5 Myths That Doom Social Enterprise to Fail

At UPenn's Center for Social Impact Strategy, we're excited to see that social enterprise is on the rise. In fact, it’s projected that over 10 million people are employed by social enterprises in the US alone, with revenues of $500 billion — which is about 3.5% of total US GDP. That’s a lot!

When you think about how social enterprises start, what comes to mind? An individual or group who aims to address a social or environmental issue, and builds a business to support that work? Or a byproduct of a business idea that isn’t initially related to impact, but brings opportunity for benefitting the world? These are just two of the many ways social enterprises are born.

At UPenn’s Center for Social Impact Strategy, we’re excited to see that social enterprise is on the rise. In fact, it’s projected that over 10 million people are employed by social enterprises in the US alone, with revenues of $500 billion — which is about 3.5% of total US GDP. That’s a lot!

But even as social enterprise continues to grow, there are several myths that have been perpetuated that can really hinder their success. In some cases, these myths can stop people like you from starting in the first place, or cause you to make mistakes that will impede their growth. In an effort to prevent those things from happening, we’re going to bust some of those myths for you right now — here’s what they are:

1.  Social enterprise is all about impact, and revenue is an afterthought.

While social impact is, of course, a necessary and foundational element of building a social enterprise, the bottom line is equally as important. In fact, focusing on revenue is absolutely critical in social enterprise, as your profits are what will fuel your impact, and allow you to sustain you work and scale over time. Without a focus on revenue, the impact work can’t happen, and it certainly can’t grow. The real magic happens when purpose and profitability are aligned, and are strategized around in tandem with one another.

One great example is BioLite, a social enterprise where Ethan Kaye, one of our Global Social Impact House fellows, is the Managing Director of emerging markets. BioLite sells camp stoves to high-end markets and subsidizes low cost lamps to those living in the developing world to minimize harmful consumption of cooking stove gas. These innovative stoves also act as a source of energy, with the ability to charge cell phones and LED lights. This business has been successful in making a substantial impact in providing energy sources to developing countries, while simultaneously prioritizing the bottom line, partnering with clients like Johnson & Johnson, Hewlett Packard, and Nike too.

2.  Social entrepreneurs are bound to make less money than other business leaders.

Many think that in order for someone to build a socially or environmentally conscious enterprise that puts impact at the forefront, they must sacrifice their own personal income. We’ve been trained to believe that social impact leaders have to take small salaries and keep overhead as low as possible, in order to put as much money as possible back into their impact work. Over time, we’ve learned that this mentality is wrong, often leading to high turnover, low morale, and burnout. In order for impact work to be truly sustainable, we need to make sure that teams have the capacity and resources they need to do their work, and that they receive payment that reflects their value. The idea of social enterprise is built around the concept of doing well by doing good, which means that both the company and the individuals involved should be able to sustain themselves financially and grow professionally as they’re making an impact. Of course, as in any business, there may be some level of sacrifice around time and income from team members when building and scaling, but this shouldn’t be long-term.

To see what this looks like in action, look at Warby Parker, a social enterprise that sells designer glasses at a low price, and for each pair purchased, another is given to someone who wouldn’t otherwise have access to corrective eyewear. Warby Parker places a strong focus on company culture, with policies in place around values of kindness, support, and fairness. They even have their employees rate their happiness on a scale from one to 10 every week, so they can continuously make improvements to culture when needed. They also empower their employees by letting them make management decisions through a process they call Warbles. Through the Warbles process, all of Warby Parker’s employees are able to share their ideas, about smaller-scale tasks or innovations they could implement to be more successful as a business. Their emphasis on empowerment and positive culture has allowed them to thrive and expand over time.

3.  Social enterprises are built by “do-gooders”, not entrepreneurs.

Trust us, we are not knocking do-gooders — we are them ourselves, and we support them in every way. That said, launching and maintaining a successful social enterprise will require both passion for doing good and entrepreneurship skills. Developing any business requires passion, business acumen, adaptability and resourcefulness, to name just a few key characteristics of successful entrepreneurs. The only difference is, social entrepreneurs must also be passionate about the impact they’re seeking to have, on top of the skills required to be successful in building any other kind of business.

Take Elana Reinholtz, the Founder and CEO of jewelry company Bird + Stone and teacup pig, for example. Prior to launching Bird + Stone, Elana worked in the financial services industry in New York. Rather than continuing down that path, Elana decided to use her skills and business acumen to make a positive impact on the world. She took a trip to Kenya, which she subsidized by advertising and selling plantwear jewelry to family and friends, and volunteered with 70 widowed women in a business collaborative. Today, they provide opportunities for sustainable income to women in the developing world, and Elana runs the company in addition to speaking about social entrepreneurship and the intersection of purpose and profit nationally.  

4.  When building a social enterprise, you don’t need to follow the same steps as other successful businesses.

In some cases, social entrepreneurs to launch with the “if you build it, they will come” mentality. The idea there is that, because others will inevitably be passionate about the cause your enterprise is focused on supporting, they will find you and support you. Unfortunately, that’s simply not how business works. To be successful, social enterprises need to start with the same key foundational steps as any other business, including financial modeling, planning for human resources, defining your target audience, and investing in marketing. These steps take time and resources, but they will lay the groundwork for a strong launch and sustainable growth.

A great example of a business that has thrived as a result of its business model is Verb is, started by Suzi Sosa, one of our professors in the Executive Program for Social Impact Strategy. Verb is the first global learning and development platform that combines online workplace leadership skill development with social impact. Amazingly, Suzi Sosa co-founded Verb in 2013, after winning the Dell Social Innovation Challenge, a seven-year competition at the University of Texas. In 2014, they won Ernst & Young’s Social Entrepreneur of the Year Award for their business model. In 2015, they won $2.3 million in Series Seed funding, as well as a partnership with the Everglades Foundation to run a $10 million science prize. They’ve been growing steadily ever since, in large part as a result of their strong foundational business model.

5.  It’s more difficult, and sometimes even impossible, to scale a social enterprise.

You may have heard that scaling a social enterprise is more difficult than scaling other types of for-profit businesses, because there are more factors at play that could get in the way, or because not all revenue is going directly back into business growth. But that’s simply not the case. As with any kind of business, you’ll have to look at and analyze a wide variety of factors in order to strategize around scaling, which look different for every business, whether or not it’s focused on impact. The odds of success are not higher for one type of business or the other, necessarily — it’s more dependent on the individual business model.

Look at Uncharted (formerly the Unreasonable Institute), for example. An accelerator for entrepreneurs who’ve developed ideas for solving the world’s biggest problems, Uncharted started in Boulder, CO, and ran an annual accelerator for just 10-15 carefully selected entrepreneurs, which meant that they were exposed to thousands of other driven individuals that could use their support in launching innovative ideas, but weren’t able to get it. In 2014, they decided it was time to scale globally, They started by launching a one-week trial lab around the world in several countries simultaneously, using the first round to determine market interest and then test their idea. And it worked – big time. Less than two years later, they’d launched 22 labs in 16 countries and 6 continents, and they continue to learn and scale today.

Building a social enterprise is no small feat, and it requires a significant level of work and support — but you don’t have to go it alone. We’ve worked with many social entrepreneurs over the years to help them develop, build, and scale their impact ideas through our Executive Program in Social Impact Strategy. The 8-month program takes place primarily online with two in-person convenings where you’ll get to connect with and learn from other changemakers from all over the world. It’s also led by Penn faculty who understand social enterprise and want to support you in growing your own idea. If you’re interested in learning more or know someone who might be, check out an overview of the program here.

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