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Blog > Starting a new Social Enterprise? Learn from other people’s mistakes.

Starting a new Social Enterprise? Learn from other people’s mistakes.

posted on Jul 19, 2018
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by Maria Lahiffe

A social enterprise is a business which serves a social mission. Starting a new business is really hard; only half of new Canadian businesses survive their first 5 years. [1] The good news is, failure is a great teacher. Here, we discuss the main reasons start-ups fail. Make sure you account for these when you are starting your own enterprise.

No Market Need

The main reason start-up businesses fail is that the market did not want what the business was selling. [2] Start by identifying your potential customers. Why would they buy your product or service? Perhaps more importantly, how will you get them to switch from their current provider to you? If you are seeking to meet a need which is currently not being met in the community, how are people coping now? Is it really something people need? Do they need it badly enough to pay for it?

You need to find out early on if people are willing to pay for your product or service. How much are they willing to pay? Multiply the number of potential customers by the amount they will pay. Then divide by the number of businesses currently serving the same customers. [3] Can you run your business on that much money? If not, then your idea may not be viable.

Ran out of cash

The second most common reason for start-up failure is that the cash ran out. [2] Money and time are finite resources which need to be allocated carefully. You need to set aside a cash reserve; most financial experts recommend three to six months of operating expenses. [4]

The following can help you avoid a cash crunch: [5]

  1. Manage your accounts receivable – make sure your customers pay you on time.
  2. Look for tight spots – when is cash tight for your business? Most businesses experience cycles in cash flow. Plan ahead for tight times.
  3. Find flexibility – negotiate payment terms with your vendors, take out a loan, or hold off on expenses, like hiring.
  4. Create a cash flow forecast – base this on past experience as well as industry trends. With this forecast, you can plan ahead for those tight times by setting aside extra cash when times are good.

The wrong team

Running a business is a challenging endeavour, with its own skill set. Many social enterprises are started by existing charities and non-profits to diversify revenue. A social enterprise is an excellent way to do that; however, the skill sets and the organizational culture are often very different.

Do a skill analysis of the team you currently have, as well as the skills needed to run your enterprise successfully. Here are some templates which can help your analysis.

Get outcompeted

So you have a great idea of a new product or service which nobody is currently providing. Good for you! You get first-mover advantage. However, keep your eyes and ears open to what others are doing, once you have market-proven your idea. Chances are, lots of other people will start to move into the same space. Ignoring competition led to 19% of startup failures in 2017. [2]

Do a SWOT analysis on an annual basis, to keep an eye on what is happening within your enterprise and also outside of your enterprise, within your business landscape. This will give you ideas of what is happening, as well as what strengths you can capitalize on, to keep ahead of the competition.

What next?

These days, non-profits and charities have no choice but to explore new revenue streams. Social Enterprise is a robust revenue stream which is immune to donor fatigue or changes in government. However, starting a business is not a trivial endeavour. Do your homework and be prepared to work very hard to get your business off the ground.

Volunteer Ottawa offers a comprehensive suite of courses related to all aspects of running a non-profit or a charity. Click here for our event calendar. Subscribe to our Event RSS Feed to be among the first to know when a new workshop is added to the schedule.

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Related blog posts

[1] Start-Up Canada, "Statistics on Small Business in Canada," January 2012. [Online]. Available: https://www.startupcan.ca/wp-content/uploads/2012/01/Statistics-on-Small-Business-in-Canada_StartupCanada.pdf. [Accessed 6 June 2018]. [2] "The Top 20 Reasons Startups Fail," CB Insights, 2 February 2018. [Online]. Available: https://www.cbinsights.com/research/startup-failure-reasons-top/. [Accessed 6 June 2018]. [3] "How to do a market analysis for a business plan," The Business Plan Shop, [Online]. Available: https://www.thebusinessplanshop.com/blog/en/entry/market_analysis_for_business_plan. [Accessed 6 June 2018]. [4] H. Shelton, "How much cash should a small business keep in reserve?," Score, 11 June 2015. [Online]. Available: https://www.score.org/blog/how-much-cash-should-small-business-keep-reserve. [Accessed 6 June 2018]. [5] "4 Steps to Avoiding a Cash Flow Crunch," CAN Capital, 6 March 2015. [Online]. Available: https://www.cancapital.com/resources/4-steps-to-avoiding-a-cash-flow-crunch/. [Accessed 6 June 2018].
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