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Posted by Sarah Brown on 14 Nov '12

The five top risks for a charity becoming a social enterprise

Any charity moving to income generation needs to be aware of the dangers - here are our five top risks from our experience of 2 decades working with social enterprises

For a proposal recently the charity wanted to understand the risks for them as a small charity in moving to a social enterprise model. It made me think and here is what I wrote.

In our experience of working with numerous charities of any size moving to a social enterprise model the key risks are:

  • Mission creep – the organisation chases cash rather than keeping focused on achieving its mission and this results in confusion and disillusion within staff and volunteers which can result in low productivity, loss of key staff and lack of synergy with the charitable work of the organisation
  • Failure to identify clear goals and set clear guidelines about the resources to be used for the social enterprise, which is social and which is enterprise – in short when is something free and when charged. This can upset and confuse users and staff and volunteers
  • Unrealistic expectations about the speed of income generation and profitability – this can mean cash flow problems and the charity unexpectedly subsidising the social enterprise
  • Lack of commercial/entrepreneurial attitude – there is a need to constantly be looking for opportunities and adapting as the market changes. This is natural to charities but often less so in their more commercial activities where they can lack confidence in their commercial judgement so stay with the original plan even when it isn’t working
  • Poor sales and marketing – most small charities don’t have a marketing department and don’t have a marketing mindset. However good the offer it will need to be marketed and sold, this is more than promotion and an area which is often a risk is pricing where small organisations lack the confidence to price highly enough and make insufficient margin. There can also be confusion on the target market which often is not the same as for the charity

All these risks need to be managed and the more planning and thinking you do before you act the more likely you are to be successful because you can work out how to manage the risks before they occur. Obviously a feasibility study will manage expectations on income and the speed you can grow, and a business plan will help with clarity on vision and the operational and marketing issues.