For most not-for-profit organisations, entrepreneurship is in their DNA. After all, to approach a complex problem and put in place a sustainable and scalable solution, with the variables of people, finances and regulation, requires entrepreneurial thinking and delivery ability of the highest order.

So it should come as little surprise that many NFPs, especially larger, established NFPs, operate social enterprises alongside their funded activities. However, some newer and smaller organisations are looking at ways that social enterprises can help them achieve their missions, while also creating untied revenue. Those NFPs yet to launch a social enterprise may want to consider doing so. We are pleased to offer some advice on how to get started.

When we talk about a social enterprise, also known as a social venture, we are referring to activities that have three qualities: they are led by a mission consistent with a community benefit, they derive a substantial proportion of their income from trade and they reinvest most of the surplus in fulfilling their mission.[1]

Social enterprises lead to community outcomes, generate free resources to invest in their work for clients and directly tackle important social challenges. For example, many social enterprises achieve important outcomes for clients, deliver pathways to employment and provide meaningful connection and occupation through volunteering.

According to the Victorian Government, social enterprises employ people with disability and female managers at twice the rate of mainstream small businesses, draw 12 per cent of their workforce from among long-term unemployed people and have 2 per cent of their employees being Indigenous Australians.[2]

The times are right for NFPs looking to start new social enterprises or expand their existing ones:

• Consumers are keen to make ethical consumption decisions. For decades a subset of consumers has been strongly motivated by ethical questions in their purchasing decisions, but now a large mass of consumers is in that category, driven by greater awareness of the impact of their decisions on the world around them. Social enterprises, by definition, deliver ethical products and services. Ethical living is identified by Euromonitor as a key megatrend through 2030, with retail sales of Ethical Labels reaching $620 billion in 2015.[3]
• Consumers have greater confidence in the quality of goods and services. Consumers no longer fear they will sacrifice quality when they purchase from a social enterprise or that a company is using the tag unfairly. The maturing of the industry means the supply chain can be of high standard, giving consumers greater confidence. For example, Social Traders recently introduced an official social enterprise certificate.
• Government policies are supporting social enterprises. Governments are increasingly aware of community support for social enterprises, so are putting in place policies that support commercial activities among not-for-profit organisations. For example, the Victorian Government recently launched Australia’s first social enterprise strategy and a Social Procurement Framework to increase purchasing from these organisations.

There are three archetypal models for social enterprises

Every NFP needs a strategy to capitalise on the benefits to sustainability and mission of growing interest in social enterprises. Leaders need to find the right model for their organisation.

There are three archetypal models to select from:

Prioritise a strengths-based approach to develop a social enterprise

Working out which of these strategies best suits a given not-for-profit can be challenging. The best way to consider the question is to look at the existing strengths of the organisation. A strengths-based approach involves not-for-profits thinking about what they are best at, and creatively seeking opportunities to commercialise their unique strengths.

An NFP’s core business should remain its services and programs; capabilities, operations, culture and license to operate ought to remain geared towards services and programs. To launch a venture that shifts beyond this can lead to execution problems, erode goodwill and distract managers from their primary activities.

Once an NFP leader has selected a social enterprise model, there are three major steps to undertake to develop a strategy.

Firstly, they need to set the scope of their enterprise to protect brand and drive mission. To do this it is essential to engage stakeholders to identify any non-negotiable boundaries, including financial investment and expected return, product and service scope and target customers.

Secondly, they need to undertake an analysis of internal strengths – including partnerships, resources and capabilities – that can be the basis for commercialisation.

Thirdly, they need to discover a business concept creatively and inclusively. This will involve connecting with stakeholders, managers and leaders to rapidly discover a business concept that can commercialise existing strengths, ready for further analysis and development.

Doing this without guidance can be risky, so a partner that understands the needs of an NFP and the commercial realities of social enterprise can maximise the chances of success.

Get in touch with the Nous Venture Services team to help your not-for-profit develop a social enterprise.

Written by Michael Kron during his time as a Nous Director.

[1] These are the characteristics put forward by Social Traders, a not-for-profit organisation that brokers relationships between social enterprises on one hand, and business and government buyers on the other.

[2] Map for Impact: The Victorian Social Enterprise Mapping Project 2017

[3] Megatrend Analysis: Putting the Consumer at the Heart of Business, Euromonitor International, 2017