................... 9
InternalReasons ..................................................................................................................................................................... 11
GeneralReasons .................................................................................................................................... 11
InabilitytoGetThroughtheFundingGap.......................................................................................... 11
NoSolidBusinessModel .................................................................................................................... 14
InabilitytoBalance“JustDoIt”and“ThinkThroughIt“ ................................................................... 18
InabilitytoThinkInnovatively ............................................................................................................ 19
MistakesandIssuesIdentifiedToLate .............................................................................................. 21
InabilitytoHiretheRightPeopleintheRightRoles .......................................................................... 22
SpecificReasonsforFailure ................................................................................................................... 25
MentalModelIssue ........................................................................................................................... 25
BalanceProfitandSocialImpact........................................................................................................ 26
Conclusion.............................................................................................................................................. 27
WorksCited&Appendix ..................................................................................................................................................... 28
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FailureinSocialEnterprisesIntroduction
The term failure is not exclusive to the for‐profit sector. In the field of social
entrepreneurship failure occurs just as often. The only difference is that no one is
talkingaboutit.What'simportanttorecognizeisthatonecanlearnasmuchfromthe
failuresofsocialenterprisesasfromtheirsuccess.
Withalackofacademicandcase‐basedresearchonsocialenterprisesthathavefailed,
thegoalof this researchpaper is to investigateand reporton theunderlying reasons
whysocialentrepreneursfailandtoprovidesomeinsightsintowhytalkingaboutfailure
isbeneficial tobothcurrentand future socialentrepreneurs.By identifying the issues
social enterprises face, we can pinpoint overlapping commonalities among social
entrepreneurialstoriesthatunderlietheirfailure.
First,wewill clarify thedefinitionsof “socialentrepreneur”and“socialenterprise”as
well as define, in the most basic sense, what success and failure in social
entrepreneurshiplooklikeforthepurposeofthisreport.Wewillthencomparethatto
thestandarddefinitionof failureforfor‐profitbusinessentrepreneurstofurthershow
thedistinctionbetweenthenot‐for‐profitandfor‐profitsectors.Becausethisfieldasa
wholehasfocusedalmostexclusivelyonsuccessstories,thisresearchwithinthesocial
sectorwilladdvalueinanareathatlackstransparencyandacademicresearch.
Method
The method used for this research was qualitative interviews. The specific approach
usedwas the General Interview Guide. This style of interview is farmore structured
than an informal conversation approachbut still allows for flexibility in the questions
and thedirection theconversation takes (DanielW.Turner,2010).Thisapproachwas
chosenbecauseofthesensitivityoftheresearchtopicandbecauseitallowsinteraction
withintervieweesinarelaxedandinformalmanner.Thisprovidesanopportunitytodig
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deep and draw out their in‐depth experiences through structured questions. This
informal approach enabled the team to build rapport with the interviewees so that
probingquestionscouldbeaskedwithoutindividualsfeelingdefensiveorthreatened.
Weapproachedmorethanthirtysocialentrepreneursandenterprisesintheindustryto
participate in our research and secured twelve interviews in total (six social
entrepreneurs/enterprises and six industry professionals). The value in including the
industryprofessionalsisthat,althoughtheymaynothaveexperiencedfailurefirsthand,
theycanprovideanunbiasedopiniononwhyanorganizationfailedandthelessonsto
belearnedfromthatexperience.
Definitions
WhatisaSocialEnterprise/Entrepreneur?
A consistent definition of a social entrepreneur seems to be a continuous work in
progress.Thereareseveralwell‐articulateddefinitionsoutthere,buttheseseemtobe
merelyopinions. Fromthe interviewsweconductedand thenetworkofprofessionals
wehavespokento,wehavefoundthatthissector isstillverymuchin its infancyand
thereforethetermsthatdescribethedifferentpiecesarestillbuildingconsensuswithin
theindustry.Thecommondebatewhendefiningwhatasocialentrepreneurisseemsto
stemfromwhatitincludesandwhatitexcludes(for‐profitbusinessmodelsvs.not‐for‐
profitbusinessmodels,etc.)andtheunwillingnessofindividualstobroadenorbemore
specificintheirdefinition.
For thepurposeof this research,wehaveacceptedthedefinitiontheCanadianSocial
Entrepreneurship Foundation has coined: a social entrepreneur is someone who
“recognizes a social problem and uses entrepreneurial principles to organize, create,
andmanageaventure tomakesocial change (a social venture)” (TheCanadianSocial
EntrepreneurshipFoundation,2010).AnalternatedefinitionfromTheSkollFoundation
is that social entrepreneurs are “society’s changeagents: creatorsof innovations that
disruptthestatusquoandtransformourworldforthebetter”(TheSkollFoundation,
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2012). For this paper, we suggest that the term "social entrepreneur" refers to the
pursuitofprimarily(thoughperhapsnotexclusively)socialgoalsthroughafor‐profitor
entrepreneurialstructureandlens.
Thedefinitionof“socialenterprise,”bycomparison, is farmorecomplex.Thegeneral
understandingofasocialenterpriseisthatitmaintainsafor‐profitbusinessmodelthat
ismotivatedbythesocialvalueitgains.Theideaisfortheoperationsofthebusinessto
achieveasocialmissionwhileturningaprofit.Thisprofitisuniquetosocialenterprises
in that it enables them to be sustainable, compared to a traditional nonprofit that
dependsongrantsandfundraisingtosurvive.Profitsareeitherreinvestedbackintothe
socialenterprisetoscaleitsimpact,orreinvestedinitsaffiliatednonprofit.
Insummary,socialenterpriseisaboutthebusinessmodel,andthesocialentrepreneur
isabout the individualwithan innovative idea.To furtherclarify, socialentrepreneurs
can start up a social enterprise but not all social enterprises are started by social
entrepreneurs.
WhatDoesSuccessLookLike?
Before defining what failure looks like, it is valuable to look at the measurement of
success for social entrepreneurs/enterprises. As mentioned previously, social
entrepreneurs are just one version of an entrepreneur. They are entrepreneurs who
pursueacentralsocialmission.Forsocialenterprises,thesocialmissionisatthecentre
of the business, with income‐generation playing an important supporting role. Thus,
mission‐related impact becomes the central criterion, not wealth creation.Wealth is
justameanstoanendforsocialentrepreneurs/enterprises(Dees&Marion,1988).
A successful social entrepreneur/enterprise aims to build a profitable, self‐sustaining
companythatalsoaccomplishesitspredefinedsocialgoals.Thesecharacteristicsarein
contrast to that of a for‐profit entrepreneur, who most commonly measures
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performanceintermsofprofitandreturn.Thus,althoughthedefinitionisnotconcrete,
themainaimofsocialentrepreneursistopursuesocialgoalsandcreatesocialimpact.
It’salsobecomingmoreandmoreofanecessitytofindawaytomeasureandcompare
the impactofsocialentrepreneurship.Ina for‐profitbusiness, trackingperformance is
simple ‐ through profits. This enables businesses tomeasure their success aswell as
benchmark themselves incomparison toother similar companies. Incontrast,on the
social side, where do you even start? Is it measuring lives saved? Diseases treated?
Althoughit iseasytomeasuretheeffortbeingexpendedbysocialentrepreneurs, it is
farmorecomplextotrackthedirectimpacttheiractionsarehaving.Sincethefieldhas
yet to establish a common understanding of “social impact” ‐ what it is and how to
measure it ‐ thedefinitionof“impact”variesfromorganizationtoorganization,which
doesnotallowforbenchmarkingorcomparisonacrossenterprises.
WhatDoesFailureLookLike?
Simplyput,failureshouldbethedirectoppositeofsuccess.Withthatsaid,failurewould
be classified as the inability to build a profitable, self‐sustaining company that
accomplishesitspredefinedsocialgoals.However,thisdefinitiondoesnotprovidethe
metricstomeasurefailureinrealisticterms.
First, it is extremely difficult tomeasure social goals and,more specifically, to define
whether or not a social targetwas successfullymet. This is due to the imprecise and
subjectivescienceofmeasuringsocialimpact.
Second, if the social goals andmission are valued so highly by social entrepreneurs,
should any deviation from thatmission be considered a failure? In a Skoll report on
measuringinnovationi,itwasarguedthat"aprojectmaybeconsideredsuccessfuleven
ifitdoesnotmeetitsoriginalgoals;however,asbothpartiesexhibitareadywillingness
to change direction as events unfold.” They also suggest that, in keeping with the
emphasisonscale,ratherthantypeofsocial impact,aprojectthatmateriallybenefits
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manypeoplewilllikelybejudgedasuccess,evenifthebenefitisdifferentfromtheone
originallyintended(Kramer,2005).
Forthepurposeofourresearch,webelievethatanenterprisecanfailintwoways.First,
itcanfailfinancially,meaningitisunabletogenerateenoughrevenuetostayafloatand
isforcedtocloseitsdoors(bankruptcy,etc.).Thesecondtypefailssocially.Itcaneither
failtobuildarevenuestreamtobackasocialprogram,orfailtodesignasocialprogram
thatachievestheenterprise’ssocialgoals/missions.
ExternalReasons
LackofLegalSupportinCanada
Essentially,asocialenterpriseisahybridofabusinessandacharity.Unfortunately, in
Canada,thereiscurrentlynospecificlegalforumforsocialenterprises.Theyhavetobe
consideredeitherabusinessoracharity,anduse thatparticular legal structure,even
thoughneitherstructureperfectlyfitstheirorganization’sgoalsandneeds.
UnlikeCanada,intheUnitedKingdom,therearelegalstructuresinplacetoassistsocial
enterprises,suchastheCommunityInterestCompany(CIC).TheUnitedStateshasLow‐
ProfitLimitedLiabilityCompanies(L3Cs)thatembraceandfacilitatetheso‐called“third”
sector.
NabeelAhmed,themanagingeditorofSocialFinance.caatMaRS,ranksthislackoflegal
forumasthemostimportantexternalissuecurrentlyfacingsocialenterprises.Thisissue
“bringsa lotofuncertainties,”hesays. Iftheychoosetobeacharity,theycan’tmake
any profits, and if they choose to be a business, there are no tax credits and it is
significantlyhardertoaccesscapital.Asaresult,socialenterprisesthatputtheirmission
firstandprofits secondhave tocompetewith regular limited liability companies (LLC)
forinvestments.Theirsocialimpactishardertoquantifyandthereturnoninvestment
maynotbehighenoughtocovertheircosts.
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LackofaUnifiedMeasurementforSocialImpact
Socialmetrics or impact performancemeasurements are difficult to identify, quantify
and measure. Imagine, for example, how you would measure “goodness”. Although
severalresearchersproposedifferentsocial impactmetrics,nocommonmeasurement
tool isuniversallyagreedupon.This is ahugeobstacle for social enterprises trying to
provetheirperformancetofundersandimpacttocustomers.
Social enterprisesarealsoatadisadvantagewhencompetingwith regularbusinesses
for investments. In terms of financial return and social return on investment, social
enterprisesstruggletofindameasurementtoolthatwillallowthemtobenchmarkand
comparethemselvestotheirpeers/competitorsintheirrespectivefield.
LackofExternalFunding
Canada’s social sector remains undercapitalized relative to the needs and pressures
placedonit.Thesupplyofsocialfinanceincludesloanfunds,equityinvestment,patient
capitaland,insomecases,grantsthatattractnewcapitaltothetableorenableasocial
enterprise to shift to sustained profit generation. A 2010 report by the Canadian
TaskforceonSocialFinancestatesthattherearecurrentlyat leastthirtysocialfinance
investmentfundsinCanada,butmostareunder$1Minassetsandfocusonarelatively
narrow range of impacts. However, as referenced in this report, a review of existing
literaturesuggeststhereissignificantdemandformorestart‐upandgrowthcapitalfor
social enterprises across Canada, with estimates ranging from $450 million to $1.4
billion(CanadianTaskForceonSocialFinance,2010)ii
Ahmedalsopointsoutthatitishardforsocialenterprisestoapplyforloanssincemost
Canadian banks are relatively risk‐averse. Some alternatives, like crowdfunding (an
onlinesalesplatformusedtoraisemoneyfromnumerouspeopleinsmallamounts),are
accessible in the United States and the United Kingdom but are still quite limited in
Canada. The innovative nature of social enterprise requires matching financial
innovation and a customized financial sector that is different from existing financial
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products and instruments. However, the relatively smallmarket size results in higher
overhead cost as a percentage of financial return. Financial institutions and
intermediarieshavelessincentivetotakeontheinitiative.
LimitedAccessforEarlyStageSocialEnterprises
Ifyouareasocialenterpriseintheearlystagesofstartingup,thechallengesyouface
aregreat.A2008surveyofnearlyathousandsocialsectororganizationsbyCommunity
Wealth Ventures Inc. and the Social Enterprise Alliance found that foundation grants
werethemostcommonsourceofstart‐upcapital(CommunityWealthVentures,Social
Enterprise Alliance and DUKE, 2010)iii. However, the criteria most foundations use is
extremelystrictforstart‐upsocialenterprises.Typically, foundationsrequirethestart‐
upstoeitherhaveregisteredcharitablestatusordemonstratethattheyhaveaproven
trackrecordthroughtheprovisionoffinancialstatements.
KanikaGuptaisthefounderofSoJo,anearly‐stagesocialenterprisetechnologystart‐up
incubated in Ryerson’s Digital Media Zone. She has been closely monitoring the
resourcesandfundingoptionsavailableforthepasttwoyears.Althoughtherearelots
ofcompetitionsandawards,shefoundthatactuallygettingthefundinghasprovento
be incredibly difficult. In an article in SocialFinance.ca she says, “there's big talk, but
early‐stagesocialinnovationfinancingisvirtuallynon‐existentinCanada.”Shebelieves
that, “it’s contradictory (and counter‐intuitive) to demand that applicants fit into
traditional organizational structures, when innovation is all about starting something
new(Gupta,2012)iv”.
CaseStudy:Thecriteriaforfundingarespecificandstrict
Zehra Abbas, founder of Youth Troopers for Global Awareness (YTGA), expressed the
same concerns. YTGA is a youth‐led not‐for‐profit organization that mobilizes and
empowersyoungpeopleforsocial justicethroughworkshops,campaignsandthearts.
Theorganizationaimstoprovideaplatformforcriticalandcreativethinkingaswellas
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self‐expression. In Mississauga, Ontario there are limited places available for Youth
Trooperstomeetandwork.InordertoprovideyoungpeopleinMississaugathesame
resourcesthatareavailableinToronto,ZehraandYTGAhavebeenworkingtocreatea
socialenterpriseinMississaugacalledStudio89.It’sexpectedtobethehubforyoung
peopletocontinueYTGAactivitiesandtobringinmoneytobecomeself‐sustainable.
With regard to funding, it took Abbas almost two years to finally get themoney she
needed.Shesaidthat,“wehadalonglistofgrants,butwehadtocrossmostofthem
off.”TherearemanyfunderswhoonlyfocusonprojectsintheCityofToronto,makinga
project inMississaugaineligible.Therearealsomanyfoundationsthatrequireaudited
financialstatements,butthefeeisveryexpensiveforstart‐upsocialenterprises.
Abbasalsohadtowaitalongtimetohearbackfromfoundationsabouttheirstatus.“It
tookusfourmonthstofindoutwhetherwegottheseedfundingornot,”sheexplained
ofonesituation.“Weappliedandfourmonthslater,wegotdeclined.Weappliedagain,
waitedanotherfourmonthsandgotrejectedagain.Easily,oneyearisgone.”Thereare
other grants that have six‐month waiting periods. Based on these timelines, it is
extremely hard for early‐stage enterprises to survive without money during the
applicationperiod.
Abbas also told us that they put all of the small amounts of corporate funding they
receivedintheinterimintotheirnewapplication,waitinguntilthefoundationagreedto
supportthem.Shefeelsthatfoundationsshouldbasetheirdecisiononthedemandfor
theprogramrather thanadhering strictly topredetermined fundingcriteria. She feels
thatit’slike”waitinguntilmostoftheworkisdone.”
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InternalReasons
GeneralReasons
InabilitytoGetThroughtheFundingGap
Asmentionedabove, the limitedavailabilityofgrants forstart‐upscauses lowsuccess
ratesofapplications.Itisnotraretoseeafundinggapforsocialenterpriseswhenthe
grantapplicationdoesnotgetaccepted.
CaseStudy:GrantApplicationRejectedandFundingGapFaced
MilesDepaulisthedirectorofSustainabilityCoLabatSustainableWaterlooRegion.He
leadsresearchintohowtobestscaleuptheimpactofSustainableWaterlooRegionin
othercommunitiesacrossCanada.Theresearchincludesengagingpartners,supporters
and funders tocollaboratively launchanewnational‐levelentity.Thisentity’smission
willbetoenablecommunityleaderstodevelopprogramstoadvancetheenvironmental
sustainability of organizations by creating a collaborative learning network across the
country.
Inrecentmonths,Depaulhasbeenfacedwithafundinggapbecauseagrantapplication
that would have provided him with the necessary funds was rejected. It’s been
frustrating, he shares. “Sometimes when you think you have things figured out, you
don't,andyoudonotfindoutuntilyougettherejectionfromthefoundation.”
Depaul tried to determine the reasonwhy they did not get the approval. Their team
workedcloselywith theOntarioTrilliumFoundation to figureouthowto reapplyand
tinkertheirmodel.Throughtheprocess,thegrouprefinedthemodelandfocusedmore
onthemajorbusinessconceptsandscalingbackthenumberoftargetedcommunities.
Depaul andhis team reapplied for thegrant thispastNovember,hoping to get spark
fundingfromfoundationsthatwillsupporttheirorganizationforthefirsttwoyears.At
that point, they expect to be charging membership fees and will be able to offer
consulting services to communities to help them become self‐sufficient. This is their
strategytoavoidfurthersetbackswhenitcomestofunding.
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Suggestions:
YouNeedToRecognizeWhenYouAreWrong
Depaulsharedtwolessonslearned.Hebelievesyouneedtoadmitsetbacksandensure
youasktherightquestions.
There are some grant candidates who simply submit the same application again and
againwhenrejectedbythefoundations.Hesuggestsworkingcloselywithfundadvisors
to find out the reasonswhy your applicationwas rejected. “We really prioritized this
(thecommunication)whenwerealizedthatwedidnothavethisfiguredoutanddidnot
havealltheanswers."
Whenyouadmitfailure,youareabletostepbackfromthesituationandseesomenew
toolsyoucanuseandnewpeopletocontactforhelp.Afteradmittingfailure,ideasthat
somecontactshadrecommendedtoDepauleightmonthspreviousnowseemedmuch
moreattractive.Asaresult,heiswillingtotrynewroutesandreconnectwithpotential
contacts.Hetalkedtoalotofadvisors,academicsandleaderswhoknowthisindustry
well.“Setbacksareanopportunitytoinnovatedifferentlyagain,”hesaid.
Depaul knows some entrepreneurs who only look to themselves to figure out the
problems anddonot have anopenperspective.He thinks thingswouldbe easier for
socialentrepreneurs/enterprisesiftheyjustleavethecomfortzoneoftheirofficesand
have conversations with groups of people who have faced or are facing similar
challenges. It is an opportunity for everyone to learn from each other's success and
failure.
Second,Depaulbelievesyouneedtostepbackandreassesswhetheryouareaskingthe
rightquestions.Itisveryimportanttoidentifytheproblem.Hisruleofthumbis“ifyou
spend one hour to solve a problem, fifty‐fiveminutes are used to come upwith the
problemandfiveminutestocomeupwiththesolution.”Histeamstartedwithawhite
boardtodeterminetheproblemorresearchquestion.
In their case, aftermuchwork, their problemwas redefined as, “how to change the
cultureofbusinessincommunities.”Priortobeingrejected,thequestionwas“howto
scaleupSustainableWaterlooRegion,”whichendedupbeingthewrongquestiontoask.
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Thisnewperspectivehelpedthemfocusontherightbusinessforthem‐‐carbonmission
reduction.
MatchtheDifferentRiskAppetitesforSocialEntrepreneursandFunders
Depaulalsobelievesanother issue is funders’unwillingness toallow for failure in the
socialentrepreneurshiprealm(comparedtothefor‐profitworld,whichassumesa90%
failure rate). A new idea that is not dangerous is not a new idea, some say. The
recipientsoffunding(SustainabilityCoLabinthiscase)oftenchoosetotakeonalotof
riskbecauseofthelackofresourcesallocatedtotheresearchanddevelopment(R&D)
phase,while fundersprefernot to takeany riskdue to the limited resourceson their
end.
Moving forward, Depaul hopes that the two sides canmeet in the middle, whereby
funding recipients take the necessary time in the R&D phase and funders take the
necessaryrisk,toensuretrulygreatandinnovativeideasarefunded.
FollowtheStart‐UpModelwhenDealingwiththeFundingGap
JeromeKisting,manager of the Toronto Enterprise Fund (TEF), suggests following the
tech start‐up principle of measuring the cash‐burn rate and keeping this as low as
possibleduringthefundinggap.Hebelievesyoushoulddothingsquicklyandmovefast
torunyourbusinessasleanaspossible.Forexample,hirepart‐timestaffbeforeyoucan
generateincome,ifpossible,givenyourtypeofenterprise.Youdonotneedtowaitfor
everythingtobeinplacetostartsellingproducts.Youdonotneedtobuildsomething
big before you get a sense of howmuch demand there is for your product. Thomas
EdisoncoinedthePrincipleofAcceleratedFailure,whichmeanstryingthingsasquickly
aspossible.Ifyoufail,tryagainandagain.Byfailingquickly,youincreaseyourchances
ofultimatesuccess.
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ConsidertheRejectionasPartoftheJourney
Kistingsaidrejectionispartofthejourneyindevelopingasocialenterprise.Youshould
askalotofquestionsandtrytolearnhowtodothingsdifferentlythenexttimearound.
Besides,whenyouapplyforagrant,youtypicallyreceiveaccesstofreeworkshopsthat
equipyouwithbusinessknowledge,andadvisorswhoprovideconsulting services.He
encourages all applicants to leverage those free resources. He also mentioned that
manysocialenterprisesgetfundedonthesecondtry.
NoSolidBusinessModel
TheImportanceofHavingaSustainableBusinessModel
Whensocialenterprisesstartupanewsocialbusiness,theytypicallyneedseedcapital
thatcanberaised through fundraisingorganizations.But,as the fundingenvironment
becomestight,externalgrantscan’thelptosustainasocialenterprise for long. Most
professionalsinourinterviews,likeVickiSaundersandAssafWeisz,thoughtthehybrid
structureofhavinganormalbusinessandinvestingthemoneyearnedtorealizeasocial
goalcouldbeafuturetrend.
A solid businessmodel is a guarantee for a social enterprise to generate sustainable
revenue.InourinterviewwithJeromeKistingatTEF,webegantounderstandthegoal
ofmost fundingorganizations.Theyarenota treasuryvault thatprovidespermanent
grantstosocialenterprises.Onthecontrary, theirgoal is tohelpsocialentrepreneurs
start up their business, implement their plan and ultimately realize a self‐sustaining
model.AccordingtoKisting,somesocialentrepreneursover‐relyongrants.Theyfocus
on the fundraising competition, rather than looking for independentways to support
themselvesandbesustainable.
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CaseStudy1:ChangingSocialBusinessModels
Assaf Weisz is the co‐founder of Venture Deli, a social venture capital company in
Toronto. In 2008, Weisz was one of the founders who established Young Social
EntrepreneursofCanada(YSEC).ThemissionofYSECwastoigniteanationalmovement
ofyoungsocialentrepreneursinterestedinthealignmentofpeople,planetandprofit.
Theyofferedarangeofservicesdesignedtosupportentrepreneursbetween17and30
years old who were starting or running social enterprises. Major services included
workshops of practical education, business planning, customized consulting, and
personalizedfinancialmanagement.Theorganizationstartedveryrapidlyandexpanded
to thousandsofmembers.Theyreceivedoriginalgrants fromtheLaidlawFoundation,
theMinistryofCitizenshipandImmigrationandotherpublicorganizations.
However, the initial social business model didn’t generate sufficient revenues, while
occasionalgrantswereunabletosupporttheexpenditureofsuchalargeorganization.
When there was only three months left before the crisis of a funding shortage, the
organization worked out a plan whereby it charged every member service fees. The
socialbusinessmodelhelpedtogeneraterevenuesformorethantwoyears.Revenues
grew,butnotfastenough.
The challengesWeisz facedwith YSECempoweredhim to change the social business
model and find some novel ideas to improve the sustainability of the organization.
VentureDeli has its Purpose Capital, a business line that provides impact investment
strategies to investors. Fundraising services also provides a stable revenue source for
theneworganization.
Weisz hasmade good use of the client base established in YSEC.He figured out that
manyCanadianentrepreneursfocustoomuchonsmallissueslikemakinganapplication
orpickingacolouronabox,but fail toconcentrateonthebigpicture. Helpingthese
socialentrepreneursaltertheirwayofthinkingisoneofVentureDeli’smissions.Weisz
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isagreatexampleof theadventurous leaderswhoare interested in socialbusinesses
successfullyfindingalong‐termsustainablemodel.
CaseStudy2:St.JohnBakery’sLegendaryStory
JeanetteCampbell,seniormanageratTEF,mentionedanotablestoryregardingasocial
enterprisethattransitionedfromneedingcontinuousfundingtobeingself‐sustaining.St.
John‘s Bakery is a social enterprise business on Broadview Avenue in Toronto,
specializinginhandmadeFrench‐styleorganicbreadwithorganicfloursandall‐natural
ingredients from localsuppliers.Theorganizationwas fundedbyTEF forseveralyears
beforeitfinallyfoundalong‐termsustainablebusinessmodeltosellspecialhandmade
bread,whilealsohelpingtosupporttheexpendituresoftheorganization.
Suggestions:
Whatkindofbusinessmodelshouldsocialentrepreneursbuild?Oursuggestionisthata
socialenterpriseshouldfindabusinessmodelthatissuitableforitsscaleandbestfits
itssocialgoal.Agoodbusinessmodelcouldhelpasocialenterprisebesustainableinthe
long‐term.However,noteverysocialenterpriseisabletofindabusinessfitatthevery
beginning.Manyofour interviewees faceddifferentobstaclesandeven failed in their
originalbusinessmodelsbeforeturningaroundandbecomingsuccessful.
MarketingResearchIsEssential
Many interviewees mentioned the importance of doing market research before
launching a business.We found funders and social enterprises usually have different
perspectives on what constitutes good market research. Funders thought the many
research reports that social enterprises presentedwerenot convincing enough,while
socialenterpriseshadnoideahowtomakeitcomprehensive.
JeromeKistingfromTEFtoldusthatwhenheevaluatesabusinessplan,hegoesstraight
tothemarketresearchbecausethatgiveshimanimmediateimpressionoftheextentto
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which an applicant understands theirmarket andwhether therewas a demand from
customersfortheproduct/service.Next,helookstothefinancialprojectionssectionto
see whether the findings of the market research are brought out in the financial
projections.Essentially,theideaistotrytounderstandwhatthefinancialsarebasedon,
andthedepthofunderstandingthattheorganizationhasofthemarkettheyaretrying
toenter.
MilesDepaulalsoprovidedsomepowerfulinsightonthistopic,sayingthatsometimes
“perceiveddemandmightnotbereal.”WhenDepaulandhis teamconductedmarket
researchontheirtargetcommunities,tryingtodeterminewhatbusinessservicesthey
supported,mostsaidtheywereinterestedintheideaofconsultingservices.However,
whattheysoon learnedwasthatpeopletypicallyprovidepositive feedbackwhenyou
presentthemwithsomethingyou’rehonestlypassionateabout.Theymayjustpretend
tobe interested.So it’s importanttoconsidertherisks involved inyourresearchbase
andmakereasonablestatisticalestimatesontherealdemandversusperceiveddemand.
Froma funder perspective, Kistingbelieves a survey is not adequate.Heneeds tobe
convinced thatpeoplewhowere interviewedand interested in theproductor service
wouldreallymakeapurchaseandbeareturningcustomer.“Ifyoucannottellmehow
manypotentialcustomersyoumetwithandwhatchangesyoumadeordidn’tmaketo
thebusinessmodelbasedontheir feedback, I find ithardtobelievethatthere isreal
demandforyourproductorservice,”hesaid.Wesuggestthatsocialenterpriseshandle
themarket research carefully andmeticulously. The report shouldn’t be designed for
fundersbut shouldbe conducted togaingreaterunderstandingand to grasp the real
feasibilityofyourbusinessplan.
Agoodsuggestionformostsocialenterprisesistomakegooduseofexternalresources
insocial consultingand fundraisingorganizations.Mentorship isaveryusefulpractice
that can enhance the professional skills of social enterprises and offer support for a
numberofelementsoftheirbusiness,suchasmarketingresearch,salesandoperations.
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InabilitytoBalance“JustDoIt”and“ThinkThroughIt“
Manysocialentrepreneursstrugglewithbalancing“justdoingit”and“thinkingthrough
it,” whether they should think through the whole business plan and do all of the
preparationbeforeimplementation,ortrytogetitoutearlyandusethetrialanderror
method.Somerisk‐aversesocialentrepreneursprefertogeteverythinginorderpriorto
launchingtheirbusinessbecausetheywanttopresentthebestserviceorproductsto
customersandcan’taffordtolosemoneyattheverybeginning.
From Kisting’s perspective, every dollar spent should be alignedwith the prospective
customers’ needs, as they are the key indicator of potential sales. Social enterprises
shouldusethelimitedseedcapitalwiselyandmakeproperchangesbasedonconsumer
needsandshouldavoidwastingresources.
CaseStudy:TestoutYourIdeas
Weisz has advice for the above struggle based on his practical experiencewith YSEC.
Beforelaunchingtheprogram,histeamdidaverycomprehensivefeasibilitystudythat
was both time‐consuming and expensive. However,when implemented, the program
wassignificantlydifferentfromthefeasibilitystudytheyconducted.Astrongadvocate
andsupporterofimplementingnewideasassoonaspossible,Weiszadoptsthe“justdo
it!”mantra.
From his point of view, people should never rely too heavily on the feasibility study.
When you think the business is practical, youwill feel too safe and overconfident to
implementyourplan.Thiswillcauseyouto fail tonoticeanypotential risks.Thebest
ideaistoinvestasmallamountofstart‐upcapitaltotryyourideaoutviaasampleand
thenmakequickchangesbasedoncustomerfeedback.
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InabilitytoThinkInnovatively
Severalof the industryprofessionalsandentrepreneurswespokewith felt that those
who fail as social enterprises or entrepreneurs typically lack innovative
products/businessmodels.Asocialentrepreneur’sabilitytocreateinnovativesolutions
for social change and to use business principles to build sustainable and high‐impact
initiativesisacompetitiveadvantageinanindustrythatisplaguedbysimilarinitiatives
andbusinessmodels(GordonInstituteofBusinessScience).
Thinkinginnovativelyabouthowtoimproveacommunity,increaseaccesstoeducation,
or feed the hungry enables social entrepreneurs to align their mission with tangible
outputs. This innovationcanmake thedifferencebetween succeedingand failing ina
saturated market. Ultimately, it is the customer base that makes the decisions,
rewardingthosewhocancreateandmarketsuccessfulinnovationsthat,inturn,attract
additionalcapitalandincentivetoinnovate.
But it seems to be a vicious cycle. Unlike the for‐profit industry, not‐for‐profit
companies face limitations and challenges when it comes to investing in market
research and development, due to human capital, funding and consistency issues. As
highlightedbyTheSchoolforSocialEntrepreneurs,"areasripeforinnovationmightbe
thosewhere the risk (andcost)of the statusquo ishigher than the risk (andcost)of
innovation" (Learning from failure (and social entrepreneurship), 2010). Failure drives
innovation;withoutriskingfailure,thereisnopossibilityforinnovation.
CaseStudy:ElishaMuskat,PresidentofAshoka
Ashokaisaglobalnot‐for‐profitorganizationthatsupportsleadingsocialentrepreneurs
around the world, providing them with access to pro bono consulting and other
professionalservices,andconnectingthemtoAshoka’sglobalnetworkofbusinessand
social entrepreneurs. Elisha Muskat, the president of Ashoka Canada, shared her
organization’s criteria for selecting social entrepreneurs to be Ashoka fellows.
Requirements include having new ideas, novel solutions to challenges, and long‐term
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creativity. So an important part of the job forMuskat and her team is to figure out
whichideaisthegoldenappleandhowtoimplementit.
Suggestions:Three‐ItemChecklistScottWarrenistheco‐founderandexecutivedirectorofGenerationCitizen,aventure
thataimstostrengthencivicsbyteachingyoungpeopleaboutcivicsandhelpingthose
in low‐incomecommunities identifyand fight for issues theycareabout.Ona regular
basis,Warrenisaskedforguidancebyeagerentrepreneurslookingtostartcompanies.
His typical advice to those interested inworkingwithin the not‐for‐profit sector is to
think twice. He truly believes it is extremely challenging to succeed, and there are
constantbarriersyouwillfacetobecomeasustainablecompany.
If someoneappears toWarrentobeseriousaboutstartingupandventuring into this
sector,hebelievestherearethree‐criteriathatmustbeconsidered:
ThreeCriteriatoConsider:
1. QualityoftheTeam/Entrepreneur
a. Areyouandyourteampassionate/drivenaboutyoursocialcause?
b. Areyougoingintothistomakemoney?Ifso,thisisnottherightbusiness
foryou.
i. "This is the difference between a social entrepreneur and a
businessman,"asperWarren.
2. DemandforProduct/Service
a. Isthererealdemandforthisproduct/service?
b. Areyourespondingtomarketdemandorsocialdemand?
c. Areyoufulfillingamarketneed?
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3. IsTheProduct/ServiceInnovative?
a. Areyou theonlyoneoffering thisproduct/service? Ifnot,howareyou
different/betterthanyourcompetitors?
b. What'syourcompetitiveadvantage?
c. Howcanyoudoitfaster/cheaper/better?
MistakesandIssuesIdentifiedTooLate
Everyorganization and everypersonout theremakesmistakes.Whatmatters is how
longittakesforthegrouporindividualtorecognizethemistakeandfixit.
CaseStudy:OnlinePortalforMembers
MilesDepaulwas assisting in the launchof anonlineportal for SustainableWaterloo
Region. Theportalwould allowpeople towatch videosofpast eventsor reports and
leave comments. The purposewas to offer a platform for continuing communication
amongstmembers between events. The technology behind it was great, but no one
actuallyusedit.Itwasn’tasurprisingresultconsideringtherearealreadytonsofsocial
networkingtoolssuchasFacebookandTwitteroutthere.
At first the group tried to tinker with the portal by expending more effort on its
marketing,but stillnooneused it.Depauladmitted that it took too long for themto
recognizetheissue.Theproblemwasnotthatpeoplehadnomeansofcommunication
betweentheevents;perhapstheysimplydidnotwanttocommunicate.
Suggestions:
StopInitiativesThatAreNotProducingResultsAsExpected
Depaulrecallsthattheyfeltsomethingwasoddinthedevelopmentprocess.Whenthey
piloted the portal for a few months, no one had used it. However, it was hard to
pinpointthemistakeearliersinceitwas“tooeasytodonothing.”Buthedidemphasize
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that they needed to bemore objective, and perhaps if a third party had come in to
facilitateitwouldhavebeenhelpful.
BuildaLearningCultureandFailForward
AshleyGood is the founder and CEO of Admitting Failure, an open environment that
welcomespeopletopubliclydiscussfailuretoensurethatthesesteps/scenariosarenot
repeated,andtoassistorganizationstocontinuouslylearnfromtheirownfailuresand
thoseofothers.Heraim is tohelporganizations "fail forward"andbuildways touse
failuretoimproveperformance.
Shesuggestedthatiffailureisastate–asnapshotofanegativemomentintime–to
failforwardimpliesaprocess.Itinvolvesinternalizingandadmittingthefailureandthen
creativelyandconstructivelyidentifyingthelessonslearnedandwaystoensurethatin
the future failure is less likely tomaterialize.This involvesabehaviour change.A role
model(likethefounder)maysharefailurefirsttoshowthereisnopunishmentforsuch
behaviour. Teammembers need to feel empowered to speak up. In addition, a third
partyisusefultoaskthetoughquestions,facilitatethedialogue,andhelpparticipants
seethesituation fromvariouspointsofview.Thismaximizes the learningthatcanbe
gainedfromfailure.
Goodemphasizesthatthesuitablewaytofailforwardvariesfromcompanytocompany.
Nevertheless, observing good practices in other companies can be instructive. This
includes examining the lessons that were learned, documenting the findings, and
makingthemaccessiblewhenworkingonfutureinitiatives.Afterall,failureisonlybad
whenitrepeatsitself!
InabilitytoHiretheRightPeopleintheRightRoles
Oneoftheinterestingcharacteristicsaboutsocialentrepreneursistheirabilitytowear
many hats within their organization. Not only do they care deeply about how their
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vision andmission is implemented but they feel personally invested in the outcomes
anddecisionsmade.Theissueisthattheyoftengetsoinvolvedintheday‐to‐dayofthe
organization they end up holding up the decision‐making, losing talent and creating
bottleneckswithinthecompany(Below&Tripp,2010).
Basedonourinterviews,socialentrepreneursareoftenunwillingtoreleasethecontrol
ofthecompanyanddelegatetocreateengagedandstrongleadershipteams.Butsocial
entrepreneurs need to strive to have the right people in the right roles within their
companies.Unlesstheyareabletomakethisimportanttransitionfromsolo"doitall"
micromanagingentrepreneurtothecompanychampionoverseeingthegrowthandbig
picturestuff,thecompaniestheyworkedhardtocreateareunlikelytogroworhavethe
desired social impact in their communities (Below&Tripp, 2010). Insteadof resisting
this transition and change, social entrepreneurs should be embracing it by creating a
leadership teamof qualified anddriven individuals to relieve them from someof the
dutiesandresponsibilities.
CaseStudy1:BenefitsofBuildingStrongLeadershipTeams
Claudine Labelle is the founder and executive director of Fit Spirit, a nonprofit
organizationwhosemissionistohelpteenagegirlsdiscovertheadvantagesthatcome
from taking part in physical activity, in an environment that is positive, promotes a
healthy self image and is open to everyone. Labelle is a perfect example of this
importanceofastrong leadership team.Sherecognizedearlyonthat thedemandfor
herservicewasgrowingfarfasterthansheandhervolunteerscouldmanage.Shewas
tired of fundraising from scratch each year and investing her personal funds into the
company. Labelle came toabreakingpoint. Shewasoften stressedandworried if Fit
Spiritcouldmakeit,andwasgoinglongperiodswithnopayroll.Itwasatthisbreaking
point that shemadeabusinessdecision thatwasultimately thebeginningofabright
futureforFitSpirit.
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Labellerealizedshecouldnolongerdoitallalone,soshesetobjectivestosecurelong‐
termfundingtoallowhertohireachairoftheboard.Shealsohiredstrategicallyrather
than opportunistically. This was the best decision she made, allowing her to offload
responsibilitiesandgainanewchampionwhowasalignedwiththecompany’smission
and goals, had a strong business background, and was a passionate, strong leader.
Labelle learned that success in this industry is directly correlatedwith bringing in the
right people and acting strategically. She also learned failure is inevitable if you
underestimate or overestimate your delivery. If you can get momentum through a
strongteam,fundingwillfollow.
CaseStudy2:WhatAboutSuccessionPlanning?
ScottWarren,co‐founderandexecutivedirectorofGenerationCitizen,wasfortunateto
havereceivedstartupmoneyforhisventure.Currently,themajorityofitscashflowis
fromdonations and several of these funders are borneof relationships he personally
established.From2009to2012,GenerationCitizenwent frombeingapilotproject in
fifteen classroomswith seedmoney of $50,000, to currently teaching 6,000 students
with a cash flow of $750,000. Though this may lead you to believe that Generation
Citizenhassucceededinbecomingsustainableonitsown,therealityisit’snot.
Warrenhimselfadmitsthat,althoughtheyhavedoneremarkably,GenerationCitizenis
notataplacewhereitcouldsurvivewithouthim.Successionplanningisachallengehe
facesasitispredominantlythefounderswhohavetherelationshipswiththeirdonors.
Generation Citizen is dependent on Warren. It takes a long time for a company to
becomesustainableandtransformative.Youneedtohaveachampionandbeinaplace
wheredonorsareconfident inyour leadershipabilityandabilitytoprovide.Warrenis
currentlyworkingonasuccessionplan; it'snevertooearlyforsocialentrepreneursto
startensuringthatpassionateindividualsareintherightrolestotakeonthechallengeif
everrequired.
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SpecificReasonsforFailure
Inadditiontotheaboveissuesthatmightexistinanybusiness,wesummarizetworeasonsforfailurethatarespecificforsocialenterprises/entrepreneurs.
MentalModelIssue
JeromeKistingpointsoutthatsomesocialentrepreneursstillfindthemselveswithinthe
paradigm of a grantee because some organizations are “forced” into social
entrepreneurship. Because of the economic recession, funding provided by
governments decreased considerably in the last few years. Some not‐for‐profit
organizations have had to start a social enterprise out of necessity to diversify their
incomeandreducetheriskofcuttingprogramsandstaff.
However, businesses need to develop their customer base and sell products and
services,whichisquitedifferentfromapplyingforagrant,reportingtofundersonhow
thefundswerespentandthenreapplyingwhenthefundingperiodends.Thecriterion
for fundingaprogramrunbyanonprofitoracharity isdifferent fromthatofasocial
enterprise.
Asaresult,somesocialentrepreneurscanadaptfastwhileothersstillresorttotheirold
ways.Many candidates have learnedwhat the funderwants and present their social
enterprise inawaythatensurestheyreceivefunding,buttheyareoftennotclearon
whatisrequiredforthelong‐termsustainabilityofthesocialenterprise.
Inaddition to thechallengesof changingyourmodel fromanon‐for‐profit toa social
enterprise,youalsoundergoahugeinternalshiftinthewayyouthink.Itisverytrickyto
makethistransition.
26
Suggestion:
BeOpentoLearning
ZehraAbbas,founderofStudio89,wasabletoswitchfromanon‐for‐profittoasocial
enterprise.Shesayspeopleshouldn’tbeafraidtocomeupwithanumberofbusiness
models, and conduct researchand surveysasmany timesasneeded inorder to fine‐
tunetheventure.Educateyourself ‐thiswayyourmarketingwillalsoberelevantand
moreeffective.
BalanceProfitandSocialImpact
Mostpeopleweinterviewedagreethatrunningabusinesswithasocial impactisvery
possiblyagrowingtrendinthenot‐for‐profitsector.Withthisinmind,oneofthethings
thatsocialentrepreneurshavetodowellistobalancetheirbusinessandsocialgoals.
CaseStudy1:InabilitytoBalanceSocialandBusinessGoals
JeanetteCampbellfromTEFrelatedastoryaboutherpreviousclientRiverRestaurant,a
food catering businesswith a social goal of training youth in the hospitality industry.
However,therestaurantfocusedtooheavilyonitssocialgoalsandfailedtosucceedat
itscorebusiness.Therestaurantquickly lost itscustomerbaseandhadnosustainable
revenuestream.Consequently,therestaurantwasunabletocontinueitssocialbusiness
andfinallyhadtocloseitsdoors.
CaseStudy2:OrganizationNeedsToBeFullyIntegrated
AccordingtoJenniferWilliams,CEOofLaSiembraCo‐operative,theunderlyingissuein
social businesses is balance. If a social enterprise can balance both the business and
social aspects well, they will succeed. However, if the founder only focuses on the
businessgoalsandhassomeoneelse focusonthesocialagenda, theyaredestinedto
fail.Everyoneinthesocialenterpriseneedstobefullyintegratedandonboardwhenit
comestobalancingsocialimpactwiththebusiness.
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Suggestion:
SustainabilityintheLongRunisaPriority
JeromeKistingsays,“youmayhavetotradeoffsomething;bothsocialimpactandprofit
arevitalcomponentsofyourorganizationthatcontributetoimprovingyour
sustainability.”Ifyouneedtogetintosomething,getintoitforthelongterm.However,
ifyoutradeprofitforsocialimpacttoooften,youruntheriskofhavingtocloseyour
doors,whichcouldhaveanegativeimpactonthelivesofthepeoplewhomyouemploy
andhelpinthecommunity.
ZehraAbbassuggestsgettingbothabusinessmentorandamentorfromthenonprofit
world.“Ithelpsstrikethebalanceandensuresyou'replanningbothcomponents
correctly.Theadvicecomingfromeachmaysometimesconflictbutit'simportanttosee
thingsfrombothpointsofviews.Agoodmentorwillletyoumakeupyourownmind
whilelayingoutalltheprosandconsclearly.”
ConclusionThere is still an abundance of research andwork to be done in trying to understand
failure in the social sector. Although we have provided a foundation to build upon,
additional interviews and cases are required before conclusions can be generalized
acrosstheindustry.Thefocusneedstobeonunderstandingfailure,butalsoremoving
thenegativeconnotationandstigmaattachedtoit.Failureneedstobeembracedand
socialentrepreneursandenterprisesneedtorealizetheaddedvalueinknowingwhatit
takes to thrive and succeed, based on what others have tried and where they have
failed.Thereisrealvalueinfailingandtheselessonslearnedneedtobesharedtohelp
the sector take steps forward, to progress, and to realize even greater change in the
future.
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Footnotes1VeraCordeirofoundedtheSaúdeCriançaRenascerAssociationin1991atthePublicHospitalofLagoainRiodeJaneiro,withtheaimofprovidingemergencyassistancetoillchildrenfromlow‐incomefamiliesduringandimmediatelyafterhospitalization.Renascerseekstobreakthisviciouscyclebyprovidingfamilieswiththeminimummaterialandpsychologicalsupportnecessarytofosterhomerecoveryoratleasttominimizepatientsuffering.1MobilizingPrivateCapitalforPublicGood,CanadianTaskForceonSocialFinance,Dec.2010,Page12,http://socialfinance.ca/uploads/documents/FinalReport_MobilizingPrivateCapitalforPublicGood_30Nov10.pdf1SocialEnterprise‐‐aportraitofthefield,CommunityWealthyVentures,IncandSocialEnterpriseAlliance,2009,Page10,http://www.communitywealth.com/pdf‐doc/Field%20Study%20FINAL.pdf1FundingaSocialInnovationStartup,Part1‐PaintingtheLandscapeinCanada,KanikaGupta,SocialFinance.ca,Nov7,2012,http://socialfinance.ca/blog/post/funding‐a‐social‐innovation‐startup‐part‐1‐painting‐the‐landscape‐in‐canada