Failure of the for-profits

Social enterprises are failing to look after their employees, writes Astha Rajvanshi.

A couple of months ago, Persuasive Conversations, a social enterprise that “seeks to help NGOs make use of techniques beyond email for fundraising and advocacy,” shut down its Sydney and Brisbane offices after giving its casuals (largely Sydney University students) two days’ notice.

Founded by GetUp Director Simon Sheikh, the company essentially operates a call-centre that raises funds for charities and non-profits, including Sheikh’s own Future Super, a soon-to-be-launched fossil fuel free superannuation fund, and GetUp itself.

Persuasive Conversations’ internal model reflects the steady rise of social enterprises over time. Traditionally, there has been a distinction between corporations and businesses who simply aim to turn a profit, and non-profit organisations whose goals include social purposes such as developing the community, raising awareness about issues or improving the environment.

This new and increasingly popular business model, however, is now allowing companies like Persuasive Conversations to contribute charitably while also making a profit. In doing so, it blurs the lines between businesses separating their focus from profit making to non-profit activities.

In Australia, the number of social enterprises in 2013 grew by 37 per cent. But having a social mission does not exempt these companies from the rules of business – at its core, the commercial business model must make a revenue to exceed business costs.

Perhaps this is why Sheikh’s company had to let go of so many of its staff and eventually shut down two of its three branches. Not only were the employees earning near minimum wage, it’s also alleged that its internal business model was simply not able to fund itself.

Most social enterprises last from a combination of business income and funding from either the government or external organisations. When the business is not sustainable, the enterprise starts to drain value rather than create it. Any support for the enterprise from the public eventually runs dry. Moreover, when the costs are incurred by producing the same goods or services as its non-profit counterparts, as in the case of Persuasive Conversations, it is unclear where the funds are actually going. Often the trap of running a social enterprise and ‘doing good’ will overstate the size of the available market and underestimate the limits of how many consumers will actually be attracted to its product.

What seems to sneak past the scrutiny of their inconspicuous business practices the most, however, is the treatment of their workers. The social impact of this model itself is small: it creates limited opportunity for meaningful social engagement, but it also manages to neglect the fundamental business obligation to treat employees fairly, and in setting targets around achievable activities to drive desired outcomes.

Typically, people who are experienced in the cause are behind these startups, but most founders fail to generate a business plan on how to generate income and set realistic assumptions. At the end of the day, most people find it hard to run both a business and sustain an enthusiasm for the social cause underlying the enterprise.