Social enterprise and charity – entrepreneurial thinking or commercialisation?

This blog was written in response to the article in Third Sector: Ian MacQuillin: Have we seen Dan Pallotta’s Ted Talk too many times?

In financially tight times it is only natural that the demand for the charity sector to become more business-like in its approach is growing again, but what does that mean for charities?

Is commercialisation the correct approach?

In his article, Ian MacQuillin recently asked whether the push toward commercialisation promoted by people like Dan Pallotta is the correct approach. Should charities be seeking to attract “£400k talent” by paying corporate salaries to get the “best” people to apply commercial strategies to social problems? Would encouraging people to generate profit from solving social ills really be the fastest way to a better world? Are we, as the for-profit crowd would like to suggest, simply stuck in a saviour narrative doing good for people but not really changing anything? 

 I would like to say the answer to those questions is a definitive no. 

Measuring value

The drive to commercialise charities is rooted in a fundamental misunderstanding of value creation in the non-profit context. The trading sector measures value in the number of dollars and pounds it can generate by solving a particular problem as it finds ways to bridge the gap between excess supply within a system and the demand for that supply. Whereas the non-profit sector measures value in terms of impact: moments of lives changed and travel towards better outcomes. 

Problem solvers

Charities are designed to tackle complex social problems where there is no financial profit to be gained.

If these were market opportunities, they would be being served by market competitors. Charities play a crucial part in a market-driven society by picking up these intractable problems and working towards understanding and unravelling their complexity. The work done in these organisations is at its best, particularly in smaller charities, through experimentation and iteration. Small teams of dedicated people, motivated by the desire to solve problems, work together using entrepreneurial thinking to test new approaches and find out what works. It is home to many generalists who do whatever job needs to be done to get the job done. 

It is undeniable that from this complexity, there might emerge individual simple problems that charitable organisations can create specific solutions for. These could provide charities with the opportunity to pursue their mission and sustainability through trading activity that pursues their charitable purposes. Charities might consider the impact of adopting a trading approach and how best to do that. Perhaps they could trade directly, partnering with another organisation by licensing their intellectual property at market value, or might they create a separate trading organisation which donates the majority of its profits to the charity, thus ensuring sustainability through trade while protecting itself from the risk of mission drift that comes from pursuing market opportunities.

Putting beneficiaries first

These are complex questions which each organisation must explore for themselves in their own context, with reference to their charitable obligations to their beneficiaries first and foremost in their minds – not the market, nor the “£400k talent” Pallotta believes would deliver better outcomes. 

Why? Simply because charities are the only organisations with this imperative.

In a commercial organisation, delighting a customer may cost money but the investment generates, hopefully, a rate of return that gratifies its shareholders and everyone involved can be satisfied. In a charitable organisation, there is no easy or reliable return on serving a beneficiary. A beneficiary is to a charity as a shareholder is to a business, and it is incredibly difficult to effectively serve these two masters whose interests are so divergent.

Cait Brumme and Brian Trelstad captured this in their article for social entrepreneurs in Harvard Business Review: ‘Should Your Start-Up Be For-Profit or Non-profit?’ It encourages those starting new mission-driven ventures to be clear about what their mission dictated about their approach to money: “Hybrid organizations also often require two distinct teams with clearly separated duties, multiple governing boards, and strong legal oversight, all of which can increase complexity and administrative costs for a mission-driven venture.” 

Commercialisation may sometimes be in the interests of a charity and its beneficiaries, but it is not a given that business is good in a non-profit context.

If we can learn anything from entrepreneurs, and I would suggest that we can learn a lot from them, it ought to be in further developing our already strong abilities to think and respond to problems flexibly and design innovative solutions that work, not thinking of our value creation in terms of money.

We can help

The issues may be complex, but we at Support Cambridgeshire are here to support you if you want to create (or expand) a non-profit organisation creating solutions to problems you care about, whether by trading or otherwise. If you plan to lock all your resources into pursuing your mission, we can help. Contact us: enquiries@cambridgecvs.org.uk