Have you ever faced a conundrum in your social enterprise? Here are a couple of examples:

Do we employ a marketing consultant to boost brand awareness at the risk of reducing the profit available to put towards our social purpose?

Do we use a more expensive local service provider in a manner that aligns with our social goals or a provider from further afield that will be beneficial for our bottom line?

If you’ve experienced tensions such as these in your work with a social enterprise, you are not alone. Many practitioners associated with social enterprises have experienced tensions between their social and business goals. Examples from the academic literature abound – from the practitioners in a children’s social enterprise who experienced ‘tensions over putting up fees, with one side arguing it was necessary to strengthen reserves and the other side concerned it would harm the charity’s main beneficiaries’ (Spear, Cornforth & Aiken 2009; 264) to the practitioners in fair trade social enterprises who experienced tensions with ‘regard to levels of commercial activity versus the need to bolster financial benefits to farmers’ (Mason & Doherty 2016; 460).

The challenge is to get the balance right. But why? And how?

Firstly, why? If you don’t get the balance right, your social enterprise it at risk of mission drift (Cornforth 2014; Ebrahim, Battilana & Mair 2014). Mission drift is a situation where your social enterprise has moved away from its social goals over time through the prioritisation of business goals. Avoiding mission drift is an ongoing challenge for social enterprises because of their need to remain financially viable. In focusing on securing financial sustainability, however, social enterprises risk losing legitimacy by neglecting their social goals (Dart 2004). A loss of legitimacy essentially means that your stakeholders – members/shareholders, customers, staff and the community at large – see you in a more negative light. So, it’s worth getting the balance right.

With the why understood, then how?? There are lots of aspects to how a social enterprise might balance social and business goals but a key factor is measuring performance in relation to social goals. In my research on Australian social enterprises (Earles 2020), I found that social enterprises were measuring performance in relation to business goals in at least four different ways. Performance in relation to social goals, however, was only measured in one way – the dollar amount returned to the community. This meant that opportunities were being missed to understand and better communicate social impact – something of key importance in helping social enterprises stand out.

Measuring social impact isn’t straightforward – that’s why a lot of social enterprises neglect to do it. But, a simple theory of change can assist. A theory of change is a visual depiction of the contribution your social enterprise will make and how it will go about it. Measures can then be put in place. Implementing a theory of change can be resource-intensive or, it can use activities you’re already undertaking and information you already collect. The main benefit is that it can help you better understand the impact your social enterprise is having and how that impact can be amplified so that hard-earned profit is having the biggest ‘bang for buck’.

References

Cornforth, C 2014, ‘Understanding and Combating Mission Drift in Social Enterprises’, Social Enterprise Journal, vol. 10, no. 1, pp. 2-2.
Dart, R 2004, ‘The Legitimacy of Social Enterprise’, Nonprofit Management & Leadership, vol. 14, no. 4, pp. pp. 411-424.
Earles, A 2020, Social enterprise governance as strategy work, thesis, Centre for Social Impact, Swinburne University of Technology, Hawthorn, Victoria.
Ebrahim, A, Battilana, J & Mair, J 2014, ‘The Governance of Social Enterprises: Mission Drift and Accountability Challenges in Hybrid Organizations’, Research in Organizational Behavior, vol. 34, pp. 81-100.
Mason, C & Doherty, B 2016, ‘A Fair Trade-off? Paradoxes in the Governance of Fair-trade Social Enterprises’, Journal of Business Ethics, vol. 136, no. 3, pp. 451-469.
Spear, R, Cornforth, C & Aiken, M 2009, ‘The Governance Challenges of Social Enterprises: Evidence from a UK Empirical Study’, Annals of Public and Cooperative Economics, vol. 80, no. 2, pp. 247-273.

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Throughout her career, Amber Earles has worked across Asia, the Pacific and the Middle East as well as in remote Australian Aboriginal communities to support individuals and organisations to achieve their goals. She is now applying her expertise closer to home as a Non-Executive Director of purpose-driven enterprises.