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May 7, 2014

Social Enterprises Can Fail Like Other Start-ups: Some Pitfalls

Some supporters of social enterprise make the mistake of expecting all new social start-ups to succeed.  In reality, there is no reason they should succeed more often than regular for-profit start-ups.  In the start-up world, there are more good ideas than feasible start-ups — and more start-ups than three-year survivors.

Matthew Cain tried a start-up social enterprise — and it failed.  He offers his insights on ways in which a social enterprise can founder.   Here is a shortened version.

1. The Lovestruck founder    Social entrepreneurs are driven by passion, but they can be blinded by innovation.  They become so enamored of their idea that they forget that the purpose is to address a problem.  The passion  must be “for fixing a problem, providing a solution.  They are passionate about reaching the destination, not their particular patented route.”

2. The wrong sort of founder   Not everyone with a good idea can successfully start a business.  “Few combine bright ideas with skills of implementation.”  Grant-writing skills don’t often translate into business planning and selling skills.  “The best social entrepreneurs sell, they persuade people to buy what they have to sell and they are comfortable with that.”

3.  Perfecting the business plan   A better plan does not guarantee a successful business; earning revenue does that.  “Time spent planning often defers discovery.”  It is often better to just get started and play it by ear.  Some very successful entrepreneurs have said that the business school case studies make it seem like they had a great plan with great execution when in reality they were just trying something and hoping it would work.

4. Waiting to make money   Start big or don’t start at all is a myth.  “The peculiarity of social enterprises is the number of entrepreneurs that pursue ideas that work only at a large scale.  Businesses that would solve mammoth problems — but only if millions could be thrown at the problem….Successful start-ups are built to scale.”  They start small but are able to replicate when the enterprise demonstrates success.

5.  Working too hard  Perhaps this is a hangover from the nonprofit habit of being so understaffed and undercapitalized that fighting daily fires squeezes out time to think ahead about the future.  “Starting a social enterprise isn’t an athletic trial.  It’s a mental accomplishment and working too hard reduces creativity.”

This an area where an advisory board can provide perspective and pose some reality checks.  When to launch, whether to launch, with whom to launch.  Mr. Cain’s advice makes me worry that the biggest hurdle to social enterprise is the low tolerance for risk and failure.

Nonprofit and grantors are conditioned to want guaranteed results in a short time frame.  This attitude does not translate well to entrepreneurship, where the guiding rule has been to “fail quickly and fail often.”  Mr. Cain would probably be happy with more social enterprise failures if that would mean more tries at starting anew and more willingness to support and encourage more tries.  That may require some culture changes, which is what CINCO is trying to do in Central Ohio.  Please support us.