A few years ago research from the wonderfully named Failure Institute revealed that 38% of social enterprises folded within a year of being formed, with just 5% managing to last to the venerable age of 10 years old. The researchers suggested the reason for this high failure rate was a lack of resources, the low levels of flexibility of public policymakers, and conflict between the founding members.
A new study from Cambridge Judge Business School looks at the matter more from the perspective of those enterprises that managed to thrive. It found that the most successful social enterprises tended to be those operating in more commercial settings.
Commercial benefit
The authors argue that this so-called “hybrid-commercial benefit” emerges because social enterprises tend to benefit from the same kinds of conditions that commercial firms benefit from. These include good infrastructure links, a skilled workforce, and so on, all of which are useful but don’t compromise their core mission or result in them competing with commercial firms.
The findings emerged after the researchers utilized population ecology theory to explore the best ways by which social enterprises can thrive. The results suggest that social enterprises that adopt a more generalist approach are more likely to survive than their peers who adopt a more specialist approach. This is because generalists can adapt to changes in their environment more readily.
“The study’s results provide a useful guide for policymakers and practitioners alike by examining the factors behind survival of social enterprises,” the authors explain. “We examine nearly 7,000 enterprises over seven years, and clear patterns of survivability emerge.”
The authors advocate a number of policy responses to help social enterprises thrive, including tailored support to help social entrepreneurs through the tricky early period after formation; specific support for social enterprises in especially high risk areas (in terms of high risk of failure); and a greater understanding of whether the organization is in an area where rival organizations are commercial or charitable.
