Embracing the Concept of Social Enterprise as An Alternative Financial Model
In recent years, civil society organisations (CSOs) have faced numerous challenges in obtaining funds to support their activities due to financial crises, government regulations, poor economic conditions and most recently the surge of the COVID-19 pandemic. Based on these difficulties, CSOs have rigorously searched for alternative ways to sustain their projects without depending solely on donors. To support the CSOs in this process, the West Africa Civil Society Institute (WACSI), in collaboration with STAR Ghana Foundation, under the Giving for Change (GfC) project, organised a series of webinars titled: Alternative Financial Models for Civil Society Organisations. This three-phase webinar series aimed at introducing civil society organisations and actors across West Africa to alternative funding mechanisms through shared learning and experiences from community foundations and grant makers in Africa.
The first webinar which took place on 29 September 2022 focused on the Asset Based Community Development model and provided participants with guidance on how to identify and mobilise their assets to foster community development.
Watch the video of the webinar.
The second webinar under this series, moderated by Jimm Chick Fomunjong, focused on Social Enterprise (SE). This session brought together 104 participants from 14 countries across the globe on 26 October 2022.
Mohammed Ukasha, CEO of NiV, an award-winning Social Enterprise organisation based in the Northern region of Ghana, as the first guest speaker, introduced participants to the Social Enterprise Model. The second speaker, Barbara Nöst, CEO of the Zambian Governance Foundation for Civil Society (ZGF) provided insight and shared the lessons learnt, successes and challenges encountered applying the social enterprise model within her organisation.
What the Social Enterprise Model is
In his illustration, as seen in Figure 1, Mohammed introduced participants to the four common features every social enterprise must have. These four features include the need to have;
- A social/societal or environmental objective;
- An entrepreneurial behaviour: Moving away from the usual NGO ways of working to a business mindset of how to bring money to your organisation;
- Democratic and/or participatory systems and structures: The systems to run and operationalise the enterprise;
- Re-investment of profits: Because SEs are different from traditional businesses, re-investment of profit is very important.
Thus, according to Mohammed, the social and environmental mission, entrepreneur strategy, innovation and sustainability should be the key drivers to every social enterprise. However, the model can only be considered a social enterprise if it creates positive benefits for communities while also generating profit and if it also creates a sustainable social impact based on revenue instead of grants.
Figure 1: Introduction to the Social Enterprise Model
Source: WACSI, 2022
The building blocks of social enterprises
Mohammed further introduced participants to the five building blocks of social enterprises which include:
- Beneficiary group: Those who benefit from the social or environmental value being created through a product or service. They might not be the ones paying for the service or product.
- Customer group: This refers to those who are willing to pay for the products or services that solve a problem. They can also be beneficiaries depending on the social enterprise model.
- Revenue model: This is a strategy that determines how revenue will be generated by the organisation without depending on donors or charitable organisations. It involves searching for reliable revenue streams that can support the long-term sustainability of the organisation.
- Positive impact: It involves defining the social or environmental impact the organisation intends to achieve and it should be intentional.
- Innovation: This is a very important aspect and there needs to be a distinction between innovation and invention. It takes into account new strategies or methods that improve upon the way things were done in the past. It is about creating value using the same resources or fewer resources.
Figure 2 presents the five building blocks of social enterprises.
Figure 2: The building blocks of a social enterprise model
Source: Ukasha Mohammed, NIV Norsaac, 2022
What makes a social Enterprise successful?
Mohammed outlined the three lenses under which the success of a SE model can be validated. These include; desirability, feasibility and viability.
- Desirability is the human-centered approach used to assess how attractive and advantageous the SE solution is to the target population. It involves asking the questions:
- Do people want the solution?
- Is the solution wanted by enough people?
- Can you reach the people you are proposing the solution to?
- Feasibility is a technical and internal assessment of the technical knowhow and capacity to develop and manage the SE solution. It involves asking the questions:
- Can my organisation do this?
- Do you need the support of others to deliver?
- Can you get access to the key resources to deliver this?
- Viability is centered around the business aspect. It involves assessing if the organisation should invest in this and if the model can generate more revenue than the cost incurred.
‘Empathy research’ is the guiding principle in responding to these three elements as it informs the responses to these questions.
Figure 3: The three lenses for validation of a SE
Source: Ukasha Mohammed, 2022
Why should CSOs adopt social enterprise as an alternative funding source
“Social enterprise is very important because if CSOs can generate their own fund, they can stay true and focused to their mission. Currently, most NGOs drift from their mission because they are donor dependent.” – Ukasha Mohammed
Adopting a social enterprise is very important due to the rise in dwindling donor funds and sharp cuts in terms of aid through government policies. Many organisations have drifted away from their mission due to over-reliance on donors and the need to survive. To remain self-sustaining over short to medium-term, social enterprising is fundamental as it can serve as an alternative financing model for these organisations. It drives innovation, generates the needed support for grassroots organisations and serves as a tool that fosters collective ownership and involvement in decision making.
How to build a social enterprise model
Building a social enterprise requires that CSOs develop clearly defined business models with the right systems and structures in place to access the right funding. With these systems in place, organisations can leverage existing projects to grow the model in order to minimise operational costs and maximise profits. The creation of a unit or department within the organisation is necessary for the running of its operations. Finally, to ensure that the affairs of the model are properly managed, it is important to create an independent or separate vehicle with a separate management and board of directors.
Experience sharing from the Chuluka social enterprise
The Zambian Governance Foundation (ZGF) is a non-profit company limited by guarantee created in 2009 as a pool fund in Zambia. In 2016, ZGF incorporated a social enterprise and set up a subsidiary social enterprise – Chuluka Limited in 2017. Barbara Nöst shared the foundation’s journey, the assumptions made at the onset, the challenges faced, the successes encountered, and the lessons learnt both internally and externally. Figure 4 provides a vivid illustration of her presentation.
Figure 4: Lessons Learnt from creating the Chuluka social enterprise
Source: WACSI, 2022
According to Barbara, the Chuluka social enterprise was set up with a limited startup capital. The ZGF moved from the conventional NGO set up to a business model. Shifting from the NGO mindset into a business mindset was very challenging – there were scarce resources to invest into marketing, and adjusting staff salaries was a de-motivation to staff. Some of the other challenges faced throughout the implementation include; currency fluctuations, NGOs not willing to pay training fees, cash constraints on NGOs, competition with alternative cheaper products, supply chain problems and no experience with management of sales agents.
However, the following lessons were learned:
Setting up in a rush with limited capital: Have substantive capital to set up a social enterprise and give time for the entity to build up.
- Not assuming NGOs can have entrepreneurship skills overnight: Work with staff who have entrepreneurial skills.
- Work with hustlers instead of moving existing NGO staff.
- Selling your core competences and what you are good at doing.
- Keeping the SE subsidiary separate from the mother organisation. Cross fertilisation can create a non-conducive environment.
- Paying attention to the business.
“If you don’t pay attention to the business, there is simply no business because business doesn’t come to you if you are not constantly out there hustling.” – Barbara Nöst
At the end of the presentations, participants were interested in getting clarity on the difference between the beneficiary and customer groups, tips for organisations to kickstart their SE initiatives and how the transitioning process takes place.
In his conclusion, Mohammed re-iterated the dire need for social enterprises to have a clearly defined business model, with the right systems and structures in place to help them access the required funding. Empathy-based research is essential to help uncover assumptions and turn them into opportunities.