Capability Trumps Cash for Social Enterprise – Report

Intensive business support, not grant funding, is critical to long-term social enterprise survival, new research from an Australian social enterprise think tank suggests.

Social Traders yesterday released Investing in Capability, a report based on the outcomes of two programs aimed at comparing the impacts of capability building and grant capital on an enterprise's financial viability.

Conducted between 2010 and 2012, results from National Social Enterprise Development Support (NSEDS) and Building Social Enterprise Trading Turnover (BSETT), suggested that business support tailored to a social enterprise's life cycle could be more beneficial than grants in ensuring an enterprise’s sustainability.

Mark Daniels, Head of Market and Sector Development at Social Traders said it was critical to invest in capability to maximise the value created by social enterprises.

“The BSETT and NSEDS projects, funded by the Victorian and Commonwealth Governments respectively, show that the value of this initial investment can be secured and extended through tailored business support aimed at stabilisation and growth,” he said.

The programs involved 45 social enterprises, which, for periods between six and 18 months, had access to specialist capability building services and support networks aimed at improving business operations and self-sufficiency.

BSETT participants saw their annual turnover almost double with an average 94 per cent increase, with all participants increasing turnover by at least 70 per cent. Some 23 new jobs were also created across the participant enterprises.

More than 80 per cent agreed BSETT improved the long-term potential of the social enterprise and their own business management and skills, while the number of NSEDS participants considered at risk of failure was reduced by nearly two thirds.

“Both programs produced a demonstrable shift towards financial sustainability across the majority of social enterprises that participated,” the report said.

The studies targeted social enterprises beyond the initial the start-up phase and dealing with issues of longer-term sustainability.

“The project highlights the importance of investing in assistance designed to build capability and addressing the underlying issues that impact on financial sustainability, rather than simply funding revenue gaps,” the report said.

“While direct funding is important at key stages of social enterprise development, continued injections of grant capital can mask underlying capability issues and flaws in the business model.”

For some participants, the program forced a drastic reassessment of business strategy and assumptions made about its future viability.

“In some cases it became clear that the social enterprise was not viable, an unintended but important outcome,” the report said.

“While this may not have been the outcome the organisation initially sought, it meant that continued investment of financial and human resources in projects that were failing was avoided.

The research comes in a climate of interest in increasing the pool of ‘investment-ready’ enterprises.

“There isn’t a lack of capital investment available for most social enterprises, the problem is the lack of social enterprises that are investment-ready for capital,” Daniels said.

“This report helps philanthropy and government to understand the untapped value that exists within many social enterprises. It is an important piece of research for intermediaries like Social Traders because it captures the success factors learnt through two years of program delivery.”

The Victorian Department of Human Services (DHS) had invested in the establishment of over 50 social enterprises since 2002, 80% of which were still operating.

Some of those had continued to rely on grants or subsidies.

“Investors (and social enterprise beneficiaries) have an interest in ensuring that those enterprises that have genuine long term potential survive the early start-up years and move on to stabilise and grow,” the report said.

“Across Australia social enterprises have been formed in response to community need. Governments and social investors have seen their potential and many have provided start-up support.”

Find the report at: