Six Tips to Get a Social Enterprise Trading
29 August 2013 at 10:52 am
Trading is an essential part of any social enterprise. However, for many in the community sector, trading can be daunting. Lisa Boothby, the Head of Enterprise Investment Readiness at Social Traders offers her tips on getting a social enterprise trading.
Trading is an essential part of any social enterprise. It is through trade that enterprises become financially viable and achieve social purpose. However, for many – particularly those from the community sector – trading can be daunting, because it demands a completely new orientation toward the market.
The good news is that we have learnt a great deal from social enterprises that have already been through the process of starting-up and these lessons can be of enormous benefit to others.
1. Understand why you are trading. Social enterprises all trade to fulfil a social purpose, but the role of trade will vary. Understanding this role will be a crucial reference point for many of your operating decisions. For example, a healthcare social enterprise whose profits are used to fund a free medical service elsewhere will target affluent customers with high margin services to maximise profits. An alternative healthcare social enterprise aiming to provide access to low cost health care, will target marginalised customers and charge lower prices. These two enterprises are both trading the same service, but in very different ways. Resist the temptation to launch into trading before you have clarified the primary purpose of your social enterprise and the role that trade plays in that.
2. Check that you have something people will pay for. How? Ask your customers. Don’t rely on well meaning supporters’ testimony that you have a great product. Supporters may not be your customers, or they may represent too small a niche. You do need to test the appetite for your product or service in the market. Many shy away from market research because it is too expensive or too hard. However, market research can take many forms. It can be a simple and inexpensive internet-based survey. It can be business development meetings with key potential clients. It can be actual sales from a pilot site. Or it can be measuring the response to your crowd-funding campaign. Don’t be afraid to ask. It is much more frightening to realise later, that you have sunk money into a product that no-one wants to pay for.
3. Use your strengths as the basis for trade. To trade successfully, you need enough people to buy your product or service over someone else’s. Your offer needs to be different, or better, or both. The easiest way to create this point of difference is to draw on something your organisation is already good at, using your existing skills and experience. For example, an organisation that has historically delivered literacy classes to marginalised children (as a social program) may be able to sell similar classes to children from families that can afford to pay, using the organisation’s core education skills. It would be far more difficult for this organisation to generate income by setting up a café, in which it has no skills or prior experience.
4. Develop a business plan and get to know it really well. Unless you intend to finance the start-up of your social enterprise entirely yourself, you will need a document that inspires others to invest in your idea. A good business plan will do that, and more. The process of developing a plan will expose the relationships between different elements of your enterprise – customers, their values, your offer, supply strategy, pricing, volumes, costs and social outcomes. It is only in understanding these linkages and testing different scenarios that you can reduce uncertainty associated with future trading. In doing so, you will build your own confidence as well as gaining the confidence of others. A business plan will never be perfect, but it will give you the best chance to succeed.
5. Structure your organisation for trade. There is no single legal form for social enterprises in Australia. Each enterprise must select from existing legal forms based on what best suits their needs. Most commonly, legal form is dictated by: the social purpose of the enterprise, where the enterprise intends to seek start-up funding from, and for existing non-profits, how closely the risks and governance processes of the enterprise are tied to the organisation’s existing operations. It is useful to have clear positions on these factors before seeking legal advice.
6. Secure sufficient investment. Securing funds to start-up your enterprise can be time consuming and difficult. Give yourself a head start by thinking about where your start-up funds may come from, throughout the business planning process. Relationships with investors and funders can take time to mature and you need to be familiar with the processes associated with different types of funding or investment. In calculating how much money you need to get your enterprise started, make sure you consider what you need to cover the costs you incur before you start trading, as well as any losses you make in the first few years of trading. The danger with understating your investment ask, is that you may run out of money before you reach financial sustainability.
About the Author: Lisa Boothby joined Social Traders in July 2011 with extensive experience in Management Consulting, most recently with a focus on Not for Profit organisations. She has worked with numerous boards and management teams on the development of strategic plans, national growth strategies and merger evaluation and implementation. Boothby has also had a governance role on NFP boards. Her focus at Social Traders is on building capacity of start-up social enterprises with the objective that they become investment ready and ultimately begin trading.
Social Traders’ business planning program for start-up social enterprises, The Crunch, is now open for applications. For more information or to apply, go to www.socialtraders.com.au\thecrunch