Oliver Batten
Lead – Destination Strategy & Impact
The Rise of Social Enterprises
I’ve long been fascinated by the potential of the social enterprise business model.
Watching friends and colleagues in the environmental and not-for-profit sectors grapple with burnout has made me question why these organisations face so many hurdles in achieving sustainable impact. The traditional funding models – largely reliant on grants and donations – seem to limit their potential, leaving them vulnerable to funding cuts and lacking resources to grow.
So, I was curious…
Why do many public-run businesses and NFP’s often struggle to think like private enterprises?
In the landscape of business, there’s a stark contrast in how public-run and private-run entities approach success, sustainability, and growth. While private companies tend to focus on profitability and efficiency, many public organisations seem to lack this same drive. But why is this the case? At the heart of the issue lies a deep-rooted mindset difference and societal expectations, especially when it comes to organisations that operate in the not-for-profit (NFP) sector.
The Psychology of Profit vs “Doing Good”
In the private sector, businesses thrive on competition. Profit is the ultimate motivator. The relentless pursuit of revenue forces companies to be efficient, innovative, and consumer-focused. Every decision, from product development to customer service, is often guided by the question, “How will this impact our bottom line?”
Public organisations and NFPs, on the other hand, are often designed with a mission-focused mindset. These organisations exist not to generate profit but to provide a service or fulfill a social need. Because of this, there’s an unspoken societal expectation that they should be driven by altruism rather than revenue. When people associate a “good” mission with monetary profit, they sometimes feel uneasy, as if profit dilutes the purity of the cause.
This belief can create a mindset in public-run and NFP entities that profit-seeking is somehow “wrong” or “selfish.” As a result, these organisations may rely on donations, grants, or government funding rather than adopting business strategies that could make them self-sustaining. They are often trapped in a cycle of dependency, which can limit their impact and lead to instability.
Why We Struggle With Getting Paid to “Do Good”
In many cultures, there’s a strong association between doing good and doing it for free – or at least at a minimal cost. People often view charity work or social services as noble pursuits that shouldn’t be tainted by financial incentives. However, this thinking can be detrimental and can lead to undervaluing the work NFPs do.
By not pursuing sustainable revenue models, NFPs and public-run organisations may lack the resources to expand their impact, attract top talent, or invest in innovations that could make their work more effective. When we expect NFPs to rely solely on donations and grants, we inadvertently limit their potential.
Shifting Consumer Expectations and the Demand for Impact
Today’s consumers are expecting more from businesses. The traditional charity model of merely handing over money to a cause is losing appeal as people want to see tangible results and direct impact. They want to know that their support is making a difference, and they’re increasingly drawn to businesses that are transparent about their social and environmental contributions.
This shift is pressuring organisations to move beyond passive forms of support and adopt models where consumers can see the outcome of their contributions. The rise of social enterprises – entities that merge profit with purpose – is one response to this evolving consumer demand.
The Rise of Social Enterprises
Social enterprises are on the rise globally as organisations seek to combine purpose with profit, addressing social and environmental challenges through sustainable business models. This growth is driven by consumer demand for ethical and impactful businesses, as well as a shift in investor priorities toward measurable social outcomes.
“Social enterprise is business at its best. It’s the business model of the future,” – Tara Anderson, Social Traders CEO
In Australia, there are a number of things that highlight the growth of this sector:
- Victoria was the first state to release a social enterprise strategy in 2017. It was also the first to roll out a “social procurement framework” to encourage its agencies to use social enterprises to provide services.
- Queensland released a social enterprise strategy in 2019, with NSW in the process of developing one. Both also have social procurement policies.
- More recently the federal government released the Working Future white paper which promises to work with social enterprises as part of a jobs “roadmap”. This includes an $11.6 million investment through the Social Enterprise Development Initiative (SEDI).
- Alongside governments, there are also social enterprise peak bodies in every state and territory and an umbrella group, Social Enterprise Australia, which is pushing for a national social enterprise strategy.
Social enterprises challenge the outdated notion that “doing good” and “making money” are mutually exclusive. Instead, they show that financial sustainability can empower organisations to amplify their positive impact.
The Path Forward: Adopting a Private-Sector Mindset for Social Good
So, how can public-run businesses and NFPs start adopting a mindset more akin to private businesses? Here are a few key strategies that align with the social enterprise business model:
- Shift Focus from Dependency to Sustainability: NFPs should explore revenue-generating opportunities that align with their mission, like offering fee-based services or creating value-added products. By pursuing financial sustainability, they can gain greater independence and invest more in their cause.
- Emphasise Accountability and Results: Setting clear goals and metrics, much like private companies do, can help public organisations measure and enhance their impact. Transparent reporting to stakeholders – including donors, volunteers, and the communities they serve – can foster a culture of accountability.
- Attract and Retain Talent with Competitive Compensation: Talented individuals are drawn to opportunities where they can make a difference and earn a fair income. Offering competitive salaries and growth opportunities can attract top talent, leading to a more efficient and innovative organisation.
- Challenge the “Profit Is Evil” Mentality: NFPs should not shy away from profit-driven approaches. Instead, they can communicate the value of financial sustainability to their supporters, showing that revenue is a means to a larger, mission-driven end.
