What’s harder – making money or doing good? Social enterprise, anyone?

So what is the deal with social enterprise? And why should you, I, and your mum even care? In a world increasingly focussed on profitability and less on other sorts of outcomes - like people advancing out of poverty or not ruining our eco-system - can social enterprise offer a new way of viewing business and success? We asked Rowan Yeoman from The Akina Foundation, experts in social enterprise and residents of BizDojo Auckland, to tell us what he thinks... 

In a nutshell, social enterprise is about leveraging some sort of business activity to do something good for the world. But this is pretty much where the simplicity ends. 

Social enterprises have been around forever but there has been an explosion of them in New Zealand in the past 5 years and all of them in one way or another walk the complex tightrope between making the business side work and doing good. At Ākina we talk about balancing the business model and the impact model - having a business that is successful enough that you can survive and grow, and having an impact that is creating lasting, positive change in the world.

So often we see entrepreneurs with a traditional not-for-profit background trying to deliver impact but giving little thought to creating a business model at the same time. And likewise we see people who are more comfortable in a business environment forge ahead and just assume that what they are doing will have the good impact they intend. Getting this balance right is hard. 

As with all businesses, a social enterprise must evolve through the uncertainty of startup and some of the choices they face on this journey are phenomenally tough. One choice might bolster the business model side of things, making financial sustainability all the more likely, but end up compromising the depth of the impact that the social enterprise will have. Or they might go the other way: maximise the impact but ruin their chances of making the money work. 

This is the dance that the social entrepreneur needs to get right: if we can’t make money then we are dead in the water, and if we can’t deliver the change we want to see in the world then we may as well be.

So how do we overcome this conundrum?… Integrate the business and impact models.

Social enterprise really comes alive when founders figure out how to integrate their business and impact models in such a way that the impact model supports the business model and vice-versa. This is where the real magic is. Social enterprises that have found a high leverage way to tie their impact and business models together can achieve big and exciting things, when they can be more financially successful than purely commercial ventures and deliver more impact than not-for-profits can. 

Grameen Bank is a good example of this. Grameen took the loss-making proposition of lending small amounts of money to very poor people in Bangladesh and figured out how to pull together a business and impact model in a way that made them wildly successful. They hypothesised that if they could create a successful business model around giving small, relatively low-cost business loans to people in poverty then this would create lasting improvements in income, education, health and wellbeing for Bangladesh’s most vulnerable people. The slight of hand was taking unsecured loans that would otherwise have been really risky and unlikely to be paid back and transforming them into loans that had the unbelievable repayment rate of 96% – turning a loss-making proposition into something that could succeed and grow beyond all expectations. They did this by developing a deep understanding the communities within which these loans would be made and designing a loan club system where groups of five women would get together and support each other to succeed. This sense of shared responsibility was enough to tip the scales of success for the small businesses being created and vastly increase the chances that the loans will be repaid.

The point of this story is that for Grameen, they managed to use the success of the impact model (disadvantaged people creating successful small businesses to lift themselves out of extreme poverty) as the driver of the business model (a successful bank with loan repayment rates that other banks could only dream of). To date, Grameen Bank has loaned more than USD11 billion... and with the smallest loan size being just USD27, that’s a lot of loans and a lot of successful businesses.  

This process of gaining meaningful understanding of both the business side and of the communities you are trying to impact, and adding in great design, is a recipe for making something that is truly world-changing. When we look around at the new breed of social enterprises being created in New Zealand, we see passionate people trying to do just this. They are diving in and wrestling with all this complexity and looking for the magic that will unlock the potential for them to do great things. They won’t all become as big or as well known as Grameen Bank but they are all in their own way trying to find that magic combination of business and purpose that will make change possible. 

Rowan Yeoman – Ākina Foundation Venture Manager

The Akina Foundation is part of our BizDojo Auckland community. With a mandate of growing social enterprise across New Zealand.