Guest blog: Wouter Kersten

wouter kersten

 Wouter Kersten

The Importance of Relevance

Roughly from the start of this century, there has been a proliferation of statements regarding the inefficiency of charity-based aid and development programmes. For the purpose of this blog I do not want to go into the discussion whether that is an absolute truth nor whether it is a law of nature that charity-based programmes are inefficient. What we can safely say is that initiatives that solely rely on charity (donations and subsidies) make themselves vulnerable: their inflow of funding may dry up anytime, also before they have achieved their goals.

Where social entrepreneurship comes in

This is where social entrepreneurship makes its entrance. By and large social entrepreneurs aim to achieve a social impact but with an autonomous earnings model. What they provide constitutes value and they have found a way to capture that value financially, paid for by their direct beneficiaries (end-users) perhaps topped with ‘sales’ to interested 3rd parties.
While the volume of their revenue streams depends on how well they perform their activities, there is a certain need to pay attention to the cost side, i.e., to “efficiency”, especially because the revenue streams are likely to be less voluminous than companies who put ‘just another product’ in the market. Once again, whether charities do not pay this attention is beyond the scope of this article. My concern are the social entrepreneurs: how well are they able to manage the mix of achieving impact (being relevant), attracting revenues (being financially autonomous) and working in a sufficiently efficient way (managing the cost side)?

Mixing it up, in a good way

A social enterprise basically has to combine three mindsets: the entrepreneurial mindset takes care of financially capturing the value that is created (the revenue streams), the social mindset takes care of the creation of impact (relevance), and the manager mindset takes care of the efficiency. In my opinion, one of the biggest pitfalls is that the management mindset gradually takes over. The entrepreneurial mind-set will have to satisfy “social investors” since they are still investors and thus want to see a financial return. The social mindset will have to make sure that the activities achieve impact, i.e., that the enterprise stays relevant. So where does this leave the management mindset and how much will it be influenced by all the talk about efficiency?

One of the biggest pitfalls is that the management mindset takes over. Click To Tweet

This is my assertion: if due to whatever reason the management mindset takes over and pushes the efficiency considerations too high on the agenda, there is a serious risk that the social mindset will suffer. This means the creation of actual impact, and therefore relevance will decrease and obviously in due time this will erode the revenue streams.

Achieving the virtuous circle

What can we conclude, if anything? I think two things: more so than in regular companies, social entrepreneurs need to be the ultimate business cooks. If the statement is true that the majority of entrepreneurs that start a company are in it for reasons of purpose, changing the world etc., then this prospect should attract them: their challenge and therefore achievement will be more impressive. Secondly, a regular ‘check back’ is required to make sure that the three pillars are in check, or even better push each other upwards in a virtuous circle: achieving more impact equals increasing revenue streams providing opportunity to create (scale and other) efficiencies that make sense. If the emphasis and order is reversed, I worry whether the circle will not become vicious.

Don’t kill your chicken

It’s a variant of the ancient chicken-egg question. To use that analogy, the egg needs time to be hatched to its full potential, and replacing the chicken with cheaper artificial heat sources is not the solution. Just going for the egg gives you focus but you lose the broader picture. In short: social entrepreneurs, don’t kill your chickens.