Surya Nepal Asha Social Entrepreneurship Award 2012

Celebrating entrepreneurs who create social, environmental and economic values

Lessons for a Social Enterprise (THT)

[Published in The Himalayan Times Perspective, Dated 2nd December, 2012]

Steven Lee

I have been working in the commercial and social enterprise world for many years; working in the organisation as a senior manager or working as an impact investor, selecting organisations for investment and monitoring them. In all these years, I havewitnessed, first hand, a number of issues that seems to repeat enough to warrant a discussion. Having worked with many social enterprises, here are the six important lessons for a successful social enterprise:

Lesson #1: Know yourself
For a successful venture to transition from early start-up stage to scaled-up organisation, type of leadership quality needed for the organisation shifts from ‘entrepreneurial hunter’ to ‘calculating farmer’. ‘Entrepreneurial hunter’ identifies new solutions and creates organ-isations to solve it. ‘Calculating farmer’ then seeks to calculate, budget and plan, seeking to optimise its processes. Such transit-ion requires understanding one’s own limitations, which is inherently hard for the ‘entrepreneurial hunter’. But for the continued success of an enterprise, it is imperative for the entrepreneur to recognise his limit and take corrective actions, which may mean creating management structure and dele-gating responsibilities to trusted ‘calculating farmers’.

Lesson #2: Working capital can kill you!
Many entrepreneurs focus on getting investments but forget the importance of working capital. Working capital is basically the money that you need to spend first before the customer pays for your goods or service. If your organisation gets paid before delivering your goods or services, it is not an issue. But for most organisations, lack of working capital can significantly hurt it. Therefore, when planning for investment to grow your organisation, understand your working capital need, as lack of investment may only slow your business expansion, but lack of working capital can kill it.

Lesson #3: Know your ‘social’ in social enterprise
A social enterprise, which differs from CSR effort, is an organisation, which fund-amentally involves less advantaged people in the business. If you take out ‘social’ in your organisation, it does not exist. Therefore, just as you would create measurement and system to plan and measure your financial performance, you must be able to do the same with your social impact. Unfortunately, there is no international standard available to measure it but fortunately you can create your own. To create your own impact measurement, you have to know your ‘beneficiary’. You have to be able to count them and quantify qualitative improvement of their lives. This improvement can either be in monetary or qualitative terms. But most important thing is that you use this impact measurement to plan, execute and review your organisational operation. Just as using your financial tools, you must be able to use your impact measurement to run your organisation. This is what separates you as a ‘social enterprise’ from the regular for-profit enterprise.

Lesson #4: Know your ‘enterprise’ in social enterprise
Social enterprise is a business enterprise. If you have a bad, inefficient business, it is wrong to choose to be ‘social’ thinking that you would gain some sort of competitive advantage. A bad enterprise will always be a bad social enterprise. One needs to create a clear business model and come up with an effective solution. Know your customers and competitions. Build the best team you can. Know that best social enterprises are best enterprises that happen to operate in a social space.

Lesson #5: Too much money can be a problem
Always look for appropriate amount of money. Too much money can lead to excess and wastefulness. Worse, too much money can lead to unnecessary investment, which can cause deep working capital issues.

Lesson #6: Choose your investors and consultants well
Social enterprise is a very promising new sector and there is a lot of capital available for this field. If you have a viable business model with high potential for social impact, you will find investors. Understand the value-addition and weakness of each investor before you

select them. Many investors will also bring in consult-ants. But be careful with the consultants who give advises without understanding the business fully. Do your own research. Try to understand the concepts and issues on your own before taking advices from consultants.

(The author works for LGT Venture Philanthropy (www.lgtvp.com), a global impact investment company. He can be reached at
se.entrepreneurship@gmail.com)

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