Business-like or Entrepreneurial... Charities and Social Enterprise

There has been a lot of talk about charities acting like businesses.  I was having lunch today with my friend and colleague, Jill Andres, about social enterprise and how there is such a broad spectrum of what this could mean.

When I talk to charities about alternative revenue streams, it's not that I think they should run like a business.  I do however, think that they should understand the difference between a program that generates revenue and a social enterprise that generates profit.  Too often charities think that because a program is generating revenue, it is driving resources into the operational arm of the organization; but they don't consider the actual costs of that program because those costs are being absorbed by the overall charitable operations. 

How did we get to this point?  Why is it that charities seem to be ashamed of the "profit" word?

I believe this stems from how we have conditioned charities to think that they should minimize overhead to maximize program spending.  Of course, as soon as we tell these organizations to minimize their overhead we are in essence saying to them that we aren't overly concerned about how effective they are at achieving their goals because we don't really want to them to invest in operational effectiveness.  But I digress...

The underlying message: We have told charities to not tell us what the real costs of running their organization is. 

"WHAT???? But I always ask charities for their financial statements..."  :-)

Perhaps, but...

This is most evident in the all too popular fundraising gala.  You know the one, held at the hotel with the keynote speaker, the video about the organization, the rubber chicken dinner, the silent auction and the appeal card on the table.  At some point following the event (either later that night or a few months later) you will hear how much they raised.  But is it really the case?  Think about all the volunteer hours that go unaccounted for (if this was a business, you would have to count those hours as part of  a salary somewhere), the staff time that can't be counted as this would increase the perception of overhead expenditures, the hard and soft costs associated with running the event and you can see why these events only generate 10cents on the dollar.  Seriously!  Do you really want to know how much that chicken dinner cost?  Do you really want to know if your ticket price is going to put more food in kids bellies or find the cure for cancer?  If you did, my advice, stop going to the galas and just give to the charity.

When a charity asks me about turning one of their revenue generating program lines into a social enterprise, I turn around ask them, are you ready to have profit be at the centre of the conversation?  If the organization isn't prepared to have that discussion, then what they have is a revenue generating program.  Jill quickly pointed out the follow-up question, "Can this program stand on its own two feet outside of the arms of the charity?"  This requires the organization to actually look at ALL the numbers that surround the program.  Again, if profit isn't going to be part of the motiviation then this is just a program of a charity that at the end of the day will need someone to keep financing it.  As Jill points out, profit is at the core of any enterprise... social or traditional.

What this boils down to - charities that want to start social enterprises need to do a "gut check" about whether they have the entrepreneurial spirit and the board support to take some of the risks and be prepared to walk away from a program if it can't be profitable.  It also requires funders to provide the resources for these organizations to do the upfront research (feasibility study, market analysis, business planning) required to make the informed decisions before going down the business path.