Part of the process of differentiating from a non-profit organization and a for profit business requires a social enterprise to understand how it competes with the business entities on each end of the business spectrum.
For Profit: When it comes to competing with other entities, the most significant competitor for a social enterprise is a for profit business. A for profit business does not have the same need to balance a social mission and can therefore fully pursue the profit motive. A for profit can often offer better salaries and benefits and can provide nicer facilities. A for profit’s products can compete on price with a social enterprise that sells a product at a premium to support the mission. When a social enterprise’s product is priced below market value, then it is important to maintain sales within the target market meant to be the beneficiary of the discounted product. Whether it is on price point for the product or target market range, the social enterprise has less flexibility to alter its business plan to adapt to the market trends.
Non-Profit: A non-profit organization also serves as a competitor to a social enterprise, but the metrics it competes on are, naturally, different from the for profit competition metrics. All non-profits are engaged in some form of fundraising, as it is a necessity to fund their organization. While fundraising is difficult on the front end in terms of finding donors, once the non-profit has the funding they are free to use it as they need within their legal bounds. A social enterprise, on the other hand, is engaged in equity and debt financing and therefore must provide equity investors with a return on their investment or pay back the principle and interest on their debt. So a social enterprise needs to be more careful with their use of funding because their sources of funding are expecting the money to be returned.
Social Enterprise: Lastly, a social enterprise that is successful is going to face competition from other social enterprises that enter their market. As mentioned in the earlier blog post on Social Enterprise Marketing Strategy, a social enterprise benefits when another social enterprise competes with it for market share, as far as accomplishing its mission. In order to compete on margin when there is another social enterprise in the same market, the social enterprise must push itself to operate on lean principles and continue to seek out waste in the business. Learn more about lean principles from the Lean Enterprise Institute.
