The Value of Making Cheap Mistakes
Social enterprise is currently all the rage, with government, business and foundations mobilized and investing to help charities that want to start their own revenue-generating engine to support a shrinking, and more restrictive funding pool.
It’s an exciting moment for NGOs and charities, but it also requires some thinking about whether starting a social enterprise is the right step for your organization. Here are a few things you might want to think about.
Firstly, the cheapest mistakes are the ones you never make. An honest Social Enterprise Feasibility Analysis will give you a solid sense of whether it’s generally a good idea or not to take the plunge. Especially the market analysis and the business model. Those are two major considerations that require significant attention because they will let you know if your proposed social enterprise could actually generate revenue for your organization. You may have the clients, the product, the workers and the internal structures to succeed, but if the business model is broken from the beginning. There may be a lot of work being done and perhaps even a lot of revenue, but it is the profit which is the lifeblood of any self-sufficient social enterprise.
During my work at EcoEquitable— a local social enterprise employing newcomer women and which recycles textiles and sewing-related materials—we thought about offering eco style fabrics for retail sale, for example. Our plan was to buy certified organic fabrics to sell along with our recycled ones. However, when we conducted a thorough feasibility analysis, we quickly realized how difficult this idea would be to pull off and actually make a profit. For some context, we are located in a less affluent part of Ottawa where most of our customers are lower income. The organic fabrics were expensive, and to make a profit, we would have to mark them up significantly. After digging deep and looking at the numbers, we could see that we would have to sell at least 10 meters of organic fabric every day just to break even with having retail staff. And then when we thought through the logistics of selling recycled $2/meter fabric next to $25/meter organic fabric with donations coming through the door in garbage bags daily, the reality of selling a high-end product inside a thrift-free-for-all store front felt very poorly conceived.
Luckily we did a comprehensive feasibility assessment to think this idea through. And it was the cheapest mistake we never made! Are you thinking of setting up a social enterprise? Let us help you think through your proposed business plan so that you are set up on a path to success!