Grant funding can have a downside for social enterprises, says new research

 

By: Sophie Hudson | First published by Third Sector

 

Grant funding can have a detrimental effect on the sustainability of social enterprises that integrate beneficiaries into their workforce, new research has found.

 

Social Enterprise and Homelessness Report - Image credit: Third Sector

Mark Richardson, a consultant and fellow of the Clore Social Leadership Programme, surveyed 53 social enterprises working with homeless people and interviewed the managers of 15 social enterprises that help homeless people into employment, for his paper Social Enterprise and Homelessness.

 

He found that while grants play an extremely important role in getting some social enterprises off the ground, they can also undermine the commercial drive of the organisation. The research says: “Most social enterprises [become] much more driven by financial sustainability following the withdrawal or the threat of withdrawal of grant funding. Those organisations with secure non-trading income streams were least commercially focused.”

 

The paper says that social enterprises with more income streams rely less on grant funding. “Those with only one income stream typically relied on about 40 per cent grant funding, compared with only 5 per cent for those with five income streams or more,” it says.

 

It also says that social enterprises have difficulty balancing social and financial targets.

 

“For the vast majority of social enterprises, fulfilling the social objectives of the organisation comes at a huge financial cost,” it says. If managers focus on the commercial outcomes alone, this can lead to failure, it says, but all organisations agree that a focus on social mission alone gets them nowhere.

 

“Also important is a focus on the quality and reliability of the commercial product or service,” the paper says. “This is arguably even more important for a social enterprise than a mainstream SME because the expectation is often that, in delivering social outcomes, you cannot also deliver a high-quality commercial service.”

 

The paper says using the social mission of the organisation as a marketing tool is useful when marketing to businesses or public or voluntary sector organisations, but can sometimes be a disadvantage when marketing to the general pubic.

 

Richardson told Third Sector that many of the paper’s findings could be applied to other types of social enterprise that integrate beneficiaries into their workforces.

 

Ennovent’s Impact Investment Holding  provides equity funding to early-stage enterprises in various sectors. Learn more about the investment criteria now.

 

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