Selling goods or services to fund a social cause is nothing new, but there has been a recent surge in charities considering the social enterprise model as a means of surviving and thriving in the age of austerity.
Social enterprises trade to tackle social problems or improve communities or the environment. They sell goods and services in the open market, then reinvest their profits back into the business or the local community.
“Because of austerity and difficulties in securing funding, charities have had to look at innovative ways of raising money,” says Amy Brettell, Head of Charities and Social Organisations for Zurich. “Charities have become more commercial, with an increasing shift from a funded model to an income-generating model, and this trend is likely to continue.”
Risk and reward
While necessity may be driving charities to become more commercially oriented, there is plenty of evidence that social enterprise can reap rewards – with some surveys suggesting UK social enterprises have outperformed mainstream SMEs.
However, charities contemplating a move into social enterprise must consider a new and complex set of risks. For example, a charity that adopts the social enterprise model to sell a product could be held liable if a customer is harmed.
Reputation is another important consideration. “When you pay for a product or a service, you expect a certain level of quality,” says Amy. If a customer is dissatisfied with a product, the charity’s reputation could suffer, but if the product caused illness or injury, the reputational damage, on top of a potential liability claim, could be greater still. This could also have knock-on consequences to the support for a charities core purpose.
A social enterprise that provides expertise or advice may also be exposed to different risks, for example the threat of legal action if the advice it gives is incorrect.
Talk to the experts
Learning from others who have already made the transition to a social enterprise model is the best way to start the process, says Amy. “If I was in your shoes, I would be talking to peers who have done this. You could also talk to commercial organisations you have a good relationship with.”
Peter Holbrook, is Chief Executive of Social Enterprise UK, the industry body. He says he is seeing more and more charities use social enterprise as a way to stabilise their financial flows and find new ones, and also as a way to create a transformative impact on people that need support and help.
“For a charity, becoming a social enterprise isn’t for the faint hearted. It isn’t easy and you have to work hard, learn quickly to understand, evolve and develop the model in order that it can work, “ he says.
“It is no different from running a business. And like any business, you have to really think through the business model and business plan. You need to consider what is happening in the market that you are selling into, what sort of barriers there might be in terms of moving into a market and what sort of margins you might expect, as well as doing all of the due diligence.
“It is a challenge, but the rewards can be absolutely incredible – and the trend towards social enterprise is growing, across the UK and emerging all around the world.”
With a proper understanding and careful management of the risks involved, charities can be well placed to take advantage of the “fantastic opportunity” offered by social enterprise, says Amy.
“There are some great social enterprises all over the country, from the Big Issue to Jamie Oliver’s Fifteen Cornwall restaurant and the Eden Project,” adds Amy. “Social enterprise offers a fantastic opportunity, not just for charities and for businesses, but for society as a whole.”
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