Between a rock and a hard place: the trend towards for-profit social enterprises [Opinion]

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Reducing the focus of my work as a social entrepreneur to become a social intrapreneur wasn’t an easy decision.

I started working with Wamda two years ago, while I simultaneously tried to grow my own social enterprise, volunteer matching platform Nakhweh.

My goal to turn Nakhweh into a revenue generating business was because I didn’t want to chase 'free' money. I was often witness to how funding for development and aid work followed trends, rather than real need. On the other hand, I had no clear business model or path to monetization.

This financial barrier to scale is faced by many social entrepreneurs in our region. For me, Nakhweh resulted in significant impact with minimal resources.

However, as noted in my previous article on solving social problems through entrepreneurship, the challenges of civic engagement in the region and cultural trends limit widescale influence of a platform like Nakhweh. 

As a result, learning how to build for-profit enterprises is dominating discussions in the social entrepreneurship space.
 

1. Do all social entrepreneurs have to build a business model?

No. There are social entrepreneurs trying to solve urgent challenges that need to be addressed immediately, especially in education, poverty, and unemployment.

Being a nonprofit, in our case, was helpful and allowed us to spend time with our beneficiaries until we created or model bottom-up. It also gave us access to money and public buy-in. - Yasmin Hilal, founder of Educate-Me

We can’t wait until the social enterprise culture shapes up in MENA, while some societies and lives are being destroyed. 

I’m highly skeptical of businesses that try to trade off commercial success with social objectives. If the interests are not wholly aligned and are instead in competition, then the enterprise runs the risk of achieving neither commercial success nor a social objective. - Khaled Talhouni, managing partner of Wamda Capital 

2. Is everyone establishing a business with a mission considered a social entrepreneur?

A social enterprise is about the business model, a social entrepreneur is about the person. Some social enterprise founders are social entrepreneurs who build a business with foundations in a given cause. On the other hand, many businesses have organically become social enterprises despite founders being more concerned with financial return than social impact.

Some social enterprises are launched by people who figure out new outlets for revenue generation through bragging about the impact. - Hilal

3. What are the chances of scaling up a social enterprise that is bootstrapping?

Most of the social entrepreneurs I’ve worked with or known have plateaued due to the lack of financial resources. But the needs for growth of a social enterprise are not unlike that of a for-profit company.

Yet, many social entrepreneurs are too focused on being warriors for their cause and fighting against the status quo, that they end up facing more challenges than their business peers.

While the logical solution is to hire someone to handle the business aspect of the operation, hiring comes at a cost. Social entrepreneurs must instead leverage the value of their volunteers, even though such team members are not always reliable.

4. What’s the availability of investment for social enterprises in MENA?

Impact investors and patient VCs are almost nonexistent in the region. Investments in this space are in proven business models that also have a social impact.

Furthermore, most investment money in the region is focused on the tech industry. Some angel investors and philanthropists have put some money in social entrepreneurs, but in most of the cases they were more of donations rather than real investment.

The struggle of fundraising is more of a challenge for already established social entrepreneurs than newly established ones, who can focus on building the business model early on, prove it, then address investors.

But both Omar Sati of Dash Ventures and Talhouni agree that it’s not easy for social entrepreneurs to raise funds.

We do not offer any special privileges to social entrepreneurs. We have immense respect and admiration for entrepreneurs aiming to build a business in order to leave a positive impact on communities. But in terms of assessing the business for investment, we apply the same methodology and criteria as we would to any other company in our pipeline. - Omar Sati, founder of Dash Ventures

Our primary responsibility is to maximize returns. Our investors have entrusted us with their capital with the aim of generating a return. For that reason, our investment strategy is focused on that. - Talhouni 

5. Do governments need to regulate social enterprises?

In this part of the world, not necessarily. In Jordan and Lebanon, government is often considered a social entrepreneur’s main competitor.

“I would highly recommend that government just not interfere and not try to regulate the sector and that an LLC alone is enough. Also, social entrepreneurs should not look for government support but rather operate in spite of government.” - Talhouni

“I think governments can do much more to incentivize entrepreneurs to pursue socially and environmentally conscious businesses. A good example of governments doing their part is in the US, where companies are allowed to register as a "Benefit Corporation". There are no differences in taxation between a Benefit Corporation and traditional C corporation. Providing tax incentives would go a long way in encouraging companies to go down the Benefit Corporation route.” - Sati

Nakhweh began as and remains a website matching volunteers with social organizations. Shifting to a mobile app or pivoting the platform is essential to achieve its goals and deliver more value.

But any future plan to scale must begin with developing a revenue-generating business model, otherwise financial challenges will remain stagnant, as will the platform itself.

Feature image via Emirates Foundation Youth Philanthropy Summit

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