Most new start-ups don’t last long. According to statistics, about 32% of start-ups fail within two years and almost 50% within four years in the United States [1].
In theory, just like most enterprise start-ups, survival should be harder for social enterprises (SEs). SEs do not only need to cover their costs through the sale of product and services, but they also have a social objective to achieve that adds to the cost.
Yet a research done by Professor Simon Denny of Northampton University [2] indicated that the social ventures were not more likely than the listed companies to cease operating or fail to repay investments. While comparing the survival rates of the top 100 SEs and trading charities and FTSE 100 companies, results showed that 41% of these competitive SEs have endured, compared with 33% of the public listed companies.
At a local level, SEs funded by Enhancing Self-Reliance through District Partnership scheme in HK have a survival rate of 77% by the end of fifth year. The median life of SEs is from 6.4 years to 7.2 years with the former assuming all cease by tenth year and the latter assuming there is still 18% survive by tenth year. That is 60% to 80% longer than the commercial firms [3].
So what are some of the reasons that fuel the survival and growth of SEs?
(1) Increasing demand for SE’s participation in government services
It’s a global phenomenon that governments are reducing funding to welfare sectors. There exhibits an intense competition in getting access to resources. Therefore, there’s a driving force of SE activities, where many of their social objectives are also the concern of government. In face in many countries, the largest activity of SEs is the delivery of government services.
(2) People empathize with the vision of SEs
People are willing to make sacrifice to help realize the vision throughout the enterprise, including:
i) Investors- accepting a lower rate of return;
ii) Suppliers- competitive and discounted price offer to SE, through reducing profit margin, but suppliers can win the goodwill of customers through publicizing their contribution to the SE;
iii) Employees- willing to accept a lower pay to achieve a sense of purpose and meaning to their lives;
iv) Customers- most likely will pay higher prices than those charged by their competitors knowing that they are supporting a social need.
Evidence also indicates that SEs owners tend to endure its business even at a loss because the social value created is huge. Most SEs survived through their difficult times as they seek financial supports through donation. This explains why 50.3% of SEs are running a loss from 2004-2008 and yet they are still surviving [4].
(3) Cultivating environment for SEs
In HK context, the Government supports the development of SEs in HK through various measures, including provision of start-up funds, promoting cross-sector collaboration, and nurturing social entrepreneurs etc.
Source of start-up funds includes: Enhancing Self-Reliance Through District Partnership Programme; Enhancing Employment of People with Disabilities Through Small Enterprise Project; and Social Innovation and Entrepreneurship Development Fund
A large number of SE- support organisations have also emerged in HK since 2008 to provide support services, e.g. training, advisory, and co-working space etc. They are mainly from the welfare sector, the business sector and universities which foster cross-sector collaboration. Social Enterprise Summit, Hong Kong General Chamber of Social Enterprises, HKCSS – HSBC Social Enterprise Business Centre and Good Lab are some examples.
There are also education programs that offer theory and skill-based training for SE practitioners or aspiring entrepreneurs who want to start a SE. Renowned business schools have also established a large number of SE related research centres, e.g. Social Enterprise Research Centre, Harvard Business School; Research Centre for Social Innovation – Standord; Skoll Centre for Social Enterprise – Oxford etc.
(4) Accreditation and credibility of SE
Monitoring and evaluation of SEs through accreditation to win the trust of its customers and stakeholders is also important.
(5) Local and global awards to acknowledge successful SE
HK award: Hong Kong Social Enterprise Challenge is the foremost inter-collegiate social venture business competition in HK. It encourages students to employ a creative entrepreneurial approach to solve real world social issues.
Global award: The Schwab Foundation for Social Entrepreneurship recognizes and awards social entrepreneur in recognition of their innovative approaches and potential for global impact.
Skoll Awards for Social Entrepreneurship supports social entrepreneurs whose work has the potential for large-scale influence on critical challenges of our time. Award recipients are innovators who have achieved proof of concept, are poised to replicate or scale up toward systemic social change, and have a message that will resonate with those whose resources are crucial to advancing large-scale, long-term solutions.
A New Discipline to be Understood
The social and economic challenges across the globe require new approaches to doing business, and SE provides a vehicle for achieving this. However, SE is not a market discipline that could be simply understood based on satisfying the material needs, it’s also a moral discipline based on shared moral vision. It’s crucial that the government and the society are ready to create a thriving environment for SEs to grow to their capacity and to fulfill their missions.
Footnotes :
[1] Bureau of Labor Statistics. Business Employment Dynamics – Establishment Age and Survival Data, 2013. See Table 7: "Survival of private sector establishments by opening year" http://www.bls.gov/bdm/bdmage.htm, accessed on 17 January 2014.
[2] Research by Professor Simon Denny, director of enterprise, development and social impact at Northampton University, to compare the longevity of FTSE 100 companies and the top social ventures for the period between 1984 until 2014.
[3] Fullness Social Enterprises Society (FSES). Social Return on Investment (SROI) of Enhancing Self Reliance (ESR) through District Partnership projects https://www.fses.hk/ourdb/files/ourdb@fses.hk/fses_June_Article.pdf, accessed on 9 March 2015.
[4] Fullness Social Enterprises Society (FSES). Hong Kong Social Enterprises - Profitable or Valuable? https://www.fses.hk/ourdb/files/ourdb@fses.hk/article_201107_hkse.pdf, accessed on 9 March 2015.
