Tech Social Enterprises Boom but Lack Planning

Social entrepreneurs are honing in on the Federal Government’s innovation focus with a growth in the number of technology-based enterprise ideas, but they lack the planning needed to get off the ground, according to new evidence.

Social enterprise cultivator, The Difference Incubator (TDi), reported that of the 60 enterprises at their most recent roadshow, tech startups represented the largest single group at 23 per cent.

CEO and Founder of TDi, Bessi Graham, said that this focus was a shift in comparison to the hundreds of social enterprises the organisation had engaged with over the last five years.

She attributed part of this interest to the rhetoric of the government around the importance of innovation.

“It’s interesting… even some of the language that has become more prominent on a Federal Government level at the moment, with Turnbull and others looking at innovation and startups,” Graham said.

“There’s a lot of that focus that has a sense of, or hints to, Silicon Valley and some of the sexiness of that part of innovation, and what is often connected with new trends or incubation are those kind of words.

“And so because social enterprise is, in many respects, one of those trendy, topical issues that seems to be growing in importance, I think people tend to look then at things like technology as a space where you can bring some of this social world into some of the more popular spaces.”  

She also said that, while it could be a “misunderstanding of opportunity”, there was an assumption that technology businesses have the potential to be lucrative.  

“There’s also an appeal for people around where they see there’s money and investment dollars in technology, in terms of the growth potential, that can be seen as an attractive thing for investors,” she said.  

“It’s highly risky, but when some of these things succeed, and people tend to focus on the small percentage that succeed, people see technology in particular as something that can make a lot of money.”  

However, Graham said of all the enterprises that TDi worked with over the intensive two week roadshow, the technology cohort stood out for their lack of business planning and strategy.

“While there were a lot of businesses attempting to play in that space, they actually had the weakest business models,” she said.

“Most were at a position where they certainly didn’t have traction yet and didn’t have a customer base, or certainly not a paying customer base, engaging with their technology, and they were thinking we will need x-amount of investment to build an app or to do the first round of testing.

“It’s this interesting kind of thing that happens for a lot of social enterprises where there is a type of misunderstanding of the role investment can play.

“Rather than being in a position where they have some track record, they’ve tested some assumptions and they’ve got to a place of being able to say to an investor ‘here’s what I already have… and here’s where I’d like to take it to the next level’, they’re hoping that investment will engage with them at a much earlier stage.

“In the mainstream market, particularly in the area of technology, there are investors who will jump in… but if you look at impact investment, [investors] tend to be actively looking for things that have a track record and can deliver social and environmental outcomes, and social return.”  

Ethical shopping social enterprises, the third largest group at 18 per cent, also presented weak business models, instead relying on the perceived popularity of the trend.

“Some of things that tend to happen when we see things becoming trendy, or the topic that’s front and centre, is you then assume there’s a great business opportunity there,” Graham said.

“People are assuming that there’s this massive audience out there that are and want to be ethical shoppers.

“Now there’s certainly growing numbers of people who are more conscious of the way that they’re purchasing and what they’re buying and engaging with.

“But one of the things we didn’t see in those business models was people having gone out and actually tested the willingness of a customer to buy your product at the price point that you’re having to sell it at to cover additional costs that go with some of those ethical aspects of supply chains or production.”  

More encouraging were the business-to-business social enterprises. They represented the second largest group at 22 per cent, and Graham said their proposals were more developed.

“What we found interesting was that… even if you can’t automatically get to a position of scale, there was great opportunity for this business-to-business area, just within the Not for Profit area or social enterprise area or SMEs,” she said.

“[The] models we saw had a great opportunity to become sustainable and strengthen those business models and hopefully become investable, even if their customer base stays within a relatively smaller target audience.

“And that’s exciting and has opportunities there that we can then build on over the years and gradually strengthen and scale so that we can crack into bigger spaces of procurement for groups like NAB where you want to be able to deliver a significant scale that most social enterprises can’t engage with.”